Despite soundly beating revenue forecasts last quarter, Bristol Myers Squibb (BMY 1.30%) was forced to delay its chimeric antigen receptor T-cell (CAR-T) immunotherapy after the Food and Drug Administration requested more data supporting the efficacy of the company's drug product on May 6. The new deadline is in November. Though such data requests are somewhat common, large pharmaceutical companies like BMS are the putative experts on bringing drugs to market, meaning that they're typically expected to have a better chance at avoiding delays than less experienced companies. Furthermore, the scope of the FDA's request means that the company will need to perform a significant amount of new clinical work to produce the required data.
Falling short of the industry's drug approval-process expectations isn't the only issue with BMS. BMS hasn't been a reliable grower over the last five years, even as the rest of the market has surged. While the company's fundamentals are strong and its price-to-earnings ratio of 96.9 suggests that its reputation with investors is ironclad, a weak early phase drug pipeline and a growing struggle to provide regulatory support for its later-phase drug candidates point to a mature company losing the innovative capacity responsible for its historical success.
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Symptoms of pipeline weakness surround the Celgene acquisition
With its $76 billion purchase of Celgene in 2019, BMS shored up its late-stage pipeline with a drug program that promised reliable long-term revenues. While the acquisition of Celgene ran into troubles and delays nearly immediately, BMS eventually successfully onboarded Celgene's phase 3 drug program, liso-cell. Liso-cell is intended to treat relapsed aggressive large B-cell lymphoma, meaning that it is only eligible for use in patients who have already unsuccessfully used first and second-line therapies. This constraint means liso-cell's potential market is fairly small, thereby capping the therapy's lifetime revenue expectations accordingly. The regulatory delay involved in moving liso-cell through the last steps of the approval process is only the latest symptom of BMS' pipeline troubles, however, and the others may be far more serious.
At first glance, BMS' pipeline is massive, sporting dozens of phase 3 programs in a handful of different disease areas. However, upon closer inspection, the majority of the company's phase 3 programs are actually investigating new indications for two already-developed blockbuster biologic therapeutics, Opdivo and Yervoy. In other words, its late-stage pipeline is impressive more for its large-scale attempt to match its two existing blockbuster therapeutic solutions to a dozen different disease areas rather than for its breadth of innovative activity with wholly new drug candidates.
This solution-fitting strategy is to be expected of major pharmaceutical companies, but for the last decade, BMS has been far more heavily invested in it than comparatively more innovative giants like Pfizer (PFE 2.40%). Yervoy has already been approved for new disease indications distinct from the indication it was originally approved for in 2011. Ominously for its mid-term outlook, Opdivo didn't exhibit wild revenue growth in 2019 as it did in the prior year, making the company's motivations to find new indications more starkly clear. More importantly, the scale of the company's long-term commitment to this strategy is a signal that the earlier stages of its pipeline are chronically light on therapies which the company would be confident moving to market.
While stagnation isn't guaranteed, neither is growth
While BMS leadership expects Opdivo revenue growth to return to positive in 2021, the company's fortunes don't hinge on the performance of one drug product. Bristol Myers Squibb has two challenges to beat before it can regain a favorable medium-term outlook for growth. First, it must meet its obligations to Celgene shareholders to bring Celgene's therapies to market according to the terms of the Celgene acquisition. Navigating the remaining regulatory obstacles successfully with liso-cell will restore confidence in the company's late-phase capabilities.
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Second, BMS must show that it can grow apace with the rest of the market by onboarding new therapy candidates which have the potential to be blockbusters. Without an infusion of new future big earners, it will become increasingly difficult to justify holding BMS in the medium term.
Investors seeking rapid growth should hold off on buying BMS until it demonstrates once again that it can innovate on the scale of its major competitors. Pfizer is a more innovative alternative with better medium-term prospects for investors looking to buy. For current shareholders of BMS, however, strapping in for the long term is advisable.
