We are maintaining our Neutral recommendation on Bristol Myers Squibb Company (BMY) with a target price of $28.
Bristol-Myers Squibb Company, headquartered in New York, is a major producer and distributor of pharmaceuticals and other healthcare-related products. The company manufactures and sells branded pharmaceutical drugs such as Pravachol for cholesterol reduction, Plavix for hypertension and Erbitux for cancer.
In late 2009, Bristol-Myers sold its interest (83.1% stake) in infant formula maker Mead Johnson. The divestiture has enabled Bristol-Myers to operate as a fully independent biopharmaceutical company, focusing exclusively on its Pharmaceuticals segment.
Bristol-Myers has a number of new franchises that should help contribute to its top-line over the next several years. The virology franchise at Bristol performed impressively in the most recent quarter with worldwide sales from this franchise registering a 10% year-over-year growth. The impressive performance of the franchise was due to strong demand for HIV drugs Reyataz and Sustiva and Baraclude, one of the top prescribed therapies for hepatitis B virus (HBV), both in the US and internationally.
Furthermore, sales of rheumatoid arthritis drug Orencia stood at $178 million in the most recent quarter, up 20%, while leukemia drug, Sprycel, registered sales of $132 million in the second quarter of 2010, up 23%. The impressive product portfolio should continue driving growth in the coming quarters.
Bristol-Myers boasts of a robust pipeline. During the most recent quarter, the company presented positive data on ipilimumab at the American Society of Clinical Oncology as a second-line therapy for metastatic melanoma. Based on the data, the company filed for approval of the candidate in Europe and the US.
In August 2010, the US FDA accepted the Biologics License Application (BLA) for ipilimumab and will review the application on a priority basis (projected target date: December 25, 2010). The European application has already been accepted. The candidate is also under review in other countries for the same indication. Ipilimumab is also being evaluated for other indications.
Furthermore, Sprycel, Bristol’s leukemia drug, was found to be more effective than Novartis’ (NVS) Gleevec as a first-line therapy for chronic myeloid leukemia. The application for marketing approval of the drug, already approved as a second-line therapy for the additional indication, is under review in the US and Europe. The application will be reviewed on a priority basis in the US with a target date of October 28, 2010.
In another encouraging development, the late-stage study of anti-clotting drug apixaban in patients suffering from atrial fibrillation was terminated early based on clear evidence of reduction in stroke and embolism in patients treated with apixaban compared to aspirin. Moreover, Bristol-Myers recently presented encouraging data on its type II diabetes candidate, dapagliflozin. The successful development of its diversified pipeline will further boost the top line at Bristol-Myers, in our view.
Our biggest concern for the company is the high exposure to generic risk on many of its leading franchises, especially the blockbuster Plavix. Additionally, the drug, an antiplatelet blood thinner indicated to reduce the risk of heart attack in patients with atherosclerosis (the build-up of plaque and hardening of the arteries), is facing competition from Eli Lilly’s (LLY) Effient, which was launched in 2009.
There has been continued erosion of Plavix sales in Europe as its generic version, clopidogrel, was available in most nations in the most recent quarter. Bristol-Myers lost patent protection on products worth about $4 billion in sales over the past few years. The loss of exclusivity of key drugs, including the blockbuster Plavix, will result significant loss of revenues at Bristol.
Although we remain concerned about the patent expiration of key products, including Plavix, in the near future, we are pleased with the measures taken by Bristol, like the Medarex acquisition, the impending acquisition of ZymoGenetics (ZGEN) amongst others to counter the loss of revenues.
We believe that Bristol-Myers’ current valuation adequately reflects its fairly balanced risk/reward profile. We see limited upside from current levels. Consequently, we have a long-term Neutral stance on Bristol-Myers, which is supported by a Zacks #3 Rank (short-term ‘Hold’ recommendation) for the stock.