Bristol-Myers Squibb (BMY) 23Q3 Update

23Q3 net revenue decreased 2.2% to $11.0 billion, as a 41% drop in Revlimid sales, due to LOE, was not entirely offset by growth across the rest of the portfolio.  Revenues from newly launched products rose 79% YOY and 19% sequentially, but the sales trajectories for Camzyos, Sotyktu and Abecma remain disappointing.  GAAP EPS of $0.93 was 25% above 22Q3 and better than my $0.85 estimate.  Non-GAAP EPS of $2.00 was a penny better than last year and above my estimate of $1.85. The consensus non-GAAP estimate was $1.77.

Based upon the 23Q3 results and its outlook, management reduced the midpoint of its GAAP EPS guidance from $3.87 ($3.72-$4.02) to $3.76 ($3.68-$3.83).  However, it narrowed the range of its non-GAAP guidance, raising the midpoint from $7.50 ($7.35-$7.65) to $7.58 ($7.50-$7.65).  I estimate that all of the improvement in the non-GAAP EPS guidance is due to a reduction in the expected non-GAAP effective tax rate from 17.5% to 15.5%.  The implied GAAP guidance for 23Q4 reflects a higher level of specified (or unusual) items and lower than expected non-GAAP operating income.

Besides the change in 2023 guidance, management pushed out its $10 billion sales goal for the new product portfolio by one year, from 2025 to 2026.  The extension is due mostly to slower-than-anticipated revenue growth for Camzyos, Sotyktu and Abecma (as already noted).  Although management reaffirmed the long-term sales potential of the new product portfolio, the market clearly and understandably has concerns.

Bristol-Myers Squibb faces a number of near-term challenges.  The slow uptake For Camzyos, a treatment for symptomatic obstructive hypertrophic cardiomyopathy (oHCM), is due to special procedures required to comply with the FDA’s Risk Evaluation and Mitigation Strategies (REMS) regimen to avoid and manage potentially harmful side effects for patients.  Doctors must be trained to administer the drug and monitor patients’ responses.  Required routine testing is expensive and adds to many patients’ out-of-pocket costs.  The treatment itself is also costly.  Even so, BMY continues to build its base of prescribing cardiologists.  There is now a hub of 38,000 patients approved for treatment and 24,000 are currently receiving treatments.  BMY’s VALOR Phase 3 trial, which reinforces data from its earlier EXPLORER-HCM Phase 3 trial, demonstrated a significant reduction in guideline-based eligibility for septal reduction therapy, an invasive surgical- or catheter-based procedure for symptomatic oHCM.  Management reports that Camzyos patients are experiencing a meaningful improvement in symptoms, as evidenced by low drop-out rates.  The company is looking to make adjustments to speed up the rollout wherever possible, but it is clear that it will take time.  It is also exploring new indications for the drug and new formulations.  Camzyos was approved for use in the EU last summer.  BMY remains optimistic about its long-term potential.

Revenue growth for Sotyktu, a new treatment for moderate to severe plaque psoriasis, has also been slow.  The problem has been getting approvals from health plans and pharmacy benefit managers (PBMs) to gain access to patients.  In order to obtain such approvals, Sotyktu is having to price lower than Otezla, the current standard of oral care (even though it was shown to have superior efficacy to Otezla in its POETYK clinical trial).  The company has been offering the drug for free in order to build its patient base quickly.  It then pursues the required health plan and PBM approvals.  Thus, script volumes have risen rapidly, but revenues have not.  Still, Sotyktu was recently approved by CVS, a major PBM that accounts for about 15% of total U.S. scripts.  It is now converting CVS patients to paying commercial customers.  BMY reports that Sotyktu’s market share is approaching 40% for new, systemic naïve patients, winning share from both Otezla and biologics.  It therefore expects to continue to build its revenue base over time.  The company is pleased with progress made to date on Sotyktu’s launch and remains confident about its long-term potential.

23Q3 revenues for Abecma, BMY’s T-Cell therapy indicated for the treatment of multiple myeloma, declined 29.5% YOY and 13.1% sequentially.  Management attributed the revenue weakness to in-class competition (i.e. competition from similar T-Cell therapies) and “dynamics with bispecifics,” a competing therapy which binds to both the myeloma cell and an immune cell (T-Cell or natural killer cell) to attack the myeloma cell directly.  Treatment volumes were also affected by manufacturing site maintenance downtime in June.

The company is responding to the competitive challenges in several ways.  First, it is taking steps to improve Abecma’s availability by opening up a third manufacturing site in Devens, MA.  (Its existing sites are Seattle and Summit, NJ.)  It plans to open another site in the Netherlands and is exploring a potential site in Japan.  This will help improve the availability of the therapy and reduce patient wait times.  The company is also pursuing improvements to manufacturing which will reduce T-cell processing times to 3-5 days from the current 7-10 days by improving the predictability of the process and reducing out-of-spec rates.

Bristol-Myers had hoped to win FDA approval for its supplemental Biologics License Application (sBLA) for Abecma as a third-line treatment for multiple myeloma on its scheduled PDUFA target action date of December 16.  Currently, Abecma, other CAR-T therapies and bispecifics are indicated as fourth- or fifth-line treatments, essentially last ditch efforts to save patients when all other therapies have failed.  Yesterday (11/20), BMY announced that FDA will not issue its decision on the sBLA as scheduled.  The delay is due to a planned meeting of the FDA’s Oncologic Drugs Advisory Committee (ODAC) to review the data related to the secondary endpoint of overall survival (OS) for the Phase 3 KarMMa-3 clinical trial (upon which the sBLA is based).  BMY previously said only that KarMMa-3 demonstrated a statistically significant improvement in progression free survival (PFS), its primary endpoint.  This new development calls into question whether the SBLA will be approved, raising concerns about Abecma’s competitive position and future viability.

BMY had been projecting $1 billion in sales of Abecma by 2030.  YTD, its sales are just below $500 million.  If the sBLA is not approved, the company will have to make a decision about Abecma’s future, including its upcoming Phase 3 KarMMa-9 clinical trial for first-line melanoma.  A loss of Abecma growth potential would be a setback, but BMY’s CAR-T franchise has other potential avenues for growth.

Sales of Zeposia, a best-in-class S1P receptor modulator with a favorable efficacy and safety profile, increased 78.3% YOY and 23% sequentially, helped by gross-to-net adjustments which accounted for 28% of the increase in sales.  Yet, growth has lagged expectations, due to access issues in the competitive ulcerative colitis market and increasing competition from B-cell therapies in multiple sclerosis.  BMY believes that it will solve its access challenges in UC and it is pleased with its market share gains in the declining oral MS market.  Although the company continues to expand its base of prescribing physicians, it acknowledges the near-term difficulties that it faces in maintaining Zeposia’s sales growth.  BMY has been projecting revenues of more than $3 billion for Zeposia by 2030.  On a TTM basis, its sales are $380 million.

Along with these challenges, BMY reported the following positive developments:  It sees more opportunities for growth in U.S. sales of Eliquis, its top-selling drug with $11 billion in annual sales, despite ongoing challenges to its patents outside the U.S.  (It has so far successfully defended all patent challenges in Europe, except for the U.K.).  Opdivo continues to win new indications across a spectrum of cancers.  A subcutaneous formulation, which met its co-primary endpoints in a renal cell carcinoma clinical trial, could extend patent protection into the 2030s.  Opdualag, a combination of Opdivo and relatlimab, indicated for unresectable or metastatic melanoma, posted a 97.6% increase in revenues YOY in 23Q3.  Opdualag may become the new standard of care in first-line melanoma.  Demand for Reblozyl, a first-in-class treatment for anemia in beta thalassemia and myelodysplastic syndromes (MDS), should rise after FDA approval as a first-line treatment of anemia in lower-risk MDS.  Sales of Breyanzi, BMY’s other CAR-T therapy, a second-line treatment for large B-cell lymphoma, more than doubled YOY, but were down 8% sequentially.  BMY expects that Breyanzi’s sales will strengthen going forward as its manufacturing performance and supply continue to improve.  It is also pursuing new indications for Breyanzi in other B-cell malignancies.

BMY has received FDA approval for Augtyro (repotrectinib), a next-generation Tyrosine-Kinase Inhibitor (TKI) for locally advanced or metastatic ROS1-positive non-small cell lung cancer (NSCLC), acquired last year in the $4.1 billion acquisition of Turning Point Therapeutics.  I roughly estimate that Augtyro has $500 million of sales potential over time, without considering future potential category growth.

In October, Bristol-Myers entered into a definitive merger agreement to acquire Mirai Therapeutics (MRTX) for $58 per share in cash or $4.8 billion (without deducting $300 million of projected cash at acquisition).  Mirati shareholders will also receive a non-tradeable 7-year Contingent Value Right, that could be worth $1.0 billion.  Through the acquisition, BMY will add Krazati, a best-in-class KRAS G12C inhibitor, approved by the FDA for advanced NSCLC with the KRAS G12C mutation.  The acquisition also includes other development assets, including MRTX1719, a potential first-in-class PRMT5/MTA inhibitor, currently in Phase 1 development with potential indications in MSCLC, bile duct cancer and melanoma.  I estimate that Krazati will add more than $100 million in annual sales initially.  BMY estimates that the acquisition will dilute EPS by $0.35 in the first year after acquisition.  The acquisition is expected to close by the first half of 2024.

While the extension from 2025 to 2026 of the $10 billion revenue target for the new product portfolio does call into question the company’s ambitious long-term targets, management is addressing each challenge directly and remains optimistic about their prospects.  Besides managing the loss of exclusivity of Revlimid, Bristol-Myers faces 2026 patent expirations for Eliquis, its best-selling drug which currently accounts for $12 billion or about 27% of its total $45 billion in annual sales.  If the company achieves its $10 billion revenue target, the incremental $6.5 billion (from the portfolio’s expected 2023 revenues of $3.5 billion), will still fall short of replacing all of Eliquis’s sales.  Sales of Eliquis won’t necessarily fall of a cliff immediately and the new product portfolio should still be growing in 2027 and beyond, but without further help from its product pipeline or new revenues from acquisitions, BMY will likely face revenue headwinds over the next few years.

This, of course, is a key factor in recent performance of BMY’s stock.  YTD, BMY’s stock has a total return of ‑29.6% vs. the S&P 500’s +20.2% and the NYSE ARCA Pharmaceutical Index’s (DRG’s) +1.3% price return.  Since my previous report dated August 12, BMY is down 19.4% vs. the S&P 500’s 2.3% gain and the DRG’s 3.0% loss.  With the recent declines, BMY is trading at less than 7.0 times projected earnings, compared with a peer group average (excluding LLY) of 12.5.  With such a steep discount, many investors worry that the stock is a value trap, even though management has reaffirmed its long-term guidance.

My 2023 EPS forecast now anticipates GAAP EPS of $3.78 (vs. $3.86 previously) and non-GAAP EPS of $7.63 (vs. $7.50).  For 2024, I now project GAAP EPS of $3.26 (vs. $4.09) and non-GAAP EPS of $7.41 (vs. $8.00).  Based upon the revised outlook, I have reduced my 12-month price target again from $70 to $56.  The new target equals 16.5 times projected 2024 GAAP EPS of $3.26 (and 7.3 times projected non-GAAP EPS of $7.41).  With the stock now at $48.90, the new target offers a potential total return of 15%, including its 4.7% dividend yield.  Accordingly, I am reducing my performance rating from “1” (Buy) to “2” (Outperform).

BMY’s stock has been in a well-defined downtrend since November.  The stock looked like it was trying to bottom in recent weeks, but yesterday’s sell-off took it to a new 52-week low.  Once the stock finds a bottom, it may experience a slow recovery as it addresses the key challenges that it faces in securing sufficient market share for its new products.  Its solid balance sheet and free cash flow should give it time and the financial flexibility to focus on commercial execution and continue to pursue new avenues for growth through internal research and development, acquisitions and collaborations, as necessary.

This is a summary of my recent update report on Bristol-Myers Squibb Co. (BMY). To obtain a copy of the full report, please reach out to me using the contact information provided below.

November 21, 2023 (Report originally published on November 21, 2023.)

Stephen P. Percoco
Lark Research
839 Dewitt Street
Linden, New Jersey 07036
(908) 975-0250

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