Is Celgene Transforming Itself With Mergers and Pacts?

By Chris Lange Published Jul 15, 1:05PM EDT

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The red-hot health care sector has excited the merger and acquisition (M&A) market so far in 2015. Companies are consolidating their efforts and pipelines to pull in even more revenue. Celgene Corp. (NASDAQ: CELG) is getting in on the action with its most recent acquisition of Receptos Inc. (NASDAQ: RCPT), and investors and analysts alike are taking to this move very positively.

Both companies announced Tuesday that they had signed a definitive agreement in which Celgene will acquire Receptos. Under the terms of the agreement, Celgene is to pay $232 per share, or roughly $7.2 billion in total.

The acquisition of Receptos significantly enhances Celgene’s Inflammation & Immunology (I&I) portfolio and further diversifies the company’s revenue beginning in 2019 and beyond. Apart from this, the acquisition builds upon Celgene’s growing expertise in inflammatory bowel disease (IBD).

A key component of the transaction is that it will add ozanimod, a novel, potential best-in-class, oral, once-daily, selective sphingosine 1-phosphate 1 and 5 receptor modulator (S1P) to Celgene’s pipeline of potential disease-altering medicines and investigational compounds.

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Bob Hugin, chairman and CEO of Celgene, commented on the acquisition:

The Receptos acquisition provides a transformational opportunity for Celgene to impact multiple therapeutic areas. This acquisition enhances our I&I portfolio and allows us to leverage the investments made in our global organization to accelerate our growth in the medium and long-term.

One thing that really stands out in this transaction in particular is that Celgene will pay a $7.2 billion to acquire Receptos, and as a result Celgene’s market cap increases by roughly $9 billion — a reaction like this is totally unheard of.

After this transaction was announced, a few analysts weighed in on Celgene:

BMO Capital Markets moved its price target up to $191 from $163.
Deutsche Bank has a Buy rating and moved its price target up to $175 from $160.
RBC has an Outperform rating and moved its price target up to $150 from $135.

Piper Jaffray called the deal “the largest and most aggressive” of Celgene’s recent moves. At the same time, Leerink sees “strategic and operational fit.”

Merrill Lynch reiterated a Buy rating with a $146 price target. According to the firm:

Management estimates combined peak sales of $4 to $6 billion. Data from trials suggested a differentiated safety profile for ozanimod. Acquisition plays strategic role in diversification.

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Shares of Celgene were up 9.0% at $133.94 on Wednesday. The stock has a consensus analyst price target of $136.89 and a 52-week trading range of $82.90 to $135.98.

Receptos shares were up 10.3% to $228.42, in a 52-week trading range of $33.52 to $229.44. The consensus price target is $223.50.

About the Author Chris Lange →

Chris Lange is a writer for 24/7 Wall St., based in Houston. He has covered financial markets over the past decade with an emphasis on healthcare, tech, and IPOs. During this time, he has published thousands of articles with insightful analysis across these complex fields. Currently, Lange's focus is on military and geopolitical topics.

Lange's work has been quoted or mentioned in Forbes, The New York Times, Business Insider, USA Today, MSN, Yahoo, The Verge, Vice, The Intelligencer, Quartz, Nasdaq, The Motley Fool, Fox Business, International Business Times, The Street, Seeking Alpha, Barron’s, Benzinga, and many other major publications.

A graduate of Southwestern University in Georgetown, Texas, Lange majored in business with a particular focus on investments. He has previous experience in the banking industry and startups.