Summary
- Bristol-Myers still trades below 2020 pre-virus highs by nearly 10%.
- The biopharma has a strong pipeline of new drug launches to offset any lost sales from LOE on Revlimid in a few years.
- The merger benefits from Celgene are still set to boost EPS estimates.
- The stock is too cheap at only 8x '22 EPS estimates.
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While the market obsesses over tech stocks trading at elevated levels, some stocks like Bristol-Myers Squibb Company (BMY) haven't even returned to pre-virus shutdown levels. My investment thesis was bullish on the stock at similar levels following the Celgene merger close due to massive earnings accretion from merger synergies along with a strong drug pipeline. With the biopharma down for the year, investors need to take another look at the upside potential here.
Image Source: Bristol-Myers Squibb website
De-risked Story
The Celgene merger brought a bunch of advantages to Bristol-Myers, yet the stock hasn't really caught onto those benefits yet. The new biopharma has at least $2.5 billion in cost synergies, plus huge benefits of an expanded drug pipeline to offset sales of the blood cancer drug Revlimid set to lose exclusivity by 2025 and the accretive EPS boost from a debt-fueled merger.
In Q2, Revlimid saw sales jump 6% over last year, but it only accounts for less than 30% of total revenues. Still, the drug will leave an up to $2.9 billion hole in future quarterly revenues when sales starting declining by 2023.
Source: Bristol-Myers Squibb Q2'20 presentation
The big point of the merger was to set up a drug pipeline to replace Revlimid. The drug has annual sales now topping $11 billion, while the company is aligned with potential blockbuster drugs topping the Revlimid sales losses.
