While Bristol-Myers Squibb (NYSE:BMY) isn't exactly lacking in reasons to consider it a household name, it recently figured that it could stand a little extra firepower on its side. To that end, the company recently shelled out a hefty $13.1 billion to buy MyoKardia (NASDAQ:MYOK), a much less-well-known company that had some very valuable treatments under the hood.
Paying Big to Branch Out
Bristol-Myers Squibb's primary weapon of choice is cancer-fighting drugs, based on current reports. While certainly, fighting cancer is a valuable thing that's likely to keep the company well-covered in revenue for some time to come, there's always something to be said for diversification.
MyoKardia, meanwhile, boasts a drug that's useful in fighting irregular heart rhythms, which makes sense for a company that's just a stylistic misspelling away from “myocardia”, or the plural form of “the middle muscular layer of the heart wall”. The product, known as mavacamten, focuses on a condition called “obstructive hypertrophic cardiomyopathy,” in which that aforementioned heart muscle becomes unusually thick.
Bristol-Myers Squibb paid a big price to land the company, both objectively and subjectively; the $13.1 billion effectively means Bristol-Myers effectively paid about 61% over MyoKardia's closing price on Friday, a move that nearly doubled MyoKardia's stock price from its closing on Friday of $139.60 to its current price of $220.84. However, reports note that the company believes mavacamten can ultimately be a “multi-billion dollar asset”, thanks to the fact that obstructive hypertrophic cardiomyopathy really doesn't have a treatment option as yet.
When Two Attractive Buys Get Together
What makes this move especially noteworthy is that, going into the arrangement, both MyoKardia and Bristol-Myers Squibb were considered a buy by our own research. Bristol-Myers Squibb currently has three “hold” ratings and 12 “buy” ratings, while MyoKardia has two “hold” and eight “buy.”
MyoKardia's consensus price target, as of right now, has been shattered beyond all recognition; it was sitting at $130.22, which was a reasonable enough notion back when the company spent about three months trundling along in the $100 range.
In a truly staggering twist of irony, though, Bristol-Myers Squibb stock is only worth about a quarter of what MyoKardia is right now; Bristol-Myers is trading around $58.72 as of this writing, and it recovered from a fairly significant dip down to $58.06 earlier in the morning. There's still plenty of likely upside in Bristol-Myers, though, as the consensus price target is sitting at $70.85. Regardless of price targets, both companies were considered attractive going in, and the produce of their union is likely to be every bit as attractive, or possibly more so.
The Value of Diversification Shines Through Again
As powerful a name as Bristol-Myers Squibb was, it was also a name that focused hard on one market: oncology. Cancer-fighters are a good way to go, investment-wise, because cancer keeps showing up in people, and sometimes, for reasons we can barely understand. We know a lot of what causes cancer, but certainly not all of it.
Bristol-Myers Squibb had been looking for a way to expand beyond oncology, and found likely territory in the heart treatment camp. The company already had one heart drug in its roster, Eliquis, and adding mavacamten into the mix will give Bristol-Myers that much more to work with. Better yet, it will get that drug without a lot of extra research and development costs, as reports suggest mavacamten has already made it through Phase 3 testing.
While it might be a bit profligate on Bristol-Myers' part to go buying another company so soon—it just completed a $74 billion deal for Celgene last year—there's no doubt that the company can stand some diversification, and into a field that will almost certainly be in demand.
Knowing what we know about American waistlines and exercise habits—especially in the age of Covid gym closures—heart treatments are likely to be all the more necessary in the next few years. Bristol-Myers is getting ready for the future, and it's a good bet that MyoKardia and mavacamten will be a big part of that push going forward. It might be a bit late to pick up MyoKardia after its big jump, but Bristol-Myers Squibb isn't unattractively priced, and it's the one that will benefit from MyoKardia going forward.
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