Bristol-Myers Squibb (BMY) 24Q1 Update

Bristol-Myers Squibb (BMY) reported 24Q1 revenues of $11.9 billion, up 5% from 23Q1.  Its GAAP loss per share was $5.89 and non-GAAP loss $4.40, reversing last years earnings  of $1.07 GAAP and $2.05 non-GAAP.  24Q1’s revenues were $330 million or 3.6% above the consensus estimate and non-GAAP loss was two cents better than the consensus estimate.

24Q1’s large loss was due entirely to a $12.9 billion or $6.30 per share charge associated with in-process R&D costs substantially from the March 18 acquisition of Karuna Therapeutics, a biotech firm whose lead asset, KarXT (xanomeline-trospium), is a potential first-in-class antipsychotic (M1/M4 agonist) for the treatment of schizophrenia.  KarXT is currently under review for approval by the FDA with a PDUFA date of Sept. 26, 2024.  It has shown greater efficacy along with greater safety (i.e. fewer adverse events) than the current standard of care.

According to a 2022 SEC directive to pharmaceutical companies,  the $6.73 write-off cannot be treated as an exceptional item in the calculation of non-GAAP EPS.  Thus, Bristol-Myers lowered its 2024 non-GAAP EPS guidance range from $7.10-$7.40 to $0.40-$0.70.  Besides the IPRD charge, the reduction also includes $0.43 for the dilutive impact of the Karuna and RayzeBio acquisitions.  Otherwise, the company’s outlook is consistent with its original expectations for 2024.

During the quarter, BMS also completed the acquisitions of RayzeBio, a clinical-stage company, whose lead asset is in Phase III development for the treatment of gastroenteropancreatatic neuroendocrine tumors, and Mirati Therapeutics, whose lead asset, Krazati, has been approved by the FDA as a second-line treatment for non-small cell lung cancer.  In December 2023, BMS entered into a global strategic collaboration agreement with Systimmune to co-develop and co-commercialize BL-BO1D1, a potentially first-in-class bispecific EGFRxHER3 antibody drug conjugate that is currently in a Phase 1 study for the treatment of metastatic unresectable non-small cell lung cancer.

Besides these development transactions, BMS has received regulatory approvals for Breyanzi as a third line plus treatment for chronic lymphocytic leukemia and small lymphocytic leukemia, Abecma for third-line plus multiple myeloma and Reblozyl for first-line myelodysplastic syndrome.  It also achieved several clinical development milestones during the quarter.

Despite this progress, BMS’s stock continues to be weighed down by uncertainty regarding the price negotiations with Medicare on Eliquis, the outcome of which will not be known until the fall, and the slow progress in growing revenues on several key new products.  On a total return basis, its stock is down 8.9% YTD compared with the S&P 500’s 10.1% advance.

The stock took another dive to a four year low following the release of 24Q1 earnings.  Clearly oversold, it has bounced back over the past few days, but on modest volume.  While there is no clear evidence that the recent decline has taken its course, the stock trades at a significant discount to its peer group, at roughly 6.5 times projected non-GAAP earnings, excluding the Karuna IPRD charge, vs. 13 or so times for peers.  As a result, I am maintaining my buy rating on the stock.

May 15, 2024

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

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