The Big Reason Bristol-Myers Squibb Company Stock Exploded 15% Higher in February

By Sean Williams Markets Fool.com

What happened

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Shares of Bristol-Myers Squibb (NYSE: BMY), a U.S. drug giant that's primarily focused on oncology, cardiovascular, and immunoscience therapies, catapulted higher by 15% during February, according to data from S&P Global Market Intelligence. The jump in Bristol-Myers' stock can mostly be attributed to increasing chatter regarding the potential for a buyout.

So what

The real surge in Bristol-Myers' shares began on Valentine's Day,when rumors started that Roche, Novartis, and Pfizer were actively exploring the idea of taking over Bristol-Myers, and Gilead Scienceswas tinkering with the idea.

Image source: Getty Images.

Remember, Bristol-Myers Squibb's stock took a beating after blockbuster cancer immunotherapy drug Opdivo failed to even come close to reaching its primary endpoint in treatment-naive advanced non-small cell lung cancer (NSCLC) patients whose tumors had at least 5% PD-L1 expression (the CheckMate-026 trial). This failure, and the subsequent success of Merck'scompeting cancer immunotherapy Keytruda in a similar indication (greater than 50% PD-L1 expression), shaved billions off Opdivo's peak sales estimates.

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Evercore ISI analyst Mark Schoenebaum also suggested that Bristol-Myers' management wouldn't overtly resist a takeover attempt as long as it felt that it was getting every cent due for its lung cancer product portfolio and pipeline.

Investors also found out during February that billionaire activist investor Carl Icahn had taken a stake in the company, based on a report from The Wall Street Journal. Icahn has a tenured track record of eliciting positive change with the management teams of the companies he invests in, whether that includes a simple restructuring or a full-fledged attempt to get a company to sell itself.

Long story short, investors believe Bristol-Myers Squibb might be on the selling block, and its valuation has been bid up in the process.

Now what

Though there are plenty of reasons to believe Bristol-Myers could be a takeover target, with the company's valuation taking a hit in recent months, betting your chips solely on the idea of a buyout probably isn't a smart move. Instead, if you're considering buying into Bristol-Myers, I'd suggest giving credit where credit is due with Opdivo and Eliquis.

Image source: Bristol-Myers Squibb.

While we can't ignore the disappointment Opdivo brought to the table in the CheckMate-026 study in first-line NSCLC, investors also shouldn't overlook the fact that Opdivo could be a foundational therapy in a variety of other cancer types for years to come. It's still a key player in advanced melanoma, second-line renal cell carcinoma, and second-line NSCLC. Plus, Opdivo is in countless combination and monotherapy studies for a number of other cancer types. Failures happen from time to time, but Opdivo is still poised to be a growth driver for Bristol-Myers.

Likewise, Bristol-Myers and Pfizer's Eliquis continues to motor along as the leading next-gen oral anticoagulant. Label expansion opportunities and organic growth in existing indications should help push the top lines of both drugmakers higher.

Bristol-Myers' PEG ratio of 1.4 and dividend yield of 2.7% could very well put it on the radars of value and income investors. It's a company I'd certainly suggest investors add to their watchlist and consider buying into for the long haul.

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Sean Williams has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Gilead Sciences. The Motley Fool has a disclosure policy.