When Bristol Myers Squibb (BMY) acquired Celgene for $74 billion in November 2019, it was a move to strengthen its position in the oncology market. The stock price of Celgene, which I owned and sold at a profit, reflected its undervaluation at the time of the acquisition. However, since then, BMY’s stock has struggled to gain momentum, facing challenges such as pricing pressures, dropping revenues, and impending patent expirations. As a result, I have rated BMY as a “hold” for now.
BMY, a biopharmaceutical company headquartered in New York, specializes in the development, licensing, manufacturing, and marketing of various treatments for diseases such as hematology, oncology, cardiovascular, immunology, fibrotic, and neuroscience conditions. Some notable products include Eliquis, Opdivo, and Revlimid. While BMY is well-prepared to handle challenges like International Reference Pricing (IRA) and is focused on defending the value of its products, the company is still facing headwinds.
The attractive aspect of BMY for investors is its dividends, currently paying almost 4% with a stable payout ratio. The company has consistently increased dividends over the past five years, demonstrating its commitment to shareholder value. Additionally, BMY has implemented a $4 billion share buyback program, providing further support to the stock price.
BMY’s Chief Operating Officer, Christopher Boerner, acknowledged the impact of the Inflation Reduction Act (IRA) on the pharmaceutical sector during a recent conference call. While BMY claims to be well-prepared and has confidence in its team and capabilities to navigate these challenges, the potential changes and pricing pressures present hurdles to future earnings growth.
Boerner emphasized BMY’s strategy to defend the value of its products, particularly Eliquis, by leveraging clinical real-world pharmacoeconomic data. However, some investors may view the company’s focus on defending legacy products rather than innovating new ones as a less promising strategy.
Bristol Myers Squibb envisions a transformation in its revenue composition by 2030, with a new product lineup expected to contribute significantly to sales. The company has a robust pipeline of 45 drugs in development targeting various disease areas. Late-stage candidates include treatments for multiple myeloma, lung cancer, and other lung-related ailments. While these drugs are still in the experimental phase, their potential sales exceed $10 billion, according to Boerner.
Since the acquisition of Celgene, BMY has faced challenges and uncertainties, reflected in its stagnant stock price. The upcoming patent expirations and pricing pressures have created concerns about the company’s future growth prospects. While BMY’s defensive strategy and promising pipeline offer potential, significant changes are unlikely in the next few years. A cautious “hold” rating may be prudent for investors navigating this complex landscape. As always, individual due diligence is advised before making any investment decisions.