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Investment Overview for Bristol-Myers Squibb (NYSE:BMY)
Below are key drivers of Bristol-Myers Squibb's value that present opportunities for upside or downside to the current Trefis price estimate for the company's stock:
Better than expected success in immuno-oncology
- Nivolumab and Yervoy Sales: The sales of Bristol-Myers Squibb's cancer drugs have grown rapidly in recent quarters, particularly Yervoy and Opdivo (Nivolumab). We currently forecast the revenues from key cancer drugs Yervoy and Opdivo to increase from $1.3 billion in 2014 to nearly $7.5 billion by 2022. Most of this increment will be attributed to Opdivo. This forecast is based on our assumption that while Opdivo will get additional approvals, the competition from other companies will increase as we are likely to see a string of approvals in immuno-oncology segment. However, if Bristol-Myers Squibb builds strongly on its lead in this area and is able to capture a much bigger share of this market, it can add incremental revenues of the order of $3.0-$3.5 billion, leading to 15% upside to our price estimate. Here is why our forecast may turn out to be conservative. Opdivo was initially approved for melanoma, but was granted approval in early March for the treatment of patients who have been previously treated for metastatic squamous non-small cell lung cancer. The company may get approval for non-squamous NSCLC in the near to mid term. Lung cancer is one of the most common cancers in the world, accounting for nearly 13% of all diagnosed cases and 20% of cancer related deaths each year. Also, NSCLC constitutes roughly 85% of all lung cancers, which is what Bristol-Myers Squibb is targeting. About 25% to 30% of NSCLC is squamous, with remaining being non-squamous. Opdivo is currently approved for squamous NSCLC, which means that with an approval for non-squamous NSCLC, the drug will expand its usage by almost threefold.
Eliquis performs below our expectations
- Eliquis Revenue: Blood thinning drug Eliquis is doing well in Europe, and even better in the U.S., Japan, the U.K., Spain and Germany. The drug could become a multi-billion dollar franchise for Bristol-Myers Squibb. The company is in a strategic partnership with Pfizer to market this drug. Eliquis has become the top anticoagulant in new-to-brand prescriptions among cardiologists in the U.S., gaining special acceptance among physicians for atrial fibrillation. The label expansion has helped as well. As a result, we forecast the drug to garner $6 billion in sales by 2022 for Bristol-Myers Squibb. Eliquis has patent protection during this period, so it is safe from generic competition. However, competition from other innovative drugs could weigh on its sales, much like what we recently saw for Johnson & Johnson's Olysio. Despite an initial promise, a drug may not always be able to sustain the growth momentum. Besides, there is not much pricing power left when it comes to cardiovascular drugs. If Eliquis' sales (attributable to Bristol-Myers Squibb) increase to only $4 billion by 2022, there can be 10% downside to our price estimate.
Bristol-Myers Squibb is a biopharmaceutical company that discovers, develops and sells pharmaceutical products globally.
Over the last few years, the company has executed a strategy to transform itself into a core biopharmaceutical company. As a result, it divested its non-pharmaceutical businesses including, Medical Imaging and ConvaTec in 2008, and Mead Johnson in 2009, and acquired Kosan Biosciences in 2008, Medarex in 2009, ZymoGenetics in 2010, Amira Pharmaceuticals in 2011, Inhibitex and Amylin Pharmaceuticals in 2012.
The company's products primarily include small molecules, which are chemically synthesized drugs, and products from biological processes called biologics. Most of the company's revenues come from products belonging to the following therapeutic classes: oncology, virology, autoimmune, antipsychotics and cardiovascular. It sold its global anti-diabetics portfolio to AstraZeneca in 2014.
Strategic alliances and collaborations
The company enters into strategic alliances and collaborations with other pharmaceutical companies either to co-develop or co-market a drug. Co-development reduces the risk of incurring all R&D costs in case the drug does not become a revenue generating product, while co-marketing increases the distribution channel for the drug.
Acquisitions to bolster revenue growth
Bristol-Myers Squibb has obtained several drugs through acquisitions of their patent-owning companies. These drugs then bolster revenue growth for the company. One of the examples is Yervoy (ipilimumab), which was obtained by Bristol-Myers through the acquisition of Medarex in September 2009. The drug was launched in 2011 and generated first year net sales of $360 million.
High profit margins during patent periods
Bristol-Myers Squibb is focused on the discovery and development of biopharmaceutical drugs to generate high profit margins during the period of patent exclusivity for these drugs. During these periods generic competition is not allowed, and therefore the company is allowed to charge premium prices. The high profit margins derived during the patent periods enable the company to invest large sums in R&D in order to keep coming up with innovative drugs.
Patent expiry leads to significant loss in net sales
In the pharmaceutical industry, after a patent expires the use of generics becomes widespread due to the higher cost of patented drugs. This switch to generics causes net sales of the patented drug to fall significantly and often sharply. In case of Bristol-Myers Squibb, the company lost patent exclusivity of Plavix and Avapro/Avalide in May 2012. Since then sales of these two drugs have experienced a sharp and significant decline in sales.
Accordingly, research-based pharmaceutical companies need to continuously invest in R&D to develop and launch new drugs in order to offset these lost sales.
Launch of new drugs or approval for an additional indication
A new drug or regulatory approval for an additional indication of a drug (essentially another use for the drug) provides an opportunity for further topline growth.
Therefore a company's drug pipeline is extremely important in order to sustain long-term revenues.
Generic competition and patent litigation
Generic manufacturers do not need to invest in costly and time consuming drug trials to prove the safety and efficacy of their drugs. They can use the drug trial data of the corresponding patented drug, owned by a research based pharmaceutical company, to seek regulatory approval for their drug. This allows generic manufacturers to price their products significantly lower in comparison to patented drugs. Thus, after the patent period generic competition nearly wipes out sales of the patented drug.
Manufacturers of generic products sometimes launch a generic product before the expiry of the applicable patent, leading to patent litigation with the patent-owning pharmaceutical company. A negative outcome for the pharmaceutical company results in significant revenue losses. For example, in Canada, Bristol-Myers Squibb lost patent exclusivity for Plavix in a case with Apotex Inc in December 2011, prior to the scheduled loss of market exclusivity.
Globalization of healthcare reforms
Governments around the world have been trying to implement healthcare reform measures, many of which are aimed at reducing the cost of healthcare. Some of this legislation could result in price reductions in the pharmaceutical industry, thus pressuring revenues.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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