We’re lowering our price target on Bristol Myers as two key overhangs persist
Bristol Myers Squibb shares dropped Thursday despite a solid quarterly beat and guidance raise, as Wall Street’s confidence wavers in the growth trajectory for schizophrenia treatment Cobenfy. Revenue in the second quarter, ended June 30, ticked up 1% to $12.3 billion, topping estimates of $11.4 billion, according to LSEG. Adjusted earnings per share (EPS) of $1.46 outpaced expectations of $1.07 but were down 29% versus the year-ago period. Bottom line While the results were strong overall, and management did raise their outlook for the full year, Bristol Myers shares nonetheless dropped 4% following the release. Most likely, it was a reflection of investors’ unwillingness to get too excited about the reported numbers and the road ahead until we get a better sense of the size of the opportunity presented by Cobenfy. The big event is late-stage trial data from a study examining the drug’s potential benefit to Alzheimer’s psychosis patients, expected to be released later this year. The Cobenfy opportunity came under increased scrutiny earlier this year following a failed phase 3 trial relating to the efficacy of the drug in schizophrenia patients as an add-on treatment. The Cobenfy narrative — at the core of our investment thesis in Bristol Myers — went from being pretty straightforward to a show-me story. On the post-earnings call, management tried to reassure investors about Cobenfy. CFO David Elkins said, “The launch of Cobenfy is tracking, as we expected. Weekly total prescriptions continued to grow, and we expect continued steady growth with sales in the second half of the year higher than the first half.” The drug became part of Bristol Myers’ offerings after the drugmaker completed its $14 billion acquisition of Karuna Therapeutics in March 2024. While the solid execution seen in Bristol Myers’ second quarter gives us reason enough to stick with the stock, for now, we understand the concern regarding the upcoming Cobenfy trial data. We see no reason to add to our position at this time, despite shares trading at less than 7 times the midpoint of the updated full-year EPS guidance and a nearly 6% dividend yield. That yield does pay for our patience, but we can’t throw good money after bad. So, as good as the quarter was, the reaction indicates that the stock is most likely a value trap until that trial data is released. We are, therefore, reiterating our hold-equivalent 2 rating and cutting our price target to $55 per share from $60, reflecting the wait-and-see nature of Cobenfy and the sector-wide overhang related to the Trump administration’s pharmaceutical policy proposals, including tariffs. Indeed, on Thursday afternoon, President Donald Trump said he asked drugmakers to take a series of actions “within the next 60 days,” including extending “most favored nation” pricing to Medicaid. Commentary As we can see in the chart above, the strong headline results can be attributed to broad-based strength throughout Bristol Myers’ portfolio. On the call, CEO Christopher Boerner commented that “Cobenfy has delivered strong performance since launch, and we have consistently received positive feedback from physicians. They are seeing firsthand the medicine’s differentiated profile with robust efficacy on both positive and negative symptoms and improved cognition.” Growth portfolio sales were driven by very strong performance from Breyanzi, Reblozyl and Camzyos. With the patent cliffs hanging over Bristol Myers’ legacy portfolio, the market is primarily focused on the performance its basket of newer drugs. Guidance Bristol Myers again positively revised its 2025 full-year guidance: Sales: Now targeting a range of roughly $46.5 billion to $47.5 billion, up from the prior range of $45.8 billion to $46.8 billion, and ahead of the $46.25 billion the Street was expecting, according to LSEG. Driving the $700 million upward revision is strength in the growth portfolio beyond what management was previously expecting, and a smaller-than-previously anticipated decline in the legacy portfolio. Helping the legacy portfolio, worldwide sales of Revlimid are now expected to come in at about $3 billion; Prior guidance called for sales to be at the high end of a $2 billion to $2.5 billion range. However, these positives are slightly offset by a smaller-than-previously expected benefit from foreign exchange dynamics. Those are now expected to benefit the top line by $200 million (versus $250 million previously). Gross margin: Reiterated at roughly 72%. Operating expense: Now expected to be about $16.5 billion, up slightly from the roughly $16.2 billion previously forecast. The increase is attributable to a roughly $300 million increase in business development and growth portfolio investments. Earnings per share: Now targeting a range of $6.35 to $6.65 per share. While that is down from the $6.70 to $7.00 range previously provided, it’s important to note that Bristol Myers is now factoring in 57-cent per share headwind relating to in-process research-and-development (IPRD) charges associated with the BioNTech partnership announced during the quarter. Excluding this impact, it appears that earnings guidance would have been revised 22-cents higher, given it was cut by only 35-cents at the midpoint despite the headwind being a 57-cent negative impact. Regardless, this new range is still ahead of $6.24 per share the Street was looking for, according to LSEG. The company is also factoring in $150 million more in royalty and interest income than previously expected. (Jim Cramer’s Charitable Trust is long BMY. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.