Bristol-Myers Is Melting-Up Again (NYSE:BMY)

NK Cell (Natural Killer Cell) Attacking a Cancer Cell

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Bristol-Myers Squibb Company (NYSE:BMY) entered 2022 with incredible strength. This strength was due to many factors, but much of it was due to BMY’s December announcement of a 10.2% dividend increase, as well as the board’s authorization for the repurchase of $15 billion of common stock. BMY’s breakout appeared to languish in April, but it appears to once again have the momentum and mojo on its side. Now, new highs appear reasonably probable in the second half of 2022.

BMY spent much of the last three months in a fairly tight trading range. In the last few weeks, the equity appears to have fully regained its earlier composure. This recent activity has taken BMY shares back through the moving averages, and up through the year’s prior high. This recent activity is undeniably strong.

BMY daily candlestick chart

BMY daily candlestick chart (Finviz.com)

BMY has become a major player in oncology and immuno-oncology therapies. In particular, BMY’s Opdivo and Yervoy are incredibly successful immuno-oncology medications, but the company also has numerous other drugs in the pipeline, and it is funding various combination studies. Bristol Myers Squibb also generates strong revenue from Sprycel, which is not an I-O medication, but rather a more traditional chemotherapy for leukemia.

Opdivo and Merck’s (MRK) Keytruda are the two most successful immuno-oncology medications thus far, where both are monoclonal antibodies that address the PD-1 biomarker. Merck’s Keytruda is actually the more commercially successful drug, but BMY had a strong patent claim regarding the method of treatment.

The companies settled related patent litigation such that Merck provides a royalty to Bristol Myers Squibb and its partner on Opdivo, Ono Pharmaceutical. Under the agreement, Merck must pay a royalty of 6.5% on its Keyruda sales through December 31, 2023, and 2.5% from January 1, 2024 through December 31, 2026.

Opdivo is continuing to grow sales too, and it is reasonably probable that multiple combination therapies will be tested and approved in the coming years. For example, SELLAS Life Sciences (NASDAQ:SLS) recently reported updated data from a phase 1 trial of its galinpepimut-S drug in combination with BMY’s Opdivo.

The data suggested and increased survival rate in patients with malignant pleural mesothelioma (“MPM”) who either relapsed or were resistant to treatment after at least one line of standard of care chemotherapy. “This updated data is very encouraging, as it not only confirms our data reported in June 2021, but now reflects an increased survival benefit even though almost all additionally enrolled patients had Grade III and IV malignant mesothelioma,” commented SELLAS President and CEO Angelos Stergiou.

Health Canada also just issued a notice of compliance, approving Opdivo as a monotherapy for the treatment of adults with urothelial carcinoma who are at high risk of disease recurrence after undergoing radical resection. The Canadian approval was based on results from BMY’s phase 3 CheckMate-274 trial. Additional further indications and approvals for PD-1s are likely in the coming quarters and years.

Bristol-Myers Squibb also acquired a substantial pipeline when it acquired Celgene, and some successful approved treatments too. For example, Celgene’s Revlimid was already a blockbuster when BMY acquired it, and it has since increased its sales. Revlimid is used to treat multiple myeloma and certain types of lymphoma, as well as certain other conditions. Revlimid is also approved as a chemotherapy-free combination treatment, when combined with rituximab, to treat adult patients who were previously treated for follicular lymphoma or marginal zone lymphoma.

Outside of I-O and its broader oncological portfolio and pipe, Bristol Myers Squibb has had tremendous success with Eliquis, which is a blockbuster anticoagulant. Eliquis is prescribed to prevent clotting and possible strokes within people without suffering from atrial fibrillation.

Bristol Myers Squibb’s dependence upon blockbusters may be seen as a risk. Anything that hurts to the sale of Eliquis, Revlimid, or Opdivo would be a material issue, as each represents a significant share of BMY’s total revenue. Further, these are all expensive medications, and pricing makes these companies a target for both biosimilar competition and political scrutiny.

This is not a mere theoretical risk here, as Senator Amy Klobuchar and Congressmember Katie Porter recently asked both the Federal Trade Commission and the Department of Justice to investigate Bristol-Myers Squibb, Pfizer (NYSE:PFE) and Johnson & Johnson’s (NYSE:JNJ) Janssen division over price increases on blood thinners.

In a letter sent to the FTC and DoJ on Monday, the pair note that Eliquis and Xarelto generated the first and third-highest total spend on drugs for Medicare in 2020, and also that the drugmakers increased pricing on the blood thinners every year since they were introduced. Such political scrutiny is likely to persist up until the mid-term election occurs, at which point it generally mitigates for a while.

Conclusion

Bristol-Myers Squibb’s recent strength appears to have returned, after a well-deserved rest. The company’s well-covered dividend, repurchase plan, and expected strong cash flow through the next two years are all highly attractive characteristics that are still not fully appreciated by the market. Simultaneously, BMY is facing some political scrutiny that is likely temporarily weighing on share valuations.

Despite that headwind and a difficult macro market, BMY is breaking out to new highs. BMY’s strong portfolio of blockbusters that produce existing revenue and profit are likely to only increase in value in the coming quarters, as investors continue to rotate from future prospects into existing profitable companies. At the same time, BMY still has a decent pipeline and the cash flow to acquire new medications, as well as fund further dividend increases.

As a result, further new highs appear reasonably likely in the second half of 2022. Any weakness that occurs between now and the mid-term elections due to political risk is likely to be a short-term situation and a buying opportunity.

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