Bristol-Myers Squibb Co (BMY) Suffers Heavy Dose of Disappointment

Add the name Bristol-Myers Squibb Co (NYSE:BMY) to the list of volatile pharmaceutical stocks that have spooked investors into dumping their shares. BMY stock is getting shellacked Monday, down more than 9% after the drug giant disclosed that a clinical trial of its cancer drug Opdivo performed worse than investors had expected.

Bristol Myers Squibb BMY stock

If the disappointing results weren’t bad enough for BMY stock, the competing drug from Merck & Co., Inc. (NYSE:MRK), Keytruda, demonstrated superiority in overall survival among patients tested.

It goes without saying, the lifespan of drug companies depends on the strength of their product pipelines, especially those that are on patent. And to create strong product pipelines, drug companies rely on clinical trials which determine whether the Food and Drug Administration will green-light the product as being ready for market.

Based on Bristol-Myers’ results, which showed that patients did no better on Opdivo than those on chemotherapy, and survived only 4.2 months before their disease worsened, the company will now have to go back to the drawing board. Accordingly, the gains BMY stock enjoyed in anticipation of the successful trial are being erased.

Monday’s disappointing news follows a failed trial of Opdivo back in August, which at the time wiped out more than $20 billion in Bristol-Myer’s market value as BMY stock plunged from around $75 to $63 (16% decline) in one day.

BMY stock has never recovered from that, falling some 13% to Friday’s close. Monday’s beating, which puts Bristol-Myers stock below $50, translates to a total decline of 35% in about two months.

There’s speculation that Opdivo’s failure could be related to the fact that it was tested in patients for whom it was unsuitable. According to Reuters, some analysts had expected the drug to at least work for lung cancer patients who had high levels of the protein PD-L1. However, Bloomberg on Monday noted that there was no evidence of that in the latest results.

In that regard, following the company’s disappointment in August and the fact that Opdivo still fell short of already-low expectations in the latest study, it’s worth asking: Can Bristol-Myers ever get this product beyond its labs? And with the fact that Merck appears ahead of the race of helping lung-cancer patients who’ve just been diagnosed, Bristol-Myers and its pipeline is poised to underperform in the quarters and years ahead.

The Bottom Line for BMY Stock

Although BMY stock is now down 27% year to date, including over 33% in three months, I wouldn’t take a chance here. As we’ve seen after the August decline, things can still get worse.

Plus, from a valuation perspective, estimates will now have to come down before BMY stock is worth the risk. Bristol-Myers is projected to earn $3 per share in fiscal 2017, which puts its price-to-earnings ratio at 17 — in line with the S&P 500 Index. At best, BMY stock — at around $49 — is now fairly valued.

But given its failure rate, “cheap” is the only reason to buy. And the stock is still not there yet.

At the time of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.

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