Novice Investing - Bristol Myers Kills Its Pain

Date: Monday 01st 2008f December 2008 05:40:14 PM

Bristol Myers Kills Its Pain - 12/27/2005

By: Novice Investing Staff

Bristol Myers Squibb finally received a much-needed good news. The Food and Drugs Administration (FDA) has finally approved one potential blockbuster drug used to treat Rheumatoid Arthritis. Orencia is the name of this drug. Analysts expect the drug to contribute $ 1 Billion of sales a year. Why? Because an estimated 2 million people suffer from this disease in the US alone.

Orencia is not without its match. Older treatments such as Humira from Abbott Laboratories, Remicade from Johnson & Johnson and Enbrel from Amgen are already available in the market. Can Orencia break the $ 1 Billion in sales? Wallstreet seems to expect so. In before hour trading, share of Bristol Myers rose $4.4 %. This increases market capitalization by $ 2 Billion. For a 0 % growth stock, fair P/E value is pegged at 13.4. Therefore, investors expect additional profit of $ 150 Million from this new drug. Historically, Bristol Myer has a 15% net profit margin. This implies that Bristol can achieve $ 1 Billion sales with this new drug.

Wait. Or perhaps, the market is simply inefficient. If that is so, then investors need to figure out how much the eventual sales of Orencia will be. In general, this addition of new drug will keep Bristol afloat. It pays a hefty dividend yielding 4.90% which is now can be sustained. If the company can follow up with several new drugs or treatments, the stock will be on its way up pretty soon.

Time will tell. This is the company that just receives its setback from its diabetes treatment joint venture with Merck. That diabetes drug named Pargluva, was expected to drive $1 Billion in sales and then some. With this Orencia approval, Bristol can plug its pipeline whole at least for a while now. Its balance sheet is one of the weakest among the big pharmaceutical companies. The latest data shows that it has $ 2.11 Billion of negative net cash. Therefore, Orencia approval is definitely a much needed good news.

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Bristol Myers Squibb Co. (BMY) or any other securities.

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