Three Factors Why Bristol-Myers Is Worth $35

Bristol-Myers (NYSE:BMY) has suffered three major setbacks in quick succession over the past few months. First, in May, it lost patent exclusivity for Plavix in the U.S. that resulted in 18% y-o-y decline in overall company sales for the quarter ended June 30, 2012. Second, toward June-end, it faced a delay for the second time in the US FDA’s decision on stroke prevention in atrial fibrillation (SPAF) indication for Eliquis, a cardiovascular drug expected to generate more than $3.5 billion in annual revenue by 2019, subject to approval. This second-time postponement has resulted in a corresponding revenue loss for the second half of 2012. And third, in August, the company was forced to halt development of its Hepatitis-C drug BMS-986094, which it had acquired earlier in the year as part of the $2.5 billion acquisition of Inhibitex Inc. and, as a result, was forced to incur a loss of $1.8 billion.

However, the company has not seen its stock plunge due to several factors that are holding up its current valuation. We currently have a stock price estimate of $35 for the company, approximately 5% above its current market price.

See our complete analysis for Bristol-Myers Squibb here

Three Factors Holding Company Valuation

The factors that have prevented a sharp drop in Bristol-Myers’ stock price post these major setbacks include: 1) the presence of key drugs such as Yervoy in its drug portfolio, 2) highly encouraging results from the final stage SPAF trials of Eliquis that maintain a high probability of the US FDA’s approval for the same, and 3) the recent acquisition of Amylin Pharmaceuticals that will add to the company’s revenue growth over the coming years.

Yervoy, which is a cancer drug approved for treatment of melanoma, a type of skin cancer, is expected to generate annual sales exceeding $1.6 billion by 2019. This will help make up for the decline in revenues that the company is facing post patent expiry of Plavix.

Also, the highly encouraging results of the phase III Aristotle trial of Eliquis vs. Warfarin positions Eliquis strongly for the US FDA approval for SPAF. Warfarin is currently widely prescribed for preventing blood clots from forming in blood vessels. So, though the second-time postponement in approval has caused a short-term loss in revenue, the probability of an eventual FDA approval for SPAF indication for Eliquis remains high. Post approval, the drug is forecast to become a major player in the cardiovascular drug market, generating annual revenues exceeding $3.5 billion by 2019.

In addition, the recent acquisition of Amylin Pharmaceuticals has provided Bristol-Myers with two major anti-diabetic drugs, Byetta and Bydureon. Bydureon, which received approvals to treat type-2 diabetes in the U.S. and the E.U. earlier this year will help the company add to its top-line growth by targeting the highly lucrative and expanding anti-diabetic drug market.

Hence, in spite of the major recent setbacks, we think Bristol-Myers is worth $35 owing to the presence of several key drugs in its portfolio and acquisitions which will add to growth over the coming months.

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