We are lowering our price target from $55/sh to $51/sh driven by decrease in our P/E
multiple for BMY+CELG from 7x to 6.5x (implied '20 multiple of 7.2x) given our
cautious views on near term catalysts Checkmate-227 Part 1A & Part 2 and our longer
term Immuno-oncology (I-O) franchise (Opdivo+Yervoy) estimates are lower than
consensus. For CM-227 Part 1A & 2, our review of data suggests it is unlikely to be
better than Keytruda (KN-189 & KN-407) though admittedly expectations are quite low.
Consensus estimates however do not look low enough, UBS 2025E I-O sales of ~$11B
vs. consensus ~$12B. Maintain Neutral.
Near-term I-O consensus appear achievable but longer term numbers too high
In 2019 and 2020, we are mostly in-line with consensus for Opdivo & Yervoy together.
We are slightly below on US which is offset by slightly higher ex-US forecast given
Opdivo is still launching in 1L-Renal internationally. Growth in US is likely to flatten in
'20 as melanoma/RCC uptake slows while the pool of 2L-Non-small cell lung continues
to shrink. Key longer term I-O opportunities include: Liver, Adjuvant Non-Small Cell
Lung, Adj. Renal, 1L Head and Neck cancers. We have removed Gastric indication
given the failure of Keytruda in this setting. We estimate BMY's I-O franchise sales of
$9.0B/$9.2B/$9.6B/$10.8B for '19/'20/'21/'25 vs consensus $8.9B/$9.2B/$9.9B/$12.1B.
Lowering our P/E multiple from 7x to 6.5x for NewCo
We are lowering our multiple by 0.5x to 6.5x given our cautious views on some near-
term readouts in 1L NSCLC (CM-227 Part 1A and 2) and our lower estimates for the I-O
franchise in the long term (UBS $11B vs. consensus $12B in 2025). Our multiple is
based on a 6-9x historical trading range of our biopharma comps (ABBV, CELG, GILD)
when faced a patent slope/cliff: see link. Our P/E multiple of 6.5x remains on the lower
end of this range given one of the largest patent cliff/slopes ever faced by a biopharma
company (80% of total NEWCO revenues at risk including Opdivo; 60% excl. Opdivo).
We forecast double-digit EPS declines for the combined entity after '25.
Valuation: $51/sh based on P/E valuation of NewCo (BMY+CELG)
P/E valuation assumes 6.5x (prior 7x) on our '24E NewCo EPS of $10.12 discounted
back to '20 (discount rate of 6.6% reflects BMY cost of equity).