Bristol-Myers Outlook Mixed - Analyst Blog

We remain Neutral on Bristol-Myers Squibb Company (BMY) with a price target of $28.00.

Bristol-Myers, headquartered in New York, is a major producer and distributor of pharmaceuticals and other healthcare-related products. The company manufactures and sells branded pharmaceutical drugs such as Pravachol for cholesterol reduction, Plavix for hypertension and Erbitux for cancer.

In late 2009, Bristol-Myers sold its interest (83.1% stake) in infant formula maker Mead Johnson. The divestiture has enabled Bristol-Myers to operate as a fully independent biopharmaceutical company, focusing exclusively on its Pharmaceuticals segment.

Bristol-Myers has a number of new franchises that should help contribute to its top-line over the next several years. The virology franchise at Bristol-Myers performed impressively in the most recent quarter with worldwide sales from this franchise registering 8% growth. The impressive performance of the franchise was due to strong demand for HIV drugs Reyataz and Sustiva and Baraclude, one of the top prescribed therapies for hepatitis B virus (HBV), both in the US and internationally.

Furthermore, sales of rheumatoid arthritis drug Orencia stood at $184 million in the most recent quarter, up 14%, while leukemia drug Sprycel registered sales of $144 million in the third quarter of 2010, up 35%. The impressive product portfolio should continue driving growth in the coming quarters.

In October 2010, the portfolio at Bristol-Myers was further boosted when the US Food and Drug Administration (FDA) expanded Baraclude's label for treating adults suffering from chronic hepatitis B with decompensated liver disease. Moreover, the FDA approved Sprycel as a first-line therapy for adults newly diagnosed with chronic myeloid leukemia.

These approvals should help boost the company's top line. Moreover, the FDA is scheduled to decide on the company's advanced melanoma candidate, ipilimumab, by March 26, 2011. Ipilimumab's approval would be a major boost for the company.

Bristol-Myers boasts of a robust pipeline. In an encouraging development, the late-stage study of anti-clotting drug, apixaban, co-developed by Bristol-Myers and Pfizer (PFE), in patients suffering from atrial fibrillation was terminated early based on clear evidence of reduction in stroke and embolism in patients treated with apixaban compared to aspirin. These positive results have prompted the partners to commence the submission of a rolling NDA with the FDA; the filing is expected to be over by early 2011.

During 2010, Bristol-Myers presented encouraging data on its type II diabetes candidate, dapagliflozin. The successful development of the diversified pipeline will further boost the top line at Bristol-Myers, in our view.

Our biggest concern for the company is the high exposure to generic risk on many of its leading franchises, especially the blockbuster Plavix. Additionally, the drug, an antiplatelet blood thinner indicated to reduce the risk of heart attack in patients with atherosclerosis (the build-up of plaque and hardening of the arteries), is facing competition from Eli Lilly's (LLY) Effient, which was launched in 2009. The loss of exclusivity of key drugs, including Plavix, will result in significant loss of revenues at Bristol-Myers.

Although we remain concerned about the patent expiration of key products -- including Plavix -- in the near future, we are pleased with the measures taken by Bristol-Myers, like the acquisitions of Medarex and ZymoGenetics to counter the loss of revenues.

We believe that Bristol-Myers' current valuation adequately reflects its fairly balanced risk/reward profile. We see limited upside from current levels. Consequently, we have a long-term Neutral stance on Bristol-Myers, which is supported by a Zacks #3 Rank (short-term Hold recommendation) for the stock.

 
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