NEW YORK (TheStreet) -- Bristol Myers Squibb (BMY) has been a stock that Jim and I have owned in the past and have been watching it as one to possibly own again. This morning it announced a $7.1 billion deal to acquire Amylin Pharmaceuticals (AMLN) as it tries to expand its diabetes franchise with partner AstraZeneca (AZN).
The deal is a smart one for many reasons - it expands its diabetes pipeline, shares the economic risk as AZN will payout $3.4 billion for a 50% share in the economics, and uses its cash ($8.6 billion in 1Q) wisely to build out its product franchise in the face of the Plavix patent cliff (which accounts for 30% of its revenues). Currently, BMY and AZN have a joint venture in diabetes with two drugs - Onglyza (which is on the market currently) and Dapagliflozin (yet to be approved by the FDA). The addition of Amylin's Byetta and Bydureon products could lead to an additional $1.5 billion in sales for this segment which could be as much as 12-20 cents accretive in 2016. It's not a layup to get to $1.5 billion in sales, but the growth in the diabetes market and the sales/marketing muscle behind BMY/AZN should make it doable.
We applaud management for building out its products and it now has one of the most diversified pipelines in the sector - cardiovascular diseases, virology, immunology, oncology, and central nervous system disorders. The only issue is that the stock is expensive - trading at 19x forward estimates which is a healthy premium to its 14x historical average and the 12.7x group average multiple. It has a great yield, a sizable buy back (it just announced a new $3 billion buy back last week) and is a defensive stock - which is attractive in this volatile macro environment. Usually when companies make acquisitions the acquirer shares typically fall - and sometimes an opportunity to buy. I doubt it will fall materially, but if it does, it's one on our radar to buy.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV