UPDATE 4-Bristol-Myers to buy Medarex for $2.4 billion

* Bristol to pay 90 pct premium for Medarex shares

* Deal would give Bristol full ownership of melanoma drug

* Bristol sees deal enhancing cancer, immunology strength

(Adds details on value of deal, other biotech transactions)

By Ransdell Pierson

NEW YORK, July 22 (Reuters) - U.S. drugmaker Bristol-Myers Squibb Co (BMY.N) said on Wednesday it will pay $2.4 billion to acquire Medarex Inc MEDX.O, a biotechnology company that has been helping it develop a promising treatment for melanoma since 2005.

The actual cost to Bristol-Myers will be $2.1 billion as it will acquire $300 million of Medarex cash upon closing the deal.

Medarex's expertise in making antibody-based drugs could help Bristol-Myers as it strives to regain its stature as one of the world's leading players in the oncology market, and to develop treatments for immunologic conditions such as arthritis, lupus and psoriasis.

The agreed offer of $16 a share represents a 90 percent premium to Medarex's closing share price on Wednesday of $8.40 per share on Nasdaq.

Bristol already owns a 2 percent stake in Medarex, through its four-year-old partnership with its neighbor in Princeton, New Jersey.

Medarex has developed so-called "transgenic" mice with human immune systems that are able to generate fully human antibodies that can be used as drugs.

"The premium is not out of whack when you look at the scarcity value of this technology and the appetite for biotech companies right now," a source familiar with the deal told Reuters. "It's a small deal in size but a large deal in terms of the potential scope they gain with this science."

Bristol-Myers and Medarex are developing one of the mouse-generated antibodies, called ipilimumab, as a treatment for patients in late stages of melanoma -- the most deadly form of skin cancer for which no highly effective treatments now exist.

In three mid-stage clinical trials, 30 to 42 percent of patients with metastatic melanoma treated with ipilimumab were still alive after two years, which Bristol-Myers said established a survival benefit.

The companies are now conducting a larger late-stage trial, requested by U.S. regulators, designed to show an unequivocal survival benefit.

The partners are also conducting a mid-stage trial of ipilimumab among lung cancer patients and a late-stage study of it against advanced prostate cancer.

DRUG TESTING

Medarex's technology has been used to develop several recently approved medicines, for which the company receives royalties.

They include Johnson & Johnson's (JNJ.N) Simponi (golimumab), approved in the United States for rheumatoid arthritis, and J&J's Stelara (ustekinumab), recently cleared in Europe to treat psoriasis. A Medarex antibody is also the basis of Ilaris, a Novartis AG (NOVN.VX) treatment for children with an inflammatory disease caused by rare genetic mutations.

"Medarex is one of the grand-daddies of the antibody research field, and it has finally come of age," said Steve Brozak, an analyst at WBB Securities.

Bristol-Myers spokesman Brian Henry said Medarex is testing 10 other drugs in clinical trials, some with other large drugmakers.

"This deal will give us (full) rights to ipilimumab and broadly position Bristol-Myers for long-term leadership in biologics," Henry said, referring to complicated biotech drugs that are typically given by injection.

"This deal clearly expands our opportunities in oncology and immunology," Henry said.

Medarex and a company called Abgenix were the first to develop transgenic mouse systems.

Abgenix was acquired by Amgen in December 2005 for $2.2 billion in cash plus the assumption of debt. Abgenix gave Amgen full ownership of panitumumab, now known as Vectibix, an approved treatment for colorectal cancer.

It also removed the necessity of Amgen to pay a royalty to Abgenix on future sales of denosumab, a bone drug that is now considered Amgen's big hope for the future.

Other companies that specialize in monoclonal antibodies include Regeneron Pharmaceuticals Inc (REGN.O), Seattle Genetics (SGEN.O), which has multiple collaborations, and Immunogen Inc (IMGN.O).

BOARD APPROVAL

Bristol-Myers said its purchase of Medarex has been unanimously approved by the boards of both companies and is expected to close in late August.

Bristol-Myers has completed more than a half dozen smaller deals with biotech companies since late 2007, either buying them outright or licensing their products, as part of its strategy to become a major player in biologics.

Most other large drugmakers are also scrambling to buy promising biotechs.

J&J earlier this month completed its $930 million purchase of Cougar Biotechnology Inc, just days after agreeing to pay $1 billion for an 18 percent stake in Irish drugmaker Elan Corp (ELN.I) and to acquire a major stake in Elan's portfolio of experimental treatments for Alzheimer's disease. (Reporting by Ransdell Pierson, Jessica Hall and Toni Clarke; Editing by Gary Hill and Carol Bishopric)