Wednesday, October 3, 2007

Option traders betting on BMS takeover/merger?

Tuesday's Wall Street Journal had an interesting article (subscription required) regarding some trading activity involving BMS options.

To quote a couple of excerpts:
  • "About a month ago, we heard some rumors and there was some [options] activity and then it stopped," said Joe Kinahan, chief derivatives strategist for thinkorswim. Now we're starting to hear again that Bristol-Myers might be in play, that a few of the other drug companies are starting to take a look at it, and that seems to be bearing out in some of the activity we're seeing," he said.
  • Almost 26,700 call options on Bristol-Myers changed hands yesterday, compared with only 2,800 puts, according to Track Data. Investors focused on November calls that convey the right to pay $30 a share for the stock in the weeks ahead.

BMS of course didn't comment and Sanofi's name was widely bandied. Given all the negative news regarding Accomplia, Sanofi does need something like Bristol's Apixaban to shore up its revenues (Plavix LoE in a few years and serious competition for Lovenox).

BMS is probably looking to stay independent given that they have all these new compounds in the pipeline (oncology, Factor Xa & DPP-4 compounds). They have certainly spread the co-promote deals around to reduce their attractiveness to potential suitors (with AZ for DPP-4 & with Pfizer for Factor Xa development). AZ is unlikely to do an M&A deal with BMS given that they just paid 15B for MedImmune.

That pretty much leaves Sanofi & Pfizer as the two most likely candidates interested in an M&A deal. Sanofi as a European company will probably have to pay a premium to Bristol's American shareholders compared to Pfizer - but that shouldn't be a problem at all given the weak dollar & the consequent appreciation of Sanofi's stock & cash position. Pfizer on the other hand may be more desperate. PFE probably needs all of the potential Apixaban revenues to offset its LoEs (Lipitor in 2011, Norvasc, Zoloft etc) & Bristol's heritage in the oncology area would be a good fit with Pfizer's emerging oncology pipeline. Other BMS products (Sustiva, Orencia) may also offer interesting combo molecule opportunities. According to some IMS data Pharmalyst has seen, Abilify too is seeing some commercial success. Certainly a BMS+Sanofi or BMS+Pfizer deal makes more sense than say a Pfizer+Wyeth deal. However it would have to be a friendly merger rather than an acquisition and that leaves the amount of efficiencies that can be extracted from such a deal in question.

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