Bristol-Myers: Healthy Gains in Oncology

08/27/2015 7:00 am EST


This featured buy-rated stock has a strong portfolio of oncology and antiviral drugs, which should drive sales growth and margin expansion over the next several years, explain analysts David Toung and Zane Keller of Argus Research.

Bristol-Myers Squibb (BMY) posted strong 2Q15 results on July 23. Adjusted EPS rose 10% from the prior year to $0.53 and beat the consensus estimate by $0.17. Revenue grew 7% (up 16% currency-neutral) to $4.2 billion.

In oncology, Opdivo, a treatment for solid tumors, is on track to expand its market following a positive recommendation from regulators in Europe.

We expect Opdivo to be a strong revenue generator given its relatively broad label as a treatment for solid tumors. We also expect sales of the anticoagulant Eliquis to benefit from expanded indications.

With the FDA approval of Daklinza in late July, BMY now joins Gilead (GILD) and AbbVie (ABBV) in the US with pills that effectively treat hepatitis C.

Daklinza was approved to treat patients with genotype 3 of hep C, the second most common form.

About 10% of Americans with hepatitis C have this genotype, which is particularly difficult to treat and carries a higher risk of liver cirrhosis. Daklinza was approved for use in combination with ribavirin.

The company’s main growth drivers include the hepatitis C franchise ($479 million versus negligible sales a year earlier); Sprycel ($405 million, up 10%); Orencia ($59 million, up 15%), and Eliquis ($266 million, up 22%).

Looking ahead, we expect updates on clinical trials of Opdivo and other drugs in the immunology-oncology space. Some of these studies seek to expand indications for Opdivo. Others are targeting solid tumor cancers such as renal cancer and lung cancer.

BMY trades at 28.1-times our EPS estimate for 2016. Although this multiple is well above the average of 17.2 for peer stocks in our coverage universe.

However, we believe that it is justified by the company’s strong product pipeline in oncology, which we expect to boost sales and earnings over the next three years. Our target price is $78.

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