Bristol-Myers Tops, Adjusts View

Zacks

Bristol-Myers Squibb Company’s (BMY) third quarter 2011 earnings (excluding special items) of $0.61 per share surpassed the Zacks Consensus Estimate by $0.03 and the year-ago earnings by $0.02. Higher revenues boosted earnings in the reported quarter.

On a reported basis (including special items), Bristol-Myers’ earnings in the quarter increased 2% to $0.56 per share. The healthcare reform enacted in 2010 negatively impacted earnings in the reported quarter by $0.04.

Quarter in Details

Net sales in the reported quarter climbed 11.4% to $5.35 billion. Foreign exchange positively impacted sales in the quarter by approximately 3%. Revenues also surpassed the Zacks Consensus Estimate of $5.28 billion, driven by the impressive showing of Bristol-Myers’ lead drugs including blood thinner Plavix.

US net sales in the quarter climbed 11% to $3.5 billion. Sales in international markets increased 12% to $1.9 billion including an 8% positive foreign exchange impact.

Global net sales of Plavix, an anti-platelet blood thinner indicated to reduce the risk of heart attack in patients with atherosclerosis (the build-up of plaque and hardening of the arteries), climbed approximately 8% to $1.79 billion in the quarter. Bristol-Myers has co-developed Plavix with Sanofi-Aventis (SNY).

Sales of Baraclude, one of the top prescribed therapies for hepatitis B virus, came in at $311 million, up 36%. Worldwide sales of HIV treatment Sustiva climbed 5% to $359 million in the reported quarter. Global sales of another HIV therapy, Reyataz, increased 4% to $391 million. Sales of rheumatoid arthritis (RA) drug, Orencia, stood at $233 million, up 27%, while leukemia drug, Sprycel, registered sales of $211 million, up 47%.

Furthermore, Onglyza/Kombiglyze, a type II diabetes treatment, co-developed with AstraZeneca (AZN) contributed approximately $127 million to sales in the quarter as against $47 million in the third quarter of 2010.

Global sales of Abilify, approved for the treatment of schizophrenia and depression, increased 14% to $691 million. Sales of cancer drug Erbitux increased 8% to $172 million in the third quarter of 2011.

Skin-cancer drug, Yervoy (ipilimumab), which was launched in the US earlier the year, contributed $121 million to total revenues during the reported quarter, up 27% sequentially.

However, hypertension treatment Avapro/Avalide disappointed in the third quarter of 2011. Global sales of Avapro/Avalide came in at $216 million in the reported quarter, down 29%.

Gross margin as a percentage of net sales stood at 73.7% in the reported quarter as against 73.3% in the comparable quarter of 2010. Marketing, selling and administrative expenses in the reported quarter climbed 14% to $1.0 billion.

Advertising and product promotion for the quarter decreased 11% to $205 million. Research and development expenses for the quarter increased 18% to $973 million as Bristol-Myers continues to invest in its pipeline.

Guidance Adjusted

Following the release of third quarter results, Bristol-Myers raised the lower end of its guidance range for 2011 adjusted earnings. The pharma major expects adjusted 2011 earnings in the range of $2.25 – $2.30 per share (old guidance: $2.20 – $2.30). The Zacks Consensus Estimate for 2011 currently stands at $2.28 per share, well within the new guidance range provided by the company.

Major developments

Bristol-Myers also provided an update on its pipeline/ product portfolio progress during the quarter. In August 2011, Bristol-Myers and partner Pfizer (PFE) presented encouraging data from a late-stage study (ARISTOTLE) which evaluated Eliquis (apixaban) for preventing stroke in patients suffering from atrial fibrillation.

In July 2011, the US Food and Dug Administration (FDA) cleared a subcutaneous formulation of Orencia for treating adults suffering from moderate to severe RA. The application seeking marketing approval for the subcutaneous formulation of the drug in the European Union was validated for review by the European Medicines Agency in August 2011.

We note that Orencia is already approved for multiple indications both in adults and children. Orencia’s approval for the additional indication would be a boost as the drug would target the highly lucrative RA market.

In September 2011, the European Committee for Medicinal Products for Human Use (CHMP) backed the approval of Kombiglyze for treating adults suffering from type II diabetes in the European Union.

Sprycel was approved in China in September 2011 for treating adults, suffering from chronic, accelerated, myeloid or lymphoid blast chronic myeloid leukemia, intolerant to treatment by Novartis’ (NVS) Gleevec.

In September 2011, the FDA the FDA announced that it will decide upon approving diabetes candidate dapagliflozin by January 18, 2012 (target date) as opposed to the originally decided upon target date of October 28, 2011.

Our Recommendation

We have a Neutral stance on Bristol-Myers. The stock carries a Zacks #3 Rank (Hold rating) in the short run. Our biggest concern for the company is the high exposure to generic risk on many of its leading franchises.

The company has been trying to combat the generic threat by bringing in new products through in-licensing deals and acquisitions. We believe the diversity and strength of the company’s business should continue to provide strong growth in future.

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