Bristol-Myers Squibb Is Worth $35 On New Drug Launches

| About: Bristol-Myers Squibb (BMY)

Bristol-Myers Squibb (NYSE:BMY) is a global biopharmaceutical company engaged in the development and sale of biopharmaceutical products. The company's products belong to several therapeutic classes, but products from three of these classes - namely cardiovascular, oncology and virology - constitute more than 60% of the company's value according to Trefis estimates. The company registered revenues of $21.2 billion and net income of nearly $7 billion in 2011.

Over the last few years, the company has transformed itself into a core biopharmaceutical company by divesting its non-pharmaceutical businesses including Medical Imaging, ConvaTec and Mead Johnson, and acquiring relatively small research-based biopharmaceutical companies including Kosan Biosciences, Medarex, ZymoGenetics, Amira Pharmaceuticals and Inhibitex.

We recently launched coverage of Bristol-Myers Squibb with a price estimate of $35, which is about in line with its current market price.

We have broken down the company into six major divisions on the basis of therapeutic class; another division, Mature and OTC Products, accounts for all patent expired and over-the-counter drugs. The six major divisions are:

  1. Oncologic Drugs (22% of Trefis price estimate), consisting primarily of YERVOY, SPRYCEL and ERBITUX,
  2. Cardiovascular Drugs (22% of Trefis price estimate), consisting primarily of PLAVIX and ELIQUIS,
  3. Virology Drugs (17% of Trefis price estimate), consisting primarily of REYATAZ, SUSTIVA and BARACLUDE,
  4. Antidiabetics (14% of Trefis price estimate), consisting of ONGLYZA and KOMBIGLYZE,
  5. Autoimmune Agents (10% of Trefis price estimate), consisting primarily of ORENICA and NULOJIX, and
  6. Antipsychotics (4% of Trefis price estimate), consisting of ABILIFY.

We expect that oncologic drugs, cardiovascular drugs and virology drugs will continue to serve as pillars of revenue growth for Bristol-Myers Squibb.

Patent expiry a near-term concern

We are launching coverage for Bristol-Myers Squibb at a very crucial time, as the company is set to announce its first quarterly results after the patent expiry of its blockbuster cardiovascular drug PLAVIX, which registered net sales of nearly $7.1 billion in 2011. We estimate that PLAVIX will lose 60% of its net sales in 2012.

The company also lost patent exclusivity for another drug, AVAPRO/AVALIDE in March 2012. As a result, Trefis expects that the company's net sales will decline significantly in 2012 and 2013.

Innovation and collaborations to drive long-term growth

However, the company has a few opportunities for revenue growth including ELIQUIS, a cardiovascular drug which is awaiting U.S. and EU approval for an additional indication, and a few innovative biologics - including YERVOY, an oncologic drug launched in 2011 - which could possibly become blockbuster drugs and make up for that lost revenue.

ELIQUIS is currently co-developed and co-marketed in collaboration with Pfizer and we believe that the drug's net sales could exceed $3 billion by the end of the Trefis forecast period should it be approved for the additional indication for stroke prevention in atrial fibrillation (SPAF). Net sales in 2011 were less than $1 billion.

YERVOY is solely owned by Bristol-Myers Squibb, acquired through the acquisition of Medarex in 2009, and we estimate net sales of $1.6 billion for YERVOY by the end of the Trefis forecast period.

On the whole, we that anticipate innovation in research and development and collaboration with other pharmaceutical companies will drive long-term growth for Bristol-Myers Squibb, while maintaining healthy margins by sharing costs with peers.

Disclosure: No positions.