Morningstar | BMY Updated Forecasts and Estimates from 25 Jan 2019
In Bristol-Myers Squibb's fourth-quarter results, total sales matched our and consensus' expectations while earnings were stronger than expected, but we don't anticipate any major changes to our fair value estimate based on the results. The earnings beat was partly based on lower-than-expected research and development spending. 2019 guidance was largely in line with our expectations. We continue to view the stock as undervalued, with the Celgene deal creating value from strong Revlimid cash flows and by expanding Bristol's pipeline, a core pillar in our wide moat rating.In the quarter, Bristol's largest drug, Opdivo (30% of sales), posted strong year-over-year growth of 33%, but sequential growth slowed to almost flat, which is probably representative of the drug's growth for 2019. While management is guiding Opdivo to growth in 2019, we expect the drug will post largely flat growth with strength in renal cell cancer and melanoma offsetting declining sales in second-line lung cancer. Beyond 2019, we expect Opdivo to return to growth with continued market share gains in renal cancer and melanoma as well as expanded indications in lung, brain, liver, and gastric cancers. Importantly, Bristol withdrew its first-line lung cancer application with the Food and Drug Administration, as it needs more data to support the filing. We expect supportive lung data from three studies--CheckMate-227 Part 1a in the first half of 2019 (survival data for PDL1+ patients), CheckMate-227 Part 2 in mid-2019 (survival data for all patients), and CheckMate 9LA in 2020 (survival data for all patients)--but strong data from Merck's Keytruda is likely to limit Opdivo's lung cancer share to close to 15% by 2022.
Regarding the Celgene acquisition, management reiterated conviction in the benefits of the deal, and we believe the underappreciated pipeline will create value for Bristol. We are most bullish on multiple sclerosis drug ozanimod and CAR-T drug liso-cel due to potentially better safety and efficacy versus competing drugs.
For our complete review of Bristol's and Celgene's pipelines, please see "Annual Drug Pipeline Report: Moats Remain Secure as Innovation Counters Pricing and Generic Headwinds, but M&A Accelerating."
Bristol-Myers Squibb is engaged in the discovery, development, licensing, manufacturing, marketing, distribution and sale of biopharmaceutical products. The company's products are sold worldwide, primarily to wholesalers, specialty distributors, retail pharmacies, hospitals, government entities and the medical profession. The company manufactures products in the United States and Puerto Rico and has manufacturing operations in two foreign countries. The company has products in the following therapeutic classes: hematology, oncology, cardiovascular and immunology. The company's pharmaceutical products include chemically-synthesized or small molecule drugs and products produced from biological processes, called biologics.
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