Near-Term Events Cast Shadow Of Uncertainty On Bristol-Myers

BMO Capital Markets earlier this week downgraded shares of Bristol-Myers Squibb Co BMY, citing strong near-term headwinds and the lower odds of a takeout.

Near-Term Headwinds

Analyst Alex Arfaei listed a few near-term evens he believes will likely further increase uncertainty about Bristol's IO franchise, lowering its shares by at least 2 percent:

• Probable approval of Merck & Co., Inc. MRK's Keytruda + chemo by May 10.
• ASCO abstracts on May 17 should reveal promising data for Keytruda + Incyte Corporation INCY's IDO and lower expectations for BMY's Opdivo + Yervoy.
• Muted Expectations concerning significant new data from Bristol at ASCO, and the conference itself likely strengthening the firm's argument that the IO market will become increasingly fragmented.
• Increased competitive pressure expected from Roche Holding Ltd. (ADR) RHHBY's Tecentriq in 2L + NSCLC in the second half of 2017.
• In the second half of 2017, payers are likely to use the CM-067 results to limit the use of Opdivo + Yervoy in melanoma.
• Doubts over AstraZeneca plc (ADR) AZN's MYSTIC PFS results, expected mid-year, being better than Keytruda + chemo in KN-021G.
• Another underappreciated risk may be the unexpected decline of Bristol's $1 billion+ Baraclude franchise, which lacks exclusivity.

Low Probability Of Being Bought Out

BMO Capital Markets said it believes the probability of Bristol-Myers being bought out is low given the uncertainty about its IO franchise and macro considerations such as the U.S. tax reform. The firm also noted Pfizer Inc. PFE's management echoed its concerns regarding such a deal.

"Overall, we argue that even if we see positive resolution of the macro factors (e.g., U.S. tax reform), given Bristol's over-dependence on its IO franchise (we estimate ~50 percent of revenue by 2021 and ~70 percent of profits), and our expectations for increased uncertainty about its potential, a take-out seems unlikely because it is simply too risky," the firm concluded.

As such, BMO Capital Markets downgraded Bristol-Myers to Underperform from Market Perform, while it maintained its price target at $47.

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