Bristol’s $14B deal highlights new drug race
Bristol Myers Squibb Co. agreed to buy schizophrenia drug developer Karuna Therapeutics Inc. for $14 billion in a fast-moving deal that highlights drugmakers’ race to fill pipeline holes.
Bristol’s negotiations for Karuna came together within the last two weeks, people familiar with the matter said. The drugmaker made an unprompted proposal days after AbbVie Inc. announced its $8.7 billion takeover of Cerevel Therapeutics Holdings Inc., another biotech working on neurological drugs, according to the people, who asked not to be named as the information isn’t public.
Bristol Myers will pay $330 a share in cash for the Bostonbased company, according to a statement Friday, or about 53% more than Karuna’s Thursday closing price. Karuna shares gained as much as 48% as of 10:44 a.m. in New York, while Bristol’s rose as much as 4.3%.
Karuna is developing a schizophrenia treatment called KarXT that’s up for approval in the US and would expand Bristol’s portfolio in neuroscience, a growing area of interest for many drugmakers. The therapy is expected to bring in as much as $4 billion by 2030, according to a note from Jared Holz at Mizuho Securities.
The purchase highlights a “buying spree” for companies paying big premiums to bolster their existing pipelines or help them enter new areas, Holz said in the note.
Bristol had been engaging with Karuna over a number of months, Chief Executive Officer Christopher Boerner said in an interview.
“We like the science. We’ve gotten to know and really like the team that they’ve assembled there,” he said in an interview, adding KarXT has “significant commercial potential.”
Boerner didn’t rule out more deals, saying that the company’s strategy has been to look for acquisitions in or close to the therapeutic areas Bristol’s already working in.
“We continue to have significant firepower as a company, but we’re always going to be disciplined and strategic,” he said.
KarXT has a provides opportunities in other conditions like Alzheimer’s disease psychosis and bipolar disease, Boerner said. Peak sales could reach $7 billion with these other uses taken into account, William Blair analysts said in a note.
The company is also factoring US President Joe Biden’s Inflation Reduction Act into its investment decisions, Boerner said. The law allows the government’s Medicare health program for seniors, the country’s biggest payer for health services, to negotiate prices with drugmakers for the first time.
Karuna is expecting a decision from the Food and Drug Administration on the drug by September 2024. So far the latestage data has shown promise to sharply reduce harsh side effects see with other medications. If approved, KarXT would represent the first new pharmacological approach to treating schizophrenia in several decades, the company has said.
Neuroscience is a growing area of interest for many drugmakers. Bristol has been active in acquisitions recently, agreeing October to buy Mirati Therapeutics Inc. for $4.8 billion to expand its aging lineup of cancer drugs
While Bristol’s move makes sense, recent history suggests the company’s key challenge is in the commercial execution of launched drugs, Bloomberg Intelligence analyst John Murphy said, citing slow initial uptake for new products like psoriasis treatment Sotyktu.
Bristol has been a major player in psychiatric drugs, with treatments such as Abilify for mood disorders. Increased scientific understanding of how the brain works has led to more market interest in drugs to treat its diseases.
The transaction, expected to close in the first half of 2024, would also expand the company’s pipeline as it faces patent expirations for Opdivo, a hit cancer drug that is key to its portfolio, and Eliquis, a blood thinner sold with Pfizer Inc.
The deal is “very significant for the neuroscience space where many investors have been waiting for a wave of M&A for years,” Stifel analysts led by Paul Matteis said in a note. “It’s validating that novel mechanisms in psychiatry have blockbuster potential even in the face of many generics.”