Bristol-Myers Squibb Co says it will buy Celgene Corp for about $US74 billion ($105bn), 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 $US2.5 billion in cost savings and significantly raise earnings - would solve them.

Amid clinical setbacks and other missteps, Bristol-Myers shares fell 15.2 per cent in 2018 while Celgene plunged nearly 40 per cent last year.

Celgene Bristol-Myers Squibb takeover oncology immunology

The deal could herald a new era of big pharmaceutical deals, according to some observers 

Bristol's most important cancer immunotherapy and growth driver, Opdivo, has lost much of its luster as Merck & Co's rival drug Keytruda seized dominance in advanced lung cancer, the most lucrative oncology market.

Meanwhile, Celgene has endured high-profile clinical failures and US exclusivity on its flagship multiple myeloma drug, Revlimid, will start being phased out in 2022.

On Thursday, Bristol's stock ended another 13.3 per cent 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.

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 per cent at US$80.43.

Morningstar sector strategist Karen Anderson lauded the deal, saying it is logical buildout of Bristol's pipeline in oncology and immunology. Anderson says Celgene is "significantly undervalued", compared to her fair value estimate of US$116. 

"With obvious therapeutic area overlap and US$2.5 billion in annual cost synergies expected by 2022 (the majority from SG&A and likely commercial overlap and overhead), we think the deal is positive strategically and financially," Anderson said in an updated note. 

"We expect to slightly lower our $116 per share Celgene fair value estimate to match the offer price, and we don't expect any major changes to our $61 per share Bristol fair value estimate after factoring in the upfront deal price and the CVR."

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

Including debt, the deal is worth $US95 billion ($135bn), eclipsing Pfizer's $89 billion purchase of Warner-Lambert in 2000, according to Refinitiv.

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, Merck, and Roche Holding all pulled off transformational acquisitions.

The news pushed up shares of rivals Gilead Sciences, Allergan, Biogen and Regeneron Pharmaceuticals.