Bristol-Myers Stock May Have Exhausted Its Upside For Now

Jefferies said in a note Monday that upside asymmetry for Bristol-Myers Squibb Co BMY is exhausted at current levels, with shares having already discounted M&A spec and biopharma flows. This, according to the firm, leaves significant downside risk if current study CM-227 fails.

CM-227 is a randomized, open-label late-stage study of Bristol-Myers Squibb's nivolumab, nivolumab plus ipilimumab or nivolumab plus chemotherapy against chemotherapy in chemotherapy-naïve patients with advanced non-small cell lung cancer.

Further, the firm said other consolidation targets such as AbbVie Inc ABBV may have become attractive, potentially threatening the downside protection.

As such, Jefferies downgraded shares of the company from Buy to Hold and nudged down its price target from $72 to $71.

Model Updated

Analysts Jeffrey Holford and David Gu lowered their estimates for Eliquis and Opdivo in head and neck cancer, partially offset by higher near-term Opdivo estimates in other marketed indicated. Consequently, the analysts lowered their revenue estimates by 1-3 percent and earnings per share estimates by 1-5 percent during 2017-2020.

Though the analysts said they were generally in line with consensus estimates for 2017-2020, they said earnings per share estimates for 2021 were 9 percent above the consensus due to higher Eliquis and Yervoy estimates.

Increased Visibility Sought

Jefferies said it needs to have either better visibility on the potential of Opdivo/Yervoy in NSCLC, or new drivers for the pipeline to raise its valuation.

The firm listed the following as key catalysts:

• CM-227 expressor data in 1L NSCLC due in the fourth quarter of 2017 or the first half of 2018.
• CM-451 and CM-331 PIII data in SCLC.
• CM-459 PIII data in 1L HCC.
• R&D updates on the non-PD-1 IO portfolio and non-IO assets such as BMS-986036, BMS-986165, BMS-986142, CXL-1427.

Upside/Downside Scenario

If CM-227 reads out positively, the firm sees significant potential for the shares to trade up to $82, although it accorded only 50 percent probability for this. However, if the CM-227 and the NSCLS program fail, with Eliquis only meeting consensus estimates, the firm sees the shares immediately trade down to $48.

"Investors should consider that the impact of the downside scenario to the shares would likely be immediate, whereas detailed data from CM-227 may be required at a future medical conference to fully crystallize the upside valuation," the firm concluded.