Bristol-Myers Earnings: Lowered Outlook for New Products and Margins Leads to Fair Value Cut

We are lowering our Bristol-Myers Squibb BMY 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.

Recently launched drugs are posting mixed results and are the primary reason for our lower valuation. Immunology drug Sotyktu and rare cardiometabolic drug Camzyos are growing, but the launch trajectories are below our expectations. We believe management’s increased spending guidance through 2025 partly reflects a need to increase marketing support behind these new drugs. On the positive side, blood treatment Reblozyl continues to post steady gains, and the recent label expansion into earlier lines of therapy should bode well for the drug longer term.

Total sales fell 3% operationally in the third quarter, and we expect fairly flat growth over the next five years. The firm’s top drugs posted results largely as expected, with a little upside on cancer drug Revlimid. However, with increasing generic pressure on that drug, the outperformance holds less importance for long-term sales. We expect continued modest growth for Bristol’s top two drugs, Eliquis for atrial fibrillation (flat growth in the quarter) and Opdivo for cancer (up 11%). Importantly, Bristol recently reported strong data for the subcutaneous formulation of Opdivo. With close to 50% of Opdivo sales potentially convertible to SQ and a SQ patent that lasts almost five years longer than the IV formulation, Bristol holds the potential to reduce the biosimilar Opdivo pressures expected by 2028.