Expert Financial Analysis and Reporting

Investment Overview

I have previously written about Bristol-Myers Squibb (BMY) as having possibly the best pipeline among the major pharmaceutical firms. Despite the new product outlook, I estimate that the loss of sales from products coming off patent will cause overall sales to decrease from $20.4 billion in 2011 to $16.6 billion in 2013. The corresponding EPS estimates are $2.29 in 2011 and $2.23 in 2013. I expect that the nadir of sales and EPS will occur in 2013 when most of the effect of patent expirations will be behind the company. Thereafter, investors will be focused on accelerating sales and EPS due to the host of new products, the foremost of which are Yervoy (ipilimumab) and apixiban.

The BMY spreadsheet in the Excel documents sub-section of the Members section of my website shows my detailed product estimates and sales and income projections.

My investment thinking is that when the market gains confidence that the bottom can be confidently predicted for sales levels and earnings are likely to begin accelerating, BMY stock may start to move aggressively. I think this will happen in about a year, possibly less. I have no problem with patient investors buying the stock here for the dividend yield of 4.63%. More aggressive investors may want to wait.

The new cancer drug Yervoy is extremely promising and I believe that it has potential far beyond my current estimate of $1 billion of sales in 2015. This current estimate is based only on usage in stage III/ IV metastatic melanoma. However, it seems likely that Yervoy will find use in earlier stages of melanoma and potentially in such major cancers as prostate and non-small cell and small cell lung cancer. If clinical trials validate this, Yervoy sales can be many multiples of my current $1 billion projection and would be a major driver of sales.

Yervoy (ipilimumab) at ASCO

I am extremely excited about the new immunotherapy cancer agent, Yervoy, which I have written about in past reports. The recent ASCO meeting confirmed my optimistic viewpoint on sales potential in metastatic melanoma. I have tweaked my 2015 sales estimate from $957 million to $1,008 million based on usage only in stage III/IV metastatic melanoma. The clinical trial results in metastatic melanoma are stunning, so much so that I think that Bristol-Myers can make the case that the price tag $120,000 price for four cycles, the standard annual treatment regimen, is justified.

I have been concerned about side effects with Yervoy in its phase III clinical trials that caused deaths and serious adverse reactions. However, ASCO meeting researchers believe that this risk is acceptable given the dramatic therapeutic effects. They also report that with growing experience they are able to anticipate and treat these side effects and reduce their severity.

There is extensive work going on that could lead to the use of Yervoy earlier on in the course of the melanoma and there are intriguing trials going on in other cancers such as prostate and non-small cell and small cell lung cancer. Remember that the mode of action is to stimulate the immune system and this could lead to effectiveness against many types of cancer. Yervoy is not like many of the targeted therapies that affect one or a few specific mechanisms involved in cancer cell growth which makes targeted therapies more specific in the cancers they can target.

The most intriguing idea at ASCO is that Yervoy not only causes the immune system to attack existing melanoma cells, but also trains it to recognize the cancer and to guard against metastases and recurrences. This results in a continuing therapeutic effect/protection and some oncologists suggest that Yervoy is actually curing some 20% of metastatic melanoma patients. With current therapy, most of these patients die within one to two years of diagnosis.

My published estimates for Yervoy are based on penetration into the first and second line setting for stage III/IV metastatic melanoma. However, the potential for moving into earlier non-metastatic stages of melanoma and into other tumor types suggests that the longer term potential of Yervoy is much greater than I have estimated. It may be the case that Yervoy alone can drive the results of BMY to and past 2020. I am now thinking that Yervoy can be a several billion dollar drug by 2020. This is in addition to a very exciting pipeline of other drugs.

Yervoy was a star at the ASCO but did share the stage with Roche’s vemurafenib, another exciting drug for metastatic melanoma. Data suggests that Yervoy will probably be used in all metastatic melanoma patients while vemurafenib will be used in the roughly 50% of patients who have the BRAF V600E mutation against which it is specifically effective. In the case of patients with this mutation, the question is which drug will be used first or whether they will be used in combination. The success of one drug will not detract from the potential of the other.

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