After digesting a steadily decline in sales tied to the patent cliff, big pharmaceuticals' stocks are beginning to attract investors again. Although there are bigger pharma stocks that investors can buy, Bristol-Myers Squibb (NYSE:BMY) is one of my top picks. Here are three reasons why.
No. 1: Cancer immunotherapy giant
Thanks innovation in gene sequencing that allows researchers the chance to dive deeper into the causes of cancer than ever before, next-generation therapies like Bristol-Myers Squibb's Opdivo are beginning to reshape cancer treatment.
Opdivo has already won Food and Drug Administration approval for use in advanced melanoma, lung cancer, and kidney cancer and its ability to block cancer cells to hide from a patient's immune system suggests that its use could expand far beyond these indications.
A slew of trials are evaluating Opdivo in various cancer indications, including Hodgkin lymphoma, non-Hodgkin lymphoma, multiple myeloma, head and neck cancer, and liver cancer. Additional trials are also ongoing that team up Opdivo with some of the most widely used cancer drugs, potentially positioning Opdivo as a backbone therapy throughout cancer care.
Opdivo sales already totaled nearly $1 billion last year -- its first year on the market -- and annualized sales exiting 2015 reached nearly $2 billion. Given Opdivo's massive clinical trial pipeline, it would seem that the sky could be the limit for this cancer killer.
No. 2: Revolutionizing a multibillion market
Bristol-Myers Squibb also co-owns the factor Xa anticoagulant Eliquis with Pfizer, Inc. (NYSE:PFE), and sales of Eliquis have been on a tear since the FDA approved its use following hip or knee replacement surgery and for the treatment of deep vein blood clots and pulmonary embolism in 2014.
According to Bristol-Myers Squibb, Eliquis has overtaken Johnson & Johnson's (NYSE:JNJ) as the most widely prescribed factor Xa anticoagulant in atrial fibrillation and venous thromboembolism and that market share growth is evident in the fact that Eliquis global sales, which are split between Bristol-Myers Squibb and Pfizer, Inc, surged from $774 million in 2014 to $1.9 billion in 2015.
Given that factor Xa anticoagulants are arguably easier to dose and safer to use than the still widely prescribed warfarin (Coumadin), it would seem that there's still plenty of room for sales growth. especially since Eliquis has proven better at reducing the risk of bleeding and the risk of stroke than warfarin in trials.
No. 3: Financial flexibility
Fast-growing and top-selling drugs matter most to investors when the companies marketing them are on solid financial footing, and in the case of Bristol-Myers Squibb, investors get a company that's increasingly profitable with a healthy balance sheet.
The company's earnings per share was $1.85 in 2014, $2.01 in 2015, and management is guiding for EPS of at least $2.30 in 2016. Strong bottom-line growth supports a balance sheet that boasts $8.9 billion in cash and marketable securities, which translates into a net cash after debt position of $2.2 billion.
Bristol-Myers Squibb's financial position offers income investors confidence that dividend checks will continue to boost returns (shares are yielding 2.4% currently), while still providing flexibility to conduct M&A to fill in gaps in its drug pipeline.
Tying it together
Patent risks will continue to act as revenue and profit headwinds across big pharma and Bristol-Myers Squibb won't be immune from that threat. However, the company's immuno-oncology drugs, led by Opdivo, its potential with Eliquis, and its financial condition should put it in a position to sidestep the brunt of future patent losses and continue to reward investors, and for that reason, I think it deserves a spot as a core holding for investors interested in owning healthcare stocks.