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Bristol-Myers: Value or value trap?

June 5, 2017

It doesn’t look like this year’s ASCO is shaping up well for Bristol-Myers Squibb (BMY). The stock price has fallen 4.6% in recent market action following a slew of drug trial updates at the annual meeting of cancer researchers.

The biggest pull on the shares? A lack of clarity of how Opdivo can fare as a first-line treatment for lunch cancer.

Geoff Meacham at Barclays rounded up his thoughts after attending an investor update.

… CSO Tom Lynch emphasized the three key points for the go forward R&D strategy previously articulated on the 1Q17 call (Our Thoughts Post the 1Q17 Call, 04/27/17): see how Opdivo, Yervoy, and other next-gen agents can potentially be applied to both native and acquired resistant populations by enhancing translational medicine, investing in cancer biology, and investing more in robust data analytics.  We think it’s clear that Bristol is doing some genuinely interesting science and taking worthwhile risks with next gen agents like LAG3, IDO, and GITR that could meaningfully pay off down the road.  However, we remain somewhat uncomfortable with the ambiguous stance on how the CheckMate-012 2-year data serves as a potential predictor for CheckMate-227, which remains foremost on investors’ minds.  Without question, there is more to Bristol’s investment case than just front-line lung, but the lack of clarity on how it will get to participate in this important market segment over the intermediate term outweighs the otherwise impressive discovery and translational efforts.

Bristol-Myers’s stock has been a bust for investors since August. That’s when the blockbuster immunotherapy cancer drug Opdivo failed in a study testing it on newly diagnosed lung cancer patients, a market that would have drastically expanded sales.

Both the WSJ and Barron’s see Bristol-Myers as a value stock. We weighed in on the shares back in February, arguing that the selloff was overdone given the prospects for Opdivo sales and the company’s pipeline.

In a recent “Head on the Street” column, writer Charley Grant opined that much can still go right for Bristol-Myers, citing lowered expectations and the more than 240 clinical trial now underway that use Opdivo in combination with other drugs.


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