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Generic Plavix Hurts Bristol-Myers

Zacks Equity Research

Bristol-Myers Squibb Company’s (BMY) third quarter 2012 earnings (excluding special items) of 41 cents per share were in line with the Zacks Consensus Estimate. The company’s third quarter 2012 adjusted earnings decreased approximately 33% from the year-ago period.

The year-over-year decline in earnings was attributable to the reduced sales of Bristol-Myers/Sanofi’s (SNY) blood-thinner Plavix, which went off-patent in the US on May 17, 2012.

Net sales in the reported quarter declined 30% to approximately $3.74 billion. Revenues were short of the Zacks Consensus Estimate of $3.98 billion, mainly due to lower sales of blood thinner Plavix and hypertension treatment Avapro/Avalide. US net sales in the quarter declined 43% to $2 billion. Sales in international markets decreased 6% to $1.8 billion.

Quarter in Detail

Global net sales of Plavix, an anti-platelet blood thinner, which reduces the risk of heart attack in patients with atherosclerosis (the build-up of plaque and hardening of the arteries), plummeted 96% to $64 million in the quarter. US sales of the drug were down 98% to $41 million. The genericization of the drug in the US was responsible for the massive decline.

Sales of Baraclude, one of the top prescribed therapies for hepatitis B virus, came in at $346 million, up 11%. Worldwide sales of HIV treatment Sustiva climbed 3% to $370 million in the reported quarter.

Global sales of another HIV therapy, Reyataz, declined 7% to $363 million. Sales of rheumatoid arthritis (:RA) drug, Orencia, stood at $307 million, up 32%, while leukemia drug, Sprycel, registered sales of $263 million, up 25%.

Furthermore, Onglyza/Kombiglyze, a type II diabetes treatment, contributed approximately $178 million to sales in the quarter, up 40% from the year-ago period.

Global sales of Abilify, approved for the treatment of schizophrenia and depression, fell 2% to $676 million. Sales of cancer drug Erbitux increased 1% to $173 million in the third quarter of 2012.

Skin cancer drug Yervoy, approved in the US and EU in 2011, contributed $179 million to total revenue during the reported quarter, up 10.5% sequentially and 48% year over year.

Hypertension treatment Avapro/Avalide recorded a 56% decline in sales, which came in at $95 million in the reported quarter. The drug lost patent protection in the US in March this year. Following the genericization of blood thinner Plavix and hypertension therapy Avapro/Avalide in major markets across the globe, Bristol-Myers and Sanofi revamped their long-standing alliance regarding the drugs. The new agreement will be effective from January 1, 2013.

Diabetes therapies, Byetta and Bydureon, which were added to Bristol-Myers’ product portfolio following its purchase of Amylin Pharma in August 2012, contributed $55 million and $20 million to Bristol-Myers’ revenues in the third quarter of 2012.

Adjusted gross margin, as a percentage of net sales, stood at approximately 75% in the reported quarter as against approximately 74% in the comparable quarter of 2011. Adjusted marketing, selling and administrative expenses in the reported quarter declined 1.3% to $1 billion. Adjusted research and development expenses for the quarter increased approximately 1.3% to $903 million as Bristol-Myers continues to invest in its pipeline.

2012 Outlook Backed

Apart from announcing its financial results, Bristol-Myers maintained its earlier guidance for 2012. The pharma major continues to expect adjusted 2012 earnings in the range of $1.90 - $2.00 per share. Bristol-Myers expects to end 2012 with earnings in the upper end of the forecasted range. The Zacks Consensus Estimate for 2012 is $1.92 per share.

Our Take

Even though the genericization of Plavix and Avapro has resulted in significant loss of revenues for Bristol-Myers, we believe that the company’s diversified business model coupled with its strong financial position will help in tough situations.

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.

Bristol-Myers also expanded its partnership with AstraZeneca (AZN) on diabetes drugs for developing and marketing the erstwhile Amylin's diabetes candidates/drugs.

We currently have a Neutral recommendation on Bristol-Myers. The stock carries a Zacks #3 Rank (Hold rating) in the short run.

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