BMS Bids on ImClone

Will Bristol Myers-Squibb's $4.5 billion offer be enough to win it the biotech firm ImClone? Time—and ImClone chairman Carl Icahn—will tell. The offer is cash, arguably a more desirable commodity than stock in the battered BMS. And though Icahn says the offer is too low, it does represent a 30 percent premium over ImClone's closing price last Wednesday, the day before the offer.

In a conference call, BMS CFO Jean-Marc Huet argued that the deal would be good for ImClone. "BMS has the capabilities and resources to advance ImClone's assets over the long term, not only with respects to Erbitux, but also in terms of developing ImClone's pipeline," he told reporters and analysts.

And, of course, he thinks it would be a good deal for BMS. "The combination with ImClone would allow us to optimize global opportunity by consolidating clinical development, streamlining and improving commercial execution, and [having] a more effective collaboration with Merck, which licenses Erbitux outside the US and Canada."

A Good Investment
Huet was not prepared to release details about financial benefits, but said this deal is not for the short term, and BMS wants to drive growth beyond 2013.

However, some of the benefits are public knowledge. BMS can now stop paying ImClone the 39 percent distribution fee for Erbitux, it can claim all of the pipeline products that it doesn't have encumbered, and it will benefit monetarily from the licensing fee that Merck pays ImClone to market Erbitux in Japan. In addition, ImClone's core manufacturing assets would boost BMS's competencies and its abilities to support future products in oncology.

BMS currently holds 17 percent of ImClone's stock, and has worked with the biotech since 2001 to bring the colorectal and head/neck cancer treatment Erbitux to the US market. Sales of the drug were $383 million for the first six months of 2008, a 19 percent increase over last year.

BMS is characterizing the offer as an evolutionary transaction and the logical next step in the relationship that the two companies have had for more than a decade.

"It is consistent with our strategy to focus on specialty areas with high, unmet needs—in this case, the oncology sector," Bristol's Chairman and Chief Executive James Cornelius told investors.

Cornelius said he believes the offer—a 30 percent premium above ImClone's previous day closing price?is a full and fair price and hopes to close the deal by the end of 2008. The timetable is important if BMS is to realize benefits from it by 2012 and 2013, when the patents expire on BMS's heart disease drug Plavix and antihypertension drug Avapro.

The Icahn Game
One person not excited by the deal appears to be ImClone's chairman, Carl C. Icahn, who said in a letter that he was "disturbed that one of the directors on the ImClone board who is the Bristol-Myers designee was privy to the information discussed at previous meetings concerning the potential separation of ImClone into two separate components, and how this restructuring might enhance stockholder value."

Icahn also stated that BMS undervalued ImClone's worth, and should up the ante. Cornelius, however, told investors that the $4.5 billion offer was firm. "You have to interpret full and fair as the words are defined," Cornelius said. "We don't make these proposals lightly, and it does represent our best thinking."

Cash Advance
BMS has set aside $4.1 billion to purchase ImClone assets with no financing contingency attached to the offer. When asked if the well will dry up with the ImClone purchase, Cornelius said that BMS has the capabilities to buy additional assets over a longer period of time, and has a target list of technologies, products, and platforms that would fit BMS regardless of the ImClone bid.

"This is a proposal as it stands right now," Huet said. "Were we able to complete the deal, we would be very focused on making sure that this was a successful integration, and we would take all time required to make sure that this is a successful integration. We see this as an add-on acquisition."