AZNCF - The Bristol-Myers Squibb Phenomenon: A Game Changer In The Pharmaceutical Industry

2023-07-21 11:08:50 ET

Summary

• On July 27, 2023, Bristol-Myers Squibb, one of the leaders in the global cancer and immunology therapeutics market, will release its financial report for the second quarter of 2023.
• In the first half of 2023, the company delighted investors with numerous medicine approvals, some of which could become blockbusters in the next two years.
• Despite positive clinical results, BMY's share price has declined by over 14% since the start of 2023, underperforming compared to competitors like Sanofi, AstraZeneca, and GSK.
• We continue our analytics coverage of Bristol-Myers Squibb with an "outperform" rating for the next 12 months.

On July 27, 2023 , Bristol-Myers Squibb ( BMY ), one of the leaders in the global cancer and immunology therapeutics market, will release its financial report for the second quarter of 2023. In recent years, the company has released financial results at the end of July, implying no extraordinary data on drug sales or net income. After losing Revlimid's exclusivity in 2022, this can be seen as a positive factor, as BMY's management wants to demonstrate to Wall Street that the results will be in line with their expectations and the company's guidance for 2023 , which implies a 2% increase in revenue from the previous year.

In the first half of 2023, the company delighted investors with numerous drug approvals, some of which could become blockbusters in a relatively short period. One of these was the approval of Sotyktu for treating adults with moderate to severe plaque psoriasis and Camzyos for treating symptomatic obstructive hypertrophic cardiomyopathy in the European Union.

The five largest shareholders of Bristol-Myers Squibb, with a combined stake of 29.9% in the company, have long been such Wall Street mastodons as Blackrock, State Street, JP Morgan Chase & Company, Capital International Investors, and Vanguard Group.

Despite favorable results from numerous clinical studies evaluating the efficacy of Opdivo for the treatment of lung cancer, kidney cancer, urothelial carcinoma, and more, since the beginning of 2023, BMY's share price has shown a decline of more than 11%, underperforming such competitors in the healthcare sector as Sanofi ( SNY ), AstraZeneca ( AZN ) and GSK ( GSK ).

We continue our analytics coverage of Bristol-Myers Squibb with an "outperform" rating for the next 12 months.

The financial position of Bristol-Myers Squibb and its prospects

Bristol-Myers Squibb's revenue for the first three months of 2023 was $11.34 billion, down 0.6% from the previous quarter and 2.7% from the first quarter of 2022. Moreover, BMY's revenue has beaten analyst consensus estimates in six of the last nine quarters, suggesting that Wall Street is underestimating its business prospects.

We believe that despite the lack of revenue growth in recent quarters, Giovanni Caforio, as CEO of the company, is excellently toughening competition from generic versions of two former flagship drugs such as Revlimid and Abraxane.

According to Seeking Alpha , BMY's Q2 2023 revenue is expected to be $11.61-$12.08 billion, up 2.8% from analysts' expectations for the first three months of 2023. At the same time, following our model, the company's total revenue will be within this range and amount to $11.92 billion.

Higher sales of drugs such as Opdivo, Reblozyl, Opdualag, and Abecma will drive BMY's slight QoQ increase in revenue. Expansion of the oncology franchise, primarily through expanding the label for Opdivo, the world's second-best-selling PD-1 inhibitor, minimizes the stagnation in demand for Yervoy, Orencia, and Sprycel.

Thus, sales of Opdivo amounted to about $2.2 billion in the first quarter of 2023, an increase of 14.5% compared to the previous year due to the growth in the volume of prescriptions and the expansion of indications for use. We believe that its sales will continue to grow year after year due to the publication of the results of clinical trials that contribute to the broader use of this medicine in medical practice.

In addition, the demand for BMY's drug in treating patients with non-small cell lung cancer (NSCLC) and various gastric and bladder cancers is snowballing. However, one of the problems associated with Opdivo remains the lack of a steady growth trend in quarterly sales, unlike its main competitor, Merck's Keytruda ( MRK ).

Conversely, sales of Carvykti, the main competitor of BMY's Abecma in the global multiple myeloma market, are worrying. Thus, sales of Carvykti amounted to $117 million in the second quarter of 2023, an increase of 62.5% compared to the previous quarter.

Johnson & Johnson's product ( JNJ ) is more effective, but Abecma has a more favorable safety profile and less complexity with its production. In addition, Bristol Myers Squibb, in partnership with 2seventy bio ( TSVT ), filed applications to expand the use of Abecma in earlier lines of treatment for multiple myeloma in the US, Japan, and the European Union three months ago . As a result, this will allow the company to increase its share in the multi-billion dollar market and achieve its sales guidance.

One of the key factors that will help Bristol Myers Squibb's revenue growth recover is an active R&D policy. Thanks to it, business is being transformed, and new generation drugs appear on the market that can not only improve the quality of life of thousands of patients but also the financial position of the company.

BMY's R&D spending in Q1 2023 was $2.3 billion, or 20.3% of total revenue, which is high at a time when Revlimid's declining sales continue to put pressure on its margins.

BMY's Q1 2023 operating income margin was 22.1%, a sharp recovery from the previous quarter due to higher sales of cancer and cardiovascular drugs. At the same time, we forecast that by 2023 the company's operating income margin will remain stable and reach 21.5%, and by 2024 this value will increase to 23.4%, thanks to lower inflation and the launch of new medicines.

The company's earnings per share for the first three months of 2023 was $2.05, up 4.6% year-over-year. According to Seeking Alpha , BMY's Q2 EPS is expected to be $1.86-$2.17, up 1.5% from the consensus estimate for Q1 2023. While we believe this is slightly underestimated, our model puts Bristol Myers Squibb's EPS at $2.00. This is primarily due to increased competition with generic versions of Revlimid and their commercialization in additional dosages.

Bristol Myers Squibb's Non-GAAP P/E [TTM] is 7.97x, 58.23% less than the average for the sector and 27.55% less than the average over the past five years. On the other hand, P/E Non-GAAP [FWD] is 7.76x, which is one of the factors indicating a significant undervaluation of the company.

At the end of March 2023, BMY's total debt was about $39.39 billion, down $6.21 billion from 2021. Moreover, thanks to the growth in EBITDA in recent quarters, the total debt/EBITDA ratio decreased from 2.19x to 2.01x.

While Bristol Myers Squibb's total debt/EBITDA ratio is slightly above 2x, we don't expect the company to have any difficulty redeeming its senior notes due to its expanding portfolio of experimental drugs, maintaining stable cash flow, and rising sales of flagship medicines.

Conclusion

On July 27, 2023, Bristol-Myers Squibb, one of the leaders in the global cancer and immunology therapeutics market, will release its financial report for the second quarter of 2023.

The company continues to transform after the launch of generic versions of Revlimid in 2022, which is its mega-blockbuster. Under the leadership of Giovanni Caforio, Bristol Myers Squibb has pleased investors with numerous medicine approvals, some of which could become blockbusters in the next two years. One of these was the approval of Sotyktu for treating adults with moderate to severe plaque psoriasis and Camzyos for treating symptomatic obstructive hypertrophic cardiomyopathy in the European Union.

In addition, stable cash flow and an active R&D program are assisting in increasing the number of new-generation experimental drugs that aim to improve patients' quality of life and increase Bristol Myers Squibb's revenue growth rate. BMY's dividend yield of 3.63% and the remaining authorization to buy back the company's shares amounted to $6.9 billion , are among the many factors that will reduce the impact of short sellers on its share price.

We continue our analytics coverage of Bristol-Myers Squibb with an "outperform" rating for the next 12 months.

For further details see: