Bullish BMS downplays Opdivo decline as Celgene acquisition pays off

Bristol-Myers Squibb
Strong sales of Celgene's blood cancer drugs, most notably Revlimid, helped drive Bristol-Myers Squibb's fourth-quarter sales up 33%. (Bristol-Myers Squibb)

Sales of Bristol Myers-Squibb’s immuno-oncology mainstay Opdivo fell 2% to $1.76 billion in the fourth quarter—a decline that at any other time in the product’s history might have been a major concern of investors. But this was not your average quarter for BMS, thanks to the $74 billion acquisition of Celgene that closed in November.

Investors pushed shares of BMS up nearly 3% in premarket trading to $67.55, after the company announced fourth-quarter sales and earnings that soared way past expectations, plus a bullish outlook for 2020—and, unexpectedly, 2021—that’s being driven largely by the products it picked up from Celgene.

“We have a number of really exciting launch opportunities,” said CEO Giovanni Caforio, M.D., during a conference call after the report. He became even more ebullient as the call progressed, declaring, “I feel better today about where we are than I felt a year ago when we first announced the deal.”

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BMS reported fourth-quarter revenues of $7.9 billion, up 33% from the same period a year ago, which it attributed mostly to the Celgene acquisition. That handily beat the consensus analyst estimate of $7.1 billion. Adjusted earnings per share came in at $1.22, up from 94 cents in the year-ago quarter and way above the consensus estimate of 88 cents.

Some of the gain came from legacy BMS products, most notably blood thinner Eliquis, which grew 19% during the fourth quarter to $2 billion. But the company’s list of top performers also included Celgene’s blood cancer drugs Revlimid, which saw sales rise 10% to $2.8 billion, and Pomalyst, up 23% to $700,000.

RELATED: Celgene taps Bristol-Myers sales force to bolster key blood cancer launches

Despite the sunny report, analysts expressed concerns about Opdivo. Their worries centered around the growth prospects for the product, given recent trial stumbles and intensifying competitive headwinds.

The earnings report came on the heels of a major Opdivo disappointment: BMS pulled its European application for approval of a combination of the drug with Yervoy in untreated non-small cell lung cancer patients. The European Medicines Agency's Committee for Medicinal Products for Human Use said it could not evaluate data from a phase 3 trial due to multiple changes made to the design of the study.

“While we’re disappointed by the position taken by the CHMP, we continue to view the combination of Opdivo and Yervoy as a differentiated regimen, with the potential for long-term survival, and one that should be available to patients globally,” Caforio said. He added that there’s still potential for the combo to be approved in the U.S.

BMS’ executives confirmed during the call that Opdivo’s decline in the fourth quarter was entirely driven by the U.S. market, which dropped around 10%. Demand fell as the product fought for market share with Merck’s Keytruda in second-line lung cancer, on top of which there was an inventory work-down by VA hospitals. They said they don’t expect those dynamics to persist all year and they remain confident about Opdivo’s prospects going forward.

Nevertheless, Opdivo faces mounting competition from Merck’s Keytruda, which continues to collect FDA approvals in new indications. In January, Keytruda became the first PD-1/L1 inhibitor to be approved to treat patients with high-risk non-muscle invasive bladder cancer that doesn’t respond to the standard treatment. It was the product’s third approval in bladder cancer.

RELATED: Bristol's shot at eroding Keytruda's lung cancer lead looks dimmer as Opdivo-Yervoy use pulled in EU

Despite Celgene’s positive contribution to the quarter, analysts expressed some concerns there, too. One major issue is Revlimid’s looming patent losses. The company dodged some key patent challenges in the U.S. last year, delaying generic competition until 2023, but copycats are already rolling out in Europe, prompting questions about whether sales of the drug could erode faster than expected.

Caforio isn’t worried. “The in-line performance of the brand remains strong,” he said. “Overall we continue to see the loss of exclusivity on Revlimind as a slope that is driven by all the same assumptions we’ve discussed in the past. There have been good developments, so nothing has really changed there.”

Caforio and colleagues are optimistic about BMS' growth over the next two years. The company said it expects adjusted EPS between $6 and $6.20 for 2020 and $7.15 and $7.45 for 2021. Analysts had estimated $6.12 on average this year and $7.41 in 2021. The company didn’t elaborate on how specific products are expected to contribute to that growth, saying only that they anticipate Opdivo will regain momentum in 2021. Perhaps, but BMS’ ability to fall back on Celgene’s fast-growing cancer products will likely remain an important cushion should the product fall short of those high expectations.

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