Bristol-Myers Squibb Company
Bristol-Myers (BMY) is a global biopharmaceutical company focused on developing innovative medicine with areas of interest including oncology, cardiovascular, immunoscience, and fibrosis. Similar to other companies in my portfolio, Bristol-Myers has a component of their business that is growing and another component that is shrinking. In November 2019, the company closed its acquisition of Celgene which will contribute to meaningful growth in the immediate future but importantly brings a number of near-term pipeline opportunities while Bristol-Myers’ pipeline is further out. While Celgene’s Revlimid product line is likely to face generic pressures in 2022, management is optimistic the decline will be more of a slope rather than a cliff. Growth in 2022 and beyond will be dependent on the success of its newer products and near-term pipeline. The company generates significant cash and management targets debt/EBITDA of 1.5X by the end of FY23. Valuation still looks attractive based on FY20 and FY21 guidance and cursory FY22 discussion given in 4Q19 report.
Ests: 4Q19 1Q20 FY19 FY20
Revs 6.14b 10b 24.3 42.2
EPS 0.88 1.43 4.35 6.16
P=56.87, Div-1.60, Yield=2.8%, Gross cash 12.3bn, net debt 30.6bn, TTM EPS=4.69, P/E=14X, FY20 P/E=11X
4Q19 1.22 vs .94 +30%, est .88 down from .94, FY19 +18% to EPS 4.69
Feb 6, 2020, P=65.59, TTM EPS=4.69, P/E=14X, FY20 P/E=11X
Revs +33% to 7.9bn (+3.1% ex CELG which closed Nov 22), adj product GM 76.4% vs 71.1%, OM 31.3% vs 27.3%, OpInc +52%
Declining products -872m or 28% to 2.2bn
8 potential near-term launch opportunities incl 6 U.S. potential actions over next6 months.
FY20 Guidance: adj EPS 6.00-6.20 (+30% at midpoint, est 6.16).
FY21 Guidance: adj EPS 7.15-7.45 (+20% at midpoint)
Mgmt targeting 1.5X Debt/EBITDA by end of FY23
Mgmt also projects EPS growth in FY22 although moderated by impact of Revlimid generics (mgmt. sees more of a slope than a cliff, mgmt. previous expectations unchanged)
Solid results as expected due to CELG acquisition, stock still looks very attractive on FY20 EPS estimates (11X) and even more attractive on FY21 guidance (9X midpoint) assuming approvals/launches go well. Also important will be continued performance from existing and acquired products and EPS trends beyond FY22
Mid Quarter Update – Dec 5, 2019
Raised dividend 9.8% to 1.80, yield=3%
3Q19 1.17 vs 1.09 +7%, est 1.07
Oct 31, 2019, P=56.8, TTM EPS=4.39, P/E=13X, FY20 P/E=9X
Revs +6% to 6bn, GM 71% vs 69.9%, EBT margin 36.4% vs 36.3%, EBT +6%
Growing products +10.7 (535m) to 5.5bn, Declining Products -30.6% (219m) to 495m.
In August announced divesting CELG drug Otezla to Amgen for $13.4 billion to satisfy regulators, much better price than analysts were initially thinking, will be used to reduce near-term debt, expects to exit 2020 ~2.5X debt/EBITDA.
Opdivo slowed to +1%, see pressure on Opdivo in 202, trajectory beyond 2020 will depend on new indications (currently 19), mgmt. confident about returning to growth in 2021.
FY19 Guidance: raised EPS to 4.25-4.35, still expects CELG deal to close by end of year.
Stock seems to be getting some traction as the closing of CELG gets closer, breaking out to 1-year highs, up 35% from its lows in July.
2Q19 1.18 vs 1.01, +17%, est 1.06
Revs +10% to 6.3bn (+13% ex fx), adj GM 70.5% vs 71.6%, OM 32.8% vs 28.4%, OpInc +27%
Growing products +14.8% (716m) to 5.55bn, Declining products -21.7% (174m) to 628m
FY19 Guidance: Raised EPS to 4.20-4.30 (previously 4.10-4.20)
At TTM EPS 4.31, already at top end of FY guidance range.
Despite a few programs not meeting end-points (and some that did), company still delivering solid results, stock looks cheap, acquisition of CELG is still pending, tabled for late 2019 or early 2020, guidance and estimates do not reflect CELG.
Mgmt feels CELG rationale has improved since deal announcement, 2 IPRs (patent reviews) for Revlimid were rejected and 3/5 of their late-stage drugs were filed with FDA and other health authorities.
1Q19 1.10 vs 0.94 +17%, est 1.09
Apr 2Apr 25, 2019, P=44.62, TTM EPS=4.14, P/E=11X, FY19 P/E=11X
Revs +14% to 5.9bn, GM 67.7% vs 69.7%, OM 28.8% vs 28.4%, OpInc +15.6%
Growing products +21.6% to 5.3bn, Declining products -25% to 628m. 11% of revs vs 16%
US revs +24%, Int’l +2% but +10% ex fx
FY19 Guidance reaffirmed
Opdivo plus Yervoy for head and neck did not meet primary endpoints
Mgmt feels growth in Opdivo will be driven by new indications
During the quarter, mgmt. feels their view of Celgene is validated by a few events: FDA accepted NDA for fedratinib and granted a priority review, 2 applications submitted for ozanimod and luspatercept, and 3 developments regarding Revlimid IP – dismissal of 2 patent challenges and settlement with Alvogen providing more clarity and security around Revlimid IP position.
Mgmt still sees sales and EPS growth every year through 2025 despite erosion in Revlimid.
4Q18 .94 vs .68 +38%, est .85, FY18 EPS 3.98 vs 3.01, +32%
Jan 24, 2019, P=49.96, TTM EPS=3.98, P/E=13X, FY19 P/E=12X
Revs +10% to 6bn, U.S. revs +16% to 3.3bn, Int’l +3% or +7% ex fx,, GM 72% vs 69.5%, OM 27% vs 19.5%, OpInc +52%, EBT +41%, EPS +38%
Growing products +23% to 5.2bn, Declining products -38% to 744m, 12% of revs vs 22%
FY19 Guidance: Revs up mid-single digits, EPS 4.10-4.20 (+3-5.5%, est 4.14), consistent with updated guidance in January during CELG discussion.
Solid results better than expected, guidance is ok and does not reflect pending CELG acquisition but likely reflects pending sale of of UPSA consumer health business. Stock was initially down as the company voluntarily withdrew FDA application for combination treatment of Opdivo and Yervoy for non-small cell lung cancer as the company feels further analysis is needed and requires final data from Checkmate -227 Part 1a (1H19) which would be after the current review period. Mgmt still optimistic about the combination.
Management thinks 2 scenarios for Revlimid are low probability: early at risk launch or gradual erosion starting in 2022 (the analyst consensus), mgmt. is being more conservative in vieiwing lower sales between 2022-2026.
Management modeled dividend increases in their cash flow analysis.
Mid Quarter Update - Jan 3, 2019
Announced acquisition of Celgene for $74bn plus acquired debt. BMY is offering 1 BMY share plus $50 for each CELG share ($35bn in debt on top of CELG’s already $20bn in debt). Also receive 1 tradeable Contingent Value Right for a 1-time potential payment of $9 per share upon FDA approval of all 3 ozaminod (by Dec 31, 2020), liso0cel (JCAR017) (by Dec 31, 2020), and bb2121 (by March 31, 2021)
Combined company would have 9 products with >$1bn in annual sales
Near-term pipeline >$15bn in revenue potential, Early-stage pipeline includes 50 high-potential assets
On 1stfull year, expect >40% EPS accretion to BMY, Expects >$45bn of FCF over first 3 years after closing
Expect deal to close in 3Q19
Also gave FY19 adj EPS Guidance 4.10-4.20, est 4.07 excluding CELG
Clearly I didn’t see this coming, I chose BMY over CELG over the quality of its balance sheet and revenue diversification as CELG faces significant revenue cliffs in a couple of years, clearly BMY mgmt. feels CELG’s pipeline more than offsets that risk.
2 other possibilities: BMY shareholders vote the deal down or someone else offers to buy BMY and forces the CELG deal to be aborted.
Skepticism on each company revolves around Revlimid for CELG and Opdivo for BMY. Mgmt also excited about Eliquis.
Revlimid would start to erode in 2022 with full generic in 2026.
3Q18 1.09 vs .75, +45% TR 12% vs 28%
Oct 25, 2018, P=48.84
Revs +8.3% to 5.7bn, +10% ex fx, GM 71% vs 69.9%, EBT +28% to 2.1bn
Growing products +23.8% or +956m to 4.98bn, shrinking products -42% or -519m to 714m, growth continues to outpace declines
FY Guidance: raised EPS range to 3.80-3.90 vs previous range 3.55-3.65, Revs + high single digits, 17% tax rate