Bristol-Myers Squibb Earnings Preview: The Company Has To Reassure Investors
Bristol-Myers Squibb (NYSE:BMY) will report its Q4 2016 and full year results on January 26th. We expect strong performance from key drugs including Opdivo and Eliquis. On the other hand, Yervoy’s sales are likely to decline and Hepatitis C franchise may feel the impact of growing competitive pressure. The franchise, which grew from just $256 million in 2014 to $1.6 billion in 2015, saw its growth decline substantially in 2016. The third quarter results were noteworthy, considering the franchise’s revenue ‘fell’ compared to Q3 2015. We attribute this to the launch of Epclusa by Gilead Sciences, which entered the U.S. market in June 2016. While the growth in Opdivo and Eliquis is likely to eclipse the weakness in the remaining portfolio, we believe that Bristol-Myers Squibb will have a lot to answer for. First, the change in the U.S. political leadership has created some uncertainty. Bristol-Myers Squibb’s stock fell nearly 5% on January 11th when the new president Donald Trump announced that he would force the industry to bid for government business. This could have a significant impact on how the drug prices are set. Second, the stock fell again recently when the company announced that it would not pursue a Yervoy/Opdivo combination therapy. These developments indicate greater risk to Bristol-Myers Squibb’s business.
Our price estimate of $65 for Bristol-Myers Squibb is nearly 30% above the market price. We expect to reduce our price estimate as we update our valuation model for Q4 2016 results.
Cancer Drugs Will Once Again Drive Growth, Despite Yervoy’s Decline
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We expect the company to report strong growth in Opdivo and Empliciti’s sales for Q4 2016. While we also believe Sprycel’s revenue grew, Yervoy’s sales are likely to have declined due to cannibalization from Opdivo. Overall, cancer drugs will account for a majority of Bristol-Myers Squibb’s incremental revenue in the fourth quarter. This is consistent with the trend we have seen this year.
Opdivo’s sales for the first nine months of 2016 stood at $2.46 billion, significantly up from $467 million during the same period in 2015. While the ramp up in sales looks impressive, investors were deeply concerned when the drug’s CheckMate-026 trial reported failure, effectively limiting Opdivo’s potential of expanding to the broader lung cancer market. The company had tried to reassure investors that it will be pursuing lung cancer through a combination therapy of Opdivo and Yervoy. However, it recently announced that it has dropped this pursuit, sending the stock price down nearly 10% in a single day.
However, there are positives to look at. Opdivo is approved for melanoma and second line lung cancer, and we also expect it to secure approval for bladder and head & neck cancer. We acknowledge concern surrounding competition from Keytruda, which has been approved for the treatment of first-line non small cell lung cancer (NSCLC) with PD-L1 > 50%. However, it should be noted that Opdivo doesn’t require PD-L1 testing. This is something that physicians prefer. Nevertheless, we expect to reduce our forecast estimates as we update our valuation model for Q4 2016 earnings.
Eliquis Is Closing In For The Top Spot
Eliquis’ success story is worth noting, considering that the drug has broken into a crowded and competitive therapeutic area of cardiovascular diseases. It was co-developed by Bristol-Myers Squibb and Pfizer, and saw its revenue jump to $2.4 billion in the first nine months of 2016, implying a growth of nearly 90% over 2015. The drug is safer than warfarin and the partnership with Pfizer gives it a strong global reach. According to Bristol-Myers Squibb’s management, Eliquis has already gained the top spot in hospitals and among cardiologists, and is on its way to displace Xarelto as the market leader in prescription ranking. BMS’ Eliquis is ‘relatively close’ to snagging market lead from J&J’s Xarelto, CEO says, as quoted in FiercePharma, Jan 11 2017
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