Bristol-Myers to Lay Off 10% of Workforce

Bristol-Myers Squibb (BMY) said Wednesday it will cut 10% of its workforce and shut down half of its plants to save $1.5 billion in costs. The layoffs began last month, and the company said it will consider "strategic alternatives" that could lead to selling certain units in the company including the medical imaging, wound care and baby formula divisions. "While we are reducing headcount in certain functions, we will continue to invest in R&D, biologics and commercialization talent," CEO James Cornelius said. Cornelius has headed the company for a little more than a year. His company faces a potential $3 billion/year loss of revenue in 2012, when Bristol-Myers' top selling blood thinner Plavix loses its patent and begins to face competition from generics. "Bristol is playing a bit of a catch-up game after their change of CEO," said Linda Bannister, an analyst at Edward Jones. "Manufacturing is an area where there's some fat to trim, and in administration, because their drug portfolio has changed to be more specialized." The company also raised its 2008 forecast excluding restructuring costs to $1.65-$1.75/share from $1.60-$1.70/share, and raised its quarterly dividend $0.03 to $0.31.

Besides challenges from generic drugmakers, big pharmaceutical companies are also struggling to get new products to market and replace sales lost to patent expiration. "The business is changing pretty rapidly and the cost structure out of the industry is out of sync," Deutsche Bank analyst Barbara Ryan said last week. "You have a pretty violent loss of earnings from patent expirations and therefore an inherent cyclicality to the earnings. The industry needs to find ways to be more efficient and also to make its cost structure more flexible." Shares of BMY fell 0.6% to $28.89 in early afternoon trading Wednesday.

Sources: Press release, Bloomberg, Dow Jones
Additional Reading: Bristol-Myers Squibb Q3 2007 Earnings Call Transcript

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