VALUATION HIGHLIGHTS

1. Oncology Drugs constitute 50% of the Trefis price estimate for Bristol Myers Squibb's stock.
2. Cardiovascular Drugs constitute 26% of the Trefis price estimate for Bristol Myers Squibb's stock.
3. Immunology Drugs constitute 13% of the Trefis price estimate for Bristol Myers Squibb's stock.

WHAT HAS CHANGED?

BMY Stock Performance

BMY stock has seen a decline of 15% from levels of $60 in early January 2021 to around $50 now (as of mid-February 2024), vs. an increase of about 35% for the S&P 500 over this roughly 3-year period.

However, the decrease in BMY stock has been far from consistent. Returns for the stock were 1% in 2021, 15% in 2022, and -29% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 - indicating that BMY underperformed the S&P in 2021 and 2023.

Q4 2023 Performance

Bristol Myers Squibb garnered $11.5 billion in Q4'23 sales, reflecting a 1% rise y-o-y. This can primarily be attributed to lower sales of Revlimid, down 36% y-o-y to $1.4 billion due to loss of market exclusivity. Looking at the bottom line, the company reported an adjusted EPS of $1.70, reflecting a 7% y-o-y decline.

Coronavirus Impact On Bristol Myers Squibb's Stock

Bristol Myers Squibb lost more than 26%, dropping from $63 at the beginning of 2020 to around $46 in late March 2020. It then rose 10% to around $50 now (mid-February 2024). That means it is still below its pre-pandemic levels.

Significant Uptick In Eliquis Sales

Eliquis has seen strong growth of late, and it has become the leader in the oral anticoagulants (OAC) market (total prescriptions) in the U.S. amid market share gains. The drug's sales grew sharply from $1.9 billion in 2016 to $11.8 billion in 2022. However, Eliquis sales could start declining from 2025 as it nears its patent expiry, which will likely result in stiff competition from other drugs.

Celgene Merger

Bristol Myers Squibb, in late 2019, completed the acquisition of Celgene Inc. for $50 per share in cash and one share of Bristol Myers Squibb for each share of Celgene, which translates into a $74 billion transaction value and $90 billion if we include the debt.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

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:

Less Than Expected Success In Oncology

• Bristol Myers Squibb Oncology Drugs Revenue: The sales of Bristol Myers Squibb's cancer drugs have grown rapidly in recent years, led by the ramp-up of Opdivo (Nivolumab) and Revlimid. We currently forecast the revenues from oncology drugs to decrease from $28 billion in 2022 to under $22 billion in 2029. Most of this decline will come from Revlimid as it faces biosimilar competition. However, if the other drugs see strong revenue growth and Revlimid sales fall less than anticipated, resulting in the division's revenue of $32 billion by the end of our forecast period, it could result in a 25% upside to our price estimate.

Immunology Ramp Up Exceeds Expectations

• Bristol Myers Squibb Immunology Drugs Revenue: Considering that Bristol Myers Squibb's key immunology drug, Orencia, lost its market exclusivity in 2022, and now the sales are expected to decline, amid biosimilar competition. We forecast segment sales to be $4.3 billion by the end of our forecast period. However, considering that the market is growing and the company does not face tough competition for Orencia, our estimates could turn out to be conservative. If the segment adds an additional $2-3 billion in annual sales by the end of our forecast period, there could be a nearly 10% upside to our price estimate for Bristol Myers Squibb.

BUSINESS SUMMARY

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, and Celgene in 2019.

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, immunology, neuroscience, and cardiovascular. It sold its global anti-diabetics portfolio to AstraZeneca in 2014.

SOURCES OF VALUE

Oncology drugs form the most valuable business segment for Bristol Myers Squibb.

High Revenue Contribution

Oncology drugs accounted for 60% of Bristol Myers Squibb's revenue in 2022, making it the biggest therapeutic segment for the company. This can be attributed to the strong uptake of Opdivo sales and the high contribution of Revlimid.

Expected Decline For Oncology Drugs

We expect revenue from oncology drugs to decline from $28 billion in 2022 to nearly $22 billion by the end of our forecast period in 2029. Consequently, the revenue contribution will decline from 60% to around 40% during the same time period. In contrast, we expect most other business segments to either rise or grow at a faster pace.

KEY TRENDS

Growing Market Share of Eliquis

Eliquis has seen stellar growth of late, and it has become the leader in the oral anticoagulants (OAC) market (total prescriptions) in the U.S. amid market share gains. Note that the global anticoagulants market is estimated to grow in the high single-digits from $28 billion in 2012 to over $67 billion in 2032, according to a research report by Precedence Research . Bristol Myers Squibb's Eliquis is one of the key players in this market, and the overall market growth will bode well for drug sales in the coming years. However, we forecast Eliquis sales to start declining from 2025, as it nears its patent expiry, which will likely result in stiff competition from other drugs.

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.

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 top line 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.

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 threatening revenue growth.