The Year 2016 In Review: Bristol Myers Squibb’s Reliance On Opdivo Became Apparent
After suffering declining revenues for nearly 3 years, Bristol-Myers Squibb‘s (NYSE:BMY) business started rebounding in 2015 with the trend becoming only stronger this year. Much of this can be attributed to both the stellar performance of its new immuno-onclogy drug Opdivo and to strong contributions from blood thinner Eliquis and Hepatitis C franchise. This improvement in business was welcomed by the market and, from the beginning of the year. the stock price saw a gradual increase until early August, when the failure of a clinical trial wiped out the entire year’s stock gain in the subsequent months. We look back at 2016 as a year that exposed Bristol-Myers Squibb’s high reliance on just one to two drugs. Even though the company’s cost of capital is low, suggesting limited risk, recent stock variation warrants some caution. Having said that, we remain optimistic about its medium term prospects and expect consistent growth for the next 5 years, without sacrificing margins. Our price estimate of $65 for Bristol-Myers Squibb is nearly 15% above the market price.
Opdivo Was The Key Swing Variable
Bristol-Myers Squibb has a lean portfolio with a few key drugs. But it has had great success with its blockbuster Opdivo, which is an immuno-oncology drug. Opdivo is an anti PD-L1 therapy with strong efficacy against a variety of cancer types. The drug has a peak sales potential of $6 billion per year, which is very significant considering that Bristol-Myers Squibb’s overall sales stood $16.5 billion in 2015. Therefore, the relative impact of investment in immuno-oncology research is going to be greater with Bristol-Myers Squibb than some of the other big firms such as Merck, Pfizer and Roche. This was evident in the initial run up of the stock when Opdivo’s sales started ramping up, as well as subsequent decline when Opdivo failed a clinical trial that could have potentially expanded its usage as a therapy for a meaningfully large lung cancer market.
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Hepatitis C Franchise Grew, But The Growth Slowed Down Meaningfully
Bristol-Myers Squibb’s Hepatitis C franchise, which grew from just $256 million in 2014 to $1.6 billion in 2015, saw its growth decline substantially this year. We attribute some of this to the launch of Epclusa by Gilead Sciences, which entered the U.S. market in June’16. While we think the franchise will grow, we believe the sales growth will be limited as competition from Epclusa and other drugs intensifies in Europe as well.
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