Health

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

Less than a year ago, Bristol-Myers Squibb Co. was the fourth-largest biopharma company in the U.S. with a premier cancer drug asset and the potential to go out and buy just about anything. 

But after setbacks to its immune-boosting cancer drug Opdivo that have drastically limited its growth potential, the company on Thursday was forced to cut its 2017 earnings guidance and now expects sluggish growth in the year to come. Technical difficulties that interrupted the company's earnings call for several minutes were probably the most enjoyable part of the day for executives as analysts grilled them about the company's strategy. Shares dropped more than 5 percent to their lowest point since 2014. 

Ailing
Shares of Bristol-Myers Squibb took another hit after it lowered guidance for 2017
Source: Bloomberg

After a $50 billion plunge in market cap, Bristol-Myers is looking less like a potential mega-acquirer and more like an increasingly vulnerable mega-target. 

First to Worst
Bristol-Myers has gone from the fourth most valuable biopharma company in the U.S. to the ninth
Source: Bloomberg

Bristol's shares are down for good reason. Just about everything has gone wrong for Bristol-Myers and Opdivo. It failed to get the drug approved for patients with newly diagnosed lung cancer, one of the largest markets available, because of overly aggressive clinical trial design. Merck & Co.'s competing Keytruda is already on the market for those patients. 

Its big hope for catching up was combining Opdivo with a second immune-boosting drug, Yervoy. But Merck's competing combination of chemotherapy and Keytruda looks potentially cheaper, safer and ahead of schedule. Bristol responded to the news of Merck's likely early approval by announcing it would not seek a rapid FDA approval for its combo, suggesting it's seeing something scary in the data or commercial environment.

And it's not just the future that's in doubt, but the present. Sixty percent of the company's U.S. Opdivo sales in the fourth quarter were for previously treated lung cancer. Roche Holding AG and Merck are set to seize a big chunk of that this year. Analysts' expectations for the drug's sales this year have been cut by $1.2 billion over the past six months and may still be too high. 

Slowdown
U.S. sales of Bristol-Myers' Opdivo are starting to slow as those of its competitors accelerate
Source: Bloomberg

Bristol's response to these issues and to increasingly testy analysts -- Goldman Sachs analyst Jami Rubin said on the conference call that the company was "squandering what was otherwise an extraordinary and enviable market position" -- seems to be to mostly stay the course. 

Despite scrapping its rush-to-market plan for Opdivo and Yervoy in lung cancer for reasons it refuses to disclose, Bristol executives said they were committed to finding a role for the drugs in patients with newly diagnosed lung cancer and to this combination approach. The company has a dozen trials exploring Opdivo and Yervoy scheduled to reveal data over the next three years.

Another nasty commercial or scientific surprise -- which seems all but inevitable given how rapidly the company has tumbled from grace -- could send its stock even lower. The company's shares fetched more than 25 times forward earnings at its height last year; they're now trading at closer to 16 times. That's substantially more affordable. If shares continue to decline, large competitors in need of an oncology boost may come knocking. 

The Cheapening
Bristol-Myers is starting to look much more affordable after a series of setbacks
Source: Bloomberg

There's still enough upside to make the company compelling. The company's blood thinner Eliquis is projected to add an additional $2 billion in revenue through 2020. And though Opdivo is down and out in lung cancer, it's in a stronger position in melanoma, a type of kidney cancer and head and neck cancer. Any acquirer would become an instant immune-oncology power player. 

Jefferies analyst Jeffrey Holford mentioned in a note that Sanofi, Johnson & Johnson, Pfizer Inc. and Novartis AG are possible suitors. Big biotechs Amgen Inc. and Gilead Sciences Inc. are less likely suitors but have enough cash on hand to at least be mentioned.

The one barrier, and it's a big one, is still going to be cost. Even in its diminished state, Bristol would not come cheap. A 30 percent premium on the company's current $77.1 billion enterprise value would yield a price of more than $100 billion. Considering that the company's market cap exceeded that just a few weeks ago and that Opdivo is still the world's best-selling drug in its class, Bristol's leadership is likely to drive a harder bargain than that. 

Still, Bristol investors better hope someone is feeling bold. Buyout speculation may be the only case for optimism about the company's shares right now. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net