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Morningstar | Buoyed by Strong Opdivo and Eliquis Sales, Bristol Posts Solid 3Q, but Future Growth Should Slow

Bristol-Myers Squibb reported third-quarter sales in line with our and consensus expectations. While the bottom line was stronger than we expected, partly due to increased royalties, we don’t expect any major changes to our fair value estimate based on the results. Following the recent slide in the stock price, we view Bristol as undervalued. Despite increasing competitive clinical data from Merck's Keytruda to Bristol's immuno-oncology platform, we continue to view Bristol's immuno-oncology drugs Opdivo and Yervoy as well positioned to gain close to one fourth of the immuno-oncology market by 2022. The strength not only in immuno-oncology but also in cardiology and immunology helps support Bristol's wide moat rating.

In the quarter, strong growth from Opdivo (up 47%) and cardiovascular drug Eliquis (up 28%) helped offset generic pressure to older virology drugs, leading to overall sales growth of 8%, but we expect this growth will moderate over the next three years. We expect Opdivo's growth to slow significantly in 2019 based on fewer available patients for second-line immuno-oncology treatment in non-small-cell lung cancer, given that Merck's Keytruda recently gained approval for most first-line NSCLC patients in most major markets. We believe it is unlikely for patients to use Opdivo following a failure on Keytruda, given the similarity of the drugs. However, Bristol remains well positioned in renal and skin cancer, which support close to half of total Opdivo sales. Further, we still view Opdivo as well positioned in second-line lung cancer and potentially the PDL1-low/TMB-high first-line NSCLC patients, which represents close to 20% of the first-line NSCLC market opportunity. Data from Checkmate-227 expected in 2019 should clarify Opdivo's potential in first-line NSCLC. Also, the drug holds potential in treating liver, small-cell lung, and brain cancers with several studies reading out over the next 12 months.

For a deeper dive into the outlook for Opdivo and competitive immuno-oncology drugs, please see our June report, "Overall Immuno-Oncology Market Underappreciated, Supporting Undervalued Wide-Moat Firms Roche, Merck and Bristol-Myers." Please note that with the recent stock appreciation, we now view Merck as fairly valued.