Bristol-Myers Squibb (BMY) shares were recently making new 52-week highs at just over $36 per share, but that all changed after the company announced disappointing news on a hepatitis drug candidate called INX-189, that it acquired when it bought Inhibitex for about $2.5 billion. This candidate was in phase 2 clinical trials when safety issues developed and caused the drug maker to suspend the study. Investors saw this as good news for Gilead Sciences (GILD) which shot up about 7%, since it has a potential hepatitis treatment that is further along in development, (now in phase 3 trials).
If that was not enough bad news for Bristol-Myers shareholders in one day, it was also reported that a Bristol-Myers executive was charged with insider trading. While this only appears to have an impact on the executive, it was not great news for investors and it probably had little to no impact on the share price. The almost 9% drop in the shares seemed to be entirely related to the bad news on INX-189.
The hepatitis market is large enough to have blockbuster potential,
which is generally defined as being a drug with a $1 billion plus market potential Clearly, the news that this drug may not work is a disappointment, but it is one that the market might forget in the coming days and weeks. Here are a couple reasons why this decline is worth buying:
- Bristol-Myers owns blockbuster drugs such as Plavix and Abilify, as well as many others. It has a stable source of revenues and it has been considered by many investors to be a perfect stock for this market. It has a relatively recession-proof business model which is important with the weakening economy. Health care and drugs are not where consumers cut back on when times get tough. Plus, this company has a very strong balance sheet with about $5 billion in cash.
- Bristol-Myers pays a generous dividend yielding almost 4%. It has recently been raising the dividend almost every year for the past few years. For example, in 2007, the quarterly dividend was 28 cents, but it has since risen to 34 cents per quarter. The combination of a near 4% yield now, with the fact that it is likely to continuing growing, makes this an ideal stock for income investors.
- Bristol-Myers has been a favorite stock for top investors like Jim Cramer and that is not likely to change over a single disappointing clinical trial. There is a good chance he and others will continue to suggest buying the shares, especially on dips. Although, not everyone agrees with Jim Cramer. The shares probably won't stay down for long as investors see this as a setback that has limited long-term impact.
Here are some key points for BMY:
Current share price: $32.55
The 52-week range is $25.69 to $36.34
Earnings estimates for 2012: $1.93 per share
Earnings estimates for 2013: $1.84 per share
Annual dividend: $1.36 per share which yields 3.8%
Data sourced from Yahoo Finance. No guarantees or representations are made.
Disclaimer: Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
