BMO Sees Balanced Risk-Reward In Bristol-Myers, Takes Neutral Position

Bristol-Myers Squibb Co BMY is down 24 percent from its year-to-date peak, and one Street expert said the price is just right.

The Rating

BMO Capital Markets analyst Alex Arfaei upgraded Bristol-Myers from Underperform to Market Perform and maintained a $47 price target.

The Thesis

Arfaei considers the pharma's valuation reflective of concerns over low acquisition odds, uncertain Opdivo-Yervoy prospects and Merck & Co., Inc. MRK competition. (See the analyst's track record here.) 

At the same time, he maintains positive expectations for the Opdivo-chemo combination, which could deliver first-line non-small-cell-lung-cancer, or NSCLC, data comparable to that of Merck’s Keytruda-chemo study and help Bristol-Myers seize 15 percent of the indication market.

“We fully appreciate the execution risk (i.e., CM-026 vs. KN-042) counter-argument to this, but we continue to believe that Opdivo and Keytruda are more similar than different, and that the observed differences are likely due to trial design,” Arfaei said in a note. 

He also predicts CM-9LA will demonstrate competitive results if it proves tolerable.

Bristol-Myers is seen to endure “significant” headwinds in better-than-expected results from Merck’s KEYNOTE-042 trial, and Arfei is watching immuno-oncology data and the erosion rate of Opdivo sales for second-line NSCLC — which represent 40-45 percent of company sales — to support a bearish reversion.

Price Action

Bristol-Myers shares were up 0.81 percent at $52.46 at the time of publication Friday. 

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