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Bristol Myers (BMY) Loses 20.5% YTD: Should You Retain or Fold?
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Bristol Myers Squibb Company (BMY - Free Report) continues to reel under pressure in 2024 as well. The struggle does not seem to end for this biotech giant, as it has been facing a few challenges for quite some time now.
The stock price of $40.75 on Jul 11 was well below its 50-day moving average of $41.67 and the 200-day moving average of $47.90. While the company is making efforts to expand its business through acquisitions to fill up the decline in revenues due to generic competition for one of the top drugs, investors do not seem to be impressed.
Shares of BMY have lost 20.5% year to date compared to the industry’s decline of 5.1%. The stock has also grossly underperformed the sector and the S&P 500.
One of its top drugs, Revlimid (indicated for multiple myeloma), is facing generic competition, which has adversely impacted the top line.
Blood thinner medicine Eliquis, for which BMY has a worldwide co-development and co-commercialization agreement with pharma giant Pfizer (PFE - Free Report) , is the biggest contributor to the top line. Opdivo currently maintains momentum on the back of consistent label expansions. However, both Eliquis and Opdvio are slated to face generics later in the decade.
These three drugs comprise a major chunk of the company’s revenues. In 2023, Eliquis, Opdivo and Revlimid contributed nearly 61% to total sales of $45 billion. Hence, it is going to be a daunting task for BMY to maintain revenue growth in the face of generic competition for these drugs, even if newer drugs gain traction.
Newer Drugs & Acquisitions Offer Hope
BMY is banking on newer drugs like Opdualag, Reblozyl and Breyanzi to stabilize its revenue base. The initial uptake of Reblozyl has been robust and the drug should contribute significantly in the coming decade. Oncology drug Opdualag has strong growth prospects, thereby boosting the top line. Sales of Breyanzi should benefit from the recent new indications and expanded manufacturing capacity.
Bristol-Myers is looking to counter generic competition for its key drugs through strategic acquisitions and introducing new products to augment its product portfolio like fellow biotech players such as Gilead Sciences, Inc. (GILD - Free Report) . The acquisition of Mirati Therapeutics added the lung cancer drug Krazati (adagrasib) to its oncology portfolio, generating an incremental stream of revenues.
The acquisition of Karuna Therapeutics added KarXT (xanomeline-trospium) to its pipeline. The candidate is currently under review in the United States for treating schizophrenia in adults, with a target action date of Sep 26, 2024.
High Debt Ratio Worrisome
While BMY’s strategy of acquiring companies with promising drugs/candidates is encouraging, the company has undertaken colossal debt to finance these acquisitions. As of Mar 31, 2024, Bristol Myers’ total debt-to-total capital ratio was 77.1%, higher than the industry’s 33.9%. This is a matter of concern. The company had cash and equivalents of $10 billion and a long-term debt of $49.5 billion as of the same date.
Valuation & Estimates
From a price perspective, BMY is currently trading towards the low end of the 52-week range. It’s worth noting that the annual earnings estimates have taken a massive hit due to acquisition-related expenses in 2024.
Image Source: Zacks Investment Research
Going by the price/sales ratio, BMY’s shares currently trade at 1.79x forward sales, lower than its mean of 2.99x and 2x for the industry.
Estimate Movement
The Zacks Consensus Estimate for its 2024 earnings per share (EPS) has gone down to $0.58 from $1.06 over the past 60 days.
Image Source: Zacks Investment Research
Conclusion
While large biotech companies are generally considered safe havens for investors interested in this sector, we advise investors to steer clear of BMY as of now as the company strives to climb a steep hill even if the stock price looks cheap from a valuation perspective.
Newer drugs promise growth, but there is a long way to go for this biotech goliath. BMY needs to look for other avenues to drive growth quickly.
For investors already owning the stock, staying invested will be a prudent move, given the levels at which the stock is trading. A silver lining among the dark clouds for the investors owning the stock is the company’s dividend yield. BMY has been consistently paying out dividends, and the current yield of 5.89% is quite attractive.
Image: Shutterstock
Bristol Myers (BMY) Loses 20.5% YTD: Should You Retain or Fold?
Bristol Myers Squibb Company (BMY - Free Report) continues to reel under pressure in 2024 as well. The struggle does not seem to end for this biotech giant, as it has been facing a few challenges for quite some time now.
The stock price of $40.75 on Jul 11 was well below its 50-day moving average of $41.67 and the 200-day moving average of $47.90. While the company is making efforts to expand its business through acquisitions to fill up the decline in revenues due to generic competition for one of the top drugs, investors do not seem to be impressed.
Shares of BMY have lost 20.5% year to date compared to the industry’s decline of 5.1%. The stock has also grossly underperformed the sector and the S&P 500.
Bristol Myers Underperforms Industry, Sector & S&P 500
Image Source: Zacks Investment Research
Generic Competition Impacts Top-Line
One of its top drugs, Revlimid (indicated for multiple myeloma), is facing generic competition, which has adversely impacted the top line.
Blood thinner medicine Eliquis, for which BMY has a worldwide co-development and co-commercialization agreement with pharma giant Pfizer (PFE - Free Report) , is the biggest contributor to the top line. Opdivo currently maintains momentum on the back of consistent label expansions. However, both Eliquis and Opdvio are slated to face generics later in the decade.
These three drugs comprise a major chunk of the company’s revenues. In 2023, Eliquis, Opdivo and Revlimid contributed nearly 61% to total sales of $45 billion. Hence, it is going to be a daunting task for BMY to maintain revenue growth in the face of generic competition for these drugs, even if newer drugs gain traction.
Newer Drugs & Acquisitions Offer Hope
BMY is banking on newer drugs like Opdualag, Reblozyl and Breyanzi to stabilize its revenue base. The initial uptake of Reblozyl has been robust and the drug should contribute significantly in the coming decade. Oncology drug Opdualag has strong growth prospects, thereby boosting the top line. Sales of Breyanzi should benefit from the recent new indications and expanded manufacturing capacity.
Bristol-Myers is looking to counter generic competition for its key drugs through strategic acquisitions and introducing new products to augment its product portfolio like fellow biotech players such as Gilead Sciences, Inc. (GILD - Free Report) . The acquisition of Mirati Therapeutics added the lung cancer drug Krazati (adagrasib) to its oncology portfolio, generating an incremental stream of revenues.
The acquisition of Karuna Therapeutics added KarXT (xanomeline-trospium) to its pipeline. The candidate is currently under review in the United States for treating schizophrenia in adults, with a target action date of Sep 26, 2024.
High Debt Ratio Worrisome
While BMY’s strategy of acquiring companies with promising drugs/candidates is encouraging, the company has undertaken colossal debt to finance these acquisitions. As of Mar 31, 2024, Bristol Myers’ total debt-to-total capital ratio was 77.1%, higher than the industry’s 33.9%. This is a matter of concern. The company had cash and equivalents of $10 billion and a long-term debt of $49.5 billion as of the same date.
Valuation & Estimates
From a price perspective, BMY is currently trading towards the low end of the 52-week range. It’s worth noting that the annual earnings estimates have taken a massive hit due to acquisition-related expenses in 2024.
Image Source: Zacks Investment Research
Going by the price/sales ratio, BMY’s shares currently trade at 1.79x forward sales, lower than its mean of 2.99x and 2x for the industry.
Estimate Movement
The Zacks Consensus Estimate for its 2024 earnings per share (EPS) has gone down to $0.58 from $1.06 over the past 60 days.
Image Source: Zacks Investment Research
Conclusion
While large biotech companies are generally considered safe havens for investors interested in this sector, we advise investors to steer clear of BMY as of now as the company strives to climb a steep hill even if the stock price looks cheap from a valuation perspective.
Newer drugs promise growth, but there is a long way to go for this biotech goliath. BMY needs to look for other avenues to drive growth quickly.
For investors already owning the stock, staying invested will be a prudent move, given the levels at which the stock is trading. A silver lining among the dark clouds for the investors owning the stock is the company’s dividend yield. BMY has been consistently paying out dividends, and the current yield of 5.89% is quite attractive.
BMY currently carries a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.