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Bristol-Myers Squibb: Value Play?
02/24/2017 7:00 am EST
The company was flying high last summer when the news broke that Opdivo, its franchise cancer drug, failed to meet expectations in a late-stage trial of previously untreated small-cell lung cancer.
The stock was slammed in August, started to bounce back, but took another hit in October when Merck announced better-than-expected results for its own cancer franchise drug that’s a direct competitor to Opdivo, Keytruda.
Last month, Bristol-Myers announced that it would not seek accelerated approval for Opdivo for yet another treatment, while Merck was granted the go-ahead by the FDA.
Then BMY missed its earnings expectations, leading to yet another new low. All told, the stock dropped nearly 40% since October 2016.
The future for big pharma is about pragmatic business practices: diversified drug portfolios and top-notch research on diseases that include but also go beyond cancer. And that’s what I see in BMY.
Opdivo has a broad list of other cancer targets besides lung cancer, and the drug is the leader in gastric and colon, bladder, head and neck, melanoma, and renal cancers.
Furthermore, BMY’s research pipeline is full, as the company has four late-stage trials featuring Opdivo combined with another BMY cancer fighter, Yervoy.
The most underappreciated of BMY’s assets are its arthritis drug Orencia and a medicine that is on its way to becoming the world’s leading blood thinner, Eliquis. Eliquis sales grew 57% to $948 million, while Orencia sales grew 16% to $625 million year-over-year.
BMY trades at a 19-plus price-to-earnings ratio, and a 73% gross profit margin is expected for 2017, slightly below the drugmaker’s 74% 2016 margin while yielding 3% after a recent dividend increase.
With $9 billion of cash equivalents and $2.4 billion in cash, BMY is set to weather any storm. The company’s next earnings release is scheduled for April 26.
Because of its lower stock price and rich pipeline, BMY could be a takeover target. Two potential suitors come to mind: Johnson & Johnson (JNJ) and GlaxoSmithKline (GSK). Bristol Myers' current business would add pop to anyone's bottom line, but its research pipeline would be the golden goose.
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