Bristol-Myers Squibb (BMY, Financial) has been creating new 52-week lows on a weekly basis since August. The stock is already down by more than 35% in the last three months and, looking at the chart, it might well continue the downward trend for some time.
The problem for Bristol-Myers started when its cancer drug Opdivo, a drug that carried a lot of expectations on its shoulders, failed a study to expand its use to lung cancer patients.
“Bristol-Myers said its drug, Opdivo, wasn’t significantly better than chemotherapy in a study of patients with newly diagnosed lung cancer – an unexpected result that sent the New York drugmaker’s shares down 16%.” – WSJ
That 16% drop on a single day wiped out nearly $16 billion worth of valuation. Sales of Opdivo reached $704 million in the first quarter and $840 million in the second quarter. Clearly it was a rising blockbuster drug, and the market was expecting Opdivo sales to touch $13.3 billion in 2025, which had to be adjusted to $10.3 billion after the disappointing results of the study.
Nevertheless, a 35% drop in stock price is irrational because Opdivo isn’t the only drug with growing revenues.
As Opdivo’s sales grew tenfold in the first half of this year compared to the prior period, Eliquis (cardio) doubled its numbers, Orencia grew by 24%, and the hepatitis C franchise grew by 31% – and all these products look good to grow in the next few years as well.
Opdivo’s failure in the study is a huge setback, but all is not lost for the lung cancer drug.
“Bristol-Myers said it was disappointed with the results, but that the trial was just one of dozens exploring the best way to use immunotherapies. The company sees potential in using Opdivo in combination with its older immunotherapy, Yervoy, for newly diagnosed lung cancer patients. A study of such a combination is under way.” -– WSJ
So Opdivo will still bring in top line results but probably less than the market was expecting before August. The disappointment has resulted in a rout but, at 23 times earnings with a dividend yield of more than 3%, Bristol-Myers Squibb is an extremely appealing company in which to invest.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
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