Company Reports

We are maintaining our $63 fair value estimate for Bristol-Meyers Squibb after mixed first-quarter results. While total sales and earnings were largely in line with our expectations, new-product sales were slightly below our expectations, and more mature drugs like cancer drug Revlimid outperformed our expectations. With Revlimid facing generic competition, its outperformance doesn’t have much of an impact on our valuation, since sales are expected to decline rapidly over the next couple of years.

We are not making any changes to our Bristol fair value estimate following largely in line fourth-quarter results, even though 2024 guidance is slightly above our projections. We continue to view the stock as undervalued, with the market not fully appreciating the newer drug launches that help reinforce the firm’s wide moat by helping mitigate the firm’s significant upcoming patent losses.

Following the recently announced acquisition of Karuna, Bristol announced the acquisition of RayzeBio, but we don’t see either acquisition as impacting the firm’s fair value estimate. We believe Bristol is gaining the targets largely at fair values. We believe the ramping in acquisitions is primarily aimed at addressing the firm’s major 2028 U.S. patent losses of cardiovascular drug Eliquis and cancer drug Opdivo. While we believe Bristol’s internal pipeline is solid and helps reinforce the firm’s wide moat, we also believe the company needs acquisitions to address to the major patent expirations.

Bristol-Myers Squibb's announced $14 billion acquisition of Karuna Therapeutics yields neuroscience drug KarXT, which should help mitigate Bristol’s heavy patent losses over the next seven years. Bristol faces patent losses on cancer drug Opdivo and cardiovascular drug Eliquis over the next five to seven years, which creates a major headwind to growth. While Bristol holds a solid portfolio of recently launched drugs and a pipeline of next-generation drugs, the Karuna deal provides additional support to help offset patent losses. While we are still evaluating the deal, we don’t see the transaction as having a major impact on our fair value estimate or wide moat rating for Bristol.

We are lowering our Bristol-Myers Squibb fair value estimate to $63 per share from $66 to reflect a more pessimistic outlook following third-quarter results. Management’s lowered expectations for new product launches and increased spending through 2025 caused most of the valuation decline. We believe Bristol needs to spend more on marketing to propel the lackluster sales trajectories of several new drug launches. While the outlook has deteriorated, we believe the strong efficacy of the newly launched drugs combined with increased marketing will support several new blockbusters, a key factor for the firm’s wide moat.

Adept at partnerships and acquisitions, Bristol-Myers Squibb has built a strong portfolio of drugs and a robust pipeline. This strategy is seen with its large acquisition of Celgene, which netted the firm an excellent pipeline and a strong entrenchment in blood cancer. We believe the strong overall pipeline helps support its wide moat.

We’re not making significant changes to our $66 Bristol fair value estimate or wide moat rating following the announced $4.8 billion acquisition of cancer-focused biotech Mirati. We believe Mirati’s KRAS G12C inhibitor Krazati is the main driver of the deal. The drug gained approval in second-line non-small cell lung cancer, or NSCLC, in late 2022. While Krazati was the second approved drug in its class (behind Amgen’s Lumakras), we think Krazati’s safety profile and data so far in combination with PD-1 antibodies looks promising (Keytruda combination moving to phase 3 this year) especially since Lumakras has shown safety issues preventing a similar combination from moving forward. Krazati’s position in the market could also improve if confirmatory data from a trial in second-line lung cancer is positive in the first-half of 2024, as an FDA advisory committee gave a poor review of Lumakras’ confirmatory study in this indication last week.

Bristol-Myers hosted a research and development event on Sept.14 highlighting several mid-stage drugs that should enter pivotal studies over the next 18 months. While the heightened visibility increases our confidence in the firm's moat, we didn't see anything that materially changed our valuation outlook. We need to see the results of the pivotal studies to materially change our projections, as the early-stage data looks promising but still uncertain.

As part of the Inflation Reduction Act, the U.S. Department of Health and Human Services on Aug. 29 announced the first 10 drugs selected for mandated 2026 Medicare price negotiations. This doesn’t have a major impact on our valuations or moat ratings for the biopharma industry. The 10 drugs have been on the market for a prolonged period (seven years for small-molecule drugs and 11 years for biologics) and were selected based on the largest gross (before discounts) spending in Medicare Part D.

Bristol-Myers reported mixed second-quarter results below our projections largely due to lower-than-expected sales of cancer drug Revlimid. Since Revlimid has a short period of exclusivity left, ending in 2025, the shortfall in sales doesn’t have a major impact on our fair value estimate. Also, the shortfall in Revlimid sales appears to impact only 2023 due to patient assistance programs needing to accelerate support. The agreement with generic producers of Revlimid looks intact, with 2024 and 2025 sales of branded Revlimid not significantly impacted by the recent pressures.

Adept at partnerships and acquisitions, Bristol-Myers Squibb has built a strong portfolio of drugs and a robust pipeline. This strategy is seen with its large acquisition of Celgene, which netted the firm an excellent pipeline and a strong entrenchment in blood cancer. We believe the strong overall pipeline helps support its wide moat.

Bristol reported first-quarter results largely in line with our projections, and we don't expect any changes to the firm's fair value estimate. Just before the earnings release, Bristol also announced the appointment of Chief Commercialization Officer Chris Boerner to the CEO post to replace Giovanni Caforio, who is retiring effective Nov. 1, 2023. Given the high number of ongoing drug launches, we view Boerner's appointment as a strong strategic fit for Bristol's leadership. Despite facing one of the more challenging patent cliffs in the industry currently, Bristol is largely executing well to offset generic pressures with new drug launches, which should support the firm's wide moat. However, we expect flat earnings over the next several years will likely limit the stock's growth potential.

Bristol-Myers Squibb reported fourth-quarter results and issued 2023 guidance that ran a bit higher than our expectations, but we don’t expect any major changes to our fair value estimate based on the minor outperformance. With one of the heaviest patent pressures in the industry, Bristol is navigating the current generic headwinds well while also preparing for significant patent losses of Opdivo (cancer drug) and Eliquis (cardiovascular drug) in 2028, giving us confidence in the firm’s wide moat.

Bristol Myers Squibb reported third-quarter results slightly ahead of our expectations, partly driven by stronger-than-expected sales from blood cancer drug Revlimid. However, given heavy generic pressure expected for the drug in the near term, we don’t expect any changes to our fair value estimate. With the stock price trading close to our fair value estimate, the market appears to reflect our view that while Bristol holds a very strong lineup of new drugs, the massive approaching patent losses will restrain growth over the next decade. Nevertheless, Bristol’s strong ability to replace sales due to patent losses reinforces the firm’s wide moat rating.

After taking a closer look at what we consider the three key elements of the Inflation Reduction Act that will affect the biopharma industry over the next decade, we're reducing our fair value estimates for 17 of the biggest biopharma names in Morningstar's coverage by an average of 2%. We think the step-down in U.S. branded drug sales from capping Medicare price increases to inflation (fully rolled out in 2023), redesigning Medicare Part D (beginning in 2025), and Medicare negotiation (beginning in 2026 for small molecules) will result in a 3% reduction in total sales for these firms by 2031, with firm-level reductions depending on the firm's reliance on the U.S. market, proportion of the portfolio targeting seniors, history of price increases, and relative size of its small molecule and biologics portfolios (as biologics are immune from Medicare negotiation for 13 years instead of nine). Our estimates factor in some ability for the industry to either benefit from certain changes (like potential increased prescription fill rates in Part D with lower out-of-pocket costs) or compensate for headwinds (like responding to inflation caps on price increases with higher launch prices). Overall, we think the effect of the Inflation Reduction Act is manageable for the industry, and we see the competitive advantages and economic moats of these firms remaining intact.

Adept at partnerships and acquisitions, Bristol-Myers Squibb has built a strong portfolio of drugs and a robust pipeline. This strategy is seen with its large acquisition of Celgene, which netted the firm an excellent pipeline and a strong entrenchment in blood cancer. We believe the strong overall pipeline helps support its wide moat.

Phase 2 data on new cardiovascular drugs (milvexian by Bristol and J&J, and asundexian by Bayer) showed solid safety data, but limited efficacy data. Based on the mixed data, we are not making any major changes to our fair value estimates for these firms, as we feel more phase 3 data is needed before making large changes in our projections for the drugs. With the firms signaling encouraging data earlier, the lack of clear efficacy could be viewed as a disappointment, but we continue to view close to a 50% probability of approval for the drugs. Both drugs are moving into phase 3 development for atrial fibrillation, or AF, and stroke prevention (and acute coronary syndrome for milvexian). The innovation supports the firms’ wide moats by enabling potential drug launches with peak annual sales of well over $5 billion (for each drug) around the time when generics will launch on current leading cardiovascular drugs from Bristol (Eliquis) and Bayer/J&J (Xarelto).

The likelihood of drug-pricing policy changes in the United States changed dramatically over the course of July, and we are now assessing the impact of the various measures included in the Inflation Reduction Act of 2022 in our Big Biopharma valuation models. Assuming the bill is eligible to pass via reconciliation (the Senate parliamentarian is reviewing the bill), we think Democrats will be able to pass the Senate bill, paving the way for it to be signed into law. Overall, we don’t expect major changes to our fair value estimates or moat ratings, as the changes net out to a moderate negative that we believe is manageable, likely through a combination of cost-cutting, agreements with generic firms for limited authorized generic launches (to avoid the list for negotiated drugs), and higher launch prices (to counter pressure on price increases and earlier declines due to negotiation).

Bristol reported second-quarter results largely in line with our projections, and we don’t expect any major changes to our fair value estimate. With the stock trading slightly above our fair value, we don’t see a lot of upside in the near term. Earlier-stage drugs could hold more potential, but we haven’t modeled major sales yet, as we are awaiting late-stage data. Nevertheless, Bristol is making excellent strides driving sales of recently launched drugs and developing the pipeline to offset the massive patent losses facing the firm over the next six years, a key factor supporting the firm’s wide moat.

Adept at partnerships and acquisitions, Bristol-Myers Squibb has built a strong portfolio of drugs and a robust pipeline. This strategy is seen with its large acquisition of Celgene, which netted the firm an excellent pipeline and a strong entrenchment in blood cancer. We believe the strong overall pipeline helps support its wide moat.