After a bruising 2023, Bristol-Myers Squibb (BMY) forges a risky M&A strategy

Bristol-Myers Squibb (NYSE: BMY), the giant pharmaceutical company, had a difficult year as its stock tanked. Its shares crashed by over 28% in 2023, becoming one of the top laggards of the S&P 500 index. It has dropped by more than 34% in 2023, giving it a market cap of over $106 billion. 

Bristol-Myers Squibb stock price crashed after the company lost exclusivity of Revlimid, a drug used to treat certain cancers and conditions affecting blood cells and bone marrow. This drug has always been a key part of Bristol, generating most of its revenues. 

Bristol is already feeling the heat of this loss as it expects its Revlimid revenue to fall to $5.3 billion from $12.6 billion in 2021. The company has also failed several FDA trials, leading to lower expectations among investors. It recently scrapped phase 3 study of its Opdualag drug, which was intended to treat colorectal cancer.

Bristol-Myers Squibb is now betting big on acquisitions. This week, the company announced that it agreed to buy RayzeBio in a $4.1 billion. It will take the firm public at $62.50 per share, a 100% premium from its closing price on Friday. 

RayzeBio is a company that is developing oncology drugs. It has three drugs in its pipeline including RYZ101, RYZ 801, and Small Molecule. RYZ101, a solution using the vertically integrated radiopharmaceutical therapeutical solution to treat cancer and is in the third phase of trial.

Just last week, Bristol-Myers Squibb agreed to buy Karuna Therapeutics in a $14 billion. Like its RayzeBio buyout, the company paid a huge premium of over 53%. Karuna is a company that has developed solutions for neuroscience. Its primary products are used to treat Schizophrenia and Alzheimer’s disease.

Bristol-Myers has also made several other acquisitions recently. It bought Orum’s cancer therapy for $180 million. In 2022, the company acquired Turning Point in a $4.1 billion deal while in 2020, it bought Myokardia for $13.1 billion. It also acquired Mirati Therapeutics in a $5.8 billion deal in October.

Growth through acquisitions is a high-risk and high-reward situation. In the case of BMY, the hope is that these buyouts will lead to more revenue and profitability growth in the future. 

For investors, however, these buyouts could lead to more dilution since some of them are funded by stock. They can also lead to lower distributions. In BMY’s case, the company ended the last quarter with over $7.6 billion in cash and short-term investments. It also has over $32 billion in long-term debt, which will likely continue growing. 

Still, in the long term, acquisitions have helped turn Bristol-Myers Squibb into one of the biggest pharmaceutical companies in the world. The most important merger was Bristol-Myers combination with Squibb in 1989. 

The other recent acquisition was the blockbuster $74 billion buyout of Celgene, which brought Revlimid to Bristol. It is unclear whether that buyout was worth it since it led to more debt. The combined company is now not all that big as well.