BMY/Sanofi Alliance Modified

Zacks

Following the genericization of blood thinner Plavix and hypertension treatment Avapro/Avalide in major markets across the globe, partners Bristol-Myers Squibb Company (BMY) and Sanofi (SNY) revamped their long-standing alliance regarding the drugs. The new agreement will be effective from January 1, 2013.

The restructured agreement will see Sanofi selling Avapro/Avalide globally and Plavix in all markets except the US and Puerto Rico. Bristol-Myers will be responsible for selling Plavix in these markets until December 2019. Per the modified agreement, Bristol-Myers will receive royalties on the total sales (branded plus generic) of Plavix (barring the US and Puerto Rico) as well as Avapro/Avalide (global) from Sanofi until December 2018. The end of 2018 will see Bristol-Myers receiving a payment of $200 million from Sanofi.

The companies stated further that all disputes related to the alliance have been resolved. The resolution of the dispute will see Bristol-Myers shelling out a one-time payment of $80 million to Sanofi. The payment relates to the disruption in Avalide supply in the US last year.  

We remind investors that Plavix and Avapro/Avalide went off patent in US in May 2012 and March 2012, respectively. The loss of exclusivity of these drugs in the US hurt Bristol-Myers’ second quarter 2012 results with net sales declining 18% to $4.44 billion. US sales of Plavix plummeted 60% to $701 million in the second quarter of 2012 (global sales were also down 60% to $741 million). US sales of Avapro/Avalide were down 85% to $20 million during the second quarter of 2012.

We expect Bristol-Myers’ results in the third quarter 2012 (scheduled to be announced on October 24) to be impacted adversely by the genericization of Plavix in the US.

Bristol-Myers is looking to combat the generic threat through partnering deals and acquisitions and is introducing new products to augment its product portfolio. The Amylin buy in August 2012, through which Bristol-Myers expanded its presence in the lucrative diabetes market, is an effort to combat the substantial revenue losses due to Plavix’s genericization in the US.

Neutral on Bristol-Myers/Sanofi

Currently, we have a long-term Neutral recommendation on Bristol-Myers. The stock carries a Zacks #3 Rank (Hold rating) in the short run. We have a similar long-term recommendation on Sanofi, which carries a Zacks #2 Rank (Buy rating) in the short run.

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