What Cobenfy Approval Means For Bristol Myers Squibb Stock

Bristol Myers Squibb stock (NYSE: BMY) will be in focus in the near term after the U.S. FDA approved Cobenfy for the treatment of Schizophrenia. This is a big approval for the company, given that Cobenfy doesn’t have the classic side effects seen in other antipsychotic drugs. Its peak sales are expected to be around $6 billion. ^[1] This should give BMY stock some respite, after its underperformance lately.

BMY stock has lost around 25% in value since early January 2023 – falling from levels of around $67 then to around $50 now – vs. an increase of about 50% for the S&P 500 over this period. This can primarily be attributed to a 28% fall in the stock’s P/S ratio from 3.1x revenues in 2022 to 2.2x revenues now. Furthermore, the company’s sales grew just 1% over this period. Investors have punished BMY stock given its tepid sales growth. Our dashboard on Why Bristol Myers Squibb Stock Moved has more details.

Notably, the performance of BMY stock vs. the S&P 500 index has been quite volatile over recent years. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics. But can Bristol Myers Squibb possibly regain its footing and rise again? Let’s delve into the company’s revenue prospects to begin with.

Bristol Myers Squibb’s revenue has risen just 0.8% from $46.2 billion in 2022 to $46.5 billion in the last twelve months. The revenues can be clubbed under two segments – Legacy Portfolio (includes legacy products, such as Eliquis and Revlimid), and Growth Portfolio (includes relatively newer drugs, such as Reblozyl and Opdualag). Revlimid was the top-selling drug for Bristol Myers Squibb in 2021, garnering $13 billion in sales. However, it now faces biosimilar competition and sales are on a decline — generating just $6 billion in 2023 — and this trend is expected to continue in the near term. The growth rate for its blockbuster drugs – Opdivo, Eliquis, and Orencia – has also slowed lately. That said, the company launched several new drugs, including, Reblozyl, Zeposia, Abecma, Camzyos, Sotyktu, and Opdualag, which have seen strong growth in the recent quarters.

Although the company’s growth portfolio has been doing well, to combat the overall slow sales growth, Bristol Myers Squibb went on an acquisition spree. It acquired Mirati Therapeutics, RayzeBio, and Karuna Therapeutics in 2024, spending around $24 billion. Now, with the approval of Cobenfy, which was under Karuna Therapeutics, it’s safe to say that the money was wisely spent, given the massive $6 billion in annual peak sales expected from this drug alone. Bristol Myers Squibb has strengthened its pipeline with these acquisitions, and it now has over 50 compounds in development.

While these acquisitions will adversely impact the 2024 adjusted earnings due to acquisition-related charges, the earnings growth will rebound from 2025. We expect Bristol Myers Squibb’s earnings to plunge to $0.76 in per share in 2024, versus $7.51 last year. However, this figure is expected to rebound to $7.30 in 2025. At its current levels of $50, it trades at 2.2x revenues, versus its 2.5x average P/S ratio over the last three years. With revenue growth now expected to be better than earlier anticipated, and earnings growth in sight, we think an upward revision to BMY valuation multiple makes sense. We estimate Bristol Myers Squibb’s Valuation to be $60 per share, reflecting around 20% upside from here.

While BMY stock looks like it has ample room for growth, it is helpful to see how Bristol Myers Squibb’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 9/27/2024
[2] Cumulative total returns since the end of 2016

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1. First Novel Schizophrenia Treatment in Decades Gains FDA Approval, Jared S. Hopkins, The Wall Street Journal, Sep 26, 2024 [↩]