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Bristol Myers Squibb's Move to Fortify its Oncology Arm with Mirati

Bristol Myers Squibb (BMS), one of the world's largest pharmaceutical companies, announced on October 8th, 2023, that it has entered into a definitive agreement to acquire Mirati Therapeutics, an American commercial biotechnology company focused on developing cancer treatment methods. The transaction is valued at $4.8 billion in equity value, and BMS will pay $58.00 per share, which is 4% below Mirati's Friday closing price of $60.20. In addition to the cash, Mirati shareholders are expected to receive a non-tradable contingent value right for each Mirati share, which they can cash in for a one-time payment of $12.00, for a total value of approximately $1 billion.

The acquisition will help Bristol Myers strengthen and diversify its oncology portfolio. Mirati's broad range of lung cancer drugs, including Krazati, which is an FDA-approved non-small cell lung cancer (NSCLC) drug. KRAZATI has been hailed as the "best-in-class KRASG12C inhibitor" by Charles Baum, founder of Mirati Therapeutics. This is significant as KRASG12C accounts for 14% of all NSLSC patients. Krazati generated $6.3 million in the first three months of 2023, exceeding Wall Street's expectation of $3.4 million. It earned $13.4 million in the second quarter of 2023, and Jefferies predicts peak year worldwide sales of $1.4 billion for Krazati on its current indication by 2032.

This deal comes at a time when the pharmaceutical industry is facing a sharp decline in revenue due to the expiration of patents, also known as the 'patent cliff'. Bristol Myers Squibb (BMS) is currently under pressure to strengthen its portfolio and pipeline as its top-selling drugs, Eliquis, Revlimid, and Opdivo, will lose patent protection during this decade. In the second quarter, BMS revised its 2023 sales projection from a 2% increase to a low-single-digit decline due to the disappointing performance of these drugs. This acquisition is a strategic move by BMS to address the challenges faced by the expiration of patents and meet the expectations of its stakeholders.

The sale to Bristol will give Mirati further resources to commercialise Krazati and fund more studies, which is a win-win for both companies. However, shares of Mirati tumbled over 5% in early trading on Monday following the news. The reason behind the investor's disappointment is that they believe the purchase price is too low. Bristol is buying Mirati at a time when the shares are considerably cheaper than they were. Mirati's shares touched a 52-week high of $98.62 on November 25th, 2022 and were trading at $60.2 on October 6th, 2023. Nevertheless, according to Mizuho analyst Jared Holz, this low purchase price reflects a difficult operating environment in biotech companies. Bristol Myers Squibb expects to use a combination of cash and debt to finance this deal, which is expected to close in the first half of 2024.

In conclusion, Bristol Myers Squibb's strategic acquisition of Mirati Therapeutics for $4.8 billion aims to bolster its oncology portfolio, focusing on promising lung cancer treatments. While some investors expressed disappointment over the offer price, it reflects the challenging environment pharmaceutical companies face due to patent expirations. This move will help Bristol Myers address upcoming challenges and diversify its product pipeline.

Written by: Mehak Mahajan

Sources: Reuters, Economic Times, Bloomberg, Fierce Pharma, BMS Press Release, MergerLinks

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