The S&P 500 has been flirting with a bear market, but Bristol (ticker: BMY) has gained 24% in 2022. While that gain might seem large, Bristol’s stock has only now returned near to where it was in August 2016, before the failure of a cancer-drug trial caused its shares to tumble and concerns about the patent expiration on its cash cow, multiple myeloma treatment Revlimid, kept the stock under pressure.
While the Revlimid patent concerns haven’t gone away, the company now seems better prepared to weather the transition. New drugs have come online, and its pipeline is full of potential blockbusters that could prevent a repeat of 2016 from happening soon. While the stock has gained this year, its shares still look cheap. After years of waiting, Bristol appears poised to be a winner once again.
Any discussion of Bristol has to start with Revlimid. Sales of the drug, which hit $12.8 billion in 2021, made up about 28% of the company’s total revenue. The decline sped up in the company’s most recent reported quarter—management cited faster-than-expected “erosion” of Revlimid sales in international markets on the company’s earnings call for the first quarter of 2022—and analysts expect sales to fall to just a few hundred million dollars by 2027, according to FactSet. But that didn’t sink the stock, which is flat since the report on April 29.
Bristol, with a market value of $165 billion, is already making up that revenue with new drugs. Bristol has already been getting new drugs approved for sale. Opdualag, a metastic melanoma treatment, has been approved by the Food and Drug Administration. The FDA has also approved Camzyos, scientifically known as mavacamten, which treats a heart ailment, hypertrophic obstructive cardiomyopathy.
“Getting Opdualag helped [the stock], but even more important was that they got mavacamten approved,” says Tim Anderson, an analyst at Wolfe Research. Sales of Opdualag could hit $1.1 billion by 2030, up from $6 million during the first quarter after its March launch, Anderson says, while mavacamten sales could hit $3.6 billion, up from an expected $18 million in the second quarter of 2022.
And Bristol is developing more drugs to further replenish the pipeline. The company expects Phase 2 trial results for milvexian, a secondary-stroke prevention drug, by the middle of the year, and management said on its most recent earnings call that it expects to move the drug to Phase 3 late this year.
Currently, analysts have forecast less than $2 billion in sales for milvexian for before 2030, says Steve Chesney, an analyst at Atlantic Equities. But that estimate would increase to about $5 billion if trials are successful and the drug nears approval.
On Nov. 16, management said at its investor meeting that it had more than 50 drugs in the early stages of development, including 12 in oncology. They won’t all succeed, but some will. That’s all Bristol needs. “They’re starting to hit their stride,” says BMO Capital Markets analyst Evan Seigerman, who expects the stock to hit $92, up 19% from Wednesday’s close.
As the new products move closer to approval—and as new, early-stage products are announced—investors could re-evaluate Bristol stock, which trades at just under 10 times the $7.81 per share the company is expected to earn over the next 12 months. That’s far lower than Eli Lilly LLY +0.83% ’s (LLY) 34 times, Johnson & Johnson JNJ –0.45% ’s (JNJ) 17 times, and Merck MRK –2.61% ’s (MRK) 12.7 times. Only Pfizer PFE +0.48% (PFE), at 8.5 times, is cheaper, but that has more to do with how investors value its Covid-19 vaccine revenue.
The comparison to Merck is particularly apt. Consensus expectations for Bristol suggest that sales will compound at an annual rate of just under 1% from 2022 through 2027, when revenue is expected to hit $48.7 billion, with $19 billion coming from new products. But sales could be much higher than that if more of the new drugs pan out, putting sales growth closer to a Merck-like 3%. That could drive Bristol’s operating margins from an expected 41% to 2027 to around Merck’s 46%.
Management, for its part, says that it expects annual sales of new products to reach $25 billion by 2029.
For now, though, simply getting back to its five-year average multiple of 11.7 times would put Bristol stock at $91.38, up 18% from Wednesday’s close, while getting to Merck’s 13 times would put the shares at $101.53, up 31%.
“The catalyst is investors getting more comfortable with Bristol’s pipeline,” says Dan Eye, chief investment officer of Fort Pitt Capital Group, which owns the stock.
That catalyst is already here, and it’s just getting started. Expect healthy gains in Bristol’s future. B