Bristol-Myers Squibb (NYSE:BMY) reported very good fourth-quarter results on Thursday. Revenue jumped 10% year over year, with strong growth for blockbuster drugs Opdivo and Eliquis leading the way. The drugmaker easily beat Wall Street earnings estimates, posting adjusted earnings per share of $0.94 compared to the consensus analysts' estimate of $0.85.
Some might point to the strength that Bristol-Myers Squibb demonstrated in Q4 as a reason that the company doesn't need to make a major acquisition. Many investors were skeptical earlier this month when BMS announced plans to buy Celgene (NASDAQ:CELG).
But as good as BMS' Q4 results were, its quarterly update also revealed why the company needs the planned acquisition of Celgene to successfully close. Here are three reasons why that's the case.
1. Bad news for Opdivo-Yervoy combo
Probably the biggest story in Bristol-Myers Squibb's Q4 update had nothing to do with what happened in the fourth quarter. Instead, it was the company's announcement that it was pulling the regulatory submission for a combination of Opdivo and Yervoy as a first-line treatment for advanced non-small-cell lung cancer in patients with tumor mutational burden of at least 10 mutations per megabase.
BMS already experienced one delay with its filing for the new indication for the immunotherapy combo. In October, the company submitted exploratory overall survival (OS) analysis data to the Food and Drug Administration. The agency promptly extended the review period by three months with an approval decision moved back to May 20, 2019.
Now, however, after discussions with the FDA, BMS is withdrawing its supplemental Biologics License Application (sBLA). The company plans to wait until final data from the phase 3 CheckMate-227 clinical study are available in a few months. BMS will incorporate data from that study into a new FDA submission.
What does this have to do with the Celgene acquisition? The bad news about pulling the sBLA filing underscored just how much of BMS' fortunes ride on Opdivo. Buying Celgene provides more product diversification.
2. Slowing growth ahead
Another thing that stole the thunder from Bristol-Myers Squibb's solid Q4 growth was the company's guidance for 2019. BMS acknowledged that its growth is about to slow down.
The big drugmaker said that 2019 revenue would increase "in the mid-single digits." It projected 2019 adjusted earnings per share (EPS) between $4.10 and $4.20. While the midpoint of that range was in line with Wall Street estimates, it also reflected year-over-year growth of only 4%. That's a far cry from the 32% year-over-year adjusted EPS growth that BMS achieved in 2018 and the compound annual growth rate of 16.5% over the last five years.
Celgene, on the other hand, should be on track to deliver solid double-digit growth on both the top line and bottom line in 2019. Sales for the company's top products -- Revlimid, Pomalyst, and Otezla -- continue to show strong momentum. Acquiring Celgene would be a shot in the arm for BMS.
3. A tale of two pipelines
In its Q4 conference call, Bristol-Myers Squibb's management talked a good bit about its pipeline prospects. But it was interesting how different that discussion was from what it would have been if the company wasn't planning to buy Celgene.
Sure, BMS played up the opportunities for Opdivo and Yervoy. The drugmaker anticipates eight clinical-study readouts later this year and another eight in 2020. But this also highlighted yet again just how dependent BMS is on Opdivo.
The company bragged that it has six drugs that could launch in the near term that combined represent over $15 billion in potential revenue. How many of those candidates are in BMS' own pipeline right now? One. It's Celgene's promising candidates, including liso-cel, luspatercept, and ozanimod, that BMS talked about the most.
Bring on Celgene
Those who don't like Bristol-Myers Squibb's proposed acquisition of Celgene base their pessimism largely on concerns about Revlimid. Celgene faces limited-volume generic competition beginning in 2022 and court challenges over its patents for the blockbuster blood cancer drug.
But BMS appears to have a better understanding of the value that Celgene brings to the table than the market does. The company modeled revenue projections for Revlimid that are more conservative than consensus estimates. It risk-adjusted all of the projected revenue from pipeline candidates. And BMS still thinks the deal will significantly boost growth and deliver solid returns to shareholders.
The bottom line for BMS in Q4 isn't nearly as important as where its bottom line would be with Celgene and without Celgene. It's pretty clear that the company's future with Celgene looks a lot better than the future without it. But for Celgene shareholders, a future as a part of BMS might be a step down from what the biotech could have achieved alone or combined with another drugmaker.