Bristol-Myers Not Done Climbing

NEW YORK (TheStreet) -- It's always interesting to see how health care investors live in perpetual fear of the long-term health of their companies. This is regardless of whether the signs of slowing growth have emerged.

While some companies can provoke this terror by under-investing in their product pipelines, which is essentially their lifeblood, others look to offset this fear with extensive cost-cutting measures (if they care to impress the Street). Even with the recent patent expiration of its drug Plavix, these have never been glowing issues for Bristol-Myers Squibb (BMY), whose stock is up more than 50% year-to-date.

In that regard, I don't believe the company's management has gotten the credit they rightfully deserve. Not only does Bristol-Myers continue to invest in growth opportunities, but the company has consistently taken the best punches from giants like Johnson & Johnson (JNJ), who recently brought to market Xarelto to compete with Bristol-Myers' new blockbuster drug Eliquis, an anticoagulant for preventing blood clots.

The question now: To what extent management can sustain this incredible run? As I've said, not only has the stock shot up more than 50% on the year, but even since the company picked off its partner ZymoGenetics three years ago for $9.75 per share in cash, shares of Bristol-Myers have soared more than 110%. As expected, bears have gotten anxious and have raised caution flags, while citing things like "valuation exuberance."

Given that Bristol-Myers' price-to-earnings ratio now stands at 31, about 1 point better than Merck (MRK), this argument doesn't hold water. Unlike Merck or AstraZeneca (AZN), which have seen their performances decline due to eroding pipelines, Bristol-Myers still has what I believe to be an ace in the drug Nivolumab, which has yielded unprecedented response rates in cancer patients with metastatic melanoma.

Unlike AstraZeneca, where revenue has declined 15% over the past fiscal year, Bristol-Myers is still seeing strong revenue numbers, including growth of 9% year-over-year in the recent quarter. In terms of net sales by volume, anti-depressant drug Abilify led with $569 million.

Not to mention, despite their expiring patents, both Plavix and Avapro held strong, posting declines of (only) 34% and 25%, respectively. I say "only" here because the fact that both drugs still combined for more than $110 million in sales when there are cheaper alternatives available is a testament not only to the effectiveness of the drugs, but also the brand respect Bristol-Myers commands.

The declines of both Plavix and Avapro were more than offset by the strong performances of Sprycel and Yervoy, which grew by 20% and 33%, respectively. Not to be outdone, Byetta, a metabolic drug used to treat type-2 diabetes, posted growth of 92%. Now, this is a market that Johnson & Johnson has begun to pursue with rival drug Invokana.

As I've said earlier, the debut of Eliquis, which generated $41 million in revenue now gives Bristol-Myers a strong portfolio to keep the top-line growing for many years to come. On the operating side, even amid a 2.5% decline in gross margin, management was able log a 2-cent beat in non-GAAP earnings, at $768 million, or 46 cents a share.

Bears will use terms like "pricing pressure" to argue fears about the gross margin declines. But the way I see it, the net effect to profits was negligible due to (among other things) strategic cost-controls. All told, it was a solid quarter for one of the best names in Big Pharma.

While this stock is certainly not cheap, I wouldn't be in any rush to sell here. With continued free-cash-flow growth helped (in part) by increased traction for Eliquis and Byetta, not to mention cancer drug Nivolumab, I believe this stock has a strong shot to approach $60 a share in the next 12 to 18 months.

At the time of publication, the author held no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.