BMY Misses by a Penny in Q4 - Analyst Blog

Bristol-Myers Squibb Company's (BMY) fourth quarter 2010 earnings (excluding special items worth $324 million) of 47 cents per share fell short of the Zacks Consensus Estimate by a penny. However, fourth quarter earnings remained flat from the year ago period. On a reported basis (including special items), Bristol-Myers' earnings in the quarter fell 31.7% to 28 cents per share.

Net sales in the reported quarter climbed 2% to $5.11 billion. Revenues also surpassed the Zacks Consensus Revenue Estimate of $5.06 billion driven by the impressive showing of Bristol-Myers' lead drugs including blood thinner Plavix. The healthcare reform enacted in 2010 negatively impacted net sales in the reported quarter by 1.5%.

US net sales in the quarter climbed 5% to $3.3 billion. However, international sales slipped 5% to $1.8 billion mainly because of a 2% negative foreign exchange (Fx) 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 6% to $1.71 billion in the quarter.

Worldwide sales of HIV treatment Sustiva climbed 1% to $360 million in the reported quarter. However, global sales of another HIV therapy Reyataz slipped 4% to $374 million. Sales of Baraclude, one of the top prescribed therapies for hepatitis B virus (HBV), came in at $264 million, up 25%. Sales of the rheumatoid arthritis drug, Orencia, stood at $202 million, up 20%, while the leukemia drug, Sprycel, registered sales of $169 million, up 42%.

Furthermore, Onglyza/Kombiglyze, a type II diabetes treatment, co-developed with AstraZeneca plc (AZN) contributed approximately $73 million to sales in the quarter as against $4 million in the fourth quarter of 2009. Global net sales of Ixempra for the reported quarter came in at $30 million, up 7%. Global sales of Abilify, approved for the treatment of schizophrenia and depression, were flat at $707 million.

However, hypertension treatment Avapro and cancer drug Erbitux performed disappointingly in the final quarter of 2010. Global sales of Avapro came in at $252 million in the reported quarter, down 26%.  Erbitux generated sales of $165 million in the reported quarter, down 1%.

Gross margin as a percentage of net sales stood at 72.3% in the reported quarter. Marketing, selling and administrative expenses in the reported quarter declined 15% to $1 billion. Advertising and product promotion for the quarter fell 19% to $271 million. Research and development expenses for the quarter fell 9% to $1 billion.

For the full year 2010 Bristol-Myers recorded earnings of $2.16 (excluding special items) in line with the Zacks Consensus Estimate but 17% above the 2009 earnings. 2010 revenues came in at $19.48 billion in line with the Zacks Consensus Estimate. 2010 revenues were 4% higher than 2009 revenues.

Guidance

Bristol-Myers forecasts low- to mid single-digit revenue growth in 2011. The pharma giant expects adjusted 2011 earnings in the range of $2.10-$2.20 per share. The Zacks Consensus Estimate for 2011 is $2.24. Bristol-Myers also reaffirmed its minimum adjusted earnings guidance of $1.95 for 2013.

Major pipeline developments

In addition to posting financial results, Bristol-Myers provided an update on its pipeline progress during the quarter. In January 2011, Bristol-Myers and partner Sanofi-Aventis (SNY) were provided with an additional 6-month market exclusivity period by the US Food and Drug Administration (FDA) for Plavix. The blood thinner now goes off patent on May 17, 2012 in the US.  In October 2010, the FDA approved Sprycel as a first-line therapy for adults newly diagnosed with chronic phase chronic myeloid leukemia (CML). The drug was also approved for the same indication in Europe in December 2010.

In November 2010, Bristol-Myers received a further boost with the FDA clearing Kombiglyze XR, as a once-daily treatment for type II diabetes mellitus in adults.  Kombiglyze XR is a combination of Onglyza (saxagliptin) and metformin HCl extended-release tablets (a widely used diabetes drug).

In October 2010, Bristol-Myers' portfolio was further strengthened with the FDA approving Baraclude for an additional indication. The latest approval allows Baraclude to be marketed for treating adults suffering from chronic hepatitis B with decompensated liver disease. In January 2011, the drug received a positive opinion from the European panel for the same indication.

Moreover, in December 2010, the FDA accepted the supplemental Biologics License Application (sBLA) for the subcutaneous formulation of Orencia for treating adults suffering from moderate to severe rheumatoid arthritis.

Our Take & Recommendation

We currently have a ‘Neutral' recommendation on Bristol-Myers, which is supported by a Zacks #3 Rank (short-term ‘Hold' rating). Our biggest concern for the company is the high exposure to generic risk on many of its leading franchises.

However, the company has already taken measures like the extension of the Abilify agreement with Otsuka, the acquisition of ZymoGenetics and Medarex to combat the threat of generics hanging over it. Moreover, the company intends to launch five compounds -- apixaban, belatacept, brivanib, dapagliflozin and ipilimumab -- by 2012.

Given the present scenario, we believe the ipilimumab launch could occur before 2012. The new launches are expected to drive growth in 2013 and beyond. We expect the company to look to grow revenue through partnering deals and acquisitions.

 
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