Healthy Skepticism Library item: 8488

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Publication type: news

Steyer R.
Report: No Deal for Bristol-Myers, Sanofi
TheStreet.com 2007 Feb 11
http://www.thestreet.com/_yahoo/newsanalysis/pharmaceuticals/10338203.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA

Full text:

Rumored merger talks between Sanofi-Aventis (SNY – Cramer’s Take – Stockpickr – Rating) and Bristol-Myers Squibb (BMY – Cramer’s Take – Stockpickr – Rating) have cooled off, according to a weekend media report.

Citing no sources, The Times of London reported Saturday that Sanofi-Aventis had called off merger discussions. The Times said negotiations collapsed over the price the French drugmaker would pay and the uncertainty of a generic-drug company’s challenge to the U.S. patent for Plavix. Sanofi-Aventis licenses Plavix for U.S. marketing to Bristol-Myers Squibb. The anticoagulant is the New York company’s biggest drug and the French company’s No. 2 seller.

Speculation started Jan. 29 when a French financial publication, La Lettre de l’Expansion, citing no sources, said the companies were on the verge of announcing a deal. The report caused shares of Bristol-Myers Squibb to rise as much as 7.8% on Jan. 29 before closing up 4.7% at $27.43. Since then, closing prices have been above $28 a share, including Friday’s close of $28.52.

Shares of Sanofi-Aventis have slipped from $45.34 on Jan. 26, the last trading day before the French publication’s report, to $43.78 on Friday.

Neither company has responded to the merger reports. Sanofi-Aventis executives can expect to be questioned by investors Tuesday when they discuss fourth-quarter results and 2007 guidance.

Bristol-Myers Squibb has been plagued with an assortment of problems, including an investigation by the U.S. Department of Justice and the absence of a permanent chief executive. Both matters are linked to an ill-fated attempt to negotiate a deal that would have kept generic Plavix off the U.S. market until mid 2011. The deal cost CEO Peter Dolan his job in September, and he was replaced by an interim CEO, James Cornelius. A search for a permanent CEO continues.

The prospects of a merger set off conflicting reactions among analysts. On the plus side, acquiring Bristol-Myers Squibb would give Sanofi-Aventis control over three drugs that it licenses in the U.S.: Plavix and the blood-pressure drugs Avapro and Avalide. The combined sales of the hypertension drugs make them Bristol-Myers Squibb’s No. 4 seller.
A merger also would give Sanofi-Aventis greater marketing clout in the U.S., several Bristol-Myers Squibb drugs with rising sales and an attractive group of experimental products. Analysts say Sanofi-Aventis has few exciting drugs in late-stage development. The French company’s market capitalization of $118 billion overshadows the U.S. company’s $56 billion.

On the minus side, analysts say Sanofi-Aventis would absorb extra debt to finance an acquisition at a price acceptable to Bristol-Myers Squibb’s investors. They say it is still paying down debt incurred when the former Aventis merged with Sanofi-Synthelabo in April 2004 in a deal worth $65.3 billion.

Other potential pitfalls include patent disputes. The companies returned to a U.S. district court last month to pursue a Plavix patent-infringement suit vs. the Canadian generic-drugmaker Apotex. A ruling isn’t expected until mid-year at the earliest. Although many analysts predict they will win, a loss would pulverize Bristol-Myers Squibb’s stock and jeopardize the dividend.

Sanofi-Aventis faces another expensive setback with a challenge to its U.S. patent for Lovenox, a anticoagulant which is its biggest revenue source. If it loses, an estimated 60% of worldwide sales of this drug could be subject to generics. The company says the U.S. patent should remain in force for another five years.

On Friday, a U.S. district court judge ruled in favor of two generic-drug companies challenging the Lovenox patent. Although it can appeal, Sanofi-Aventis on Friday only said that it was “currently evaluating its options.” The good news for the company is that the Food and Drug Administration hasn’t approved a generic copy of Lovenox yet.