Bristol-Myers: Setback Creates Opportunity

08/26/2016 8:00 am EST

Focus: STOCKS

Todd Shaver

Founder and Editor-in-Chief, BullMarket.com

This featured recommendation is pioneering innovative medicines in the area of immuno-oncology, which unlock the body’s own immune system to battle cancer, explains Todd Shaver, editor of Bullmarket.com.

Bristol-Myers Squibb (BMY) introduced its first immuno-oncology agent in 2011; Yervoy treats metastatic melanoma (also known as skin cancer).

However, Bristol-Myers recently announced that one of its more promising up and coming drugs being pioneered for the area of immuno-oncology surprisingly did not pass trial.

Specifically the monotherapy frontline lung phase III study failed (a lung cancer drug).

This was a significant setback for Bristol-Myers, delaying the company’s move into the largest segment of the immune-oncology end market.

The failed trial was a tough pill to swallow for investors and caused Bristol-Myers shares to sell off over 25%, erasing more than $25 billion of market capitalization.

However, the game is far from over. The end market for immune-oncology is quickly evolving. There is broad consensus that by 2018 the end market will expand into a combo market that works with multiple drugs, some of which Bristol-Myers is hard at work developing.

To the extent these other drug studies for Bristol-Myers have success, the company is expected to regain its leadership position in the immune-oncology market.

After all the recent EPS revisions and noise, the consensus EPS outlook still calls for a 2016-2018 compound annual growth rate of 15%, a very healthy pace reflective of a still resilient large cap blue chip business model.

The balance sheet is very strong and the current yield of 2.5% is a nice extra benefit while we wait and is very safe, representing only half of current EPS.

The sell-off is setting up an opportunistic entry point. BMY appears to be a solid investment opportunity for those with the patience to hold for a 12-18-month time period.

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By Todd Shaver, Editor of Bullmarket.com

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