Bristol Myers Squibb Shows Resilience Amid Patent Expiry Challenges (Rating Upgrade)(BMY)

Introduction

Bristol Myers Squibb (NYSE:BMY) announced its Q2 2024 earnings on Thursday. My previous coverage of BMS was nearly a year ago, following Q2 2023 earnings, which inspired 52-week lows due to concerns about generic competition and patent cliffs. Revlimid, a blockbuster drug for the treatment of multiple myeloma, has seen its revenues fall since a generic version was released in early 2022. At its peak, Revlimid generated more than $10 billion per year. As a result, BMS faced a difficult comparison in Q2 2023, with total revenues falling 6% year-on-year due to Revlimid’s unfortunate decline. My final recommendation was “hold,” noting, “In the near future, BMY stock might align with the broader market’s performance and offer a compelling dividend. Yet, expecting it to outperform the market might be optimistic.” BMY has fallen 17% in the past year, compared to strong SPY returns of 22% during the same time.

Bristol Myers Squibb’s New Stars Shine Brightly in Q2

However, investor sentiment surrounding BMS appears to be shifting. The company’s Q2 earnings featured strong beats on revenue ($12.2 billion, up 9% YoY) and EPS ($2.07, beating analyst estimates of $1.63). The beat was driven by strong performances from newer drugs like Reblozyl, Opdualag, Breyanzi, Camzyos, and Sotyktu.

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Recall that Reblozyl was a key part of BMS’s $11.5 billion acquisition of Acceleron Pharma in 2021. Judging by the revenue pace, Reblozyl may outperform peak annual estimates of “$3.2 billion by 2029.” Reblozyl is the only pharmacologic therapy recommended for anemia associated with beta thalassemia.

Opdualag is a combination of two immune checkpoint inhibitors, nivolumab (anti-PD-1) and relatlimab (anti-LAG-3), to improve patient outcomes in melanoma. Opdivo (nivolumab) is the main competitor of Merck’s (MRK) Keytruda, although the latter has had far more success. Opdivo, which only trails Eliquis in revenues in BMS’s portfolio, has a key patent expiring in 2028. Combinations like Opdualag are a backdoor of sorts to extend its lifecycle. Opdualag has been projected to net “$2.3 billion” in peak annual revenue.

Breyanzi is a CAR T-cell therapy targeting lymphomas. This therapy was originally developed by Juno Therapeutics, which was later acquired by Celgene, which was later acquired by BMS, in a mammoth deal for $74 billion in 2019. Given the size of the deal, it’s good to see some results here.

Camzyos is off to the races after a slow start in obstructive hypertrophic cardiomyopathy (oHCM). Camzyos is a first-in-class cardiac myosin inhibitor and was a key part of BMS’s $13.1 billion acquisition of MyoKardia in 2020. I’ve discussed the difficulties of the oHCM market in a recent article on Cytokinetics (CYTK), which is developing a cardiac myosin inhibitor themselves. Due to first-mover advantages and resources, BMS has the upper-hand in this market and Camzyos is expected to be a blockbuster drug.

Finally, Sotyktu, developed internally, is a selective TYK2 inhibitor that targets specific cytokine pathways involved in a few inflammatory and autoimmune diseases. Sotyktu, too, has not had an easy going in the early innings on the market and peak revenue estimates vary widely, depending on who you ask (from <$1 billion to $4 billion). Sotyktu faces competition from a few drugs, including Humira (with biosimilars impacting market share and pricing), Stelara, Cosentyx, and Taltz. However, Sotyktu is differentiated from established treatments like Humira and Stelara in its oral administration and unique mechanism of action.

Financial Health

Total revenues in Q2 were $12.2 billion. After subtracting for expenses and income tax, net earnings totaled $1,684 billion. EPS was $0.83.

According to their balance sheet, cash and cash equivalents totaled $6,293 billion. Total current assets were $26.89 billion, while total current liabilities were $23.265 billion. This implies a current ratio over 1, suggesting that the company is in a good position to cover its short-term obligations. BMS has $3.531 billion in short-term debt and $48.858 billion in long-term debt. It appears the company increased its debt recently, as “proceeds from issuance of long-term” debt was $12,883 billion in the first six months of the year. Given BMS’s reasonable current ratio, strong cash position, and cash flow, it appears fit to manage a higher level of financial leverage.

Risk/Reward Analysis and Investment Recommendation

In conclusion, Q2 earnings appears to be a turning point for BMS. While the company faces some key immediate patent cliffs (including ones later this decade like Eliquis and Opdivo in 2028), it doesn’t seem overwhelming when viewed in light of up-and-coming assets like Reblozyl and Breyanzi.

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Furthermore, investors have KarXT (schizophrenia) to look forward to. This asset, acquired from Karuna Therapeutics earlier this year, is expected to change the treatment landscape for schizophrenia and could, possibly, net $7-plus billion in peak annual revenue. KarXT is expected to be FDA-approved later this year (PDUFA date of September 26). I really liked this acquisition, as it has the potential to pay off handsomely and is a nice expansion into mental health. Meanwhile, BMS is making progress with its subcutaneous version of Opdivo (PDUFA date of December 29), which is anticipated to extend the immunotherapy’s life cycle.

Since my last review of BMS, they have made significant progress in their pipeline and earnings while the stock is cheaper, meriting a rating upgrade to “Strong Buy.” I believe BMS offers attractive value and growth prospects for any portfolio.

BMS faces idiosyncratic risks such as major upcoming patent cliffs (eg, Eliquis and Revlimid), which could significantly impact revenue streams as generic competition grows; integration risks from recent acquisitions of Karuna, Mirati, and RayzeBio; an increased debt load, which may limit their ability to invest in future growth opportunities; and operational risks associated with expanding into new therapeutic areas such as HCM and schizophrenia. As always, investors can mitigate idiosyncratic risks by maintaining a diversified portfolio.