Almost A Quarter Of Bristol-Myers Squibb’s Valuation Is Dependent On Yervoy’s & Nivolumab’s Growth

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Well, here is a fun fact for you. Around 20-25% of Bristol-Myers Squibb‘s (NYSE:BMY) valuation is based on the expected growth of its cancer drugs, primarily Yervoy and Nivolumab. In other words, if the growth in these drugs was to flatten out, BMY would be a $50 stock according to our estimate. Our current price estimate for Bristol-Myers Squibb stands at $66, implying a premium of around 5% to the market. Oncology drugs constitute the most valuable division for the company, accounting for about 40% of its value. So why such a large chunk of valuation (~20-25%) is tied to the incremental revenues of these two drugs? Let us take a closer look.

See our complete analysis for Bristol-Myers Squibb

1) We expect the sales of Yervoy and Nivolumab (Opdivo) to grow from $1.3 billion in 2014 to almost $7.5 billion by 2022. This will primarily be driven by the ramp up in sales of Nivolumab resulting from approvals for multiple conditions. These forecast imply cumulative revenues of around $35 billion from these drugs over a period of 8 years and stand handsomely (>23%) against $151 billion of cumulative revenue we expect for the whole firm during the same period.

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2) The growth in these drugs is likely to exceed that of any other division. The sales of Yervoy and Opdivo have been impressive in recent quarters. Although Yervoy is facing the impact of growing competition, we expect the revenues to pick up once the combination regimen of Yervoy and Opdivo is approved by the regulatory agencies. Yervoy has proven to have high efficacy among all treatment options in treating melanoma, a type of skin cancer. As a result, a large chunk of inoperable patients are likely to receive the drug at some point during their treatment. Besides, Opdivo has tremendous potential.

3) Opdivo, or Nivolumab, is an immuno-oncology drug. According to some estimates, the market for immuno-oncology drugs could be as big as $35 billion. There is a strong opportunity to profit from dedicated R&D in this arena. Opdivo was originally approved for melanoma, and was later approved for treating patients who have been previously administered treatment for metastatic squamous non-small cell lung cancer. The company is likely to get the FDA approval for non-squamous NSCLC (non-small cell lung cancer) soon, which could help it expand its market significantly. NSCLC constitutes roughly 85% of all lung cancers, according to cancer research institute. About 25% to 30% of NSCLC is squamous, with remaining being non-squamous.

4) Opdivo has a headstart over rival Merck’s Keytruda, which is still only approved for melanoma.

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