Bristol Myers Squibb: Seriously Undervalued At Peak Pessimism (Rating Upgrade) (NYSE:BMY)

Bristol Myers Squibb Company (NYSE:BMY) is one of the largest pharmaceutical companies in the world, headquartered in Princeton, New Jersey.

Investment thesis

Since the publication of my last article in late 2023, the company’s share price has continued to move sideways despite making significant progress in developing its pipeline of experimental drugs, as well as improving its financial position despite increased competition from generic versions of its blockbusters such as Revlimid and Abraxane.

First, Bristol Myers Squibb’s management anticipates its 2024 revenue to grow by a single-digit percentage year over year, and its diluted earnings per share range from $7.1 to $7.4, representing a non-GAAP P/E [FWD] of about 7x. As a result, this indicates that the company is trading at a discount not only to the sector but also to its key competitors, including Pfizer Inc. (PFE), Novartis AG (NVS), and Merck & Co., Inc. (MRK).

In my assessment, innovative medications such as Eliquis, Reblozyl, Onureg, Zeposia, and Opdualag are key contributors to improving the company’s financial position. These medications will be able to offset the damage from the loss of Opdivo’s exclusivity in the US in 2028.

So, Reblozyl (luspatercept-aamt) is a recombinant fusion protein that received its first FDA approval in early November 2019 for the treatment of certain patients with beta-thalassemia. Its mechanism of action is based on its ability to bind to TGF-β superfamily ligands, which ultimately leads to a decrease in Smad2/3 signaling as well as an increase in the number of mature red blood cells, primarily responsible for transporting oxygen to body tissues.

Its total sales were $320 million in the fourth quarter of 2023, up 60.8% year-over-year, and more importantly, its demand growth rate increased sharply quarter-over-quarter, mainly due to the FDA’s approval of Reblozyl for the treatment of anemia in certain patients with low- and intermediate-risk myelodysplastic syndromes in late August 2023, as well as strong demand in Europe and Japan.

Moreover, on April 2, 2024, the EMA approved Bristol Myers Squibb’s product as a first-line treatment for anemia in certain patients with MDS following the results of a pivotal clinical trial that demonstrated its favorable safety profile, as well as Reblozyl’s superior efficacy to epoetin alfa.

My estimate, based on Reblozyl’s historical sales growth rate, its expected label expansion over the next three years, and the release of additional data supporting its competitive advantage relative to the “gold standards” in the treatment of anemia, its total sales will reach $4.46 billion in 2027.

Also, on April 6, 2024, Bristol Myers Squibb pleased investors with additional results from the Phase 3 EMERGENT-4 study, which evaluates the efficacy of KarXT (xanomeline-trospium) for the treatment of patients with schizophrenia, which is one of the most common psychiatric diseases.

So, in a group of patients taking the company’s experimental drug, improvements in various metabolic parameters and a favorable safety profile were demonstrated, as well as a significant improvement in symptoms of schizophrenia relative to the group of patients taking a placebo. As a result, these results significantly increase the likelihood of KarXT being approved by regulatory authorities in the second half of 2024.

As a result, I am upgrading Bristol Myers Squibb’s rating from ‘Buy’ to ‘Strong Buy’.

Prospects for Bristol Myers Squibb’s business development in 2024

Bristol Myers Squibb’s revenue for the three months ended December 31, 2023, was $11.48 billion, up both year-on-year and quarter-on-quarter even as demand for Revlimid, its blockbuster drug against multiple myeloma, mantle cell lymphoma, and follicular lymphoma.

In addition, the company’s actual revenue beat Wall Street analysts’ consensus estimates in most of the last ten quarters, indicating ongoing cautiousness regarding its business outlook even as sales of many of its best-selling and most recently launched drugs are growing at double-digit percentages.

Considering Seeking Alpha’s data, Bristol Myers Squibb’s revenue for the first quarter of 2024 is projected to range from $11.14 billion to $11.74 billion, which is about 0.7% more than the fourth quarter of 2023.

On a larger scale, this financial metric is expected to continue to rise to around $46.4 billion in 2025, representing a price-to-sales ratio of 2.2x, which is one factor signaling that Bristol Myers Squibb is trading at a discount to major dividend-paying pharmaceutical companies.

In addition to Reblozyl, Breyanzi (lisocabtagene maraleucel), a CD19-directed CAR T-cell therapy that received first approval on February 5, 2021, for the treatment of patients with relapsed/refractory large B-cell lymphoma, will contribute to the company’s long-term revenue and cash flow growth.

Its sales were $101 million in the fourth quarter of 2023, up 83.6% year-over-year due to its geographic expansion as well as its competitive advantages over Gilead Sciences, Inc.’s (GILD) Yescarta and Novartis’ Kymriah.

I expect that demand for the company’s product will continue to accelerate, driven in part by its FDA approval on March 14, 2024, to combat relapsed or refractory chronic lymphocytic leukemia and small lymphocytic lymphoma, two deadly diseases with limited treatment options.

An additional crucial factor that will have a positive impact on Bristol Myers Squibb’s operating profit is its aggressive R&D policy. The growth in R&D spending, as well as the acquisition of several pharmaceutical companies in the last three years, are aimed at both transforming its business and minimizing the impact of financial risks, the analysis of which was presented in my previous article.

According to my estimation, as well as analysts of Wall Street, thanks to the FDA-approved drugs and product candidates such as iberdomide, mezigdomide, and golcadomide, Bristol Myers Squibb’s 2025 non-GAAP EPS will reach 7.06x, resulting in a P/E ratio of 7.12x. This represents an attractive value for conservative investors seeking undervalued assets in the healthcare sector.

Takeaway

In my assessment, the business strategies promoted by the company’s CEO are beginning to bear fruit, which include relatively high rates of development of its pipeline of product candidates targeting huge medical needs, stabilizing sales of Abraxane, as well as minimizing financial risks due to the loss of exclusivity of Eliquis, Opdivo in the next five years through the acquisition of pharmaceutical companies developing next-generation therapeutics.

Since my last article, the company has received several regulatory approvals for its drugs that offer competitive advantages over “gold standards “in the treatment of various types of cancer. Additionally, the company’s extremely high dividend yield and its management’s active use of the share repurchase program are investment theses that make Bristol Myers Squibb an attractive asset for financial market participants.

In conclusion, I am upgrading Bristol Myers Squibb’s rating from ‘Buy’ to ‘Strong Buy’.