Pharma Giant's Shares Up After Impressive Q2 Earnings Release

Key Points

• Bristol Myers Squibb shares were up big on the day of its earnings release.
• The company beat adjusted EPS estimates and saw strong growth from many drugs.
• The firm needs new drugs to drive revenue in future years, as its main drugs will soon lose patent protection.

Bristol-Myers Squibb NYSE: BMY is in the healthcare sector and is the 10th largest pharmaceutical firm in the world by market capitalization. The company released Q2 2024 financial results on July 26, 2024. Let's begin by reviewing the firm's annual filing to understand its operations. Then, we'll review the quarterly financial results. To wrap up, we'll explore the stock's outlook and discuss Wall Street's price targets.

Bristol-Myers Squibb: Biopharmaceuticals Leader

The company operates as one reportable segment, engaged in the entire value chain of biopharmaceutical products from discovery and research to global distribution. Living organisms produce biopharmaceuticals, whereas traditional drugs are synthesized from chemical compounds. Examples are monoclonal antibodies, vaccines, insulin, gene therapies, and stem cells.

The company received 70% of its revenue from the United States and 28% internationally.

The company’s highest revenue-producing drugs in 2023 were Eliquis and Opdivo. Eliquis is a blood thinner used to prevent clotting and strokes in people with atrial fibrillation (AFib), and Opdivo treats various types of cancer. They accounted for 27% and 20% of total revenue, respectively.

The company also received 14% of its revenue from Revlimid. However, its sales fell 39% from 2022 because the drug lost its patent protection, and generics entered the market.

BMY Shares Up Big After Earnings

Bristol-Myers Squibb impressed markets with its earnings release; shares were up by 11.5% on the day of the release. Adjusted earnings-per-share (EPS) came in at $2.07, resulting in a 27% earnings surprise. The company beat revenue estimates by $680 million, reaching $12.20 billion.

Adjusted EPS is up 18%, and revenue is up 9% from a year ago. The company also increased gross margin by 60 basis points. Furthermore, it massively increased its full-year adjusted EPS guidance. The guidance midpoint now sits at $0.75 per share, up from $0.55 per share in April.

Significant pressure is on Bristol-Myers' new drugs to perform well, and its biggest money-making drugs will lose their patent protection over the coming years. This will cause large revenue declines for the drugs as generics become available.

This will occur in 2026 for Eliquis and in 2028 for Opdivo. Eliquis’s revenue drop might be particularly fast as Medicare is negotiating a lower price through the Inflation Reduction Act, which will go into effect in 2026.

The financial results show that the new drugs are holding up their end of the bargain right now. Opdualag, Camzyos, and Sotyktu are three drugs that could grow their revenues up to $4 billion a year by 2030. Opdualag increased revenues by 53%, and Camzyos posted sales of $139 million. Sotyktu grew revenue in the United States by 71%. Additionally, Reblozyl increased revenue by 82%, Breyanzi by 55%, and Zeposia by 53%.

Keep an Eye on KarXT, a Potential Blockbuster

Investors should watch for developments around KarXT, the company’s schizophrenia medication. Analysts project the size of the schizophrenia market could reach over $7 billion by 2028. Bristol-Myers needs the drug to pay off, as it acquired the firm Karuna at the end of last year for $14 billion to add the drug to its portfolio.

The drug is currently undergoing Phase 3 FDA trials, and a decision on its approval is expected in late September. Results have shown that KarXT effectively improves schizophrenia symptoms and is not associated with any serious side effects. If approved, the drug would be “the first truly new treatment for schizophrenia in decades." This would provide Bristol-Myers with a large market on which to capitalize.

Investors should also watch sales of AbbVie’s drug VRAYLAR, an already-approved schizophrenia treatment. Its revenue grew at a compound annual rate of 70% in 2022 and 2023. However, KarXT does not have many of the negative side effects, including movement disorders and weight gain, associated with VRAYLAR.

If VRAYLAR can grow this quickly, there’s no telling how fast KarXT, a seemingly superior medication, could grow. Researchers are also testing KarXT for potential use in Alzheimer's disease patients, a market that could exceed $13 billion by 2030.

The average Wall Street analyst price target sees the stock as fairly valued right now. Yet, Bristol-Myers Squibb has a bottom-barrel forward price-to-earnings ratio of 7.1. This, combined with its fast-growing drugs and a potential blockbuster in KarXT, gives credence to the argument that the shares have a significant upside.