Bristol Meyers Squibb Finance Paper

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BRISTOL-MEYERS SQUIBB FINANCIAL ANALYSIS
A BRISTOL MEYERS SQUIBB AMYLIN MERGER ANALYSIS:
RICHARD LATIMER
UMUC FINANCE MAJOR

Executive Summary

On August 9th Bristol-Meyers Squibb successfully completed the tender offer for all of the outstanding shares of common stock of Amylin Pharmaceuticals Inc (NASDAQ: AMLN) at a purchase price of $31.00 per share.

As of the expiration of the offer on August 9th 140,550,153 shares of common stock of Amylin were validly tendered and not withdrawn in the tender offer. This according to a press release by Bristol-Meyers Squibb on August 9th . Bristol- Meyers Squibb exercised a right granted under the merger agreement with Amylin pursuant to which the tender offer was made to purchase additional shares from Amylin which would allow the biopharmaceutical giant to complete the merger without stockholder approval.

So why the consolidation in the biotech world and frankly why are there not more deals being done in the industry. Generic drugs play a huge role in why biotech companies do mergers. Once a drug company develops and brings to market a particular drug it has a certain amount of time to recoup R&D costs and turn a profit before generics are legally able to enter the market. Last year drugmakers lost patent protection on products valued at over $34 billion in annual sales. Looking over the horizon that number is expected to rise to $147 billion by 2015 according data compiled by Bloomberg.

The giants of the drug industry are looking for companies that have assets (potential drugs) that may fill the gap when patent protection is lost to generics. For Bristol-Meyers one of the more recent examples of this occurred as early as May of this year when its top seller Plavix a blood thinner faced generic competition for the first time. In 2011 Plavix was a $7.1 billion dollar boon to Bristol-Meyers. That is a chunk of revenue lost to patent protection.

So why aren’t there more deals being done to offset lost patent protection? The drugmakers say there would be but here lies the issue. Most drugs that are in a companies pipeline are failures. So for the giants in the industry its not a matter of not wanting to do more deals or even the the risk in doing them. Its finding the product that’s worth buying.

In Amylin’s case it ended a marketing partnership with Eli Lilly & Co. (LLY) on two rising stars in the diabetes arena Bydureon and Byetta. Before rejecting an original offer by Briston-Meyers Squibb of $22 per share in February of 2012, Amylin had already sought suitors back in November 2011.

Bristol-Meyers Squibb failed in its bid on an experimental diabetes product dapagliflozin after failing to garner U.S. marketing approval in January. The Food and Drug Administration asked for more data to assess its risks and benefits. No wonder Bristol Meyers Squibb sought the assets of Amylin.

Contents
Executive Summary2
Introduction4
FINANCIAL ANALYTICS5
Bristol-Meyers Revenue5
BRISTOL-MEYERS SQUIBB Operating Expenses6
OPERATING PROFIT MARGIN6
DEBT RATIOS BRISTOL-MEYERS SQUIBB6
PROFITABILITY RATIOS BRISTOL-MEYERS SQUIBB7
BRISTOL-MEYERS SQUIBB WACC CALCULATION7
INDUSTRY RATIO COMPARISON 20118
BRISTOL-MEYERS SQUIBB STOCK PERFORMANCE9
BRISTOL-MEYERS SQUIBB ACQUISITION HISTORY9
EVALUATION & DISCUSSION BRISTOL-MEYERS SQUIBB & AMYLIN MERGER11 AMYLIN REQUIRED RATE OF RETURN BASED ON CAPM AND CORPORATE VALUATION UNDER DIFFERENT CAPITAL STRUCTURE CHANGES12 CONCLUSION AND OBSERVATIONS16

Bibliography17

Introduction
For Bristol-Meyers Squibb the Amylin purchase was the largest of 19 acquisitions since 2007. The acquisition was strategic in nature considering the potential of the growing medical needs of the diabetes market. The acquisition of Amylin gave Bristol-Meyers instant access to the diabetes market...
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