A Closer Look At Bristol-Myers Squibb’s Oncology Business


Cancer drugs (oncology business) account for nearly 60% of Bristol-Myers Squibb’s valuation, according to our estimates. Empirically and fundamentally speaking, the stock’s performance is highly tied to clinical trial results and the uptake of the company’s new cancer drugs, especially Opdivo and Empliciti. Overall, we expect Bristol-Myers Squibb’s oncology revenue to jump from nearly $6.8 billion in 2016 to more than $12 billion by the end of our forecast period, implying annual average growth of nearly 8.7%. As the charts below suggest, most of this growth in revenue will be driven by expansion of Opdivo and Empliciti, with minor contribution from the current oncology pipeline. The growth is likely to be steep in the next couple of years, but will moderate around 2020 as Sprycel and Yervoy lose patent protection. It should be noted that the revenue from the pipeline is adjusted to reflect around a 50% probability of phase 3 drugs reaching market launch. In a nutshell, Bristol-Myers Squibb’s fortunes are strongly linked to its cancer franchise, which has a bright future, though that is likely priced into the current market value.


Our price estimate of $52 for the company’s stock is slightly below the market price.

BMY _ ONCO _ GRID

Opdivo is going to be, by far, the biggest drug for the company’s oncology segment. The images below emphasize Opdivo’s size in comparison to other drugs. By 2020, we estimate that Opdivo will bring in over $5 billion in annual revenue, followed by Empliciti at around $2 billion. Even in 2016, Opdivo outperformed Bristol-Myers Squibb’s remaining cancer drug portfolio.


BMY ONCO Comparison

In Q1 2017, Opdivo grew nearly 60%. However, there are competitive challenges on the horizon and there is going to be some degree of uncertainty in the lung cancer treatment landscape. Opdivo has made some strides by expanding in renal cancer, melanoma, head and neck cancer, as well as bladder cancer. But the competition is increasing, as lung cancer is a key target for big pharma players because of the strong market potential. Roche launched Tecentriq last year for bladder cancer, but its data around lung cancer seems promising and soon it may compete directly with Opdivo. More such drugs could potentially come to the market, and this risk cannot be ignored. In fact, Opdivo lost some share in the lung cancer market in the first quarter of 2017.


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