3 Things Investors Must Watch at Bristol-Myers Squibb Co.

Bristol-Myers Squibb's (NYSE: BMY  ) end of year earnings report is coming up this Friday after the market opens. The company is going through a transformative phase, so we can expect the release and subsequent conference call to generate a great deal of noise. It's easy to get caught up in the ebb and flow created by analysts, but I think it's best to highlight some items to look out for so we can determine for ourselves whether the company is on the right path, or stumbling in the dark.

Eliquis' launch
The launch of Eliquis, marketed in partnership with Pfizer (NYSE: PFE  ) has been a disappointment so far. A slow US launch had to be expected, as it followed Boehringer Ingelheim's Pradaxa, and Xarelto from Johnson & Johnson (NYSE: JNJ  ) into the market. The analyst community was convinced that Eliquis' superior safety profile with respect to dangerous bleeding episodes would propel it past its competition. During the first nine months of 2013, sales of Eliquis in the US only reached $49 million, while Xarelto reached $246 million during Q3 2013 alone.

Bristol-Myers has stepped up its game, by sending physicians into the field to educate other physicians of Eliquis' safety profile. A supplemental new drug application that would extend the anticoagulant to treatment of hip or knee replacement patients post-surgery is also under review. Be sure to keep your eyes and ears open for any signs of improvement from what should already be a drug heading for blockbuster status.

Yervoy's sales
Not long ago, I discussed Bristol-Myers Squibb's transformation from an all out pharmaceutical behemoth to a specialty care biopharmaceutical company. Cancer immunotherapy, or immuno-oncology, is central to the company's rebirth. Bristol-Myers will have plenty of competition going forward to keep things interesting on this front, beginning with Yervoy and melanoma.

During the first nine months of 2013, Yervoy comprised about 7% of US sales for Bristol-Myers. Compared to the same period in 2012, Yervoy revenue in the US grew 19%, and 41% worldwide. The drug can continue to be a major growth driver for the company, but label expansion is quickly becoming more important. Currently the immunotherapy is approved in the US for the treatment of late stage melanoma. Both, GlaxoSmithKline (NYSE: GSK  ) and Merck (NYSE: MRK  ) should start challenging Yervoy's share of the melanoma market.

GlaxoSmithKline recently won approval for a highly effective late-stage melanoma combination therapy in patients that test positive for a BRAF mutation. Only, about half of patients diagnosed with melanoma carry the mutation, which should limit competition somewhat from Glaxo.

Possibly a more serious threat for Yervoy's melanoma space is a promising immunotherapy under development at Merck. Lambrolizumab, also known as MK-3475, posted an impressive one year overall survival rate of 81% in late stage melanoma patients. The FDA has awarded lambrolizumab a Breakthrough Designation, which means the agency probably won't require several years of survival data. It may be competing with Yervoy for melanoma patients as early as next year.  

Yervoy flubbed its overall survival endpoint in a Phase 3 trial that may have led to an expansion to advanced prostate cancer. The trial was not a complete failure, and reached some secondary endpoints. Currently a Phase 3 trial with less advanced prostate cancer patients is under way. Currently Yervoy is in late-stage development for small, and non-small cell lung cancer, plus earlier stage melanoma.

Bristol-Myers also has a compound to compete with Merck's lambrolizumab. When the company last reported, Nivolumab was in 25 clinical trials, including one as a melanoma combination with Yervoy. When Bristol-Myers reports on the 24th, I'll be listening closely for any indication of progress in these trials.

Cheaper biologics production
Unlike small molecule drugs, biologics like Yervoy are much more complicated to produce. The process of culturing cells that produce a compound, extracting that compound, then packaging it must be performed to rigorous standards.

BMY Gross Profit Margin (Quarterly) Chart

BMY Gross Profit Margin (Quarterly) data by YCharts

The process is expensive, but for Bristol-Myers it may be getting significantly cheaper. In July 2013, the company inked a 10-year deal with Samsung to manufacture Yervoy. Technology transfer and trial production were scheduled to begin in July 2013. I'll be listening in for clues to the extent this deal, and perhaps others, will have on the company's gross margin going forward.

Ready to roll
Of course, this is by no means a complete list of every opportunity and challenge facing Bristol-Myers Squibb today. Even after closing out the diabetes, hepatitis, and neurology segments, the details of every quarter's operations is enough to fill volumes. Instead, you have at least three distinct items to listen for during the conference call. Listen to the facts get ready to make an assessment of your own before you're swayed by popular opinion.

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