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Morningstar | Bristol's Acquisition of Celgene Adds More Specialty Drugs With a Focus in Oncology

Adept at partnerships and acquisitions, Bristol-Myers Squibb has built a strong portfolio of drugs and a robust pipeline. While the company faces significant continued generic pressures on virology drugs through 2018, we expect its next generation of drugs to fill the patent holes over the near term, supporting its wide moat and steady growth potential. Further, by selling off business lines unrelated to its core pharmaceutical strategy, the company has been streamlined to focus primarily on specialty pharmaceuticals. Bristol has created a strong pipeline and brought in partners to share the development costs and diversify the risks of clinical and regulatory failure. We believe the cardiovascular partnership with Pfizer represents one of the most important partnerships, managing the blockbuster potential of Eliquis in atrial fibrillation. While Bristol discovered the drug internally, we like its strategic partnering decisions, as the moves reduce risks and lower development and marketing costs. Within the pipeline, Bristol's astute acquisition of Medarex helps secure Bristol's strong first-mover advantage in cancer immunotherapy, which should yield several major blockbuster compounds. Bristol's PD-1 cancer drug Opdivo holds the potential to revolutionize cancer treatment and should develop into a multi-billion-dollar opportunity based on solid efficacy, combination potential with other drugs and strong pricing power. Further, Bristol's first-mover advantage in the space should translate into leadership in market share.Bristol is aggressively repositioning itself to expand through challenging patent losses. The company has shed its diabetes business, medical imaging group, wound-care division, and nutritional business in an effort to focus on the high-margin specialty drug group. The recent move to acquire Celgene moves Bristol significantly further into the specialty pharmaceutical segment of the market. Celgene's drugs largely target cancer, which tends to be an area with strong drug pricing power, which should help Bristol maintain its drug pricing ability in a time when both goverments and private payers are pushing back on drug costs.