Bristol-Myers Squibb Joins the Bullpen

As we noted earlier this morning in our Johnson & Johnson (JNJ) exit Alert here, we added Bristol-Myers Squibb  (BMY) to the bullpen.

For more information about what the Bullpen is and how club members should view it, see our post here; seeherefor our full Bullpen list. 

This stock has been on our radar for a few months now, and in October we internally debated between initiating a position in this name or AbbVie (ABBV) . We sided with the latter in part because of its huge dividend yield and proven lineup of products. But now that Bristol-Myers has completed its $74 billion purchase of Celgene, we think shares are worthy of a closer look.

On Monday's episode of "Mad Money," Jim Cramer spoke with company CEO Giovanni Caforio. You can watch the interview at the site here. Once again, we came away impressed with the insight Caforio provided and where Bristol-Myers can go from here. For starters, Caforio called out strength in cancer, cardiovascular and autoimmune disease treatments, key areas of focus that provide strong growth opportunities as they are always in need of further innovation.

Key drugs include Eliquis, which has a best-in-class profile and is used to prevent strokes in patients with atrial fibrillation (AFib). Eliquis continues to take market share and currently has a 20% growth rate, which Caforio believe will sustainable thanks to continued market share gains, as well as patients who have been diagnosed, but not treated, and the simple fact that many who have the disease don't know it yet. On this latter issue, Bristol-Myers has a partnership with the smart wearables device maker Fitbit (FIT) , which is soon to be acquired by Alphabet GOOGL . The goal of the partnership is to increase awareness and allow patients to seek out treatment. On that note, we remind members that the Apple (AAPL) Watch has also helped serve to increase awareness of AFib via its heart-monitoring features. 

Another "growth franchise," as Caforio put it, is Opdivo, a drug designed for people with previously treated advanced non-small cell lung cancer. This important franchise recently saw critical phase three updates for the treatment of first-line lung cancer -- you can read about it here. While it may be striking to hear Caforio call Opdivo a growth franchise when it only grew 1% last quarter due to competition from Merck's (MRK) Keytruda, he clearly believes this won't be the case for long, given the promising data seen thus far that could result in new treatment options. 

Other drugs that put up notable growth in the most recent quarter include Orencia (+14% YoY), which is used for the treatment of adult rheumatoid arthritis; Sprycel (+14% YoY), which is used to treat certain types of leukemia; and Yervoy (+8% YoY), which is used to treat certain types of skin cancer. We should also note that going back to the phase 3 Opdivo study linked above, which met its primary endpoint, it was to evaluate the efficacy of Opdivo combined with low-dose Yervoy "given concomitantly with two cycles of chemotherapy for the first-line treatment of advanced non-small cell lung cancer" -- so we could see these two products feed off one another to an extent via this treatment option.

But the big, "control your own destiny move" the company made was the Celegene deal. From a financial perspective, we remind you the deal is expected to achieve greater than 40% accretion in the first full year with roughly $800 million in synergies in 2020, 2021, and 2022. Speaking on the acquisition during last night's interview, Cafario noted that a renewal of the company's portfolio was one rational for the deal. He did say, however, that patent cliffs -- which is when key drugs go off patent -- are a reality of the business, and that was a big reason why BMY trades at an undemanding 9-times consensus 2020 earnings per share.

The deal was necessary because it better positions Bristol-Myers for the back half of the decade through the creation of a more robust pipeline. In fact, there are currently 7 medications in the process of launching, and more than 50 medications in phase 1 and phase 2 trials. We will be looking for further updates when the company presentshere at the American Society of Hematology (ASH) on Dec. 8.

Action AlertsPLUS, which Cramer co-manages as a charitable trust, is long on ABBV, AAPL and GOOGL.