The pharmaceutical industry was roiled recently by rumors that Bristol-Myers Squibb could be an acquisition target.

Max Nisen, writing for Bloomberg, noted that while less than a year ago Bristol-Myers Squibb was the fourth-largest biopharmaceutical company in the U.S. with the potential to buy any target of its choosing, it has since lost billions in market value and is considered to be vulnerable to a takeover.

Bristol-Myers Squibb has staked out a position as a leading player in the area of cancer immunotherapy. In 2011, its drug, ipilimumab (Yervoy), was the first checkpoint inhibitor to get approved in the U.S. for melanoma. In 2014, the company’s anti-PD-1 checkpoint inhibitor nivolumab (Opdivo) received approval.

The immune system relies on multiple checkpoints to avoid overactivation of the immune system on healthy cells, and tumor cells can take advantage of these checkpoints to escape detection by the immune system. Checkpoint inhibitors like Yervoy and Opdivo work by releasing a molecular brake on the immune system and have become key parts of cancer immunotherapy treatments.

Bristol-Myers Squibb’s stock price plunged last August after the company reported that Opdivo was unable—compared to conventional chemotherapy—to slow the progression of advanced lung cancer. In the days after the clinical trial results announcement, Bristol-Myers Squibb lost approximately 16% of its market value.
Bristol-Myers Squibb has also been pursuing approval for a combination of Opdivo and Yervoy as an initial treatment for lung cancer, but announced in January that it had decided not to seek accelerated U.S. approval, further depressing the company’s stock price.

At the end of February, the Wall Street Journal reported that investor Carl Icahn had invested in the company with the idea that its drug portfolio could attract a takeover. According to the Journal, Icahn has a history of pushing for deals within the pharmaceutical industry and his presence as an investor in the company has increased speculation the company could be vulnerable to an acquisition.

The Journal noted that a deal for Bristol-Myers Squibb could trigger a new round of M&A activity in the industry, which saw a slow down in these kinds of mergers in 2016 after a record-breaking year in 2015. It also pointed out that oncology remains a sector that is ripe for consolidation.

Who are potential buyers? Most media reports have speculated that Pfizer could be the most likely buyer, considering it has not shied away from mega-mergers in the past, with its failed attempt to acquire AstraZeneca and an agreement to purchase Allergan that fell apart due to stricter rules concerning the use of tax inversions to lower companies’ tax bills by redomiciling overseas.

However, Steve Chesney, an analyst at Atlantic Equities, as quoted in an article in TheStreet, said that despite Pfizer’s willingness in the past to consider deals of this magnitude, any interest in Bristol-Myers Squibb would be limited by Pfizer’s effort to develop its immuno-oncology program.

Yet, despite the company’s recent struggles, Bristol-Myers Squibb is still a tempting target.

“I think everybody is looking at Bristol,” Allergan CEO Brent Saunders said in an interview with Bloomberg, adding that doing a deal like this would be a “very, very high hurdle” for a company like Allergen, but “you’re going to at least take five minutes to think about it.”

Leerink equity analyst Seamus Fernandez agreed that Bristol-Myers Squibb remains an attractive target for potential buyers. “We believe Bristol-Myers Squibb’s unique and concentrated position in immuno-oncology, together with a rapidly developing and near fully owned pipeline, makes it the most attractive potential strategic asset in all of large-cap pharma,” Fernandez wrote in a January 26 note.

While the potential for a mega-merger appears to be there, would it be to the benefit of the pharma industry?
John LaMattina, former president of global research and development at Pfizer and currently a senior partner at PureTech Health, has long been a critic of the amount of M&A activity within the pharmaceutical industry, particularly as it relates to the industry’s ability to research and develop new drugs.

“A consequence of any merger is the inevitable consolidation of the two companies,” he wrote in a Forbes 2014 article. “The goal, of course, is to streamline the new organization, make it more efficient and wring out redundancies. In this process, however, cost cutting is inevitable.”

That cost cutting extends to research and development. In that same article, LaMattina pointed out that the cuts in R&D budgets can be “quite drastic” in the aftermath of an acquisition. For example, at the time of Pfizer’s acquisition of Wyeth in 2008, the companies combined spent almost $12 billion in R&D. In 2013, Pfizer spent $6.55 billion.

“Clearly, $5.5 billion in R&D savings post-Wyeth acquisition is not only the result of efficiencies,” he wrote. “Rather it comes from the elimination of research sites, programs and scientists.”

While a tempting target, when it comes to an acquisition of Bristol-Myers Squibb, the negative industry consequences are what stand out. Whether or not the issue will come to a head remains to be seen.

This article was reprinted from Volume 21, Issue 09, of CWWeekly, a leading clinical research industry newsletter providing expanded analysis on breaking news, study leads, trial results and more. Subscribe »