Bristol Myers Squibb Co.
My latest purchase
I covered Bristol Myers (BMY) in October 2024, see here, and I pulled the trigger last Friday, initiating a new position. My purchase is based on a mix of short-term tactical considerations and long-term looking glasses.
Tactical considerations
You cannot know how long the uncertainty surrounding Trump’s tariffs and slashing of government workers will last. In volatile markets, recession-proof companies cushion the blow from steep downturns in high beta names you may have in your portfolio. BMY pays a relatively high dividend and is not expensive based on metrics like price/earnings and similar ratios. Patients need their medicines regardless of what the overall economy does.
Today, pharma stocks comprise 17% of my stock portfolio. Considering the current market climate, you could argue that I haven’t included enough of this defensive sector in my portfolio. However, I have built out this position bit by bit over the last five years. As an investor, you need to pat yourself on the back sometimes. I am happy with this disciplinary move: forgoing high returns in bull markets to reap the gains when times get tough.
Here is a summary of my current healthcare portfolio:
My holdings are spread all over the map. Going forward, I intend to add into names where I find value and hold or pair back where I potentially discern less opportunity. I am somewhat puzzled that AbbVie and Gilead Sciences are nearly the same size as Novo. Six months in the stock market can make a lot of difference. Nevertheless, let’s get back to BMY specifically.
Long-term investment thesis
My investment in BMY happens at an inflection point. Wall Street expects BMY to struggle for the next five years, with lower revenues as its legacy medicines go off-patent. However, I have studied BMY extensively over the last few weeks and see a glimmer of hope that can change projections dramatically. The glimmer of hope can be summed up in one word: Cobenfy.
Neuroscience
Cobenfy is a newly introduced schizophrenia medicine. This specific drug can reach around $2B in peak sales based exclusively on the schizophrenia indication. However, the good news doesn’t stop there. This year, we will get two phase III read-outs from Cobenfy on adjunctive schizophrenia and Alzheimer’s disease psychosis. The Alzheimer's study is the most interesting. Alzheimer's disease represents a multi-billion opportunity. So, if this study goes well, I think there is a strong likelihood that Cobenfy can reach nearly $10B in peak sales. When looking at BMY’s revenue make-up in the figure below, we see that such a result could be a game-changer.
What are the peak sales from the growth portfolio?
I must admit that I haven’t done the math on this. However, we can analyze the highlights from phase III read-outs this year to get an overall idea. We have already covered neuroscience.
In heart disease, BMY has the drug Camzyos. Briefly explained, the drug helps patients to do physical activity without experiencing an excessive shortness of breath. BMY sells $600M of the drug today and has a retention rate of over 90% among prescribing patients. Telling us that the drug seems well-received. In 2025, BMY will deliver further trial data about the effectiveness of Camzyos. It’s hard to judge how large peak sales from Camzyos will be because the patient group grows in tandem with the aging world population. BMY forecasts $4B in sales by 2029, while Wall Street analysts project sales between 2 and 3 billion dollars.
In hematology, BMY has the drug Reblozyl. The drug induces the production of red blood cells from the bone marrow, reducing the need for blood transfusion among anemia patients. Reblozyl is among BMY’s most successful new launches. Last year, the sales grew by 76%, with a total revenue of $1,7B. This year, BMY will give us results from a trial that analyzes Rebolzyl’s effectiveness among severely anemic patients who need regular blood transfusions. Reblozyl’s peak sales are expected to at least double by the end of this decade.
In oncology, BMY has several interesting new drugs. In 2025, we will get read-outs from two phase III trials: Iberdomide and Opdualag. Iberdomide is a new drug designed to treat patients with multiple myeloma. Given a successful trial, BMY cites the drug as being a multibillion opportunity. Opdualag is a skin cancer therapy already developed and introduced in the market. Sales of Opdualag reached nearly $1B last year. Unfortunately, BMY just recently failed to deliver positive results from a phase III study that analyzed whether the medicine can remove microscopic cancer cells in conjunction with surgery. Peak sales from Opdualag are, therefore, expected to reach only $2B, down from the earlier projected $4B.
We can sum up the results in the table below:
Assessment of BMY’s growth portfolio
Assessing BMY’s overall growth portfolio, we see that there is potential here. However, we must acknowledge that BMY’s legacy drugs dwindle fast, and it requires many new products with high growth to counter the sales deceleration. We also see that even though many of the new drugs like Camzyos and Reblozyl are growing nicely, their total numbers don’t add up to such levels that it will push BMY’s sales higher. In reality, Cobenfy is the drug everything depends upon for whether BMY’s total revenue can start growing again.
BMY is a binary investment!
In conclusion, BMY has a binary story laid out for itself in 2025. If Cobenfy doesn’t have efficacy on Alzheimer’s patients, there is no reason to keep owning the stock. If the study turns out to be a success, BMY’s intrinsic value changes dramatically to the upside. When going through my DCF model, I discern that BMY is fairly valued today. However, if Cobenfy turns out to be a massive success, it will push up the value by at least $15, giving me a price target of $75 per share. Thus, there are risks here; everything hinges on a single study, and the stock can go up or down by $15 on the trial result announcement. If you follow me into this stock, you should have a full understanding of this binarity. It’s up to you!
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