Why Eliquis Is So Important For Bristol-Myers Squibb
According to our estimates, Bristol-Myers Squibb‘s (NYSE:BMY) blood thinning drug Eliquis accounts for roughly 25% of the company’s value. So what makes the drug so valuable? Eliquis was initially approved for both the treatment of venous thromboembolic events (VTE) and the prevention of heart attacks in patients with an irregular heart beat that is not caused by a heart valve problem, called non-valvular atrial fibrillation (NVAF). At the end of July 2014, the European Commission approved the drug for the treatment of Deep Vein Thrombosis (DVT) and Pulmonary Embolism (PE), as well as for the prevention of recurrence of these conditions. As a result, Eliquis continued its strong growth throughout 2014, with revenues for the year reaching $774 million as compared to just $146 million in 2013. Here is why we believe it is critical to Bristol-Myers Squibb’s valuation.
Our current price estimate for Bristol-Myers Squibb stands at $66, implying a premium of around 10% to the market.
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1) The last few quarters’ results suggest that Eliquis is gaining good acceptance in Europe, the U.S., Japan and the U.K. Bristol-Myers Squibb has partnered with Pfizer to market this drug. Eliquis has become a leading anticoagulant in new-to-brand prescriptions among cardiologists in the U.S., gaining strong traction among physicians for atrial fibrillation. The label expansion has proved to be beneficial for the drug’s sales.
2) We forecast Eliquis to reach $6 billion in annual sales by 2022 for Bristol-Myers Squibb alone. We believe such growth is possible as the drug has patent protection during this period and is thus safe from generic competition. This growth implies that, in about 5-6 years, Eliquis will account for about 27% of Brisol-Myers Squibb’s total revenues.
3) The company, like other big pharmaceutical firms, has suffered from a revenue decline in recent years due to the patent cliff. A new promising drug such as Eliquis will fill some of the growth gap created by the loss of sales resulting from generic competition, and will thus be critical to the company’s valuation.
4) Bristol-Myers Squibb and Pfizer have invested in direct-to-consumer advertising, which energized Eliquis’ slow start. As a result, the general market perception is that Eliquis is a better drug than others in its therapeutic area. Bayer’s management has acknowledged this. [1] Additionally, Eliquis seems to have demonstrated lower risk profile and significantly less bleeding as compared to some of its competitors. According to National Institute for Health Care and Excellence, the drug’s lower dosage option reduces bleeding risk and improves the odds of patients staying on the drug for longer time. [2]
There are risks to our estimates, however. The competition from other innovative drugs could weigh on its sales, much like what we 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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