Relaunch Into Neuroscience With Cobenfy Will Diversify Future Drug Portfolio

Key Takeaways

• Relaunch into neuroscience with Cobenfy shows potential for revenue through expansion into Alzheimer's and bipolar disorder.
  
• Operational and financial strategies focus on cost savings and accelerated R&D to strengthen margins and boost profitability.
  
• Increased generic competition and market dynamics could challenge Bristol-Myers Squibb's revenue growth, despite restructuring efforts and reliance on new product launches.

Catalysts

Bristol-Myers Squibb Company discovers, develops, licenses, manufactures, markets, distributes, and sells biopharmaceutical products worldwide.

• The recent relaunch into neuroscience with the approval and launch of Cobenfy for schizophrenia holds promise for additional revenue, expanding further into multiple indications such as Alzheimer's disease and bipolar disorder, which may significantly impact future revenue growth.
  
• Operational excellence and financial discipline are being prioritized, with significant reallocation of spend towards high potential growth opportunities, achieving most of a targeted $1.5 billion in savings, which supports improved net margins.
  
• The acceleration of late-stage R&D programs, such as Camzyos, Cobenfy, and iberdomide, suggests optimism for near-term clinical data readouts in multiple high-value indications, potentially boosting earnings through new drug approvals and expanded market reach.
  
• Streamlining operations through an additional $2 billion in savings by 2027 can further strengthen net margins and improve the company's overall profitability, thereby enhancing earnings.
  
• The significant ramp-up in phase III study initiations and anticipation of multiple data catalysts over the next 24 months could serve as pivotal growth drivers, potentially expanding the company's revenue base and supporting sustainable top-line growth.

Bristol-Myers Squibb Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bristol-Myers Squibb's revenue will decrease by 3.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from -18.5% today to 22.5% in 3 years time.
• Analysts expect earnings to reach $9.6 billion (and earnings per share of $4.87) by about March 2028, up from $-8.9 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $12.4 billion in earnings, and the most bearish expecting $6.3 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.5x on those 2028 earnings, up from -13.6x today. This future PE is lower than the current PE for the US Pharmaceuticals industry at 16.3x.
• Analysts expect the number of shares outstanding to grow by 0.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Bristol-Myers Squibb Future Earnings Per Share Growth

Risks

• Increased generic competition for Bristol-Myers Squibb's legacy products like Revlimid and Pomalyst could lead to significant revenue declines, impacting overall financial performance.
  
• The restructuring program, while aimed at achieving cost savings, poses execution risks and may impact operating efficiency if not effectively managed, affecting net margins.
  
• The dependency of growth projections on new product launches and pipeline success carries risks of delays or failures, which could impact anticipated revenue growth and earnings.
  
• Market dynamics, such as the expected transient gross-to-net pressures from Medicare Part D redesign, could affect profitability and financial stability in the short term.
  
• Potential regulatory challenges or setbacks, including in ongoing clinical trials, could hinder the expected rollout of new products, thus impacting future earnings potential and long-term revenue growth.

Valuation

• The analysts have a consensus price target of $61.244 for Bristol-Myers Squibb based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $70.0, and the most bearish reporting a price target of just $37.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $42.9 billion, earnings will come to $9.6 billion, and it would be trading on a PE ratio of 15.5x, assuming you use a discount rate of 6.2%.
• Given the current share price of $59.9, the analyst price target of $61.24 is 2.2% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.