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Is Bristol Myers Squibb Stock a Buy?

By Keith Speights and Brian Orelli, PhD – Sep 26, 2021 at 9:31AM

Key Points

  • The big challenge for BMS is that generic rivals to Revlimid enter the U.S. market in 2022.
  • However, the company has other drugs and promising pipeline candidates.
  • BMS stock could be a good choice for long-term investors willing to wait for growth.

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Maybe, but not if you're looking for major growth over the short term.

Bristol Myers Squibb (BMY 0.13%) stock hasn't performed very well so far this year. The company will soon face generic competition for top-selling Revlimid. However, it also has several newer drugs and pipeline candidates with great potential. In this Motley Fool Live video recorded on Sept. 15, Motley Fool contributors Keith Speights and Brian Orelli answer a viewer's question about whether or not the big pharma stock is a buy.

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Keith Speights: Brian, let's switch to a question the top voted question right now is from Bob L. and it says, "BMY. Thoughts?" and of course, BMY is Bristol Myers Squibb.

I noticed on Monday that Bristol Myers Squibb reported some encouraging overall survival data from a late-stage study of Opdivo and Yervoy in treating mesothelioma. I guess we could delve into that data, but instead let's address Bob's question.

What do you think about Bristol Myers Squibb and general? Do you think this big pharma stock is a buy right now?

Brian Orelli: That Opivo-Yervoy mesothelioma data, I think was fairly old. I think it was a long-term study, so I think we already knew the basis of the study or maybe there was a melanoma data at this week too, so maybe I'm thinking the melanoma data. But more generally, the pharma looks pretty cheap with a price to sales ratio of 3.17. That's pretty cheap.

Revenue guidance is for an increase in this year in the high single digits. That's not stellar, but it's certainly not horrible either, and on the surface, you wouldn't expect a price to sales ratio of 3.17 with, call it 8-9 percent revenue growth.

But it's going to lose exclusivity on Revlimid, which it got when they bought Celgene. The settlements are with the generic drug makers call for generics to start in 2022 and they get a percentage of the total Revlimid sales, and then it moves up every year until 2026 when they get full, they can sell as much as they want. The drug mix up 28 percent of revenue in the first half of 2021, the first half of Bristol Myers Squibb's overall revenue, so that's a big chunk that it's going to lose and that explains why Bristol Myers Squibb looks so cheap right now.

It does have some pipeline candidates that could make up for the loss of Revlimid. I think the biggest one to look out for is the LAG-3 immuno-oncology drug and Relatlimab. It works with Opdivo in melanoma. They've already shown that in the Phase III study, so it should get approved fairly soon.

I think the advantage here is that it could drive both this new LAG-3 drug as well as drive sales of Opdivo. It should help Opdivo compete with Merck's Keytruda as well as all the other PD-1 and PD-L1 drugs out there, and so I think that's the biggest advantage of LAG-3 right now is not necessarily the addition of the LAG-3 sales, but the fact that it can also drive sales of Opdivo.

If they can show that LAG-3 plus Opdivo works in other cancers beyond melanoma. Opdivo by itself in other combinations, has shown that it can work well in a variety of different cancer. I think it's likely that LAG-3 plus Opdivo will help patients with other cancers and that should help for Bristol Myers in the long run. But they're going to do those clinical trials, they are going to get it approved and they are going to ramp up sales.

Hopefully, that will coincide with the 22-26 declines in Revlimid sales. Overall, I think it's an OK buy for the right type of investors, someone who is willing to wait for growth, so if you're looking for immediate growth, I'm not sure that you're going to find it in Bristol Myers Squibb.

But on the other hand, I don't really see the price dropping all that much given the fairly low valuation right now. But again, it might not go up all that much either, plus, right here is easy to collect three percent dividend yield while you wait, so you do get some upside even if it moves sideways for a while. But if that's your cup of tea, then I think it could be a good investment as long as you're a long-term investor here.

Speights: Full disclosure, I was a Celgene shareholder, and when Bristol Myers Squibb acquired Celgene, I just held onto the BMY shares that I got, and I'm one of those patient investors you're talking about, I'm looking at the long term.

I think Celgene brought a lot of pipeline candidates to the table that really should help Bristol Myers over the next five years, say. I'm willing to wait it out, get past this Revlimid loss of exclusivity and see how some of those pipeline candidates have some of the newer drugs that have already won approval that Celgene brought to the table, see how they start gaining momentum.

To me, this is a stock you want to look at, at least for a five-year time horizon. Like you said, Brian, if you're looking for some quick growth, it's probably not a great pick.

Keith Speights owns shares of Bristol Myers Squibb. The Motley Fool owns shares of and recommends Bristol Myers Squibb. The Motley Fool has a disclosure policy.

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