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Investment Overview for Bristol-Myers Squibb (NYSE:BMY)
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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:
Oncologic Drugs
- Net Sales of ELIQUIS and other heart drugs
ELIQUIS, a cardiovascular drug, is approved for treatment of VTE (venous thromboembolism) and SPAF (stroke prevention in atrial fibrillation). The SPAF market in the U.S. is substantial, so approval for that treatment could be a multi-billion dollar opportunity for the company.
As a result of its current momentum and the positive results of the latest drug trial (ARISTOTLE Phase III trial) of ELIQUIS, we anticipate the drug to register net sales of more than $3.5 billion by the end of the Trefis forecast period.
However, should ELIQUIS fail to achieve such growth and reach only $2.5 billion in sales by the end of the Trefis forecast period than there could be a potential downside of nearly 10% to the Trefis estimate for Bristol-Myers Squibb's stock.
- Net Sales of YERVOY
YERVOY, an oncologic drug for the treatment of metastatic melanoma, constitutes approximately 11% of the Trefis price estimate for Bristol-Myers Squibb.
It is currently under trial for potential additional indications including adjuvant melanoma, prostate cancer, NSCLC (non-small cell lung cancer) and SCLC (small cell lung cancer). If it is able to receive approval and generate sales for one or more of the above mentioned indications, we estimate that net sales of YERVOY could be at least 5% greater than our current estimates for sales throughout oure forecast period. This would present a potential upside of 2.5% to the Trefis price estimate.
- Net Sales of ERBITUX & necitumumab
Necitumumab is currently a Phase-III investigational anti-cancer agent. We have estimated net sales of $80 million and $160 million for 2015 and 2016, respectively. Whether or not it achieves these figures depends on the results of the trial and competitive landscape, among other factors. However, should it fail to get FDA approval, the ERBITUX and necitumumab segment could see a 50% downside in revenues by the end of our forecast period, translating to a potential downside of about 2% to the Trefis price estimate.
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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, antidiabetics, autoimmune, antipsychotics and cardiovascular.
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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. A few examples include:
- 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. We forecast net sales of more than $1.6 billion for YERVOY by the end of the Trefis forecast period.
- Pegylated-interferon lambda, which was obtained through the acquisition of ZymoGenetics in October 2010 and is expected to generate revenues in 2015.
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.
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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.
Currently, patents covering four of Bristol-Myers Squibb's key products (ABILIFY, ATRIPLA, BARACLUDE and SPRYCEL) are part of patent litigation with a generic manufacturer.
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.
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