Bristol Myers Stock Gains 11.4% in a Year: Time to Buy or Sell?
Ekta Bagri
5 min read
It was a good year for biotech giant Bristol Myers BMY. Shares of the company have risen 11.4% against the industry’s 15.6% decline. The stock has also outperformed the sector but underperformed the S&P 500 during this period.
The outperformance was more pronounced in the second half of the year, buoyed by strong quarterly performances, an increase in annual guidance and approval of new drugs.
This stupendous rally after touching a 52-week low in July has enabled BMY to regain its lost territories. The stock touched a 52-week high of $61.08 on Nov. 11.
Bristol Myers Outperforms Industry &Sector, Underperforms S&P 500
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Newer Drugs Fuel BMY’s Top Line
Drugs like Reblozyl, Breyanzi, Camzyos and Opdualag have enabled BMY to stabilize its revenue base amid generic competition for its legacy drugs. Thalassemia drug Reblozyl, for which BMY has a collaboration agreement with Merck MRK, has put up a stellar performance since its approval, with strong growth in the United States and international markets. The drug should contribute significantly in the coming decade.
Sales of its oncology drug, Opdualag, have also been robust, fueling the top line. Per BMY, the drug has already become a standard of care in first-line melanoma settings in the United States, with a market share of 30%.
Sales of CAR T cell therapy, Breyanzi, also continued to gain traction from the approval of new indications and expanded manufacturing capacity.
The FDA approval for xanomeline and trospium chloride (formerly KarXT), an oral medication for the treatment of schizophrenia in adults, has expanded BMY’s portfolio. The drug was approved under the brand name Cobenfy, representing the first new pharmacological approach to treating schizophrenia in decades. The approval of Cobenfy for schizophrenia broadens BMY’s portfolio and validates the acquisition of Karuna Therapeutics.
BMY had earlier acquired Mirati Therapeutics for $4.8 billion. The acquisition added Mirati’s lung cancer drug Krazati (adagrasib) to its oncology portfolio.
The acquisition of RayzeBio added its proprietary radiopharmaceutical platform, along with its innovative pipeline of potentially first-in-class and best-in-class actinium-based radiopharmaceutical therapeutics, to Bristol Myers’ oncology portfolio.
Earlier, the Committee for Medicinal Products for Human Use (“CHMP”) of the European Medicines Agency recently gave a positive opinion for repotrectinib, a next-generation tyrosine kinase inhibitor.
The CHMP recommended the drug for the treatment of adult patients with ROS1-positive advanced non-small cell lung cancer, adults and pediatric patients aged 12 years and older with advanced solid tumors expressing an NTRK gene fusion, and those who have received a prior NTRK inhibitor, or have not received a prior NTRK inhibitor and treatment options not targeting NTRK provide limited clinical benefit, or have been exhausted. A decision is expected in January 2025.
Challenges for Older BMY Drugs
While the newer drugs drive growth, one of BMY’s top drugs, Revlimid (indicated for multiple myeloma), faces generic competition, adversely impacting its top line.
Blood thinner medicine Eliquis, for which BMY has a worldwide co-development and co-commercialization agreement with pharma giant Pfizer PFE, is the biggest contributor to the top line.
Opdivo has maintained momentum for the company on continued label expansions. The European Commission recently approved Opdivo plus Yervoy for the first-line treatment of adult patients with microsatellite instability–high or mismatch repair deficient unresectable or metastatic colorectal cancer.
However, Eliquis is slated to face generic competition later in the decade, and Opdivo might face a slowdown as core indications mature.
These three drugs comprise a major chunk of the company’s revenues. Meanwhile, the leukemia drug Sprycel is also facing generics in the United States, adversely impacting its sales. Pomalyst is facing generics in Europe.
Cost-Cutting Measures Should Boost Earnings
In April 2024, BMY announced a strategic cost-reduction plan that should result in approximately $1.5 billion savings by the end of 2025. The company will prioritize investing in candidates that will deliver the best long-term returns and optimize operations across the organization.
BMY’s High Debt Ratio Worrisome
While BMY’s strategy of acquiring companies with promising drugs/candidates is encouraging, it has resulted in colossal debt to finance these acquisitions.
As of Sept. 30, 2024, Bristol Myers’ total debt-to-total capital ratio was a staggering 74.3%. This is worrisome. The company had cash and equivalents of $7.9 billion and a long-term debt of $48.7 billion as of the aforementioned date.
Valuation
Going by the price/earnings ratio, BMY’s shares currently trade at 7.97x forward earnings, lower than its mean of 8.63x and 15.71x for the large-cap pharma industry.
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Estimate Movement
Over the past 60 days, the Zacks Consensus Estimate for 2024 earnings per share (EPS) has increased to $0.93 from $0.90. EPS estimate for 2025 has also gained 8 cents.
It’s worth noting that the annual earnings estimate has taken a massive hit due to acquisition-related expenses in 2024.
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Conclusion
Large biotech companies are considered safe havens for investors interested in this sector. The recent rally raises hope of a turnaround for BMY. Newer drugs pave the way for growth, and approval of additional new drugs should further bolster the portfolio.
Given the stock's current trading levels, it would be prudent for investors already owning the stock to stay invested. Any dip in the share price can be used as a buying opportunity, as BMY is a good stock to own in the long term, and we believe there is room for more growth.
BMY has also been consistently paying out dividends. The company recently declared a quarterly dividend of 62 cents per share, indicating a 3.3% increase over last year’s quarterly rate of 60 cents. The forward dividend yield of 4.34% is quite attractive. It is another reason for investors to stay invested and prospective investors to consider adding the stock to their portfolio.
Bristol Myers currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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