It's not exactly fun to be one of Bristol Myers Squibb's (NYSE: BMY) shareholders right now. The company's stock dropped by 31% in the past year, some of its former key products are losing market share, and the drugmaker is struggling to grow its revenue. On the bright side, if Bristol Myers can mount a comeback, now might be a good time to invest in the stock.
Let's see whether the biotech giant has what it takes to turn things around.
Looking elsewhere for growth
In the third quarter, revenue decreased by 2% year over year to about $11 billion while adjusted earnings increased by just 1% to $2 per share. That's more or less where the biotech has been in terms of revenue growth since mid-2022 or so.
BMY Revenue (Quarterly YoY Growth) data by YCharts.
However, things aren't quite as bad as they seem. Cancer drug Revlimid was Bristol Myers' best-selling product until it lost patent protection in 2022. In the third quarter, Revlimid's sales dropped by 41% to $1.4 billion, so in a sense, it's rather impressive that the company's total top line only declined by 2%. That's in small part because of its portfolio of newer products, approved since 2019.
These medicines should rise in prominence for the biotech and represent an increasingly large portion of its total sales. Let's mention just two of these drugs. Reblozyl, a medicine for anemia in patients with beta-thalassemia, first earned the green light in the U.S. in November 2019. In the third quarter, Reblozyl's sales increased by 31% year over year to $248 million.
Then there's Opdualag, a cancer drug that earned approval in 2022. Opdualag's sales jumped by 98% year over year to $166 million. Bristol Myers' new product portfolio reported total sales of $928 million, 68% higher than the year-ago period. Some of the company's older products, such as cancer drug Opdivo, are making meaningful contributions too.
Meanwhile, the effect of Revlimid on Bristol Myers' financial results will fade, which should allow the company to get back to growth, especially as it earns approval for still newer medicines. It's running several dozen clinical trials, many of which are for drugs seeking label expansions, but some are brand-new. Given the biotech's track record and pipeline, we can expect it to continue rejuvenating its portfolio.
BMS has also turned to acquisitions to improve its prospects. In December, the company announced it would buy out RayzeBio for $4.1 billion in cash; the transaction is expected to close in the first quarter. RayzeBio is a clinical-stage biotech company focusing on developing innovative oncology products. Since Bristol Myers is already a leader in cancer care, this is right up its alley.
Whether or not this transaction leads to significant breakthroughs, the drugmaker can expand its lineup and pipeline through acquisitions and other means.
More reasons to invest
Thanks to their catastrophic performance in the past year, the company's shares now look dirt cheap. The biotech's forward price-to-earnings (P/E) ratio currently tops 6.9. For context, the average forward P/E for the biotech industry is more than twice that, at 17. Even though Bristol Myers faces issues, this still seems a bit too harsh for a drugmaker with its track record, status, and improving prospects.
Then there's the solid dividend. The company has increased its payouts by 46% in the past five years. It currently offers a yield of 4.8% -- more than three times the average for the S&P 500 -- while its cash payout ratio of 40% leaves plenty of wiggle room for further dividend increases. That makes it an excellent pick for dividend-growth investors.
Considering its reasonable valuation, those on the market for cheap blue chip stocks should also strongly consider Bristol Myers Squibb. The drugmaker might not bounce back immediately. It's still dealing with its issues, and revenue from other sources will take time to ramp up and fully replace Revlimid's. However, patient investors should be rewarded down the line.
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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bristol Myers Squibb. The Motley Fool has a disclosure policy.
