Plenty Can Go Right for Bristol-Myers -- Heard on the Street

Last year's cancer drug darling is this year's value stock.

The progress of immune-oncology drugs will be in focus starting this weekend at the American Society of Clinical Oncology's annual meeting.

As last year's meeting got under way, investors mostly considered Bristol-Myers Squibb to be the front-runner set to dominate the market. That changed when the company announced last August that a key clinical trial in lung cancer for its main immuno-oncology drug, Opdivo, had failed.

The news shocked investors, and the stock fell sharply. It still is down by 24% over the past 12 months.

But falling share prices come with the silver lining of lowered expectations. Analysts expect, for instance, that Bristol-Myers will book $20.8 billion in revenues next year, down from nearly $23 billion a year ago, according to FactSet consensus. Bristol-Myers can clear that lower bar.

Opdivo sales still are growing, despite last year's stinging clinical setback. First quarter sales of the drug of $1.1 billion were up 60% from the same period a year earlier. While rivals have developed drugs with a similar mechanism of action, Opdivo's market share is holding steady in the drug's most important treatment categories, according to a company presentation delivered last month.

And while it is still early days for the treatment category, there is good reason to suspect Opdivo will have a lasting commercial presence. More than 240 clinical trials are under way across the industry that use Opdivo in combination with another drug, according to research firm EvaluatePharma. Bristol will be presenting fresh data on Opdivo and other drugs at an investor event Sunday.

It is true that Bristol's shares aren't particularly cheap by traditional valuation metrics at about 18 times forward earnings. But keep in mind that this is down from a multiple of 26 times a year ago. And, despite some disappointment, Bristol shares still should be supported by the attractiveness of its jewel in the crown, Opdivo. Any larger pharma company could theoretically buy the company and immediately get a large presence in one of the industry's most lucrative market opportunities.

That doesn't mean a deal is bound to happen, but the possibility ought to keep the stock's valuation somewhat elevated, all else being equal. Less than a year removed from a major disappointment for investors, that thought should provide investors with some reassurance.

There is plenty of opportunity at Bristol-Myers for things to go right.

Write to Charley Grant at charles.grant@wsj.com

(END) Dow Jones Newswires

June 02, 2017 11:17 ET (15:17 GMT)