Bristol-Myers Squibb

I have two minds about this stock

Am I in charge of my brain, or is the brain in charge of me? -No, I will stop with my Schizophrenia jokes. However, Bristol-Myers Squibb (BMY) depends on launching successful medicines within neuroscience to take its share price to a new level. This becomes clear when we analyze the business in depth.  

BMYs two-pronged strategy

BMY has traditionally been active in four therapeutic areas: hematology, oncology, immunology, and cardiovascular. Neuroscience is an area where BMY tries to develop new treatments. BMY pursues a maintenance strategy in its traditional segments and an expansion strategy in neuroscience.  

Maintaining the core portfolio

Revlimid, Pomalyst, and Sprycell have been strong sellers in treating various blood cancers but have or are about to go off-patent soon. BMY tries to replace these drugs with an assortment of drugs that treat either anemia or multiple myeloma. Especially, the anemia drug, Reblozyl, shows impressive revenue growth. However, BMY’s effort to maintain the strength of the hematology division is only partially successful. BMY hasn’t yet found all the answers to the loss of the Revlimid patent in 2028.

Things look equally weak in the cardiovascular segment where much is riding on Camzyos to replace Eliquis, an anticoagulant that goes off-patent in 2028. Camzyos is in layman's terms a drug that inhibits muscle contraction. 

In immunology, there are fewer patent issues. However, the flagship drug within this category, Orenzia, is demonstrating weaker revenue growth. Zeposia, a drug that treats multiple sclerosis and ulcerative colitis, is showing promising tendencies, but the growth comes from low numbers.

Oncology is the area where BMY has the most success in replacing legacy drugs. Opdivo is already a multi-billion seller and continues to grow sales in double-digits. BMY put much trust into Opdualag, a drug that treats advanced myeloma and exhibits strong revenue growth.  There is also a drug called Krazati in this segment, which has been received well by doctors and patients. Krazati treats patients with cancers caused by mutations in the Kraz gene. 

Certainly, BMY has interesting candidates in its pipeline that will enhance the portfolio further. Despite a strong pipeline, BMY’s advances in its traditional therapeutic areas don’t seem very powerful. It looks like BMY will maintain its top line here but not much more. BMY has, therefore, grown increasingly dependent on success in neuroscience to expand its business.

Expansion strategy

BMY’s share price is up over 30% in the last 3 months. This move has everything to do with the launch of the Schizophrenia drug Cobenfy which was approved by US regulators in the final days of September. 

There are approximately 1,5 million struggling with Schizophrenia in the US and around 26 million on a global basis. BMY will have the new drug ready for distribution late this month. Cobenfy is better than earlier therapies because it comes with fewer side effects. It is the side effects that make patients stop taking the drugs, and it is when patients go off the drugs, that bad stuff happens. So, Cobenfy is likely to be commercially successful.

BMY has a multi-billion dollar opportunity in its neuroscience development platform KarXT. The platform has two ongoing trials. We are going to get phase III data on adjunctive Schizophrenia (ARISE) next year. Then we’re going to get late-stage data on Alzheimer’s psychosis (ADEPT) in 2026. Shortly, BMY is going to launch studies on Alzheimer’s agitation, bipolar I disorder, Alzheimer's cognition, and Autism irritability. Hence, BMY is putting a lot of trust in the potential of KarXT to drive pharma development and long-term revenue.

BMY has two strong competitors in the neuroscience field: Abbvie and Eli Lilly. In fact, Abbvie is going to launch a competitive drug to Cobenfy early next year. According to clinical data, it looks like Abbvie’s drug has even fewer side effects than Cobenfy. Still, BMY has the first-mover advantage, and we have to see what the final read-outs say about the Abbvie drug, nothing is certain yet. 

Eli Lilly has dabbled in the Alzheimer’s space for a long time now but has yet to introduce any game-changers. To me, it looks like BMY has a sound approach to the problem. BMY is splitting different Alzheimer’s indications into various segments and is trying to solve the disease piecemeal and incrementally rather than trying to come up with a silver bullet. 

Nevertheless, competition is an issue that should be accounted for when trying to evaluate a fair price for BMY’s share.

Valuation

BMY is worth around $60 based on how the business develops without the newly found innovation in neuroscience. The value of the KarXT platform is not so easy to pinpoint. I think the best way to go about it is to operate with diverse ranges based on different scenarios. 

Let’s say KarXt is wildly successful and crushes the competition. Then BMY is worth above $100. However, we have to be realistic. Alzheimer's is a difficult disease to figure out. I would, therefore, be careful by putting too much stock on this scenario to play out perfectly. 

instead, let’s say KarXt is going to produce a more medium outcome. BMY will not get everything but something right, and pull ahead of its competitors in these areas. In this scenario, BMY could be worth between $80 - $100. Eventually, I think this outcome has a strong probability to play itself out. 

The last scenario is when KarXT produces pharmacologies that are nice additions to BMY’s portfolio but nothing exceptional. Then BMY shouldn’t be worth more than $60-$80.

The bottom line here is that BMY is undervalued at these levels. How much depends on what scenario you believe in. I would put a preliminary fair value of $65 on the share price today, and then I would continually review it to see where the results of various clinical trials in the pipeline lead us.

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