Here's Why BeiGene Is Taking a Hit Today

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What happened

Shares of BeiGene (NASDAQ: BGNE), a Chinese biotechnology company focused on oncology, swooned 10% as of 10:40 a.m. EST on Thursday. The double-digit drop is most likely attributable to the news that Bristol-Myers Squibb (NYSE: BMY) is spending $74 billion to acquire biotech giant Celgene (NASDAQ: CELG).

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So what

Bristol-Myers Squibb and Celgene shocked Wall Street on Thursday by announcing that they had agreed to a merger. Bristol-Myers is buying Celgene for about $74 billion, which represents a 54% premium when compared to Celgene's closing price on January 2, 2019.

Why is BeiGene falling drastically in response to this news? The reason is that BeiGene and Celgene signed a lucrative collaboration deal with each other back in July of 2017. The deal swapped some of the two companies' assets and added $263 million to BeiGene's pockets. The deal also featured a $150 million equity investment by Celgene.

That deal likely filled Wall Street with hope that Celgene would one day acquire BeiGene outright. However, the odds of that eventually happening are now much lower since Celgene itself has agreed to be acquired.

Now what

It is still unknown whether Celgene and Bristol-Myers Squibb will ever get to complete their proposed merger. The deal requires the thumbs-up from shareholders of both Bristol-Myers Squibb and Celgene as well as the government. In other words, there's still a long road ahead for both of these businesses.

A quick glance at Celgene's stock price suggests that Wall Street doesn't think the deal is going to happen. Celgene's stock is currently trading for about $84, which is about a 20% discount to the agreed-upon deal price.

The uncertainty surrounding this deal might cause BeiGene's stock to be more volatile than usual until the transaction either closes or is called off. BeiGene's investors might want to mentally prepare themselves for a bumpy ride ahead.

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Brian Feroldi owns shares of Celgene. The Motley Fool owns shares of and recommends Celgene. The Motley Fool has a disclosure policy.