Merck and Bristol-Myers Cancer Race Could Turn Into Deals Derby

(Bloomberg) -- Merck & Co. and Bristol-Myers Squibb Co. have been fighting a bruising battle for supremacy in one of the hottest fields in pharma. They could also soon be duking it out over deals.

The chief executive officers of the two drugmakers, who both sell market-leading cancer immunotherapy medicines, separately told investors Thursday that finding companies to buy is a priority, despite the fact that neither has made a billion-dollar-plus acquisition in at almost four years.

Merck CEO Ken Frazier, who’s just signed on to a longer tenure at the drugmaker, said after unveiling a $10 billion share buyback Thursday that “we continue to have ample capacity for business development, which remains a major priority.” Bristol-Myers CEO Giovanni Caforio followed a few hours later by saying doing deals “remains a company priority” and that his company’s balance sheet provides the financial flexibility needed to cinch them.

One of their biggest competitors, Pfizer Inc., spent years pursuing giant takeovers, lobbing $100-billion-plus bids for AstraZeneca Plc and Allergan Plc as part of an effort to move their tax address abroad. Those deals didn’t pan out.

Merck and Bristol-Myers, on the other hand, focused on building their footprints in drugs that harness the immune system to treat cancer. Both are market leaders now, and both beat analysts’ expectations in the most recent quarter result while also raising guidance.

The competition between the two has gotten fierce. Positive Merck data in one type of cancer and a potential delay in one Bristol-Myers approval have led investors to question Bristol-Myers’s dominance in a market it helped create. Caforio knows he needs to find other avenues for growth.

“A core pillar of our strategy is business development which is really linked to my priority to continue to diversify the business,” Caforio said.

Frazier finds himself in a somewhat similar position. Despite the relative strength of Merck’s Keytruda, the drugmaker’s other top seller Januvia -- a diabetes treatment -- is going to lose patent protection in coming years.

“We have the financial flexibility to pursue all forms of business development,” Merck Chief Financial Officer Rob Davis said. “We will continue to actively look at and evaluate those opportunities to create the strongest portfolio and pipeline.”

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