Bristol-Myers Squibb (BMY, Financial) seems to be on track for a solid year in 2022, fueled by strong sales of core drugs Eliquis and Opdivo, as well as continued demand growth for their new products. The company's launch of Zeposia in the U.S. for ulcerative colitis has progressed smoothly, and they recently received European approval for the same during the past quarter.
The company is also expanding its cardiovascular portfolio, and the biggest manifestation of this was the positive data for Milvexian in its Phase 2 trials suggesting a favorable anti-thrombotic profile. As per the management, Milvexian alone has a non-risk-adjusted revenue opportunity of $5 billion or more. The company has also shown promising results for iberdomide and 480, two of their new CELMoD agents for multiple myeloma.
Strong portfolio of drugs
Bristol-Myers Squibb has built a strong portfolio of drugs and a robust pipeline through partnerships and acquisitions. This strategy can be seen in its large acquisition of Celgene, which provided the company with a strong pipeline and a foothold in the blood cancer market. Celgene's drugs are mostly used to treat cancer, a disease with much drug pricing power. It should also help the company maintain its pricing power when both governments and private payers put pressure on drug prices.
Bristol-Myers Squibb has also built a strong organic pipeline and partnered with other companies to split development costs and spread the risk of clinical and regulatory failure. The cardiovascular partnership with Pfizer (PFE, Financial) is one of the most important, as it manages Eliquis' blockbuster potential in atrial fibrillation.
Also, the company's acquisition of Medarex helps strengthen their first-mover advantage in cancer immunotherapy, which is expected to yield several major blockbuster drugs. Based on solid efficacy, combination potential with other drugs and strong pricing power, Bristol's PD-1 cancer drug Opdivo has the potential to revolutionize cancer treatment and should drive multibillion-dollar sales annually. Furthermore, the company is repositioning itself aggressively to expand despite patent losses.
To focus on the high-margin specialty drug group, the company has sold its diabetes business, medical imaging group, wound care division and nutritional business.
Collaboration with DarwinHealth
Earlier in 2021, Bristol-Myers Squibb entered into a scientific research collaboration with DarwinHealth, a New York City-based biotechnology company for a Novel Cancer Target Discovery (NCTI) Initiative. The collaboration employs quantitative systems, biology-based algorithms, proprietary databases and validated technologies to identify novel cancer targets (NCTs) across a broad range of tumor subtypes.
The methodology used by the two companies in the collaboration is based on an understanding of critical mechanisms linked to tumor dependencies and maintenance beyond genetic mutations. DarwinHealth looks to provide proprietary information from its drug databases, including tumor context-specific analyses of Master Regulators of distinct tumor subtypes, as well as direct upstream modulators.
These insights flowing from the collaboration could significantly speed up the development of drugs targeting non-oncogene dependencies that underpin and drive key cancer hallmarks. Overall, this collaboration is a highly positive development with respect to Bristol’s drug research and development.
Sustainable competitive advantage
Bristol-Myers Squibb has a strong competitive advantage because of its diverse portfolio of patent-protected drugs, a well-established sales force and economies of scale. Because of the patent protection, the company can charge higher prices for its drugs, resulting in higher returns on invested capital. Some of the company's currently marketed drugs are biologics, which pose additional challenges for generic companies because the cost of developing and marketing biosimilars is much higher than the cost of developing and marketing generic small molecules.
Furthermore, as many small drug companies lack a distribution channel, Bristol's established salesforce allows them to partner with these smaller drug companies to gain access to externally created drugs, supplementing its own drug-development efforts. Bristol's size also allows it to generate the strong and stable cash flows needed to fund the required amount to bring each new drug to market. I think it is safe to say that the company does have a sustainable competitive advantage.
Final thoughts
As we can see in the above chart, Bristol-Myers Squibb has had a more or less flat trajectory for the past year despite its ups and downs. One big positive in favor of the company is that it has been a relatively stable stock even in times of economic downturns, and the current geopolitical tensions have not affected it too badly.
Bristol-Myers Squibb does have its fair share of risks such as heavy dependence on Opdivo and Revlimid and the expected competition from generics. There is also the risk associated with high debt levels on account of the Celgene acquisition as well as future acquisitions. Its current valuation at an enterprise-value-to-revenue multiple of 3.87 appears reasonable and the dividend yield of around 2.9% also cannot be ignored. Overall, I believe that the company is fundamentally strong and fairly valued, and its growth prospects are considerable.
