Bristol-Myers Squibb: A Pipeline to Profits

07/30/2020 5:00 am EST

Focus: HEALTHCARE

Richard Moroney

Editor, Dow Theory Forecasts

The most important question you can ask about the typical big drugmaker is whether its pipeline will support outsized growth in the future; at Bristol-Myers Squibb (BMY), the answer seems to be “yes,” asserts Rich Moroney, editor of Dow Theory Forecasts.

In May, the U.S. FDA approved a combination therapy including Opdivo for treatment of a non-small-cell lung cancer, one of the largest oncology markets. This new indication could restore growth for the company’s third-largest drug, which saw revenue fall 2% in the March quarter.

The combination of Opdivo and Yervoy is also under review for treatment of another type of lung cancer and two types of solid tumors, while Opdivo is seeking approval as a solo treatment of ovarian, colorectal, esophageal, pediatric, and several other forms of cancer.

At the same time, Bristol-Myers’ two largest-selling drugs — Celgene’s crown jewel Revlimid for blood cancer and myeloma and the blood thinner Eliquis — combined to generate more than $5 billion in revenue in the March quarter, up 23% from the year-ago period on a pro-forma basis.

In the wake of the Celgene acquisition, Bristol-Myers has more than 50 compounds in development. Up to a half-dozen could hit the market by the end of 2021, including several with the potential to generate peak revenue of more than $1 billion a year.

Analysts expect merger-assisted revenue growth of 60% this year, followed by 8% in 2021. Per-share-profit targets imply growth of 32% this year and 20% next year.

Bristol-Myers has topped the profit consensus in each of the last eight quarters, averaging a surprise of 11%, reflecting the company’s ability to both exceed revenue expectations and boost operating profit margins, which have fattened by nearly eight percentage points over the last three years.

At 11 times trailing earnings, Bristol-Myers trades 17% below its industry median and 13% below its own three-year average. In our view, current prices likely take pandemic, political, and operational risks into account. The shares yield 3.0%.

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