Bristol-Myers Squibb (tkr: BMY) is a pharmaceutical company focused on specialty medicines (those with higher margins and still under patent protection) with a further emphasis on immuno-oncology. The company’s drugs fall into six divisions: oncology, cardiovascular, immunology, neurology, virology/infectious disease and mature drugs in a variety of areas. BMY has made a big commitment to immuno-oncology and has two drugs approved for treatment of several different types of late stage cancer, Yervoy and Opdivo. Because immuno-oncology is such a new field, the results of drug clinical trials are closely scrutinized. When Opdivo failed to create better patient outcomes in first-line treatment of non-small cell lung cancer in a trial reported last fall, BMY’s stock fell over 15%. A careful review of the company led us to conclude that immuno-oncology treatments will have an important and growing role in cancer treatment and that this was a buying opportunity.

BMY’s strategy is to combine the resources, scale and capability of a large pharmaceutical company with the speed and focus on innovation more characteristic of the biotech industry. Analysts believe that the market for immuno-oncology drugs will be about $14 billion by 2019 and will grow to $34 billion by 2024. BMY’s two drugs had sales of $6.7 billion last year, with Opdivo accounting for $3.77 billion in 2016. These treatments are very expensive: $140,000 for the initial round of administration and maintenance of $14,000 per month. Therefore, it is critical to sort out which patients will benefit. Opdivo and Yervoy have one main competitor at present, Merck’s Keytruda.

With Pfizer, BMY also co-owns and markets one of the new novel oral anticoagulants (NOACs). Eliquis generated sales of $3.34 billion in 2016. Sales in this market are expected to be over $30 billion by 2024. Eliquis has three competitors, but is doing well and holds over 40% of the market. The NOACs all have a better safety profile than Coumadin, the longstanding standard anticoagulant, with fewer bleeding complications and equal efficacy. The main limitation in their use has been the lack of a reversal agent, but that is under active development. BMY is also an attractive acquisition target, with cash on the books of $4 billion. The stock pays a solid dividend of 2.5%. BMY appointed a new chief science officer this year, Thomas Lynch, MD, who was an oncologist specializing in lung cancer treatment at Massachusetts General. His expertise in this field should tremendously benefit BMY.

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