Expert Financial Analysis and Reporting

Investment Thesis

The proposed acquisition of Celgene by Bristol-Myers Squibb was generally panned by Wall Street investors and analysts as BMY stock dropped 14% on the news. The investment community is deeply concerned with the patent situation with Revlimid which accounts for over 60% of CELG revenues. There will be full blown generic entries in January 2027 and limited generic competition probably beginning in 2024 or in a worst case somewhat before. Sales of Revlimid in the period beyond January 2027 likely will become de minimis. BMY management clearly understands this and must have anticipated the sharply negative Wall Street reaction to the merger and yet went ahead. So why? You may want to review the report that I wrote yesterday on the merger for my thoughts on this merger as they related to BMY.

Bristol-Myers-Squibb: Negative Market Reaction to Celgene Acquisition is a Buying Opportunity (BMY, Buy, $45.17)

The question one must ask is what compelled BMY to make this controversial move. Based on the conference call dealing with the merger, it was obvious that BMY feels that the potential of the Celgene pipeline justifies taking on the Revlimid albatross. I also took away from the conference call that Celgene’s position in cell therapy is an extremely attractive part of the pipeline or perhaps the single most important factor. BMY has no meaningful position in cell therapy and has been strategizing on how to build a presence. It concluded that acquiring Celgene for over $100 billion was the best strategy which is not a casual bet. This is an extremely strong validation of the potential for cell therapy by an extremely knowledgeable industry participant.

My recommendation of Cryoport is based on the belief that cell therapy will become as important to the biopharm industry over the next two decades as monoclonal antibodies are today. To my knowledge, Cryoport is the only company that is providing an integrated, end to end solution to cryogenic shipping of cells and tissues that is critical for development and commercialization of cellular therapies. This starts with the dewars (containers) that these specimens are shipped in which can maintain temperatures of minus 150 degrees centigrade for up to ten days. As important is the ability to monitor and document chain of condition, chain of custody and chain of identity. This integrated solution is a powerful barrier to competition. As the dominant provider of the cryogenic shipping services, Cryoport will be involved in the vast majority of cell therapy development projects. It currently provides cryogenic service to the three leaders in the area-Gilead, Celgene and Novartis- as well as most of the smaller companies.

One of the major questions asked about cell therapy is whether there is significant potential beyond the first generation CAR-T products targeted at CD-19 for hematological tumors and BCMA for multiple myeloma. Indeed, I have raised this question myself. BMY has certainly been able to dig deeper into earlier stage cell therapy products than any outside analyst could. This huge bet by BMY on cell therapy suggests to me that they see enormous potential beyond CD-19 and BCMA targeted drugs and this strongly reinforces my recommendation of Cryoport.

Highlights of the Conference Call Dealing with the Merger

The first question in the Q&A part of the call was about how cell therapies fit in BMY’s strategic plans. Celgene has two CAR-T products in late stage development. JCAR-017 or liso-cel is targeted at the antigen CD-19 which is present in many hematological cancers; this is the same target as Novartis’ Kymriah and Gilead’s Yescarta. It should be the third CD-19 product to market. The second CAR-T product is bb2121 which is targeted at the antigen BCMA that occurs in multiple myeloma; it probably will be the first such product to the market. BMY singled out these two products as important new product launches. BMY said that it was incredibly impressed by the work that Celgene has done with liso-cel and bb2121 and regards these as transformative products. But what lies beyond?

BMY management said that it has been looking for some time at cell therapy and concluded that Celgene had very thoughtfully built its technology base and product portfolio and is the best company in the cell therapy space.  BMY has a number of other technology platforms in oncology and by adding cell therapy, they believe that they have significantly broadened their opportunity to participate in the growth and evolution of the oncology market. The questioner was especially interested in new products beyond liso-cel and bb2121 and so am I.

BMY answered this question by pointing out that Celgene has treated more people with cell therapies than any other company and now has a huge data set of over 700 people. This has given them an insight into how to optimize the next-generation cellular therapies. BMY believes that there are next-generation candidates coming forward along with process changes and improvements and bolt-on technologies that will continue to open up this field and create a plethora on new products. BMY believes that cellular therapy is an emerging modality in the way that antibodies were 20 or 30 years ago. The lesson learned from monoclonal antibodies is that it took years to optimize the technology, but the potential of the technology far, far exceeded the most bullish views of early days.

BMY believes that liso cel and bb2121 are truly differentiated products. They maintain that you can’t lump all of the CAR-T’s together as they are very different in terms of their biological make up. They say if you’ve seen one CAR T drug, you’ve seen one CAR T drug. The data from both liso-cel, in their opinion, suggests a differentiated profile that BMY believes will make them best in class. We’ll see. From the standpoint of Cryoport, it really doesn’t matter who has the best product as the key players all use their services.

BMY is very interested in trying to unlock the potential of cell therapies when used in combination with checkpoint inhibitors. PD-1 drugs combined with cell therapies is an area that makes a lot of sense, both in approaching diseases like hematologic malignancies and melanoma and renal cell, but also this could unlock the potential immunologic approaches to "cold" tumors.

Tagged as Cryoport + Categorized as Company Reports, LinkedIn