An Overview Of Bristol-Myers’ Business And $34 Price Estimate

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Bristol Myers Squibb

Bristol-Myers Squibb (NYSE:BMY) is a biopharmaceutical company. Its business model revolves around investing large sums in research to develop innovative drugs, and then generating high profits from these drugs during their patent periods. This research focused model of the company is what separates it from other generic drug manufacturers that sell copies of an innovative drug, after their patents expire.

Bristol-Myers has over the past few years transformed itself into a core biopharmaceutical drug company by divesting its non-core businesses, including medical imaging, ConvaTec and Mead Johnson, and acquiring relatively small research focused pharmaceutical companies like Kosan Biosciences, Medarex, ZymoGenetics, Amira, Inhibitex and Amylin Pharceuticals. As a result, the patented drug portfolio of the company has diversified and improved.

Currently, Bristol-Myers draws the largest portion of its value from patented drugs belonging to four therapeutic classes – Oncology (cancer treatment), Cardiovascular (heart ailments treatment), Virology (treatment of viral infections like Hepatitis and HIV) and Anti-diabetes (treatment of high blood sugar levels).

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We currently have a stock price estimate of $33.60 for the company, marginally above its current market price.

See our complete analysis of Bristol-Myers here

Major Drugs That Drive Bristol-Myers’ Value

1) Oncology drugs – Yervoy, used to treat skin cancer is the key anti-cancer drug in Bristol-Myers’ portfolio. The drug is highly effective and is priced at a premium. It was approved by U.S. FDA (Food and Drug Administration) in 2011, and the sales of the drug are expected at around $700 million in 2012. Additionally, the patent for Yervoy is valid for 8-10 more years. Thus, the drug will continue to add growth to Bristol-Myers’ total sales for several years to come.

Other major anti-cancer drugs in Bristol-Myers’ portfolio are Sprycel and Erbitux. These two drugs along with Yervoy are estimated to cross a billion dollar in annual sales within the next few years.

2) Cardiovascular drugs – In this class of drugs, Bristol-Myers lost patent exclusivity of its blockbuster drug Plavix in May 2012. Plavix constituted for more than 30% of the total company sales in 2011, and since the patent expiry its sales have fallen sharply and significantly. The sales of Plavix in 2012 are expected at around $2.6 billion, down from more than $7 billion in 2011. However, this decline in sales from Plavix patent expiry will likely be partially offset over the long-term by another cardiovascular drug (Eliquis) in Bristol-Myers’ portfolio.

Eliquis is used for preventing strokes in patients with an irregular heart beat is approved in the European Union, and is in its near approval stage in the U.S. The global market for heart stroke prevention is a multi-billion dollar one, and Eliquis seems well positioned to occupy a significant share of the same. The patent of the drug is also valid for many years to come. Thus, Eliquis will drive growth in sales and earnings of Bristol-Myers in future. The drug currently constitutes nearly 20% of the total value of Bristol-Myers, according to our estimates.

3) Anti-viral drugs – In the anti-viral class, the company has Reyataz and Sustiva Franchise for treatment of HIV, and Baraclude for treatment of Hepatitis B in its portfolio. All three of these drugs generate more than a billion dollars in annual sales at present. Their patents are also valid for a few more years. Thus, they will continue to add value to the company. In all, anti-viral drugs constitute 15% of the total company value according to our estimates.

4) Anti-diabetic drugs – Bristol-Myers recently bolstered its drug portfolio in this segment with the acquisition of Amylin Pharmaceuticals which provided it with two anti-diabetic drugs, Byetta and Bydureon. The company has a couple more important drugs in this class, Onglyza and Kombiglyze. Together these anti-diabetic drugs constitute more than 15% of the total company value according to our estimates.

Further, diabetes treatment is a highly lucrative market as the number of patients suffering from diabetes is expected to reach 300 million by 2025, up from 177 million in 2000. [1] Bristol-Myers which has a co-development and co-commercialization agreement with AstraZeneca for diabetes treatment, is well positioned to benefit from this expanding market. All four of the anti-diabetic drugs in Bristol-Myers’ portfolio are part of the company’s agreement with AstraZeneca. Such agreements benefit the company as they reduce the risk associated with incurring the entire R&D cost, in case a pipeline drug does not convert in to a revenue generating drug.

Factors That Can Impact Bristol-Myers’ Current Valuation

Our valuation of Bristol-Myers could be impacted if one or more of its drugs lose patent exclusivity prior to its scheduled expiry. Such an event is possible as generic manufacturers are increasingly challenging drug patents in courts, and also launching their copy drugs at risk before the expiry of the applicable patent.

In the past, Bristol-Myers lost patent exclusivity for Plavix in Canada, prior to its scheduled termination as a generic manufacturer was able to successfully challenge its patent validity in a litigation.

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Notes:
  1. WHO Fact sheets, December 26 2012, www.who.int []