Bristol-Myers Q3 Earnings Review: Opdivo Drives Strong Performance For the Quarter

by Trefis Team
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Bristol-Myers Squibb
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Bristol- Myers Squibb Bristol-Myers (NYSE: BMY) reported its Q3’16 earnings on October 27th. The company posted strong sales and earnings growth. Opdivo and Eliquis accounted for nearly 85% of the revenue increase for all the drugs which saw growth for the quarter, and together added just over $1 billion in revenue. Going into Q4, we expect continued strong performance from these two drugs. The company also posted improvement in operating margins on both year-over-year and quarter-over-quarter basis. Bristol-Myers Squibb has focused on constraing operating expenses and going forward we expect the expenses to stabilize near the current level as percentage of revenue.

Our price estimate of $72 for Bristol-Myers Squibb stands at nearly 38% premium to the market. We are in the process of revising our forecasts, as well as our risk estimates.

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What Happened In Q3?

The table below compares Bristol-Myers Q3’16 performance with previous periods:

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Reduction in gross-margin can be attributed to change in product-mix. Eliquis has lower gross-margins compared to Hepatitis C franchise. For the quarter Hepatitis C franchise experienced slight decline while Eliquis sales increased.

Opdivo Holds Promise Despite Setback

Bristol-Myers had plans to build its revenue growth story around Opdivo. However, the setback in CheckMate-026 trial has scaled down the expectations. Further, Merck’s Keytruda got approval in treatment of first-line non small cell lung cancer (NSCLC) with PD-L1 > 50%. This would also cut into the Opdivo’s second-line cancer market. Roche’s Tecentriq is going to pose additional competitive challenge. Despite the setbacks in expectations, Opdivo continues to remain an important drug. Other than second line lung cancer, the drug is approved for melanoma. We also expect it to secure approval for bladder and head & neck cancer. Moreover, the company also expects to use Opdivo in combination with Yervoy for first line lung cancer. So, overall we expect the drug to keep driving revenue growth.

The other drugs which have growth potential are Eliquis and Hepatitis C franchise. However, going into fiscal 2017 and beyond, the growth for these two drugs will start to moderate. Although, there quite a few drugs in virology with more than $1 billion in annual sales, we believe they are in the latter stage of their lifecycle and we expect their revenues to stabilize or decline. This makes Bristol-Myers appears over-dependent for strong growth on Opdivo. Any stumble that this drug has impacts reflects sharply in stock price.

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