AstraZeneca has agreed to buy Bristol-Myers Squibb's stake in the companies' diabetes joint venture for up to $4.1 billion in a deal that will help return the group to growth, sending its shares to an new high.
AstraZeneca said on Thursday that it would pay Bristol an initial $2.7 billion plus up to $1.4 billion in additional regulatory and sales-related payments.
The move will bulk up AstraZeneca's thin drug portfolio and give Bristol more funds to invest in other areas, such as cancer, where it is developing promising therapies tapping into the immune system.
Shares in AstraZeneca hit an 11-year high following the announcement of the deal, climbing 2.6 percent to 3,653 pence in early morning trading.
"Today's announcement reinforces AstraZeneca's long-term commitment to diabetes, a core strategic area for us and an important platform for returning AstraZeneca to growth," AstraZeneca's Chief Executive Pascal Soriot said in a statement.
Soriot, who took over in October last year, has focused on diabetes as key area for growth, hoping to tap into rising demand for medicines to deal with an epidemic of the disease, which is closely tied to obesity.
Buying the Bristol stake in the venture will boost his company's sales and profits, even as Soriot continues the long-term quest to improve the pipeline of promising experimental medicines.
For Bristol, the deal means it will become an even more focused specialist drugmaker.
Bernstein analyst Tim Anderson said in a research note issued before the deal was announced that a price of $4 billion would imply a multiple of 4.8 times sales for the half of the joint venture that AstraZeneca does not already own.
"At this price, AstraZeneca would be picking up these assets at a seemingly good price and Bristol-Myers would seem to be selling them a bit below market value," he said.
AstraZeneca said the acquisition, which it will finance from existing cash resources and short-term credit facilities, would be neutral to its core earnings in 2014.
A worse than expected performance by Bydureon, one of the diabetes treatments, prompted AstraZeneca to also say that it would incur a non-core impairment charge of around $1.7 billion.
Speculation that such a deal might be on the cards was fuelled last month after Bristol decided to exit diabetes drug research.
The Bristol-AstraZeneca diabetes joint venture includes the oral medicines Onglyza, Kombiglyze and Forxiga, as well as the injectable treatments Bydureon and Byetta. Last week, the venture received a boost when an advisory panel to