Finance
Is Bristol Myers Squibb Stock Overvalued at Nearly $60? A Reality Check for Value Investors.
Bristol Myers Squibb‘s (NYSE: BMY) shares are trading for a bit less than $60 apiece, which may seem like an affordable price to pay for a pharmaceutical company of its stature. But some would argue that the drugmaker looks far too expensive, even at current levels, relative to its growth potential. Bristol Myers has encountered patent cliffs in recent years, and there are more on the horizon. By the end of the decade, the company will lose patent exclusivity for its two best-selling medicines, the cancer drug Opdivo and the anticoagulant Eliquis.
So, the stock could significantly underperform broader equities, or perhaps even be a wealth destroyer, over the next five years, or so the argument goes. Should value investors even bother taking a second look at the pharmaceutical giant?
Image source: The Motley Fool.
This may be an excellent deal for those focused on the long game.
Bristol Myers Squibb‘s (BMY 0.87%) shares are trading for a bit less than $60 apiece, which may seem like an affordable price to pay for a pharmaceutical company of its stature. But some would argue that the drugmaker looks far too expensive, even at current levels, relative to its growth potential. Bristol Myers has encountered patent cliffs in recent years, and there are more on the horizon. By the end of the decade, the company will lose patent exclusivity for its two best-selling medicines, the cancer drug Opdivo and the anticoagulant Eliquis.
So, the stock could significantly underperform broader equities, or perhaps even be a wealth destroyer, over the next five years, or so the argument goes. Should value investors even bother taking a second look at the pharmaceutical giant?
Image source: The Motley Fool.
Can the growth portfolio take over?
In the first quarter, Bristol Myers’ revenue grew by just 3% year over year to $11.5 billion. Eliquis and Opdivo accounted for more than half of that, racking up $6.3 billion in sales between them. It’s no wonder many investors are worried about the company’s medium-term outlook. However, there are some reasons to be optimistic. Over the past seven years (or so), Bristol Myers has earned approval for newer products that it hopes will fill the hole Opdivo and Eliquis will leave in the wake of their patent cliffs.
The list includes Reblozyl, a medicine for anemia in patients with beta-thalassemia, Opdualag and Breyanzi, two cancer drugs, and a subcutaneous version of Opdivo. These products are performing well. Take Reblozyl, whose sales in the first quarter jumped by 16% year over year to $555 million. The most important of the bunch is likely Opdivo Qvantig (the subcutaneous version). In clinical studies, it significantly reduced prep and administration time for healthcare professionals administering it — versus the original version — without compromising efficacy.
Opdivo Qvantig isn’t generating much revenue yet, but it is growing rapidly. First quarter sales were $163 million, up more than 200% year over year. Bristol Myers’ growth portfolio, which features the two versions of Opdivo and several other medicines, posted $6.2 billion in sales during the first quarter, up 12% year over year. Within a few years, it should account for a larger percentage of the drugmaker’s top line.
Bristol Myers Squibb
Today’s Change
(-0.87%) $-0.49
Current Price
$55.67
Pipeline progress will be crucial, too
In addition to its newer medicines, which will hopefully post solid sales growth well into the 2030s, Bristol Myers will look to strengthen its portfolio with new approvals. The company has a deep pipeline with several dozen ongoing clinical trials. Some of the company’s products in development look highly promising. One of them is a next-gen anticoagulant called Milvexian, which Bristol Myers Squibb is developing with Johnson & Johnson. While current options are effective, they come with significant side effects, including heavy bleeding.
Milvexian could potentially reduce bleeding without compromising efficacy. Some analysts expect it to generate well over $1 billion in annual sales eventually. Of course, there is still some work to be done. Milvexian is currently undergoing phase 3 studies. But if it aces these clinical trials, Milvexian could help replace Eliquis. There are others, including an investigational cancer medicine called Pumitamig, which Bristol Myers is developing with BioNTech. It belongs to a newer class of drugs, bispecific antibodies, which can bind to two different antigens simultaneously, potentially offering greater efficacy than traditional monoclonal antibodies, which are currently the standard of care in oncology.
Pumitamig is being tested across a range of different cancers, including breast, lung, gastric, and more. It is another product that could meaningfully move the needle down the road for Bristol Myers, and there are several more. Provided the company’s pipeline progress remains solid, it could find even more ways to replace its current best-selling drugs.
An attractive long-term play
Bristol Myers is trading at 9x forward earnings, versus the healthcare sector‘s average of 16.8. The company’s sales growth may not be impressive right now, and things may get worse on that front before they get better. But my view is that given Bristol Myers’ current growth portfolio and strong pipeline, the pharmaceutical giant could perform well over the medium term. So, the stock looks attractive, especially at current levels, for investors looking to stay the course. Bristol Myers is also a solid dividend stock, currently offering a juicy forward yield of 4.5%. Value investors and income-seekers should seriously consider this stock.