Zacks Analyst Blog Highlights: Gap Inc., Pfizer, Bristol-Myers Squibb, Johnson and Johnson and Bayer - Press Releases

For Immediate Release

Chicago, IL – November 22, 2010 – Zacks.com Analyst Blog features: Gap Inc. (GPS), Pfizer (PFE), Bristol-Myers Squibb (BMY), Johnson and Johnson (JNJ) and Bayer (BAYRY).

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Here are highlights from Friday's Analyst Blog:

Gap Meets Estimate, Affirms Outlook

Gap Inc.'s (GPS) third-quarter 2010 earnings of 48 cents per share rose 9.0% from last year's 44 cents and met the Zacks Consensus Estimate.

During the quarter, net sales grew 1.8% to $3.65 billion from $3.59 billion in the year-ago quarter. Same-store sales remained flat for the quarter, reflecting growth in Banana Republic North America (+1%), Gap North America (+1%) and the International division (+3%), offset by a 2% decline in comparable store sales in Old Navy North America. The company's franchise sales for both Gap and Banana Republic jumped 45% for the quarter. Total revenue also beat the Zacks Consensus Estimate of $3.62 billion.

Quarterly gross profit fell 1.2% year over year to $1.51 billion, and gross margin contracted 130 basis points (bps) to 41.2%. Operating expenses as a percentage of sales declined 110 bps year over year to 27.4% on the back of strict cost containment measures. Accordingly, Gap's operating income rose marginally by 1.0% year over year to $504 million, while operating margin fell 10 bps to 13.8%.

Gap ended the quarter with cash and cash equivalents of $1.40 billion, compared with $2.17 billion in the year-ago period. Year to date, the company deployed $1.35 billion of cash toward share buybacks and $413 million for capital expenditure.

Another Pipeline Setback for Pfizer

Pfizer (PFE) and partner Bristol-Myers Squibb (BMY) recently suffered a setback with the development of their anti-clotting candidate, apixaban. The companies said that they have discontinued the development of the candidate in patients with acute coronary syndrome due to an increased risk of bleeding associated with the use of the drug.

Decision Based on Recommendation of an Independent Data Monitoring Committee

The study, APPRAISE-2 (Apixaban for Prevention of Acute Ischemic Events – 2), was being conducted across 40 countries with approximately 10,800 patients. Patients in the study were randomized to receive either apixaban 5mg or placebo.

Pfizer and Bristol-Myers decided to halt enrollment and discontinue treatment with apixaban based on the recommendation of an independent data monitoring committee. The committee reported that the side-effect risk associated with the use of apixaban outweighed the benefits. A significant increase in bleeding in the apixaban arm was observed in the study, without there being a significant reduction in ischemic events.

A phase II study, APPRAISE Japan, with apixaban for the acute coronary syndrome patient population is also being conducted in Japan. The data monitoring committee for this study has recommended that the study should be discontinued.

Although apixaban will no longer be studied for the acute coronary syndrome indication, Pfizer and Bristol-Myers will continue with the remaining studies that are being conducted with the candidate. Apixaban is currently in eight other studies that are being conducted in other patient populations. Moreover, the companies have started submitting a rolling new drug application (NDA) for apixaban with the US Food and Drug Administration (FDA) for the prevention of stroke in patients with atrial fibrillation who are not suitable for treatment with warfarin.

The companies are also seeking approval for the use of apixaban for the prevention of venous thromboembolism (VTE) in the EU.

Competitive Scenario

Apixaban, which is an oral factor Xa inhibitor, belongs to a new class of agents being developed for the prevention and treatment of blood clots. The atrial fibrillation market is huge and represents significant commercial opportunity. It is estimated that more than 2 million Americans suffer from atrial fibrillation. The prevalence is expected to increase significantly.

In October 2010, Boehringer Ingelheim's Pradaxa was the first new oral anticoagulant to gain FDA approval in more than 50 years. Currently, Pfizer/Bristol-Myers and Johnson and Johnson (JNJ)/ Bayer (BAYRY) are jostling for second position in the US anticoagulant market. Johnson and Johnson/Bayer recently reported positive results on their blood thinner, Xarelto (rivaroxaban), which is currently available in Europe.

Our Take

The discontinuation of the apixaban study is the latest pipeline setback for Pfizer. Over the course of the year, Pfizer announced setbacks with the development of candidates like tanezumab, Sutent and Dimebon.

We currently have a Neutral recommendation on Pfizer, which is supported by a Zacks #3 Rank (short-term “Hold” rating). While Wyeth brings with it an attractive biologics platform and some complementary products and businesses, we do not believe they are enough to sustain long-term top-line growth. We see the merger as mostly an opportunity for Pfizer to cut additional costs. Longer-term growth at Pfizer will be dependent on the success of drug development. The Lipitor patent expiration in 2011 remains a big concern.

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