LONDON AstraZeneca (AZN.L) has agreed to buy Bristol-Myers Squibb's (BMY.N) 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 a 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.
Following the announcement shares in AstraZeneca hit an 11-year high in early morning trading before paring earlier gains to trade up 1 percent at 3,595 pence by 0935 GMT.
Speculation that AstraZeneca might look to buy out Bristol was fuelled last month when the U.S.-based company decided to get out of diabetes research.
The decision to quit research and now sell out of the joint venture marks a strategic reversal by Bristol, which only last year bought diabetes specialist Amylin Pharmaceuticals for $5.3 billion and folded its products into the alliance with AstraZeneca.
"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," Chief Executive Pascal Soriot said in a statement.
Soriot, who took over in October last year, has focused on diabetes as a 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.
"To us this looks a sensible deal," Panmure Gordon analyst Savvas Neophytou said.
"Even with a staged earn-out which could rise to $1.6 billion, the price would appear to be good business particularly as it also includes full rights to Onglyza and dapagliflozin."
For Bristol, the deal means it will become an even more focused specialist drugmaker.
In a separate announcement, Bristol said it would raise its quarterly dividend by about 3 percent starting in the first quarter of next year, resulting in an indicative full-year payout of $1.44 per share. The share price closed on Wednesday at $52.59.
The U.S.-based company, which will continue to receive royalty payments from the diabetes unit through to 2025, forecast that earnings per share in 2014 would be between $1.65 and $1.80, broadly in line with the $1.70 to $1.78 it is forecasting for this year.
Bernstein analyst Tim Anderson said in a research note 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.
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.
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 the U.S. Food and Drug Administration endorsed its new diabetes pill dapagliflozin.
(Editing by Greg Mahlich)