The next target of M&A?

Guessing for a M&A target is obviously very speculative with no certainty whatsoever but if it is a good value stock that you don’t mind holding for long term, it could be a great plus if it is also a potential target for a merger, sort of win-win situation. I think Bristol Myers Squibb (BMY) is probably in such a sweat spot.

For anyone who knows the pharmaceutical oncology R&D, immune-oncology (IO) is THE hottest area at the moment. BMY is by all means the pioneer that has opened a totally new era in the cancer therapy history. It successfully developed and commercialized the very first IO treatment, ipiliumab (Yeryoy), a CTLA-4 inhibitor for melanoma, and then the PD-1 drug, Opdivo for lung cancer. BMY used to be an unbeatable frontrunner for IO until about a year ago when it announced a surprisingly failed result for Opdivo as the first line treatment in a study for the small cell lung cancer. $20 billion was instantly wiped out from the BMY market cap and it has plunged over 30% since then from all time high about $75 to below $50. With such a spectacular correction, BMY has returned to its more normal valuation and since then, it has stabilized and I think its bottom is in for now. In the past few years, BMY has substantially streamlined its business by selling non-core assets and is currently largely focused on the IO business. It has a wide range clinical trial ongoing with different combo strategies for various cancer indications. For sure it won’t be a smooth way but it has a great IO asset not many competitors can compete with. It has very matured good selling products that generate tons of cash flow for BMY and it is paying a great dividend (nearly 3%). A good sign of its bottoming came from another surprising failed clinical trial from AstraZeneca, showing that its PD-L1/CTLA4 combo of Imfinzi and tremelimumab did not show a clinical benefit over Imfinzi alone or chemo at increasing progression-free survival among first-line lung-cancer patients. BMY has a similar combo study   for Opdivo-Yervoy pairing in that setting. Naturally people worried a similar result for BMY and its share price got hair cut by 5% following the news. But very quickly BMY has recovered from the shock. This is a typical bottoming signal, folks, that bad news could not move the stock much but any less bad news could trigger a spectacular run. Holding BMY for long term to enjoy its nice dividends is a great idea but I think there is a good chance BMY could be bought out soon. For companies that are eager to get into the IO business, there is nothing more comprehensive than BMY’s IO portfolio as well as its leading knowledge and experiences in this area. Of course, with BMY’s size, not many can afford to buy it. Still there are a few. For example, Pfizer has a lot of cash but has been constantly struggling with new product lines. It is no shy of actively looking for big size MA. BMY could be a great supplement to its portfolio. GSK has recently announced to re-enter the oncology R&D. Buying BMY could be a jump start. If a M&A occurs, a 30-50% instant appreciation for BMY is highly likely. Even if not, BMY itself will move up substantially in the years ahead along with its further advancing in the IO business. Either way, you can make money with BMY!