What to Watch When Bristol-Myers Squibb Reports End of Year Earnings

Bristol-Myer's Squibb  (NYSE: BMY  ) led its big pharma peers in 2013 as its stock climbed an incredible 60%. With that momentum carrying through to some important catalysts in 2014, here are three topics to watch when Bristol-Myers reports earnings on Friday.

Fighting against hepatitis C
Bristol-Myers was a strong contender in the race to cure hepatitis C with its combination therapy of daclatasvir and Gilead's sofosbuvir (now marketed as Sovaldi). But when Gilead chose to forego a partnership with Bristol-Myers and develop its own NS5A inhibitor ledipasvir, Bristol had to move forward alone with daclatasvir's development.

Now Bristol-Myers is looking for a place for daclatasvir, and there are certainly opportunities. Daclatasvir looks to be headed for shelves in Europe, where the European Medicines Agency allows for compassionate use of the daclatasvir-sofosbuvir combo despite Gilead's reluctance to co-market the drugs. In the US, Bristol-Myers is looking to Vertex  (NASDAQ: VRTX  ) and its drug VX-135, which posted a sustained viral response rate of 83% after 4 weeks of treatment in a Phase 2a trial. Look for management to discuss these results in the context of the broader competitive market, which is already crowded with some big names.

The promise of nivolumab
Cancer immunotherapy, especially PD-1 inhibitor nivolumab, has been the talk of the town since the American Society of Clinical Oncology meeting in June. Bristol-Myers unveiled impressive data at the conference, demonstrating a 53% response rate when given with Yervoy to patients with advanced melanoma in a Phase 1 trial. Several Phase 3 trials of nivolumab with and without Yervoy are also under way.

The promise of PD-1 inhibitors is their ability to coax the immune system into killing tumor cells, avoiding some of the debilitating side effects of classical chemotherapy. That promise has drawn the likes of Merck  (NYSE: MRK  ) , Roche, and others into the field.

It seemed for most of the year that nivolumab had the upper hand, but recently Merck began a rolling submission for FDA approval of MK-3475 for treatment of melanoma in patients already taking Yervoy. Now Bristol-Myers' investors are left waiting for nivolumab to make its move. You can bet that will be the largest source of questions on the conference call, as nivolumab represents a major point of excitement in any investment thesis.

Capital allocation
Like most of its peers, Bristol-Myers has been navigating the loss of a major revenue stream. Now more than a year since loss of Plavix's patent protection, Bristol-Myers' revenue growth will provide a more clear picture of the growth of its current assets.

Those cash flows will be supplemented by $2.7 billion after Bristol-Myers sold its stake in a diabetes collaboration with AstraZenica. The deal is an important step in Bristol's reorganization. It not only helps the company streamline its business and escape a competitive diabetes market, it also provides plenty of capital to focus on core areas of strength.

It would not be surprising to see Bristol-Myers continue to invest in its immuno-oncology segment, especially given the promise of Yervoy and nivolumab. It seems most likely that Bristol will use the cash to pick up some developmental assets to pair with the two, as the race against Merck will largely come down to the adoption of PD-1 inhibitors as an adjunct to targeted therapies.

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