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Summary

  • Besides the weak top line performance, another reason for the drop in the stock price is the delay in submission of clinical trial data of cancer drug Nivolumab.
  • Bristol-Myers has recently invested in a private biotechnology company, iPierian Inc., with the intention of strengthening its research unit in relation to neurodegenerative diseases.
  • Nivolumab is expected to contribute to revenues by the first quarter of FY2015.
  • Since Nivolumab's efficacy is enhanced when combined with Yervoy, the latter drug's sale is expected to increase as well.

Bristol-Myers Squibb Company (NYSE:BMY) recently reported earnings for the first quarter of FY2014. Although the company beat analysts' estimates, its stock price has declined. The following article discusses the reasons behind the weak stock market performance despite beating analysts' expectations, and to see if the company is on the growth path or if it is the right time to divest the stock.

Performance vs. Estimates

Over the recently-ended quarter, the bottom line of the company leveled at $936 million, about 50 percentage points on top of the earnings indicated in the same period last year. Note that this net income figure incorporates the sale of its diabetic business to AstraZeneca PLC (NYSE:AZN) for a payment of approximately $2.7 billion. In per share terms, earnings grew to $0.56 per share from $0.37 per share last year. Adjusting for non-recurring events, the earnings grew by $0.46 per share, compared to the average analysts' estimate of $0.43 per share. Cost-cutting strategies employed by the company also helped improve bottom line performance.

Top line growth indicated scanty performance, however, with a 1% drop in overall sales and falling short of Wall Street estimates by approximately $80 million. The recent sales figure excludes the diabetes unit's sales, while last year's sales figure incorporates the revenue generated from the sale. Bristol-Myers concluded the sale of its diabetes business to AstraZeneca PLC over the recently-ended quarter. Adjusting for this one-time event, the aggregate top line of the company rose by 5% YoY.

Geographically, international sales grew 10% to about $2 billion, but US sales declined at the same rate to approximately $1.8 billion, thus offsetting the growth in revenue from other regions. Following the earnings release, shares of the company fell 3.6% to $48.54.

Cancer Drug Delays

Besides weak top line performance, another plausible reason for the drop in the stock price is the delay in submission of clinical trial data of the supposedly blockbuster cancer drug, Nivolumab. The drug, which is now expected to complete the application for FDA approval by the end of the year, is presently in the Phase III clinical trial stage. This is later than what investors and analysts were hoping for, thus leading to disappointments reflected in the stock price dip.

I believe that investors need to keep an open mind and not base the entire success of the company on one drug. A number of drugs in the portfolio maintained by Bristol-Myers demonstrated double-digit growth, such as Sprycel, whose sales increased by 19% YoY, Yervoy, whose sales increased by 18% YoY, Baraclude, whose sales increased by 11% YoY, and Orencia, whose sales increased by 13% YoY. However, in the US region, Yervoy sales fell by 8% YoY while Sprycel sales increased by 26% YoY. Another drug, Abilify, showed an increase in sales of 3% YoY, beating analysts' estimates by $27 million.

With Nivolumab expected to be a part the company's drug portfolio by the first quarter of next year, increased sales performance shall be expected from FY2015 onwards. Since Nivolumab's efficacy is enhanced when combined with Yervoy, the latter dug's sale is expected to edge up as well.

iPierian Acquisition

Bristol-Myers has recently invested in a private biotechnology company, iPierian Inc., with the intent of strengthening its research unit in relation to neurodegenerative diseases. iPierian focuses on "discovery and development of new treatments for Tauopathies, a class of neurodegenerative diseases associated with the pathological aggregation of Tau protein in the human brain". This acquisition will add value to the company's R&D efforts, and may possibly result in the discovery of a breakthrough drug, eradicating the disease.

The market for neurodegenerative diseases is rapidly increasing, affecting more and more people belonging to younger age groups. This disease group encompasses a whole range of disorders including but not limited to Alzheimer's disease, Parkinson's disease, and Multiple Sclerosis, among others. Tauopathies largely relates to Alzheimer's. Recent figures reported by the Alzheimer's Association indicate that nearly 5.2 million Americans are suffering from the disease and the number may triple by the year 2050. In spite of the decades spent on researching the disease, Alzheimer's remains a leading cause of death of approximately half a million Americans each year.

Even though there is treatment available for the disease in the market, there is none that can cure it. I am not saying that the company will indeed come up with a cure, but an investment in that is very good news. It indicates the company's continual and persistent efforts to grow its operations.

Concluding Remarks

Bristol-Myers distributes around 80% of its profits among the shareholders, with its dividend yield trending at 2.91%, compared to the industry average of 1.61%. With Nivolumab expected to contribute to revenues by the first quarter of FY2015 and with research to begin in neurodegenerative diseases, I believe that the company is moving in the right direction. There is nothing to be worried about the long-term performance of the company.

Source: Bristol-Myers: Nivolumab Holds Good Potential