Editors Note:

If enough people call you a candidate, does that make it true? Multiple analysts are now saying BMY is a takeover target and with Carl Icahn launching a new position for that reason, we need to follow his lead.


NEW DIRECTIONAL CALL PLAYS

BMY - Bristol Myers - Company Profile

Comments:

Late in the day news broke that Cark Icahn had taken a stake in the company saying he believed it was an acquisition target given the value in the company's pipeline of heart disease and cancer drugs. Shares rebounded 2% initially but faded into the close.

I am recommending a new position on BMY. With two activist investors in Jana Partners and Carl Icahn both active on this stock, we need to take a longer-term view and hope they are successful in motivating change.

Original Trade Description: February 6th

Bristol-Myers Squibb Company discovers, develops, licenses, manufactures, markets, and distributes biopharmaceutical products worldwide. It offers chemically-synthesized drug or small molecule, and biologic in various therapeutic areas, including virology comprising human immunodeficiency virus infection (HIV); oncology; immunoscience; cardiovascular; and neuroscience. Its products include Baraclude for the treatment of chronic hepatitis B virus infection; Daklinza and Sunvepra for the treatment of hepatitis C virus infection; Reyataz and Sustiva for the treatment of HIV; Empliciti, a humanized monoclonal antibody for the treatment of multiple myeloma; Erbitux, an IgG1 monoclonal antibody that blocks the epidermal growth factor receptor; Opdivo, a fully human monoclonal antibody for non-small cell lung and renal cell cancer, and melanoma; Sprycel, a tyrosine kinase inhibitor for the treatment of adults with Philadelphia chromosome-positive chronic myeloid leukemia; Yervoy, a monoclonal antibody for metastatic melanoma; Abilify, an antipsychotic agent for adults with schizophrenia, bipolar mania disorder, and depressive disorder; Orencia to treat rheumatoid arthritis; and Eliquis, an oral factor Xa inhibitor targeted at stroke prevention in atrial fibrillation. Its products pipeline includes Beclabuvir, a non-nucleoside NS5B inhibitor for the treatment of HCV; BMS-663068, an investigational compound that is being studied in HIV-1; and Prostvac, a Phase III prostate-specific antigen to treat asymptomatic or minimally symptomatic metastatic castration-resistant prostate cancer. The company has clinical trial collaborations with Calithera Biosciences, Inc. and Janssen Biotech, Inc.; and a research collaboration with GeneCentric Diagnostics, Inc. Company description from FinViz.com.

BMY reported earnings of 63 cents that missed estimates for 67 cents. They guided for 2017 for earnings of $2.70-$2.90 and analysts were expecting $2.97. The shares were crushed with a $9 drop over five days. Complicating the earnings was news that sales of two drugs were slowing because of competition. However, what was not said was that BMY has dozens of other drugs currently being sold and dozens more in the pipeline. BMY has one of the richest pipelines in the business.

Fund manager Dodge & Cox did an extensive analysis of BMY and said the recent problems have just been a temporary setback and the strong pipeline of drugs plus their immuno-oncology business makes them particularly attractive and they initiated a large position. They said BMY has capitalized on its recent problems to become a focused biopharmaceutical company that is positioned to grow.

Multiple analysts have now called BMY an acquisition target. Icahn said that was one of his reasons for opening the position.

Earnings April 27th.

Shares are starting to rebound from the $46 low and they have plenty of ground to cover. The biotech sector is actually positive over the last week as through investors believe the danger from Trump and drug prices may have passed or at least moved into a new stage.

I am choosing a $60 June option with earnings in April. The option is cheap enough that we can hold over that earnings report if we decide to do that in April. If by chance there is a big gap higher on Wednesday, switch to the $60 strike.

Buy June $57.50 call, currently $2.78, no initial stop loss.


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays