Catalysts For Bristol-Myers Squibb’s Stock

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Bristol Myers Squibb

Bristol-Myers Squibb (NYSE:BMY) has been facing the impact of the decline in R&D productivity and the loss of patent protection on some drugs. This has continued in 2015 as Abilify has lost its patent protection this year. However,  the ramp up in sales of Daklinza and Eliquis, as well as the approval of immuno-oncology drug Odivo (Nivolumab) present a silver lining. While European economy and exchange rate movements continue to act as dampening factors, Bristol-Myers Squibb’s future largely depends on how its immuno-oncology pipeline plays out. Below are a couple of catalysts that we believe can cause meaningful movement in the company’s stock price.

Our current price estimate for Bristol-Myers Squibb stands at $54.70, implying a discount of about 20% to the market.

See our complete analysis for Bristol-Myers Squibb

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Better Than Expected Success In Immuno-Oncology (+15%)

The sales of Bristol-Myers Squibb’s cancer drugs have grown rapidly in recent quarters, particularly Yervoy and Opdivo (Nivolumab). We currently estimate that oncology drugs account for almost 40% of the company’s value and therefore, any significant pipeline developments can impact the stock price meaningfully. We currently forecast the revenues from key cancer drugs Yervoy and Opdivo to increase from $1.3 billion in 2014 to nearly $6 billion by 2021. 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. We will have more clarity after the upcoming American Society of Clinical Oncology (ASCO) conference, and subsequent filings by Bristol-Myers Squibb for broader usage of Opdivo. It will be interesting to see the quality of data that will be shared at ASCO from the  Phase 3 trials of both Opdivo (for non-small cell lung cancer) and the combination therapy (Opdivo and Yervoy). 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 depending upon how the clinical data turns out. 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. [1] Also, NSCLC constitutes roughly 85% of all lung cancers, which is what Bristol-Myers Squibb is targeting. [1] About 25% to 30% of NSCLC is squamous, with remaining being non-squamous. [1] 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. Also, Opdivo has a headstart over rival Merck’s Keytruda, which is still only approved for melanoma. However, Merck is working on getting approval for lung cancer as well.

Eliquis Performs Below Our Expectations (-10% )

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 2021 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 2021, there can be 10% downside to our price estimate.

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Notes:
  1. Cancer Research Institute [] [] []