AbbVie’s Pain Is BMY’s Gain

Bristol Myers Squibb stock (NYSE: BMY) was up 10% on Monday, November 11, after its peer AbbVie (NYSE; ABBV)  announced that two of its mid-stage clinical trials of its drug Emraclidine to treat schizophrenia failed to meet their primary goal. ^[1] Emraclidine was developed by Cerevel Therapeutics, which AbbVie acquired for around $9 billion earlier this year. This development bodes well for BMY as it recently secured the U.S. FDA approval for its schizophrenia drug Cobenfy. Look at how Cobenfy approval brings 20% upside to BMY stock.

Barring the recent rise, BMY stock hasn’t fared well, with an 11% decline since January 2023 — falling from levels of $67 then to around $60 now — vs. an increase of about 57% for the S&P 500 and a 10% rise for the S&P 500 Healthcare index over this period. This can primarily be attributed to

1. a 15% decline in the company’s P/S ratio to 2.6x now, versus 3.1x in 2022. This was partly offset by
2. a 1% rise in the company’s revenue from $46 billion to $47 billion over the same period; and
3. a 4.1% reduction in its share count thanks to $13 billion in share repurchases.

Let’s dive deeper into these factors that have weighed on BMY stock growth.

1. What’s Driving BMS’s Sales Growth?

Bristol Myers Squibb’s revenue has risen just 1% since 2022, given the decline in sales of some of its legacy drugs, including Revlimid. On the flip side, its anticoagulant Eliquis has been doing well, with sales of over $12 billion last year. Eliquis sales are expected to rise for the next couple of years, post which it will face biosimilar competition. However, BMS’s new cardiovascular drug Camzyos is expected to bridge the gap from the expected decline in Eliquis sales.

The company’s newer drugs, such as Camzyos, Sotyktu, and Opdualag, are expected to garner sales of over $1 billion each by 2026. The company is also looking at inorganic growth to bolster its sales and earnings growth. It completed three acquisitions this year – Mirati Therapeutics, RayzeBio, and Karuna Therapeutics. BMS has strengthened its pipeline with these acquisitions, and it now has over 50 compounds in development.

Now, with the recent approval of Cobenfy, which was under Karuna Therapeutics, BMS is looking at potential peak sales of over $6 billion from this drug alone. Furthermore, AbbVie’s failure in mid-stage clinical trials for Emraclidine implies limited competition for Cobenfy – explaining the recent investor optimism. Some analysts have now pegged Cobenfy’s peak sales at over $10 billion.

2. How Are BMS’s Profit Margins Trending?

Although BMS has seen its revenues rise marginally, its operating margin has contracted slightly from 19.7% in 2022 to 15.3% now. This clubbed with expenses related to IPR&D and acquisitions has weighed on its bottom line lately. For the full-year 2024, the company expects its adjusted earnings per share to be in the range of $0.75 and $0.95. Note that BMS recorded a one-time charge of $12.1 billion for the acquisition of Karuna in Q1’24, and expects its full-year earnings to be much lower than the $7.51 earnings per share it reported in 2023.

3. What About Financial Risk?

BMS has seen its cash fall from $9.3 billion in 2022 to $8.1 billion now, while its total debt increased from $40.7 billion to $51.4 billion over this period. With the company’s cash as a percentage of assets at 8.6%, and its debt as a percentage of equity at 42.4%, we think BMS looks reasonably placed from a financial risk perspective, though the debt figure appears to be high.

4. Does BMY Stock Offer Any Room For Growth?

BMY stock has risen 21% this year, slightly underperforming the broader markets, with the S&P500 index rising 26%. Even if we look at a slightly longer term, the performance of BMY stock with respect to the index over the recent years has been quite volatile. Returns for the stock were 3% in 2021, 19% in 2022, and -26% in 2023. 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.

Given the current uncertain macroeconomic environment around rate cuts and falling sales of its legacy drugs, could BMY face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months — or will it see a strong jump? From a valuation perspective, BMY stock looks like it is appropriately priced after recent gains. At its current levels of around $60, BMY trades at 2.5x revenues, aligning with the stock’s average P/S ratio of 2.5x seen over the last three years. We think that the current valuation multiple seems justified given the mix of positives from new drugs and headwinds from legacy drugs.

While BMY stock looks appropriately priced, 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 11/12/2024
[2] Cumulative total returns since the end of 2016

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1. AbbVie’s Press Release, Nov 11, 2024 [↩]