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For a company as badly injured as Bristol-Myers Squibb, any signs of recovery are welcome. It has done more than that since last year’s self-inflicted Plavix disaster, when the drugsmaker allowed a generic rival to flood the market.
Thursday’s surprise appointment of James Cornelius, interim chief executive, for another two years is unlikely to quell speculation of a potential sale. As CEO of Guidant, Mr Cornelius skilfully engineered the bidding war for the medical device maker and its eventual sale to Boston Scientific. He seems to have been equally adroit at avoiding a takeover of BMS at a bargain price.
Admittedly, first quarter earnings at BMS mainly surpassed expectations thanks to an effective tax rate of just 9.4 per cent. But tight cost controls and a recovery in Plavix sales also helped. That further strengthens the case for remaining independent while the Plavix litigation is still pending. BMS and its partner Sanofi-Aventis look set to successfully defend their patent for the blood-thinning drug.
In the meantime, however, Sanofi would have an information edge over other bidders, who might otherwise be enticed by the comparatively promising pipeline of BMS. Mr Cornelius’s latest drug development deal, this time with Pfizer, is another sign of how desperate big drugs companies remain to get their hands on new products.
The terms appear favourable for BMS even if it gets bought. But like a similar agreement earlier in the year with AstraZeneca, it might reduce the appeal of BMS as a target. Given Mr Cornelius’s record as a seller, chances are he would still secure a decent price. But with BMS shares trading at 23 times this year’s earnings on the back of bid hopes, Mr Cornelius should keep in mind that there is often a fine line between sensible delaying tactics and poison pills.
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