Michael Burry rose to fame by calling the 2008 housing bubble, as documented in the hit movie The Big Short. More recently, he reentered the spotlight by buying into Gamestop before it became a meme stock. Taking a hard turn from such dramatic holdings, pharmaceutical stalwart Bristol Myers Squibb (BMY 0.28%) is now one of Burry's Scion Asset Management's top holdings. Let's look into a few reasons why the famed investor might be holding and one big reason why it might not be for you.
Two future blockbusters already approved
While $10-billion blockbuster Eliquis will likely anchor sales for the next few years, the company has multiple drugs in which it sees multibillion-dollar potential. And this vision may be starting to come to fruition as sales of its new product category are up 38% sequentially for the quarter, to $482 million.
One of these hopeful new compounds, cancer-fighting Opdualag, is a combination of Bristol's hit drug Opdivo and another monoclonal antibody. Opdualag has come out hot, generating $58 million in its first full quarter on the market. With the initiation of several late-stage trials for Opdualag in large markets such as colorectal and lung cancer, it is clear that the pharma giant is hoping the combination therapy picks up where blockbuster Opdivo will leave off in 2028 when its patent is set to expire.
The other approved therapy that has the company excited is Camzyos. The drug was cleared by the FDA in April for a condition called hypertrophic cardiomyopathy, where portions of the heart become abnormally enlarged, making it difficult for blood to flow out of the heart. Studies have shown meaningful improvements in symptoms, functional status, and quality of life by reducing the obstruction of blood flow from the heart when taking Camzyos.
Obtained through the MyoKardia buyout in October 2020, its initial market is a small one. With only an estimated 35,000 patients across the European Union, U.S., and Japan, the real prize is the heart failure market. A phase 2 study on a subset of heart failure patients is set to report results in April 2023, a market of just over 2 million patients in the U.S. alone. If those results are positive, the addressable market for Camzyos will skyrocket overnight.
More billion-dollar dreams
Burry's healthcare company of choice also has high hopes for its drug, deucravacitinib, targeting auto-immune diseases such as psoriasis and lupus. The company believes it has superior efficacy to current oral standards of care in moderate to severe psoriasis. With strong data in hand for its first potential indication, Bristol is aiming for FDA approval in September 2022. Investors can expect a steady stream of data for the investigational compound in other auto-immune diseases such as lupus, psoriatic arthritis, and Crohn's disease in the next three years. If results are positive, management could easily be sitting on yet another multibillion-dollar drug.
With Eliquis being wildly successful, it would make sense that Bristol would go to the anti-coagulant market again. The phase 2 investigational drug milvexian is being evaluated to take over both the anti-platelet market -- think Plavix and its $7 billion in revenue for 2011 -- as well as the oral anti-coagulant market dominated by Eliquis, namely atrial fibrillation, and blood clots. Management believes this to be at least a $5 billion opportunity -- not a bad encore.
Why investors should reconsider
Unfortunately for shareholders, Bristol has struggled to track the market over any meaningful amount of time. Even after accounting for dividend reinvesting, the pharma giant has returned only 178% versus 262% for the S&P 500 since August 2012. That trend holds even if you go back 25 years, with Bristol trailing 368% versus 563% for the index. This amounts to just over a paltry 6%, including reinvested dividends for the pharmaceutical giant. Even over the last five years, Bristol still lags the market by 53% versus 81%.
Despite the pain of the markets recently, Bristol might be experiencing its own issues -- a patent cliff. Blockbuster Revlimid, which generated $12.8 billion in fiscal year 2021, is beginning to see sales erode, with revenue expected to contract to the $9 billion to $9.5 billion range this year. Then there is Eliquis and Opdivo. With $10.76 billion and $7.52 billion, respectively, in revenue in FY 2021, both of these cash cows are tentatively set to come off-patent in 2028.
Revlimid, Eliquis, and Opdivo combined for roughly two-thirds of the company's revenue in 2021. Losses that large put a lot of pressure on its pipeline, which likely means Bristol has its eyes open to potential acquisitions that can immediately contribute to the bottom line. And while Bristol had $13.2 billion in cash at the end of Q2, it is competing with other cash-rich heavyweights that have publicly stated their aspirations for M&A activity.
Perhaps most importantly, Bristol still looks expensive to its peers, with a 25.6 price-to-earnings (P/E) ratio. Compare this to other healthcare behemoths AbbVie, Abbott, and Amgen, all of which have lower P/E ratios and have beaten the S&P over both the last 10 and 25 years, including dividends. While Bristol has a promising pipeline, it has a history of lagging the market, not to mention its upcoming patent cliffs. Investors may want to think twice before following the legendary Burry into this historically underperforming pharmaceutical company.