Despite a big jump in trading sentiment over the last few days, overall, Bristol-Myers Squibb (NYSE:BMY) is recording a disappointing year in 2019. Since January’s opening salvo, the BMY stock price is down nearly 6%. It’s not hard to see why. A series of internal and external headwinds have dogged shares, although a positive break may be coming around the corner.
First, the bad news. Management started the year off with a bang, announcing their intention to buy biotech firm Celgene (NASDAQ:CELG) for $74 billion. However, the massive sum required to close this deal pushed activist shareholders to loudly oppose the takeover bid. And while Bristol-Myers Squibb stock did rise in value in the first two months of the year, it quickly tumbled come March.
Even with the good news that the Celgene was making progress, it eventually hit a major snag: Bristol-Myers would have to divest Celgene’s psoriasis drug Otezla to win favor from the Federal Trade Commission. The problem? Bristol-Myers already has a competing drug called Orencia. Naturally, the FTC fears that having two similar powerhouse drugs would create a monopoly. On that painful announcement, the BMY stock price collapsed.
This dynamic segues into one of the biggest external headwinds for Bristol-Myers Squibb stock and the broader healthcare industry. For years, skyrocketing drug prices inspired massive public discontent and protests. In response, President Donald Trump promised to do something about the situation, but it remains an open issue.
And with a contentious 2020 election approaching, both major political parties will take a long look at drug prices. Just from a profitability standpoint, politics certainly doesn’t favor BMY stock.
The Speculative Case for BMY Stock
Late last year, I forwarded my bearish arguments for blue-chip pharmaceuticals. Among them was Bristol-Myers Squibb stock. Although I acknowledged the company’s comparatively strong financials and robust drug pipeline, at the time, it suffered developmental setbacks. For instance, Bristol-Myers’ lung-cancer drug Opdivo failed efficacy tests.
Not only that, Opdivo remains a risk factor for the BMY stock price. In June, the pharmaceutical firm revealed that the drug missed survivability targets. Unsurprisingly, then, Opdivo sales have historically lagged Merck’s (NYSE:MRK) rival drug Keytruda.
That said, I think speculators willing to absorb some turbulence have a rational case for Bristol-Myers Squibb stock. For one thing, management produced a strong earnings and revenue beat for the second quarter of 2019. And one of the contributing factors for that positive surprise was Opdivo. Its sales increased 12% year-over-year to $1.82 billion.
Next, the Celgene deal isn’t entirely bad news for BMY stock. Admittedly, the $74 billion price tag is a hefty one. However, you got to pay to play in this highly competitive sector. Despite likely losing the Otezla benefit, BMY can still depend on two major cancer drugs, Revlimid and Pomalyst.
First, Revlimid represents Celgene’s knockout punch. Last year, it rang up $9.7 billion in sales. In a distant second place is Pomalyst, which contributed $2 billion to the top line. While a very popular drug for psoriasis therapy, Otezla generated $1.6 billion last year.
Of course, that’s a significant sum and Otezla has an impressive annual growth rate. But Celgene’s cancer drugs are what makes the deal compelling for Bristol-Myers Squibb stock.
Moreover, the volatility shares suffered made Bristol-Myers appear fundamentally undervalued, as our own James Brumley pointed out. It has risks, of course, but you’d be buying shares at an attractive multiple.
Technicals Provide Support for Bristol-Myers Squibb Stock
Lastly, speculators can take encouragement from the technical situation. Ever since the BMY stock price peaked in July 2016, shares have charted a series of lower highs.
But in terms of overall negativity, it appears that Bristol-Myers Squibb stock priced in most of the bad news. Last year, shares lost 13%. This year, BMY was staring at another double-digit loss until bullish sentiment saved the company’s blushes.
This is still going to be a tricky situation for BMY stock. Obviously, politics remain a pressure point. I’m also disappointed with the efficacy issues of Opdivo. However, Bristol-Myers should ultimately win the legal matter presently blocking the Celgene deal. And despite the cost, I think it’s a net positive for BMY.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
