Bristol-myers Squibb Company · NYSE:BMY
Bristol-myers Squibb — Proxy Contest (March 2019)
197 slides from Bristol-myers Squibb's proxy contest presentation, Mar 18, 2019
Slide 1: March 2019
March 2019 “AS OTHERS HAVE MERGED INTO MEGACOMPANIES, WE ARE BECOMING MORE STREAMLINED AND FOCUSED. AS OTHERS HAVE BROADENED THEIR PORTFOLIOS, WE ARE FOCUSING ON SELECT AREAS OF MEDICAL NEED.” - JIM CORNELIUS, FORMER BRISTOL-MYERS CHAIRMAN & CEO AND CREATOR OF THE “STRING OF PEARLS” STRATEGY
Slide 2: Disclaimer
Disclaimer This presentation and any of the information contained herein (this “Presentation”) is for general informational purposes only and is not complete. Under no circumstances is this Presentation intended to be, nor should it be construed as advice or a recommendation to enter into or conclud
Slide 3: Table of Contents
TABLE OF CONTENTS I. Executive Summary 4 II. Overview of Bristol-Myers 33 III. Overview of Celgene 60 IV. We Believe the Math Underlying Bristol-Myers’ Assumptions Is Flawed 70 V. We Do Not Believe Celgene’s Pipeline Will Generate Bristol-Myers Base Case Projections 82 We Believe the Celgene Deal Ca
Slide 4: I. Executive Summary
I. Executive Summary STARBOARDQJALUE™ 4
Slide 5: Proposed Acquisition of Celgene Is Ill-Advised and Could Destroy Substantial Value
We Believe the Proposed Acquisition of Celgene Is Ill-Advised and Could Destroy Substantial Value for Bristol-Myers Shareholders As we will explain, the proposed acquisition of Celgene Corporation (“Celgene”) by Bristol-Myers Squibb Company (“Bristol-Myers” or the “Company”) adds substantial risk fo
Slide 6: A Standalone Bristol-Myers Will Be Better Positioned for Value Creation
We Believe a Standalone Bristol-Myers Will Be Better Positioned for Value Creation We believe that a standalone Bristol-Myers will be better positioned and less risky than a combined Bristol- Myers and Celgene. We believe the proposed acquisition of Celgene will add enormous risk to Bristol-Myers.
Slide 7: The Proposed Acquisition Adds Substantial Risk for Shareholders
The Proposed Acquisition Adds Substantial Risk for Shareholders The proposed acquisition of Celgene represents a significant shift away from the successful “String of Pearls” strategy and adds substantial risk and leverage to Bristol-Myers. Standalone Bristol-Myers Combined Bristol-Myers and Celgene
Slide 8: The Proposed Acquisition Defies Bristol-Myers' Stated Strategy
The Proposed Acquisition Defies Bristol-Myers’ Stated Strategy Since 2007, Bristol-Myers has been focused on the “String of Pearls” strategy, whereby it has used acquisitions, partnerships, joint ventures, and licensing agreements, in conjunction with internal development efforts, to build out its p
Slide 9: The Proposed Acquisition Defies Stated Strategy (cont'd)
The Proposed Acquisition Defies Bristol-Myers’ Stated Strategy (cont’d) The acquisition of Celgene is inconsistent with Bristol-Myers’ historically disciplined approach to M&A. “String of Pearls” Had Historically Been Successful… So Why Give it Up for Celgene? Upfront Contingent Key Upfront Continge
Slide 10: Bristol-Myers Has Underperformed Under Current Leadership
Bristol-Myers Has Underperformed Under Current Leadership How can shareholders trust a management team that is executing poorly at Bristol-Myers to now successfully integrate one of the largest pharmaceutical deals of all time? Summary Returns LTM Adj. EBITDA Margins(6) Total Shareholder Return (1)
Slide 11: The Largest Pharmaceutical Deals Have Not Gone Well
The Largest Pharmaceutical Deals Have Not Gone Well On average, value has been destroyed in each of the five previous largest pharmaceutical deals on an absolute basis in the five years following the completion of each respective deal. Largest Pharmaceutical Transactions in History Year Transaction
Slide 12: The Largest Pharmaceutical Deals Have Not Gone Well (cont'd)
The Largest Pharmaceutical Deals Have Not Gone Well (cont’d) On average, value has been destroyed in each of the five previous largest pharmaceutical deals relative to the S&P 500 in the five years following the completion of each respective acquisition. Largest Pharmaceutical Transactions in Histor
Slide 13: The Largest Pharmaceutical Deals Have Not Gone Well (cont'd)
The Largest Pharmaceutical Deals Have Not Gone Well (cont’d) On average, value has been destroyed in each of the five previous largest pharmaceutical deals relative to the Pharmaceutical Index in the five years following the completion of each respective acquisition. Largest Pharmaceutical Transacti
Slide 14: Bristol-Myers Claims It Is Acquiring Celgene for a Cheap Price
Bristol-Myers Claims That It Is Acquiring Celgene for a Cheap Price Bristol-Myers is claiming that the Company is paying a cheap price to acquire Celgene…on Celgene’s current earnings base. 2019E P/E Multiple – Wall Street Consensus Estimates(1) 16.0x 14.0x 13.9x 12.0x 10.0x 10.2x 8.0x 6.0x 4.0x 2.0
Slide 15: Bristol-Myers Ignores Celgene's Massive Patent Cliff in Valuation
Bristol-Myers Conveniently Seems to Ignore Celgene’s Massive Patent Cliff When Discussing Valuation Looking at the transaction valuation based on 2019 earnings does not take into account Celgene’s massive patent cliff. While most companies trade at lower multiples on out-year estimates because the
Slide 16: Bristol-Myers Is Buying One of the Largest Patent Cliffs in History
Bristol-Myers Is Buying One of the Largest Patent Cliffs in History Bristol-Myers is knowingly acquiring a massive small molecule patent cliff, which is, to our knowledge, unprecedented. Select Blockbuster Drugs – Wall Street Estimates for Celgene’s Marketed Products Revenues % Revenue Contribution
Slide 17: The Market Has Responded Very Unfavorably to the Celgene Acquisition
The Market Has Responded Very Unfavorably to the Celgene Acquisition Wall Street analysts and Bristol-Myers shareholders alike were surprised and skeptical of the Company’s announced plans to acquire Celgene, as shown by the 13% decline in the Company’s stock price the day of the announcement. Des
Slide 18: Largest Institutional Shareholder Publicly Announced It Is Against the Deal
Bristol-Myers’ Largest Institutional Shareholder Publicly Announced It is Against the Deal Bristol-Myers’ proposed acquisition of Celgene has been met with disapproval from one of the world’s largest investment management firms, in what was an unprecedented move for the firm to publicly oppose a dea
Slide 19: Actually Paying ~$30 Billion for the Pipeline, Not ~$15 Billion
We Believe Bristol-Myers Is Actually Paying ~$30 Billion for the Pipeline, Not ~$15 Billion Bristol-Myers argues that the Celgene merger is a low-risk proposition. We disagree. Bristol-Myers’ presentations suggest that the Company is acquiring Celgene’s pipeline for only ~$15 billion. Management
Slide 20: Actually Paying ~$30 Billion for the Pipeline (cont'd)
We Believe Bristol-Myers Is Actually Paying ~$30 Billion for the Pipeline, Not ~$15 Billion (cont’d) Since it is not possible for EBITDA to be greater than revenue, synergies must be reallocated between marketed products and the pipeline, leading to a significantly higher implied value for the pipel
Slide 21: 2028 Base Case for Celgene's Pipeline Assumes Revenue Well Above Analysts' Estimates
Bristol-Myers’ 2028 Base Case for Celgene’s Pipeline Assumes Revenue Well Above Wall Street Analysts’ Estimates… Bristol-Myers’ 2028 base case assumptions for Celgene’s pipeline products’ revenues are significantly higher than Wall Street analysts’ estimates. 2028 Bristol-Myers Management vs. Wall S
Slide 22: Consensus Estimates Have Proven Overly Aggressive for Celgene in the Past
Despite the Fact That Consensus Estimates Have Proven to Be Overly Aggressive for Celgene in the Past Wall Street analysts have historically been overly optimistic in their estimates for Celgene’s products. Below, we index actual 2018 Celgene product revenues against initial consensus Wall Street
Slide 23: Celgene's Pipeline Has Massive Risk
We Believe Celgene’s Pipeline Has Massive Risk Below, we provide an overview of the key risks related to the five near-term product launch opportunities in Celgene’s pipeline that Bristol-Myers has highlighted to shareholders, and is expecting to generate $10 billion in revenue by 2028. Overview of
Slide 24: Celgene Has Only Developed 3 Blockbusters in 15 Years
Celgene Has Only Developed 3 Blockbusters In 15 Years, But Bristol-Myers’ Base Case Assumes, On Average, 10 Blockbusters in the Next 8 Years In its base case, Bristol-Myers is assuming Celgene can generate blockbuster drugs at a pace completely out- of-line with historical performance, adding substa
Slide 25: Celgene's Track Record of Failures and Product Delays
Despite Celgene’s Disappointing Track Record of Failures and Product Delays… Since Celgene management first highlighted fourteen significant products to their shareholders only two years ago, nearly one third of those products have already been terminated or de-prioritized, which represents greater
Slide 26: Asking Shareholders to Underwrite 10 Blockbuster Products in 8 Years
The Company Is Asking Shareholders to Underwrite, On Average, 10 Blockbuster Products in 8 Years In order to reach just its base case assumptions, Bristol-Myers needs the Celgene pipeline to produce, on average, 10 blockbuster products in 8 years, which would represent an unprecedented rate of succe
Slide 27: Base Case Generates Only a 3% IRR Above WACC
Realizing Bristol-Myers’ Aggressive Base Case Assumptions Only Generates a 3% IRR Above Its WACC Bristol-Myers management’s base case makes several aggressive assumptions, which, even if realized, would only generate a 3% IRR above WACC. For the deal to even be barely NPV accretive, shareholders m
Slide 28: More Likely Scenarios Would Destroy Value
In What We Believe Are More Likely Scenarios, This Deal Would Destroy Value We estimate Bristol-Myers is paying ~$30 billion for Celgene’s pipeline products with an extremely thin margin for error – even if just one or two products fail to commercialize, Celgene’s pipeline could destroy significant
Slide 29: The Deal Process Appears to Have Been Incredibly Rushed
The Deal Process Appears to Have Been Incredibly Rushed Bristol-Myers appears to have completed only 2 weeks of full due diligence on a complex pipeline of ~25 compounds. While discussions between the two companies commenced in early September 2018, as the Company’s S-4 filing states, this due dil
Slide 30: Management Is Asking Shareholders to Accept Substantial Risk
Management Is Asking Shareholders to Accept Substantial Risk Shareholders must be comfortable and supportive of the true merits of the deal – not simply trust management’s lofty expectations – given the size of the deal and risks it poses. Shareholders need to understand that they are investing in
Slide 31: Well-Positioned Standalone to Continue "String of Pearls" Strategy
Bristol-Myers Is Well-Positioned on a Standalone Basis to Continue Its Previously Successful “String of Pearls” Strategy Bristol-Myers has a strong balance sheet and significant expected unlevered free cash flow generation potential, which will allow management to execute on a “String of Pearls” gro
Slide 32: A Better Path Forward as a Standalone Company
There Is a Better Path Forward for Bristol-Myers as a Standalone Company Based on our research, we believe that there is an opportunity to significantly improve the operations of a standalone Bristol-Myers. We believe a standalone Bristol-Myers would have a stable and growing revenue base, with ro
Slide 33: II. Overview of Bristol-Myers
II. Overview of Bristol-Myers 33
Slide 34: Overview of Bristol-Myers
Overview of Bristol-Myers Bristol-Myers is a large, global pharmaceutical company with a strong presence in oncology. Among major pharmaceutical companies, Bristol-Myers is a leader in the large and growing immuno-oncology (“IO”) therapeutic category. – Immuno-oncology harnesses the body’s immune
Slide 35: Overview of Bristol-Myers: Main Products
Overview of Bristol-Myers (cont’d) Bristol-Myers has brought numerous innovative therapies to market. Bristol-Myers Main Products Therapeutic 2018 ‘18 Rev. Product Molecule Category Revenue Growth Description • Biologic • Fully human monoclonal antibody that binds to the PD-1 on T and nivolumab Onco
Slide 36: Overview of Bristol-Myers: String of Pearls
Overview of Bristol-Myers (cont’d) Historically, Bristol-Myers executed a “String of Pearls” strategy to build out its current portfolio of products. “In the fourth quarter of 2007, [Bristol-Myers] announced its intent to transform into a next generation biopharma leader by implementing a strategy t
Slide 37: Wall Street Applauded This Strategy
Overview of Bristol-Myers (cont’d) Wall Street applauded this strategy and analysts fell in love with the Bristol-Myers story. Wall Street Analyst Commentary “The company’s ‘string of pearls’ acquisition and partnering “We view BMY as the leader in immuno-oncology…” strategy are part of what has gai
Slide 38: Shareholders Applauded Execution and Stock Outperformed
Overview of Bristol-Myers (cont’d) Shareholders applauded this execution and the stock outperformed peers. Bristol-Myers Share Price Performance Prior to Caforio Assuming CEO Role(1) (2) +208% 48% +160% Outperformance vs. Peers +67% 141% Outperformance vs. S&P 500 NTM Price / Earnings – Bristol-Myer
Slide 39: In 2015, Giovanni Caforio Became CEO
In 2015, Giovanni Caforio Became Bristol-Myers’ CEO, Succeeding Lamberto Andreotti Following years of success and share price outperformance, Bristol-Myers made a CEO change. Giovanni Caforio Biography Dr. Caforio began his career in Medical Affairs at Abbott Laboratories He joined Bristol-Myers
Slide 40: Clinical Trial Failures, Pipeline Setbacks, and Poor Execution
Since That Time, Bristol-Myers Has Been Plagued by Numerous Clinical Trial Failures, Pipeline Setbacks, and Poor Execution Since the beginning of Caforio’s tenure as CEO, Bristol-Myers has stagnated, and shareholders have suffered. Bristol-Myers Developments Since Giovanni Caforio Became CEO on May
Slide 41: One of the Largest Failures Was CHECKMATE-026
One of The Largest Failures During This Time Was CHECKMATE-026 The failure of CHECKMATE-026 triggered one of the largest market value destructions in recent pharmaceutical industry history. $75 August 5, 2016: CHECKMATE-026 (OPDIVO) fails 1L NSCLC study $70 Bristol-Myers continued to decline in the
Slide 42: Where Did CHECKMATE-026 Go Wrong?
Where Did CHECKMATE-026 Go Wrong? Bristol-Myers was considered the leader in immuno-oncology heading into CHECKMATE-026. Immuno-oncology, or cancer therapies that harness the body’s immune system to attack cancer cells, was considered the next significant opportunity in the pharmaceutical industry
Slide 43: Where Did CHECKMATE-026 Go Wrong? (cont'd)
Where Did CHECKMATE-026 Go Wrong? (cont’d) We believe Bristol-Myers took a major gamble by designing the CHECKMATE-026 trial to target patients regardless of their cancer’s level of PD-L1 expression. This backfired enormously. Bristol-Myers and Merck began pursuit of approval within the lung cance
Slide 44: Failure Was a Direct Result of Poor Trial Design
We Believe This Failure Was a Direct Result of Poor Trial Design As Wall Street analysts and investors searched for answers, they began to severely question the clinical trial’s design. Wall Street Analyst Commentary Media Commentary “Checkmate-026 failure highly surprising represents setback in lar
Slide 45: The Company Even Admitted as Much
The Company Even Admitted as Much Members of Bristol-Myers’ management team admitted that the Company did not focus on tumors exhibiting a strong expression of PD-L1, a surprising acknowledgment of trial design error. Credit Suisse Healthcare Conference – November 2016 “Obviously, the study was not
Slide 46: CHECKMATE-026 Followed by Other High-Profile Failures and Delays
CHECKMATE-026 Was Followed by Several Other High- Profile Failures and Delays CHECKMATE-026 was the beginning of a string of successive clinical trial failures that damaged management’s credibility and destroyed significant shareholder value. on Clinical Trial Date Date Description of Event of Event
Slide 47: OPDIVO Ceding Market Leadership to KEYTRUDA
Multiple Setbacks Have Resulted in OPDIVO Ceding Its Market Leadership Position to KEYTRUDA In 2016, Wall Street analysts projected OPDIVO to be a significantly larger drug than KEYTRUDA, but unfortunately that prospect has now reversed. Revenue by Quarter for OPDIVO vs. KEYTRUDA ($ in billions) KEY
Slide 48: OPDIVO Remains a Stable and Growing Franchise
However, OPDIVO Remains a Stable and Growing Franchise With a Strong Market Leadership Position OPDIVO is a market leader in immuno-oncology; however, we believe the tremendous franchise has been poorly managed. Bristol-Myers Transaction Update – March 6, 2019 Wall Street Consensus - OPDIVO Sales Es
Slide 49: Elevated R&D Spending and Margins Well Below Peers
Financial Performance Remains Poor with Elevated R&D Spending and Margins Well Below Peers Bristol-Myers has spent significantly more on R&D than Direct Peers as a percentage of revenue, resulting in substantially lower profitability than these peers. R&D as % of Total Revenue(1) – Bristol-Myers vs.
Slide 50: Poor Execution Has Resulted in Severe Share Price Underperformance
The Poor Execution Has Resulted in Severe Share Price Underperformance Bristol-Myers shares have underperformed their peers over a 1-year and 3-year basis, as well as during the entire tenure of CEO Caforio’s leadership. Summary Returns Stock Price Chart since Caforio CEO(4) Total Shareholder Return
Slide 51: Trading at Its Lowest P/E Multiple in Years
Bristol-Myers’ Poor Execution Has Resulted in The Company Trading at Its Lowest P/E Multiple in Years Bristol-Myers’ P/E ratio was near its 5-year peak when Caforio took over as CEO. Since then, the Company’s P/E ratio has collapsed, and now, for the first time in recent memory, Bristol-Myers trades
Slide 52: Analysts' Forward Price Targets Have Decreased Significantly
Wall Street Analysts’ Forward Price Targets for Bristol-Myers Have Decreased Significantly Over the Past Few Years Wall Street analysts now target a significantly lower Bristol-Myers stock price than they did at the beginning of CEO Caforio’s tenure. Wall Street Analysts’ Average Bristol-Myers Price
Slide 53: This Team Is Attempting One of the Largest Pharma Deals in History
Now, This Team - With This Track Record - Is Attempting to Execute One of the Largest Pharmaceutical Deals in History Bristol-Myers’ $91 billion acquisition of Celgene would be one of the largest transactions in pharmaceutical industry history. Largest Pharmaceutical Transactions in History Target A
Slide 54: The Largest Pharmaceutical Deals Have Not Gone Well
The Largest Pharmaceutical Deals Have Not Gone Well On average, value has been destroyed in each of the five previous largest pharmaceutical deals on an absolute basis in the five years following the completion of each respective deal. Largest Pharmaceutical Transactions in History Year Transaction
Slide 55: Buying One of the Largest Patent Cliffs in History
Bristol-Myers is Buying One of the Largest Patent Cliffs in History Bristol-Myers is knowingly acquiring a massive small molecule patent cliff, which is, to our knowledge, unprecedented. REVLIMID is among the largest patent cliffs in pharmaceutical industry history, which alone will require Celgen
Slide 56: Buying Celgene's Patent Cliff Before a Likely Valuation Decline
Bristol-Myers Is Buying Celgene’s Patent Cliff Before a Likely Significant Valuation Decline The valuation of pharmaceutical companies has historically declined significantly as patent expiry, and the associated risk of substantial revenue decline, draws closer. NTM P/E Multiple Leading to Patent Ex
Slide 57: Patent Cliff Will Adversely Impact Combined Company's Valuation
We Believe Celgene’s Patent Cliff Will Adversely Impact the Combined Company’s Valuation The combined company will likely trade at a lower multiple than standalone Bristol-Myers, given the impending REVLIMID patent cliff. As shown on the previous slide, companies with impending 2019E P/E Multiple(
Slide 58: Relying on an Unproven Pipeline May Force Additional Large Acquisitions
Relying on an Unproven Pipeline Adds Incredible Risk and May Force Additional Large Acquisitions If Celgene’s pipeline does not pan out, Bristol-Myers may be forced to do another large transaction in the future, adding even more risk for shareholders. In the past, companies facing patent cliffs ha
Slide 59: Shares Have Underperformed Since the Merger Was Announced
Bristol-Myers Shares Have Underperformed Significantly Since the Merger Was Announced Wall Street analysts and shareholders alike were surprised and skeptical of Bristol-Myers’ announcement to acquire Celgene, as shown by the 13% decline in the Company’s stock price on the day of the announcement.
Slide 60: III. Overview of Celgene
III. Overview Of Celgene UE 60
Slide 61: Overview of Celgene
Overview of Celgene Celgene is a large pharmaceutical company with a focus on hematology (i.e. liquid tumors). Celgene’s small molecule products focus on several therapeutic categories: hematology, oncology, and inflammatory disorders. – Hematology includes the treatment of blood disorders and mal
Slide 62: Celgene Focused on Small Molecules
Overview of Celgene (cont’d) Unlike Bristol-Myers, which possesses a portfolio of biologic (i.e. large molecule) drugs, Celgene is focused on small molecules. Small molecule drugs have less complex chemical structures relative to large molecule biologics (large molecules), which make them easier t
Slide 63: Celgene's Revenue Expected to Evaporate
Overview of Celgene (cont’d) Given that Celgene’s marketed products are essentially all small molecules, revenue from Celgene’s current product portfolio is expected to eventually completely evaporate. Assuming REVLIMID does not face full genericization until 2026, 94% of Celgene’s current revenue
Slide 64: How Did REVLIMID Become Such a Large Drug?
How Did REVLIMID Become Such a Large Drug? Celgene has taken substantial price increases over time, as the wholesale acquisition cost (“WAC”) price has increased 75% over the last five years. Each pill now costs over $700, more than three times the WAC price when REVLIMID was first brought to mark
Slide 65: REVLIMID Price Increases Caught the Government's Attention
Celgene’s REVLIMID Price Increases Have Caught the Government’s Attention Alex Azar, Secretary of Health & Human Services, has commented on REVLIMID’s aggressive price increases. In May 2018, while delivering a speech on drug pricing in the U.S., Alex Azar specifically singled out REVLIMID as an e
Slide 66: Celgene Not Alone in Being Accused of Aggressive Pricing
While Celgene Is Not Alone in Being Accused of Aggressive Pricing, They Are Not in Good Company Celgene is among several other pharmaceutical manufacturers that have been called out for aggressive pricing. U.S. politicians are extremely focused on investigating aggressive pharmaceutical pricing as
Slide 67: Anti-Competitive Behavior Caught the Government's Attention
In Addition, Celgene’s Anti-Competitive Behavior Has Also Caught the Government’s Attention Separately, in June 2018, Sen. Richard Blumenthal sent a letter to the Federal Trade Commission (“FTC”) alleging that pharmaceutical companies, in particular Celgene, are engaging in anti-competitive behavior
Slide 68: REVLIMID at Risk of Imminent Massive Genericization
REVLIMID Is at Risk of Imminent Massive Genericization Given the magnitude of the potential REVLIMID generic opportunity, numerous generic manufacturers are attempting to bring generic REVLIMID to market. Landscape of Generic Challengers for REVLIMID List of Companies That Have Filed Generic Settled
Slide 69: All Marketed Products Will Face Generic Competition
All of Celgene’s Marketed Products Will Face Generic Competition in the Near Term In fact, our conversations with Bristol-Myers management indicated that they expect all of Celgene’s current marketed products to be essentially wiped out by 2028. Estimates for Celgene’s Marketed Products Revenues ($
Slide 70: IV. The Math Underlying Bristol-Myers' Assumptions Is Flawed
IV. We Believe the Math Underlying Bristol-Myers’ Assumptions Is Flawed 70
Slide 71: Acquiring Celgene's Pipeline for Only ~$15 Billion
Bristol-Myers States That The Company Is Acquiring Celgene’s Pipeline for Only ~$15 Billion Bristol-Myers argues that the Celgene merger is a low-risk proposition; we disagree. Bristol-Myers states that the ~$90 billion acquisition is broken down roughly as follows: – Marketed Products: ~$55 billi
Slide 72: Assumptions Shared to Justify the Valuation
To Justify the Valuation, Bristol-Myers Has Shared With Us the Following Assumptions We have had multiple conversations with Bristol-Myers to discuss how management arrives at an implied valuation of $15 billion for Celgene’s pipeline products. Bristol-Myers View On Celgene Deal Value Key Bristol-My
Slide 73: Walk-Through of Assumptions for Marketed Products
Management Has Also Provided Us With a Detailed Walk- Through of Their Assumptions for Celgene’s Marketed Products Management has also provided us with a detailed walk through of their base case assumptions for Celgene’s marketed products, which implies the marketed products will be in run-off by 20
Slide 74: How BMY Arrives at $55 Billion for Marketed Products
We Understand How Bristol-Myers Arrives at Its $55 Billion Valuation for Celgene’s Marketed Products Business Bristol-Myers management communicated to us that they are assuming initial operating costs of $3.5 billion for marketed products, which will then scale down over time as the products go gene
Slide 75: How BMY Arrives at >$20 Billion for Cost Synergies
We Also Understand How Bristol-Myers Arrives at Its >$20 Billion Valuation for Cost Synergies In Bristol-Myers’ S-4 filing, management presents their estimate of cost synergies, which ramps to $2.5 billion by 2022. In our conversations with the Company, management stated that post-2022, synergie
Slide 76: Synergies Need To Be Allocated Appropriately
However, These Synergies Need To Be Allocated Appropriately It is important to note the full value of these cost synergies cannot be achieved from Celgene’s existing marketed products cost base. As shown earlier, management is using the ~$55 billion of value attributed to marketed products and the
Slide 77: Implying Only ~$15 Billion for the Pipeline Is Misleading
Implying to Shareholders That Bristol-Myers Is Only Paying ~$15 Billion for Celgene’s Pipeline Is Misleading Below, we show financial projections for Celgene’s marketed products assuming ALL of the synergies, as communicated in the S-4 filing, are allocated to that portion of the business. The r
Slide 78: Appropriate Allocation Implies Maximum Value of $7 Billion
Appropriately Allocating Cost Synergies to Marketed Products Would Imply a Maximum Value of $7 Billion At a maximum, we believe $7 billion of the total synergy value should be allocated to marketed products. In the calculation below, we apply management’s cost synergy ramp as presented in the S-4,
Slide 79: Maximum Valuation of $62 Billion for Marketed Products and Synergies
We Calculate a Maximum Valuation of $62 Billion for Celgene’s Marketed Products and Associated Cost Synergies By appropriately allocating cost synergies to Celgene’s marketed products, we arrive at a maximum valuation of $62 billion for the marketed products business plus directly related synergies.
Slide 80: How Synergies Should Be Allocated
Below, We Present Our View on How Cost Synergies Should Be Allocated to Celgene’s Marketed Products and Pipeline Bristol-Myers Management View of Celgene Deal Value Total Cost Synergies per S-4 Filing Total Synergy ~ $15 Value of Pipeline ($ in billions) DCF Value: >$20 Value of Cost Synergies ~$2
Slide 81: Paying Twice as Much for a Risky Pipeline
As a Result, We Believe Bristol-Myers Is Paying Twice as Much for a Risky Pipeline as Management Has Led Shareholders to Believe We believe that Bristol-Myers is actually paying almost $30 billion for the Celgene pipeline – not the ~$15 billion communicated to shareholders – based on appropriately a
Slide 82: V. Celgene's Pipeline Will Not Generate Base Case Projections
V. We Do Not Believe Celgene’s Pipeline Will Generate Bristol-Myers Base Case Projections 82
Slide 83: Celgene Will Need to Reinvent Itself by 2028
Celgene Will Need to Effectively Reinvent Itself by 2028 in Order to Reach Bristol-Myers’ Base Case Assumptions Bristol-Myers’ base case for the acquisition assumes that Celgene’s pipeline will generate ~$18 billion of revenue in 2028 to replace the company’s patent cliff. Bristol-Myers Management R
Slide 84: Reinvent Itself by 2028 (cont'd)
Celgene Will Need to Effectively Reinvent Itself by 2028 in Order to Reach Bristol-Myers’ Base Case Assumptions (cont’d) We estimate that the ~$18 billion base case pipeline revenue for 2028 is broken down into near-term launch opportunities of ~$11 billion and earlier-stage opportunities of ~$7 bil
Slide 85: Base Case 2028 Revenues for Near-Term Launches Are Aggressive
Relative to Wall Street Analysts’ Estimates, Bristol-Myers Base Case 2028 Revenues for Celgene’s Near-Term Product Launches Are Aggressive Bristol-Myers is estimating Celgene’s five near-term product launch opportunities will generate base case 2028 revenues that are 59% higher than the median of Wa
Slide 86: Consensus Estimates for Celgene Generally Too Optimistic
Historically, Consensus Estimates for Celgene Have Generally Been Too Optimistic Wall Street analysts have historically been overly optimistic in their estimates for Celgene’s products. Below, we index actual 2018 Celgene product revenues against initial Wall Street consensus estimates for 2018.(1
Slide 87: Early Stage Pipeline Expectations Are Highly Aggressive
We Believe the Math Surrounding Bristol-Myers Early Stage Pipeline Expectations Is Also Highly Aggressive According to Bristol-Myers, not only does a typical research & development process take 14 years, with >80% of the time spent on early-stage development, but Phase I studies also have a 90 - 92%
Slide 88: Every Successful Earlier-Stage Product Would Have to Be a Blockbuster
Bristol-Myers’ Base Case Assumes, on Average, Every Successful Earlier-Stage Pipeline Product Would Have to Be a Blockbuster Based on Bristol-Myers’ own failure rate expectations, in order to hit Bristol-Myers base case assumptions for Celgene’s early-stage pipeline, on average, every successfully c
Slide 89: Celgene Has Only Developed 3 Blockbusters in 15 Years
Celgene Has Only Developed 3 Blockbusters In 15 Years, But Bristol-Myers’ Base Case Assumes, On Average, 10 Blockbusters in the Next 8 Years In its base case, Bristol-Myers is assuming Celgene can generate blockbuster drugs at a pace completely out- of-line with historical performance, adding substa
Slide 90: Celgene Has a History of Being Overly Optimistic
Celgene Has a History of Being Overly Optimistic With Its Pipeline In 2017, Celgene communicated to shareholders that the company had FOURTEEN significant product launches over the next five years – most of which would be blockbusters. Whereas Celgene management had only given vague guidance in ea
Slide 91: Overly Optimistic With Its Pipeline (cont'd)
Celgene Has a History of Being Overly Optimistic With Its Pipeline (cont’d) In early 2018, less than a year after indicating that the company had fourteen significant drugs, Celgene management suddenly switched to promoting only ten blockbusters. Celgene Management Presentations Early 2017 Celgene M
Slide 92: Overly Optimistic With Its Pipeline (cont'd)
Celgene Has a History of Being Overly Optimistic With Its Pipeline (cont’d) In June 2018, Celgene management scaled back their initial enthusiasm even further by removing all launch date expectations. Celgene Management Presentations Early 2017 Celgene Management Presentation June 2018 Celgene Manag
Slide 93: Overly Optimistic With Its Pipeline (cont'd)
Celgene Has a History of Being Overly Optimistic With Its Pipeline (cont’d) In addition, of the fourteen significant products highlighted in early 2017, most have either been terminated, delayed or have had expectations materially lowered. Early 2017 Celgene Management Presentation Launched as IDHIF
Slide 94: Overly Optimistic With Its Pipeline (cont'd)
Celgene Has a History of Being Overly Optimistic With Its Pipeline (cont’d) Since Celgene management first highlighted fourteen significant products to their shareholders only two years ago, nearly one third of those products have already been terminated or de-prioritized, which represents greater t
Slide 95: Celgene Overhyped GED-0301
Most Recently, Celgene Overhyped GED-0301…We Are Skeptical of Celgene Management’s Expectations Celgene management expected GED-0301 to be a blockbuster drug. In April 2014, Celgene paid $710 million to Nogra Pharma for the exclusive right to develop and commercialize GED-0301 for the treatment of
Slide 96: Overhyped GED-0301 (cont'd)
Most Recently, Celgene Overhyped GED-0301…We Are Skeptical of Celgene Management’s Expectations (cont’d) Management showed conviction in GED-0301 right up until its failure. Celgene abandoned Phase III studies for GED-0301 in October 2017 after failing to clear an interim futility review. Howeve
Slide 97: Celgene Stock Fell 28% After GED-0301 Termination
Most Recently, Celgene Overhyped GED-0301…We Are Skeptical of Celgene Management Expectations (cont’d) After hitting an all-time high just weeks earlier, Celgene’s stock fell by 28% following termination of the GED- 0301 study. Celgene Stock Price Performance Pre- and Post-GED-0301 Termination Annou
Slide 98: Celgene's Pipeline Has Massive Risk
We Believe Celgene’s Pipeline Has Massive Risk Below, we provide an overview of the key risks related to the five near-term product launch opportunities in Celgene’s pipeline that Bristol-Myers has highlighted to shareholders, and is expecting to generate $10 billion in revenue by 2028. Overview of
Slide 99: Fedratinib Far Smaller and Riskier Than Expected
Fedratinib Appears to Be Far Smaller and Riskier Than Initially Expected Celgene has been consistently bullish about the prospects for fedratinib. In January 2018, Celgene acquired fedratinib through its $1.1 billion acquisition of Impact Biomedicines. Fedratinib is a JAK2 kinase inhibitor that
Slide 100: Fedratinib Appears Far Smaller (cont'd)
Fedratinib Appears to Be Far Smaller and Riskier Than Initially Expected (cont’d) However, Wall Street analysts’ estimates are remarkably in agreement that this will be a small drug. Select Wall Street Analyst Estimates for Fedratinib 2028 Revenue Select Wall Street Analyst Commentary on Fedratinib
Slide 101: Incyte Unconcerned by Fedratinib's Potential Entry
Incyte Appears Wholly Unconcerned by Fedratinib’s Potential Entry into the Market Incyte Corporation (“Incyte”) owns JAKAFI – the current standard of care for myelofibrosis (“MF”) – and is wholly unconcerned by fedratinib’s potential entry into the market. On March 13, 2019, at the Barclays Global
Slide 102: Sanofi Terminated Fedratinib Due to Patient Safety Concerns
Despite Multiple Years of Investment, Sanofi Previously Terminated Fedratinib Due to Patient Safety Concerns Sanofi had originally acquired fedratinib in a deal valued at $635 million, but following years of development, chose to terminate clinical trials as a result of questionable patient safety.
Slide 103: Celgene Paid More Than $1 Billion Upfront for Fedratinib
Yet, Celgene Paid More Than $1 Billion Upfront For Fedratinib Impact Biomedicines resurrected fedratinib in 2017 with ~$110 million of venture funding, and sold the company to Celgene less than two years later in a deal potentially worth $7 billion. In 2017, Impact Biomedicines raised ~$110 million
Slide 104: Contingent Payments Nearly 4x Expected Peak Sales
If Fedratinib Is Approved, Celgene May Owe Impact Biomedicines Contingent Payments Nearly 4x Greater Than Expected Peak Sales According to Celgene’s 10-K filing, the company could owe Impact Biomedicines a contingent payment of $1.4 billion if fedratinib receives regulatory approval (excerpt below).
Slide 105: High Expectations for Ozanimod
Celgene Management Set High Expectations For Ozanimod Celgene management communicated to shareholders that ozanimod would generate $4 - 6 billion peak sales. In July 2015, Celgene gained access to ozanimod through a $7.2 billion acquisition of Receptos. Management declared that ozanimod could be
Slide 106: Ozanimod Already Received an RTF
Despite Consistent Bullish Commentary From Celgene Management, Ozanimod Already Received an RTF Ozanimod received a refusal-to-file (“RTF”) from the FDA despite continuous bullish commentary, heavily damaging the credibility of Celgene’s management team. In February 2018, Celgene announced that th
Slide 107: Initial Excitement on Ozanimod Has Moderated
The Initial Excitement on Ozanimod Has Already Moderated Since the acquisition of ozanimod in July 2015, revenue expectations have already declined by 31%. Celgene Stock Price Performance Pre- and Post-Ozanimod RTF Announcement “We think in order for the story to get back on track $105 February 27,
Slide 108: Ozanimod Faces Significant Competition
Ozanimod Will Likely Face Significant Competition in the Market The multiple sclerosis (“MS”) market is currently occupied by numerous safe, effective, and well-characterized products with more competition coming. Competitive Landscape for Ozanimod Both Physicians and Wall Street Analysts Remain Ske
Slide 109: Arena Has a Competing Product That May Be Superior
Arena Pharmaceuticals Has a Competing Product That May Be Superior Across a Number of Factors Arena Pharmaceuticals is also developing a S1P receptor modulator – the same mechanism of action as ozanimod – that the company believes outcompetes ozanimod across a number of factors. Arena Pharmaceutical
Slide 110: Ozanimod May Have a Serious IP Issue
In Addition, Ozanimod May Have a Serious Intellectual Property (“IP”) Issue Bristol-Myers shareholders only recently learned that Novartis may potentially have blocking IP on ozanimod. We believe a Credit-Suisse report published this month is the first time that Bristol-Myers shareholders have bee
Slide 111: CAR-T Therapy Market Likely to Become Crowded
The CAR-T Therapy Market Is Likely to Become Increasingly Crowded While there are only two chimeric antigen receptor T-cell (“CAR-T”) therapies currently approved, the market is likely to become increasingly crowded as there are numerous studies currently underway. Celgene has highlighted two CAR-
Slide 112: CAR-T Manufacturing Processes Are Highly Complex
CAR-T Manufacturing Processes Are Highly Complex The CAR-T manufacturing processes are extremely complex and existing entrants have already run into issues. Overview of CAR-T Manufacturing Commentary on the Difficulties of Manufacturing CAR-T Therapies “I’d say it’s early days and we’ve always said
Slide 113: Pricing and Reimbursement for CAR-T Could Be Challenging
Pricing and Reimbursement for CAR-T Products Could Also Be Challenging CAR-T therapy pricing has already generated negative media headlines while reimbursement has been rejected in certain geographies. Potential CAR-T Risks There is already increasing government concern and media coverage of CAR-T
Slide 114: Bullish on JCAR017 Despite Being at Least 3rd to Market
Celgene Has Been Very Bullish on JCAR017, Even Though the Company Would Be at Least 3rd to Market Celgene management has repeatedly provided bullish commentary about their CAR-T programs. In March 2013, Celgene made an undisclosed upfront payment to bluebird bio (“bluebird”, “BLUE”) in order to co
Slide 115: Large and Questionable Bet on Juno Therapeutics
Celgene Made a Large and Questionable Bet on a CAR-T Company With a Checkered History Juno Therapeutics has multiple yellow flags in its background related to promoting ultimately disappointing products. Juno Therapeutics was founded in 2013 to develop CAR-T products. – Three of the most promising
Slide 116: JCAR017 Approval Timeline Already Delayed
The Approval Timeline For JCAR017 Has Already Been Delayed… Despite yellow flags, Celgene acquired Juno Therapeutics in January 2018 and confidently targeted a 2019 FDA first approval for JCAR017. However, after bullish commentary through June 2018, the company, without warning, changed the targeted
Slide 117: Disadvantage From Being at Least 3rd to Market
Which Further Exacerbates Celgene’s Disadvantage From Being at Least 3rd to Market if JCAR017 Is Launched If Celgene’s therapies make it to market, they will be years behind the current therapies from Gilead (YESCARTA) and Novartis (KYMRIAH). Historical and Estimated Approval Timeline for CAR-T Ther
Slide 118: Approved CAR-T Therapies Have Underwhelmed
Currently Approved CAR-T Therapies Have Underwhelmed Despite the interest in CAR-T therapies, the launches have severely disappointed, and Wall Street analysts’ estimates continue to decline. While CAR-T is certainly an innovative science, the commercial prospects are far from certain, and initial
Slide 119: Luspatercept: Concerns Remain
While Luspatercept May Commercialize, We Believe There Are Also a Number of Concerns Wall Street analysts’ estimates for luspatercept vary widely, and a number of key thought leaders we have spoken to have voiced concerns. In addition, the targeted patient populations are relatively small, which c
Slide 120: VI. Celgene Deal Carries a Lot of Risk and Will Destroy Value
VI. We Believe the Celgene Deal Carries A Lot of Risk and Will Destroy Value for Bristol-Myers Shareholders 120
Slide 121: Pipeline Not Expected to Generate Positive Adj. EBITDA Until 2025
Bristol-Myers Does Not Expect Celgene’s Pipeline Products to Generate Positive Adj. EBITDA Until 2025 Celgene’s pipeline products will require substantial upfront investment with little visibility into potential payoff. We believe Bristol-Myers management does not expect Celgene’s pipeline products
Slide 122: Celgene's Pipeline Could Destroy Substantial Value
We Believe Celgene’s Pipeline Could Destroy Substantial Value for Bristol-Myers Shareholders While Bristol-Myers’ base case assumes Celgene’s pipeline products will generate ~$18 billion revenue by 2028, we believe there is substantial risk to Bristol-Myers’ forecast. In order to just be NPV-neutr
Slide 123: Three Main Reasons the Acquisition May Destroy Value
We Believe There Are Three Main Reasons Why the Proposed Celgene Acquisition May Destroy Value for Bristol-Myers Shareholders There are three ways that the proposed Celgene acquisition could destroy substantial value for Bristol-Myers shareholders – we summarize each below. 1 Some, or all, of the f
Slide 124: Near-Term Launches May Fail to Commercialize
Some, or all, of the Five Near-Term Product Launches In Celgene’s 1 Pipeline Portfolio May Ultimately Fail to Commercialize Bristol-Myers is assuming pipeline products launched over the next decade will almost all be blockbusters, which completely ignores Celgene’s recent history. Bristol-Myers Mana
Slide 125: Near-Term Launches May Fail to Commercialize (cont'd)
1Some, or all, of the Five Near-Term Product Launches In Celgene’s Pipeline Portfolio May Ultimately Fail to Commercialize (cont’d) In its base case, Bristol-Myers is assuming Celgene can generate blockbuster drugs at a pace completely out- of-line with historical performance, adding substantial ris
Slide 126: Near-Term Launches May Fail to Commercialize (cont'd)
1Some, or all, of the Five Near-Term Product Launches In Celgene’s Pipeline Portfolio May Ultimately Fail to Commercialize (cont’d) In addition, recent history suggests that Celgene management is inaccurate at predicting pipeline product success. Celgene management highlighted fourteen significant
Slide 127: Near-Term Launches May Fail (cont'd): ~$30 Billion Paid
1Some, or all, of the Five Near-Term Product Launches in Celgene’s Pipeline Portfolio May Ultimately Fail to Commercialize (cont’d) We estimate Bristol-Myers is paying ~$30 billion for Celgene’s pipeline products with an extremely thin margin for error – even if just one or two products fail to comm
Slide 128: Sales for Five Near-Term Launches May Fall Below Expectations
Sales for Celgene’s Five Near-Term Product Launches 2 May Fall Below Bristol-Myers Expectations With the exception of fedratinib, there is not only significant variance in Wall Street analysts’ revenue projections for Celgene’s five near-term product launches, but the median of Wall Street analysts’
Slide 129: Sales May Fall Below Expectations (cont'd)
Sales for Celgene’s Five Near-Term Product Launches 2 May Fall Below Bristol-Myers Expectations (cont’d) If we adjust Bristol-Myers 2028 near-term pipeline products revenue down to the median of Wall Street analysts’ estimates, Celgene’s pipeline would be value destructive for Bristol-Myers sharehol
Slide 130: Sales May Fall Below Expectations: Earlier-Stage Assets
Sales for Celgene’s Five Near-Term Product Launches 2 May Fall Below Bristol-Myers Expectations (cont’d) Yet that still assumes Bristol-Myers will generate, on average, five additional blockbusters in its early-stage pipeline from yet to be identified products. We find Bristol-Myers’ implied assum
Slide 131: Sales May Fall Below Expectations (cont'd)
Sales for Celgene’s Five Near-Term Product Launches 2 May Fall Below Bristol-Myers Expectations (cont’d) If we adjust Bristol-Myers 2028 near-term pipeline products revenue down to the median of Wall Street analysts’ estimates, and apply a similar discount for the earlier-stage, yet-to-be-identified
Slide 132: Analysts Historically Overly Optimistic on Celgene Products
Sales for Celgene’s Five Near-Term Product Launches 2 May Fall Below Bristol-Myers Expectations (cont’d) However, Wall Street analysts have historically been overly optimistic in their estimates for both Celgene’s marketed and pipeline products. Indexed 2018 Actual Revenue by Product vs. Wall Street
Slide 133: Only Three Blockbusters Could Destroy $46 Billion
Sales for Celgene’s Five Near-Term Product Launches 2 May Fall Below Bristol-Myers Expectations (cont’d) If Celgene’s pipeline commercializes only three blockbuster products, similar to the number it has commercialized over the last 15 years, $46 billion of value could be destroyed.(1) Estimated NPV
Slide 134: REVLIMID Fully Genericizes Earlier Than 2026
3 REVLIMID Fully Genericizes Earlier Than 2026 Celgene is currently engaged in litigation with nine generic manufacturers over its REVLIMID patents, and has already settled with two. It is reasonable to believe additional generic challengers will emerge. Landscape of Generic Challengers for REVLIMID
Slide 135: Earlier REVLIMID Genericization Could Make Deal NPV-Negative
3 REVLIMID Fully Genericizes Earlier Than 2026 (cont’d) If REVLIMID is fully genericized even two years earlier than expected, the Celgene acquisition could be NPV- negative for Bristol-Myers shareholders. Value of Celgene’s Marketed Products Assuming Earlier REVLIMID Genericization ($ in billions)
Slide 136: Must Realize Base Case Projections to Realize Small Value
Bristol-Myers Must Realize Its Base Case Projections to Realize Even a Small Amount of Value for Shareholders Even if Bristol-Myers realizes its aggressive base case assumptions, shareholders will only realize a 3% annualized return above the Company’s WACC. We believe Bristol-Myers management is
Slide 137: Acquisition Will Not Create Value for Shareholders
We Do Not Believe the Proposed Acquisition of Celgene Will Create Value for Bristol-Myers Shareholders After adjusting Bristol-Myers’ standalone financial assumptions in the S-4 for the capital structure of the combined entity, we believe standalone Bristol-Myers would generate higher earnings per s
Slide 138: Acquisition Will Not Create Value (cont'd)
We Do Not Believe the Proposed Acquisition of Celgene Will Create Value for Bristol-Myers Shareholders (cont’d) After adjusting Bristol-Myers’ standalone financial assumptions in the S-4 for the capital structure of the combined entity, we believe standalone Bristol-Myers would generate higher earni
Slide 139: VII. The Timing of the Transaction Raises Many Questions
VII. The Timing of the Transaction Raises Many Questions 139
Slide 140: Only 2 Weeks of Full Due Diligence on ~25 Compounds
Bristol-Myers Appears to Have Completed Only 2 Weeks of Full Due Diligence on a Complex Pipeline of ~25 Compounds Based on the S-4, it appears that Bristol-Myers only had approximately two weeks of full data room access, which we believe may have been severely inadequate to properly analyze and valu
Slide 141: Questioning the Integrity of the Due Diligence Process
We Question the Integrity of the Due Diligence Process On December 16, 2018, Bristol-Myers and Celgene uploaded documentation to a data room for the first time. Therefore, Bristol-Myers only had slightly more than two weeks of full access before announcing the transaction. The timeline suggests th
Slide 142: Celgene Willing to Allow Longer Diligence
Celgene Appeared Willing to Allow a Longer Diligence Process Due to a Lack of Competing Interest In this situation, unlike a typical M&A process, it appears that the buyer forced a rushed process with limited diligence, in order to complete the deal by an arbitrary deadline. Typically, it is the s
Slide 143: Bristol-Myers Obsessed with Announcing a Deal Quickly
Celgene Appeared Willing to Allow a Longer Diligence Process But Bristol-Myers Appeared Obsessed with Announcing a Deal Quickly The Bristol-Myers management team seemed incredibly insistent upon announcing the deal with Celgene by January 2nd even though Celgene appeared willing to allow a longer pr
Slide 144: Science and Technology Committee Not Properly Involved
The Science and Technology Committee Does Not Appear to Have Been Properly Involved During the Deal Process Per Bristol-Myers’ S-4, the Science and Technology Committee of the Bristol-Myers Board met only once during the Celgene acquisition process, which was on the day the deal was approved. Per
Slide 145: Bristol-Myers Did Not Consider Other Alternatives
It Does Not Appear That Bristol-Myers Considered Other Alternatives Before making the decision to do one of the largest pharmaceutical deals in history, Bristol-Myers appears to not have considered any alternatives. In May 2017, at Bristol-Myers’ Annual Shareholder Meeting, management completely s
Slide 146: Rumored to Be a Potential Acquisition Target for Years
Bristol-Myers Has Been Rumored to Be a Potential Acquisition Target for Years Despite repeated headlines over the years that Bristol-Myers may be for sale, it does not appear that the Company ever explored a sale as a means of maximizing shareholder value. Select Commentary and Headlines From Media
Slide 147: Transaction May Have Been Motivated by Defensive Purposes
We Believe This Transaction May Have Been Motivated by Defensive Purposes Following the failure of CHECKMATE-026 in August 2016, active shareholders emerged and several news outlets commented on potential strategic interest in Bristol-Myers. $62 January 5, 2017: JANA reports new Media Speculation in
Slide 148: After Agreement With Active Shareholder, Focus on Large Transaction
Following the Agreement With an Active Shareholder, Bristol- Myers Management Immediately Focused on a Large Transaction One could easily infer from the timeline below that Bristol-Myers decided to attempt a large transaction to avoid potentially being acquired. Bristol-Myers initiated merger disc
Slide 149: Management Acknowledged Previous Discussions
Management Appears to Have Finally Acknowledged Previous Discussions Prior to the Celgene Process At a recent investor event, Bristol-Myers CEO Giovanni Caforio finally acknowledged past discussions about a potential acquisition of Bristol-Myers following several attempts to avoid answering the ques
Slide 150: Buying Celgene Would Serve as a Poison Pill
Buying Celgene Would Effectively Serve as a Poison Pill Against Potential Strategic Interest A combined Bristol-Myers / Celgene would effectively become too large to acquire, with the added complication of having one of the largest patent cliffs in pharmaceutical history. The sheer size of the pro
Slide 151: VIII. A Better Path Forward For Bristol-Myers
VIII. There Is A Better Path Forward For Bristol-Myers 151
Slide 152: Amgen's Margin Improvement Plan Provides a Blueprint
Amgen’s Margin Improvement Plan Provides a Blueprint for Bristol-Myers In 2014, Amgen announced a business transformation in order to increase margins 1,500bps by 2018. “In terms of value creation for shareholders, it's really a multi-pronged approach. So, topline growth around the product launches,
Slide 153: Amgen Blueprint (cont'd): Margins Higher Than Bristol-Myers
Amgen’s Margin Improvement Plan Provides a Blueprint for Bristol-Myers (cont’d) Due to Amgen’s execution of a margin improvement plan over the past several years, its margins are now significantly higher than Bristol-Myers’. 2014 Amgen Management Presentation LTM Adj. EBITDA Margins(1) Significant s
Slide 154: Amgen Blueprint (cont'd): Three Operating Functions
Amgen’s Margin Improvement Plan Provides a Blueprint for Bristol-Myers (cont’d) Amgen primarily targeted three operating functions for improvement, which are consistent with what we are advocating for at Bristol-Myers. Amgen Management Commentary on Business Improvement Plan by Operating Function “S
Slide 155: Amgen Blueprint (cont'd): Value Unlocked for Shareholders
Amgen’s Margin Improvement Plan Provides a Blueprint for Bristol-Myers (cont’d) By successfully delivering on the business transformation plan and increasing operating margins by 1,500bps, Amgen has unlocked significant value for its shareholders. Stock Price Performance Since Amgen Announced Busine
Slide 156: Strong Performance and Attractive Growth Profile
Bristol-Myers Continues to Exhibit Strong Performance and an Attractive Growth Profile Bristol-Myers has a highly attractive immuno-oncology franchise with leading market share across multiple categories. Per the Company’s S-4 filing, Bristol-Myers management is expecting strong growth over the ne
Slide 157: Core Franchises Expected to Generate Strong Revenue Growth
Bristol-Myers’ Core Product Franchises Are Expected to Generate Strong Revenue Growth Bristol-Myers’ two core franchises, OPDIVO and ELIQUIS, are projected by Wall Street analysts to generate continued strong growth. Wall Street Consensus OPDIVO Revenue Estimates Wall Street Consensus ELIQUIS Revenu
Slide 158: Consensus Predicts Continued Revenue and Earnings Growth
Wall Street Consensus Expectations Predict Continued Revenue and Earnings Growth for Standalone Bristol-Myers Wall Street analysts expect Bristol-Myers to continue to grow revenue and leverage it into faster adjusted EPS growth. Wall Street Consensus Bristol-Myers Revenue Estimates Wall Street Conse
Slide 159: Confidence in Product Franchises
We Agree With Bristol-Myers Management’s and Wall Street Analysts’ Confidence in Its Product Franchises Bristol-Myers management has continued to emphasize to investors that its product franchises are strong. Bristol-Myers Management and Wall Street Analyst Core Franchise Commentary “…I am very prou
Slide 160: IO Franchises Have Numerous Growth Opportunities
Bristol-Myers’ IO Franchises Have Numerous Growth Opportunities Bristol-Myers’ IO franchises have opportunities to drive significant growth in the future. Bristol-Myers has many opportunities to continue to grow its IO franchise Source: Public company filings. 160
Slide 161: Confidence in Its Pipeline
We Agree With Bristol-Myers Management’s and Wall Street Analysts’ Confidence in Its Pipeline Bristol-Myers management has continued to emphasize to investors that its pipeline is robust. Bristol-Myers Management and Wall Street Analyst Pipeline Commentary “I do belong to the camp where I think ther
Slide 162: Management Confident in Further Margin Expansion
Bristol-Myers Management Continues to Be Confident in Further Margin Expansion Bristol-Myers management believes that gross margins have troughed and that operating margins will continue to improve. Bristol-Myers Management Margin Commentary Bristol-Myers Gross Margin(1) 90% “…as I mentioned in the
Slide 163: Well-Positioned Standalone to Continue "String of Pearls"
Bristol-Myers Is Well-Positioned on a Standalone Basis to Continue Its Previously Successful “String of Pearls” Strategy Bristol-Myers has a strong balance sheet and significant expected unlevered free cash flow generation potential, which will allow management to execute on a “String of Pearls” gro
Slide 164: Management Has Faith in Its Standalone Business
Bristol-Myers Management Clearly Has Faith in Its Standalone Business In the Company’s S-4 filing, Bristol-Myers management provides 2019 – 2023 estimates for standalone Company performance, which are significantly better over the long term than Wall Street consensus estimates, and suggests that man
Slide 165: Significant Operational Improvement Opportunity
However, We Believe Bristol-Myers Can Be Even Better and That There Is a Significant Operational Improvement Opportunity We believe Bristol-Myers standalone adjusted EBITDA margins could improve from 36% to 45%, with an opportunity to potentially expand margins further over time. Through our work
Slide 166: Specific Margin Improvement Opportunities
We Believe There Are Specific Margin Improvement Opportunities at Bristol-Myers We believe that significant cost savings opportunities exist across various functional areas at Bristol-Myers to substantially improve EBITDA. Expense Category Opportunities Bristol-Myers’ gross margins are well below
Slide 167: Opportunities to Significantly Improve Adjusted EBITDA Margins
We Believe There Are Opportunities to Significantly Improve Adjusted EBITDA Margins We believe that there is an opportunity to significantly improve profitability at Bristol-Myers. We believe there are significant opportunities within SG&A, R&D and COGS to improve margins at Bristol-Myers. Over
Slide 168: Gross Margins Are Below Peer Levels
Bristol-Myers’ Gross Margins Are Below Peer Levels We believe Bristol-Myers has a potential opportunity to improve its gross margins. We believe Bristol-Myers has opportunities to improve gross margins through improvements in capacity utilization, streamlining of high-cost geographies, and improve
Slide 169: Significant Facility Footprint
Bristol-Myers Has a Significant Facility Footprint Rationalization opportunities may exist in manufacturing, distribution and packaging plants. Bristol-Myers Global Facility Footprint We believe there may an opportunity to improve Bristol-Myers’ capacity utilization. Bristol-Myers appears to be
Slide 170: Opportunities to Improve the Manufacturing Process
There Are Opportunities to Improve the Manufacturing Process That Could Result in Substantial Margin Improvement We believe there are significant opportunities within the Company to substantially improve cycle times and enhance cell yields within the manufacturing process to drive future margin impr
Slide 171: Overview of the Biologics Manufacturing Process
A General Overview of the Biologics Manufacturing Process Below is a general overview of the biologics manufacturing process. Biologics Manufacturing Process Manufacturing Timeline 1 2 3 4-5 days per 1 Cell Culture sub-step Production 2 18 days* Bioreactor 3 Clarification 1+ days 4 5 Product 1-2 day
Slide 172: Opportunities to Improve the Manufacturing Process
Opportunities to Improve the Manufacturing Process We believe there is an opportunity to optimize cell culture to improve manufacturing yields. 1 2 3 4 5 A cell culture medium (essentially a “nutritional broth” for cells) consists of a blend of nutrients, vitamins, amino acids, and soy hydrolysate
Slide 173: Strategies to Improve Cycle Time
Strategies to Improve Cycle Time Key Considerations For Understanding Cycle Time in a Typical Biologics Manufacturing Process A batch is the filled drug substance resulting from a single production bioreactor run/lot. Unit operations are run consecutively for a single production run/lot but unit
Slide 174: Strategies to Improve Cycle Time (cont'd)
Strategies to Improve Cycle Time (cont’d) We believe there are opportunities to significantly improve Cycle Time without drastically changing the manufacturing process. 1 2 3 The Production Bioreactor (Stage 2 ) has the longest Unit Operation Cycle Time (3 days); the N-1 (“Seed” – Stage 1 ) Biorea
Slide 175: Opportunities to Enhance Cell Yields
Opportunities to Enhance Cell Yields In addition to improving Cycle Times, we believe there is a significant opportunity to enhance Cell Yields. When trying to improve volumetric product concentration in the Production Bioreactor, three typical strategies are employed: 1 Generate a new Cell Line tha
Slide 176: Opportunity to Improve SG&A Expense to Peer Levels
We Also Believe There Is an Opportunity to Improve SG&A Expense to Peer Levels We believe that there is an opportunity to lower Bristol-Myers’ SG&A to peer levels through numerous cost reduction initiatives. We believe Bristol-Myers may have an opportunity to reduce its S&GA expense ratios to be m
Slide 177: Less Efficient Than Peers in Finance and HR
We Believe Bristol-Myers Is Less Efficient than Peers in Its Finance and Human Resources Functions Bristol-Myers appears to have higher levels of staffing than peers in its Finance and Human Resources functions. Finance FTEs Per $1 Billion in Revenue Observations Bristol-Myers has multiple extra l
Slide 178: Less Efficient Than Peers in IT and Procurement
We Believe Bristol-Myers Is Less Efficient than Peers in Its IT and Procurement Functions Bristol-Myers appears to have an opportunity to reduce spending in its Information Technology and Corporate Services functions. Information Technology FTEs Per $1 Billion in Revenue Observations Bristol-Myers
Slide 179: Opportunity to Reduce Sales and Marketing Spending
We Believe There May Also Be an Opportunity to Reduce Sales and Marketing Spending We believe Bristol-Myers has an opportunity to improve the efficiency of its Sales & Marketing organization. We believe Bristol-Myers has an inefficient Sales & Marketing organization due to excess layers of managem
Slide 180: Opportunity to Improve R&D Efficiency
We Believe There Is an Opportunity to Improve Research & Development Efficiency We believe that there is an opportunity to lower Bristol-Myers’ research and development (R&D) expense closer to peer levels through numerous cost reduction initiatives. We believe Bristol-Myers currently spends a sign
Slide 181: Greater R&D Spending per Employee Than Peers
Bristol-Myers Has Greater Research & Development Spending per Employee Than Peers Bristol-Myers spends significantly more on research and development (R&D) per employee than peers. Despite reductions in its R&D employee base, Bristol-Myers still spends significantly more on research and developmen
Slide 182: May Possess Excess R&D Facility Capacity
Bristol-Myers May Possess Excess R&D Facility Capacity Despite generating less than half of Pfizer’s revenue, Bristol-Myers operates more R&D facilities than Pfizer. Through various restructurings and reorganizations, Pfizer has consolidated and reduced its R&D footprint. We believe that Bristol-M
Slide 183: Less Revenue per R&D Facility Than Peers
Bristol-Myers Also Generates Less Revenue per Research & Development Facility Than Peers Bristol-Myers generates significantly less revenue per R&D facility than peers. We believe that either Bristol-Myers’ R&D facilities are not as productive as peers or the Company has too many R&D facilities...
Slide 184: Enhance R&D Through More External Partnerships
We Believe Bristol-Myers Could Enhance Research & Development Through More External Partnerships We believe Bristol-Myers could improve research and development productivity by increasing the Company’s number of external partnerships. According to Bristol-Myers’ 10-K filing, about 1 in 10,000 mole
Slide 185: Elevated R&D Spending Has Not Translated Into Pipeline Success
Bristol-Myers’ Elevated Research & Development Spending Has Not Translated Into Pipeline Success Bristol-Myers’ internally-focused research & development process, which has been very well funded, has failed to generate innovation to fill the Company’s mid-to-late stage pipeline. Despite spending a
Slide 186: Streamline the R&D Decision-Making Process
We Believe Bristol-Myers Could Streamline the Research & Development Decision-Making Process Based on our conversations with former Bristol-Myers R&D executives, as well as former executives at best-in- class peers, we believe Bristol-Myers’ R&D approval process results in too many unnecessary steps
Slide 187: Streamline R&D Decision-Making (cont'd)
We Believe Bristol-Myers Could Streamline the Research & Development Decision-Making Process (cont’d) Not only do Bristol-Myers’ extra R&D layers result in increased costs, we believe they also result in missed opportunities. Licensing Process Clinical Program Process “It typically took over 12 mont
Slide 188: IX. Conclusion
IX. Conclusion STARBOARDAYALU E 188
Slide 189: Substantial Risk Without Sufficient Reward
Management Is Asking Shareholders to Accept Substantial Risk Without Sufficient Reward Shareholders must be comfortable and supportive of the true merits of the deal – not simply trust management’s lofty expectations – given the size of the deal and risks it poses. Shareholders need to understand
Slide 190: 2028 Base Case Assumes Revenue Well Above Analyst Estimates
Bristol-Myers’ 2028 Base Case for Celgene’s Pipeline Assumes Revenue Well Above Analyst Estimates Bristol-Myers’ 2028 base case assumptions for Celgene’s pipeline products’ revenues are significantly higher than Wall Street analysts’ estimates. 2028 Bristol-Myers Management vs. Wall Street Median Es
Slide 191: Celgene Has Only Developed 3 Blockbusters in 15 Years
Celgene Has Only Developed 3 Blockbusters In 15 Years, But Bristol-Myers’ Base Case Assumes, On Average, 10 Blockbusters in the Next 8 Years In its base case, Bristol-Myers is assuming Celgene can generate blockbuster drugs at a pace completely out- of-line with historical performance, adding substa
Slide 192: More Likely Scenarios Would Destroy Value
In What We Believe Are More Likely Scenarios, This Deal Would Destroy Value We estimate Bristol-Myers is paying ~$30 billion for Celgene’s pipeline products with an extremely thin margin for error – even if just one or two products fail to commercialize, Celgene’s pipeline could destroy significant
Slide 193: A Better Path Forward as a Standalone Company
There Is a Better Path Forward for Bristol-Myers as a Standalone Company Based on our research, we believe that there is an opportunity to significantly improve the operations of a standalone Bristol-Myers. We believe a standalone Bristol-Myers would have a stable and growing revenue base, with ro
Slide 194: Standalone Bristol-Myers Has a Strong and Growing IO Franchise
Standalone Bristol-Myers Has a Strong and Growing IO Franchise Bristol-Myers has a highly attractive immuno-oncology franchise with leading market share across multiple categories. Per the Company’s S-4 filing, Bristol-Myers management is expecting strong growth over the next several years. Bristo
Slide 195: Well-Positioned Standalone to Continue "String of Pearls"
Bristol-Myers Is Well-Positioned on a Standalone Basis to Continue Its Previously Successful “String of Pearls” Strategy Bristol-Myers has a strong balance sheet and significant expected unlevered free cash flow generation potential, which will allow management to execute on a “String of Pearls” gro
Slide 196: Plan Can Improve Standalone Profitability Significantly
We Believe Our Plan Can Improve Standalone Bristol- Myers’ Profitability Significantly We believe that there is an opportunity to significantly improve profitability at Bristol-Myers. We believe there are significant opportunities within SG&A, R&D and COGS to improve margins at Bristol-Myers. Ov
Slide 197: Shareholders Should Not Feel Pressured to Support This Transaction
Shareholders Should Not Feel Pressured to Support This Proposed Transaction As we have clearly laid out in this presentation, standalone Bristol-Myers has an opportunity for substantial shareholder value creation. The proposed acquisition of Celgene adds substantial risk for Bristol-Myers sharehol