(Reuters) - Bristol-Myers Squibb Co BMY.N said on Thursday it would buy Celgene Corp CELG.O for about $74 billion, combining two of the world's largest cancer drug businesses in the biggest pharmaceutical deal ever.

Both Bristol-Myers and Celgene face separate challenges, and some Wall Street analysts questioned whether the combination - which the companies said would create $2.5 billion in cost savings and significantly raise earnings - would solve them. Amid clinical setbacks and other missteps, Bristol-Myers shares fell 15.2 percent in 2018 while Celgene plunged nearly 40 percent last year.

Bristol's most important cancer immunotherapy and growth driver, Opdivo, has lost much of its luster as Merck & Co's MRK.N rival drug Keytruda seized dominance in advanced lung cancer, the most lucrative oncology market. Meanwhile, Celgene has endured high-profile clinical failures and U.S. exclusivity on its flagship multiple myeloma drug, Revlimid, will start being phased out in 2022.

On Thursday, Bristol’s stock ended another 13.3 percent lower at $45.12. “Doing this transaction clearly indicates that risk to Opdivo in lung cancer is obviously a concern,” SunTrust Robinson Humphrey analyst John Boris said in an interview.

There is also shareholder concern that drugs in development would not have enough sales to offset major products losing exclusivity between 2022 and 2026.

But cash flow from Revlimid buys Bristol-Myers time to pay down debt and position for another transaction, Boris said. Revlimid is expected to record nearly $10 billion in 2018 sales.

Celgene shares were up 20.7 percent at $89.43.

“Both of them were coming into this year kind of limping,” said Brad Loncar, who runs the Loncar Cancer Immunotherapy ETF. The deal makes “the combined entity a lot stronger,” he added.

Including debt, the deal is worth $95 billion, eclipsing Pfizer's $89 billion purchase of Warner-Lambert in 2000, according to Refinitiv. (Graphic: tmsnrt.rs/2RsZ4XS)

Some analysts, including Baird Equity's Brian Skorney, said it raised the possibility of a new era of big drug deals, much like in 2009, when Pfizer Inc PFE.N, Merck, and Roche Holding AG ROG.S all pulled off transformational acquisitions. The news pushed up shares of rivals Gilead Sciences Inc GILD.O, Allergan Plc AGN.N, Biogen Inc BIIB.O and Regeneron Pharmaceuticals Inc REGN.O.

Bristol expects to achieve the $2.5 billion in cost savings by 2022, with 55 percent coming from cuts in sales, general and administrative expenses, 35 percent through reduction in research & development spending and 10 percent from manufacturing. It said the deal will add more than 40 percent to its earnings in the first year after the deal closes, expected in the third quarter of 2019.

Under terms of the deal, Celgene shareholders will receive one Bristol-Myers Squibb share and $50 in cash for each share held, or $102.43 per share, a premium of 53.7 percent to Celgene’s Wednesday close.

Celgene shareholders will also receive a so-called CVR payment, or contingent value right, of $9 if three treatments in development achieve timely approvals. Those are the high-profile multiple sclerosis drug ozanimod, lymphoma treatment liso-cel by Dec. 31, 2020 and a CAR-T therapy for multiple myeloma known as bb2121 from a partnership with bluebird bio BLUE.O by March 31, 2021.

FILE PHOTO: Logo of global biopharmaceutical company Bristol-Myers Squibb is pictured at building in Le Passage, near Agen, France March 29, 2018. REUTERS/Regis Duvignau

BLOOD CANCER DOMINANCE

“What’s important to us is the sustainability of Celgene’s leadership position in hematology through their pipeline” even after Revlimid loses patent protection, Bristol-Myers Chief Executive Giovanni Caforio said in an interview. His company’s strength has primarily been in solid tumor cancers.

The New York-based drugmaker said it expects six product launches over the next two years - five coming from Celgene’s pipeline. It also highlighted promising early clinical assets it would gain with the New Jersey-based biotech.

Celgene brings experience with potentially revolutionary CAR-T therapies from its $9 billion purchase of Juno Therapeutics and the bluebird collaboration. The therapy takes immune cells from a patient, engineers them to better recognize and attack cancer and returns them to the patient.

The deal could also provide a graceful exit for Celgene CEO Mark Alles, who has only committed to staying through the transition. His rocky tenure included management shakeups and the loss of more than half its market value since October 2017 as an expensive experimental Crohn’s disease drug touted as a future multibillion-dollar product failed and the expected approval of ozanimod was delayed.

Alles, on a conference call, urged shareholders to support the deal.

Jeremy Bryan, portfolio manager at Gradient Investments, which has small positions in both companies, said the Celgene purchase puts Bristol-Myers “on the clock” to do more deals.

“When you have a significant amount of cash coming in in the next three years, it gives you the flexibility ... for deals if they are out there or to buy back significant amounts of stock,” Bryan said.

Talks between Bristol and Celgene opened in September, with Bristol approaching Celgene, according to two sources familiar with the matter.

Bristol has obtained fully committed debt financing from Morgan Stanley Senior Funding Inc and MUFG Bank Ltd.

Morgan Stanley & Co. LLC is the lead financial adviser to Bristol-Myers, and Evercore and Dyal Co LLC are its financial advisers. Kirkland & Ellis LLP is its legal counsel.

J.P. Morgan Securities LLC is serving as lead financial adviser and Citi is the financial adviser to Celgene. Wachtell, Lipton, Rosen & Katz is its legal counsel.