Sanofi merger could give Bristol a boost
Together the two outfits would form the biggest drugmaker in the world, finally giving Bristol the leadership it needs.
NEW YORK (CNNMoney.com) -- The beleaguered Bristol-Myers Squibb could finally resolve its leadership troubles and bury its troubled past, if the U.S. company merges with the French giant Sanofi-Aventis to become the biggest drug company in the world.
According to an unsourced story by the French financial newsletter La Lettre de l'Expansion,Bristol (up $1.48 to $27.69, Charts), based in New Brunswick, N.J., has signed a pre-merger deal with Sanofi (down $0.64 to $44.70, Charts), to be finalized in the next few weeks.
The companies have not officially confirmed or denied the report.
A spokesman for Bristol-Myers told CNNMoney.com: "Company policy is to not comment on rumors or speculation." A Sanofi-Aventis spokesman in New York referred all calls to its headquarters in Paris, where a phone message was not immediately returned.
Bristol's stock price climbed 6 percent in trading on Monday, surpassing its 52-week high of $27.03 per share, while Sanofi shares slipped nearly 2 percent.
If the merger does happen, it would give both companies greater market clout, because they would surpass New York-based Pfizer (down $0.23 to $26.06, Charts) as the world's No. 1 drugmaker in terms of revenue. Pfizer's revenue totaled $48.4 billion in 2006. Bristol sales totaled $17.9 billion in 2006, and Sanofi, which hasn't yet announced full-year revenues, had $27.1 billion in revenue for the first nine months of the year.
"Scale matters, and it's eat or be eaten," said Les Funtleyder, analyst for Miller Tabak, who added that Big Pharma is consolidating.
Carol Levenson, director of research for the firm Gimme Credit, estimated that a friendly takeover of Bristol would cost Sanofi $60 billion in cash and stock, and was skeptical that Sanofi would make the move.
"We tend to think that [Bristol] still has too many issues to be taken over just yet, but at least Sanofi-Aventis shares one of them - the patent challenges to Plavix," wrote Levenson in a published note, referring to the blockbuster blood thinner.
A merger would provide new leadership to Bristol, and help it lift disappointing revenue for its top-selling drug Plavix. Bristol and Sanofi are already partners in making and marketing Plavix.
The drug dragged down Bristol's sales in 2006 when it ran into generic competition from the privately held Canadian drugmaker Apotex. Apotex flooded the market with generic versions of Plavix, even though Bristol held the patent.
Bristol was able to get generic production blocked in court, but the damage was done: Plavix sales plunged 53 percent in the fourth-quarter to $496 million, compared to the same period the previous year.
Allowing generic Plavix to flow unimpeded into the marketplace was only one management bungle by former CEO Peter Dolan, who was ousted from the company last September.
Back in 2001, after Dolan first took the top job, he was blamed for engaging in channel stuffing, a short-sighted attempt to inflate sales by flooding customer inventories with new product. That later backfired when sales took a dive because the market was saturated.
Dolan also led Bristol in its 2001 purchase of a 17 percent stake in the troubled biotech ImClone (up $0.14 to $28.06, Charts), right before the company ran into FDA hold-ups with its experimental cancer drug Erbitux. Later, ImClone CEO Sam Waksal was imprisoned for engaging in insider trading with domestic diva Martha Stewart.
Interim CEO James Cornelius is currently at Bristol's helm. Funtleyder of Miller Tabak said that "a fresh set of eyes" - such as Sanofi's leadership - could help Bristol launch some of its new products, including Orencia, a treatment for rheumatoid arthritis, Sprycel, a treatment for two types of leukemia, and the hepatitis drug Baraclude.
Chris Schott, analyst for Bank of America, said in a published note that the merger, if it happens, would provide an "immediate fill to [the] vacant Bristol-Myers CEO role."
Schott also said the two companies would enjoy the competitive benefits of a "franchise overlap." Sanofi's diabetes drugs Lantus and Acomplia could be combined with experimental drugs in Bristol's pipeline to create a competitive diabetes franchise, said Schott.
He also said that Bristol's cancer drugs Sprycel and Erbitux could join forces with Sanofi's Taxotere and Eloxatin to form a strong oncology franchise.
A merger would also help to pick up flagging Plavix sales, according to Schott, who says the drug would be more effectively produced and marketed "under one management structure."
Sanofi is currently the biggest drugmaker in Europe. Bristol is currently the No. 5 drugmaker in the U.S., behind Pfizer, Johnson & Johnson (up $0.13 to $66.20, Charts), Abbott Laboratories (down $0.09 to $52.46, Charts) and Merck (down $0.15 to $45.84, Charts).
The analysts quoted in the story do not own shares of stock in Bristol or Sanofi. Miller Tabak does not do businesses with these companies, but Bank of America does seek business with them.