Bristol-Myers Misses on All Fronts - Analyst Blog

Bristol-Myers Squibb Company’s (BMY) fourth quarter 2011 earnings (excluding special items) of $0.53 per share fell short of the Zacks Consensus Estimate by $0.02. Adjusted earnings in the final quarter of 2011 were above the year-ago earnings by $0.06. Higher than expected expenses led to the earnings miss in the reported quarter.

On a reported basis (including special items), Bristol-Myers’ earnings in the quarter increased 79% to $0.50 per share. The healthcare reform negatively impacted earnings in the reported quarter by $0.04.

Quarter in Details

Net sales in the reported quarter climbed 7% to $5.45 billion. Revenues were just shy of the Zacks Consensus Estimate of $5.48 billion mainly due to lower sales of Plavix and Avapro/Avalide. US net sales in the quarter climbed 8% to $3.6 billion. Sales in international markets increased 4% to $1.9 billion.

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), fell 3% to $1.67 billion in the quarter. Plavix has been co-developed by Bristol-Myers with Sanofi (SNY). US sales of the drug were down 2% to $1.56 billion.

Sales of Baraclude, one of the top prescribed therapies for hepatitis B virus, came in at $318 million, up 20%. Worldwide sales of HIV treatment Sustiva climbed 14% to $412 million in the reported quarter. Global sales of another HIV therapy, Reyataz, increased 11% to $416 million. Sales of rheumatoid arthritis (RA) drug, Orencia, stood at $257 million, up 27%, while leukemia drug, Sprycel, registered sales of $227 million, up 34%.

Furthermore, Onglyza/Kombiglyze, a type II diabetes treatment, contributed approximately $153 million to sales in the quarter as against $73 million in the fourth quarter of 2010.

Global sales of Abilify, approved for the treatment of schizophrenia and depression, increased 4% to $737 million. The drug performed well both in the US and international markets. Sales of cancer drug Erbitux increased 10% to $181million in the fourth quarter of 2011.

Skin-cancer drug Yervoy, approved in the US and EU in 2011, contributed $144 million to total revenues during the reported quarter, up 19% sequentially.

However, hypertension treatment Avapro/Avalide disappointed in the final quarter of 2011. Global sales of Avapro/Avalide came in at $195 million in the reported quarter, down 23%.

Adjusted gross margin as a percentage of net sales stood at 75.2% in the reported quarter as against 72.9% in the comparable quarter of 2010. Adjusted marketing, selling and administrative expenses in the reported quarter climbed 21.6% to approximately $1.21 billion.

Advertising and product promotion for the quarter climbed 5% to $285 million in the final quarter of 2011. Adjusted research and development expenses for the quarter increased 7.2% to $1 billion as Bristol-Myers continues to invest in its pipeline.

Annual Results

For the full year 2011, Bristol-Myers recorded earnings of $2.28 (excluding special items), short of the Zacks Consensus Estimate by 2 cents. However, 2011 earnings were 6% above 2010 earnings. 2011 earnings were within the guidance range of $2.25-$2.30 provided by the company while releasing the third quarter 2011 results.

2011 revenues came in at $21.24 billion, just shy of the Zacks Consensus Estimate of $21.26 billion. 2011 revenues were 9% higher than 2010 revenues.

Projection for 2012

Apart from announcing financial results,Bristol-Myers also provided guidance for 2012. The pharma major expects adjusted 2012 earnings in the range of $1.90 - $2.00 per share. The Zacks Consensus Estimate for 2012 is $1.97 per share, towards the higher end of the guidance provided by the company.

Bristol-Myers expects to end 2012 with revenues in the range of $17.2-$18.2 billion. The Zacks Consensus Estimate for 2012 is $18.37 billion, above the guidance provided by the company. The projection includes approximately $2.7 billion global sales of Plavix. Plavix is slated to go off patent in the US in May 2012. This is likely to result in substantial revenue losses for Bristol-Myers.

Our Take

Apart from the impending genericization of Plavix, we believe that investor focus will be on Bristol-Myers’ $2.5 billion deal to acquire Inhibitex (INHX). Through this deal, announced earlier this month, Bristol-Myers is targeting the lucrative hepatitis C virus market. We believe that Bristol-Myers will continue pursuing deals and acquisitions throughout 2012 to strengthen its portfolio thereby minimizing the impact of genericization.

Apart from acquisitions and partnership deals, Bristol-Myers is looking to introduce new products to augment its product portfolio to combat the generic threat. Bristol-Myers has met with a fair amount of success toward achieving this objective and launched/gained approval for many new products in 2011.

Our Recommendation

We currently have a Neutral recommendation on Bristol-Myers. The stock carries a Zacks #4 Rank (Sell rating) in the short run, highlighting near-term pressure on the stock. Even though we are concerned about the high generic risk on many of Bristol-Myers’ leading franchises, we believe that the company’s diversified business model coupled with its strong financial position will help in tough situations.

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