Buy shares of Bristol Myers. The pharmaceutical company’s rally has only just begun.

Artwork by Joanna Litarowicz


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Bristol Myers Squibb

was a beacon of hope in a very tough market – and the stock’s rise may have only just begun.

The


S&P500

flirted with a bear market, but Bristol (ticker: BMY) gained 24% in 2022. While that gain may seem large, Bristol’s stock has only now returned to near its August 2016 level, before cancer failure. -The drug lawsuit sent its shares plummeting and concerns over the patent expiration on its cash cow, the multiple myeloma treatment Revlimid, kept the stock under pressure.

While Revlimid’s patent issues haven’t gone away, the company now seems better prepared for the transition. New drugs have come online and Bristol’s pipeline is full of potential blockbusters that could prevent a repeat of 2016 from happening anytime soon. Although the stock has gained this year, its shares still look cheap. After years of waiting, Bristol looks set to be a winner again.

Any discussion of Bristol should start with Revlimid. Sales of the drug, which reached $12.8 billion in 2021, accounted for about 28% of the company’s total revenue. The decline accelerated in the company’s latest reported quarter – management cited faster-than-expected “erosion” of Revlimid’s sales in international markets during the company’s first-quarter earnings call 2022 – and analysts expect sales to fall to a few hundred million dollars by 2027, according to FactSet. But that didn’t sink the stock, which has been flat since the April 29 report.

Bristol, with a market value of $165 billion, is already doing that with new drugs. Bristol has already had new drugs approved for sale. Opdualag, a metastatic treatment for melanoma, has been approved by the Food and Drug Administration. The FDA has also approved Camzyos, scientifically known as mavacamten, which treats a heart condition, hypertrophic obstructive cardiomyopathy.

“Get help from Opdualag [the stock], but even more importantly, they got approval from the mavacamten,” says Tim Anderson, analyst at Wolfe Research. Opdualag sales could reach $1.1 billion by 2030, up from $6 million in the first quarter after its March launch, Anderson said, while mavacamten sales could reach $3.6 billion. , compared to $18 million expected in the second quarter of 2022.

And Bristol is developing more drugs to further replenish the pipeline. The company expects Phase 2 trial results for the secondary stroke prevention drug milvexian by mid-year, and management said on its latest results call that it plans to do so. move the drug into phase 3 at the end of this year.

Currently, analysts predict less than $2 billion in sales for milvexian before 2030, says Atlantic Equities analyst Steve Chesney. But that estimate would jump to around $5 billion if the trials were successful and the drug was close to approval.

On Nov. 16, management said in its meeting with investors that it had more than 50 drugs in early stages of development, including 12 in oncology. Not all of them will succeed, but some will. That’s all Bristol needs. “They’re starting to find their groove,” said BMO Capital Markets analyst Evan Seigerman, who expects the stock to hit $92, up 19% from Wednesday’s close.

As new products inch closer to approval – and new early-stage products are announced – investors could revalue shares of Bristol, which are trading at just under 10 times the $7.81 per share that the company is expected to earn over the next 12 months. . It is much lower than

Eli Lily
it is

(LLY) 34 times,

Johnson & Johnson
it is

(JNJ) 17 times, and

Merck
it is

(MRK) 12.7 times. Only

Pfizer

(PFE), at 8.5 times, is cheaper, but that has more to do with how investors value its Covid-19 vaccine revenue.

The comparison with Merck is particularly relevant. Consensus expectations for Bristol suggest sales will grow at an annual rate of just under 1% from 2022 to 2027, when revenue is expected to reach $48.7 billion, including $19 billion from new products. But sales could be much higher than that if more new drugs materialize, bringing sales growth closer to 3%, like Merck’s. This could push Bristol’s operating margins from an expected 41% by 2027 to around 46% for Merck.

Management, for its part, says it expects annual new product sales to reach $25 billion by 2029.

For now, however, simply returning to its five-year average multiple of 11.7x would put Bristol’s stock at $91.38, up 18% from Wednesday’s close, while that reaching Merck’s 13 times would put the stock at $101.53, up 31%.

“The catalyst is for investors to become more comfortable with Bristol’s pipeline,” says Dan Eye, chief investment officer of Fort Pitt Capital Group, which owns the shares.

That catalyst is already here, and it’s just beginning. Expect healthy gains going forward from Bristol.

Write to Jacob Sonenshine at [email protected]

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