Bristol-Myers Squibb (BMY) has been in the news for a number of positive reasons. The company recently announced it will buy Amylin, a diabetes drug manufacturer, for $5.3 billion dollars. Many analysts are deeming the acquisition an excellent fit strategically for the company. Global sales of diabetes drugs are currently around $35 billion annually, but this number is expected to reach $58 billion by 2018. This could certainly be a huge opportunity for the company in the long-term. Bristol-Myers Squibb is currently entering a transition phase as patents for Plavix and Avapro expire. Bristol and current shareholders were disappointed to hear that there will be a delay in the launch of Eliquis. Bristol expected an uptick in regard to FDA approval of this new product in the summer of 2012. Fortunately, new studies are not needed and Eliquis could be hitting markets by the summer of 2013. Bristol has made headway in improving its pipeline operations and currently has a number of products with potential to impact emerging markets around the world. In the following article, I will explain why new investors and current shareholders should view Bristol-Myers Squibb as a lucrative long-term asset to hold onto until at least 2014.
Sales growth for Bristol-Myers Squibb has increased by more than 4.5 percent from the previous year. Sales growth has decreased by more than 3.5 percent from the previous quarter. Price is currently more than 18 times earnings; this is an increase from the trailing price of 15 times earnings. Bristol-Myers's beta is around .5 while the current PEG ratio is over 8.5. Return on equity, net margin and operating margin have all been increasing marginally for the past three quarters. The current ratio was above two last year but has been declining steadily for the past three quarters. The current ratio is slightly above 1.5 while the quick ratio is slightly below 1.5. The debt to equity ratio has been decreasing marginally above 0.3 for the past three quarters
The trailing price to earnings ratio exceeds the industry average while the dividend yield of 3.85 percent is slightly under the industry average. The trailing net margin and return on equity are very close to the industry average. Bristol-Myers's financials are relatively adequate but potential growth is minimal while the shareholders and potential investor are paying a premium for one of the prominent brands in the industry. Bristol-Myers is competing in the industry but it certainly is not dominating its competitors.
In a recent shareholder meeting, Bristol-Myers reviewed a decent quarter, right now it is mainly concerned with the transition into operations after the Avapro and Plavix patents expire. These two expiring patents accounted for around $8 billion in revenue for Bristol during 2011. Aside from these expiring patents, Bristol-Myers is coping with the global economic difficulties that are affecting a variety of organizations in most industries. Bristol Myers will also have to adapt is projections throughout the year as the FDA recently delayed the release of ELIQUIS. Stroke is the third leading cost of death in American and affects more than 10 million people around the world. Bristol-Myers planned to launch this product in Europe, the US and Japan upon approval. Bristol will depend greatly on the abundance of products current in its pipeline awaiting approval in order to compensate for the increase in generic competition coming to its most lucrative launches over the past few years.
The recent decision by the FDA is only a temporary setback for Bristol Myers. Eliquis is blood thinner drug, a joint-venture by Bristol-Myers and Pfizer (PFE) that allows them to potentially compete in a forecasted multibillion dollar industry. FDA blocked the application to market the drug, requesting more information regarding the clinical data submitted from the two trial sets. A timeline for response has not been established yet but the FDA has six months to make a final judgment on the application. Bristol-Myers and Pfizer stocked dropped by less than four percent and less than two percent respectively upon the announcement. Specifically, the FDA announced it needs more on data management and verification from the Aristotle trials.
Fortunately, more information has to submitted, a new study is not needed. Analysts feel the drug will eventually be approved; this just pushes the American launch back a few months in the least. The drug has already been approved for blood clots after surgery in the European Union. Eliquis is claimed to be a superior replacement for warfarin, the standard treatment for years now. Once its effectiveness and safety is confirmed, analysts believe the product should be launch by July of 2013. This is believed to be the most effective treatment available as Johnson & Johnson's (JNJ) Xarelto was already denied for horizontal expansion. Ultimately, Bristol-Myers and Pfizer will split the earnings from new line equally.
Mylan (MYL) and Dr. Reddy's Laboratories (RDY) have already launched generic releases to compete with Plavix. Bristol-Myers may have found a viable solution to its expiring patents with a new deal that was announced recently. This announcement comes just a little more than a month after Bristol's exclusive patent's expiration. Bristol-Myers will be working with Emory University on development of products in its pipeline related to oncology, hepatitis C, immunoscience and metabolics as well. Working with Emory's established and renowned health system in conducting phase II, phase III and pediatric studies could be very effective in offsetting the increasing competition from generic releases. This new partnership is a viable solution to expediting new products' approval from Bristol's current pipeline. The foremost focus will be on oncology products in the pipeline.
On the Q1 2012 earnings call, management emphasized its focus on short-term and long-term operations after the expiration of its lucrative and exclusive patents. Europe continues to hamper earnings but demand is increasing as of late. Demand in the US remains strong for a number of Bristol's products. Yervoy, Sprycel and Orencia were highlighted as experiencing strongest growth and potential returns in the near future. Bristol expects success with advent of Forixga's introduction to the European market to treat type 2 diabetes. Eventually, Bristol plans on receiving approval from the FDA as well. Bristol also has a diversified line of products to potentially treat the 170 million people worldwide who chronically suffer from hepatitis C. Acquiring Inhibitex was one of the main factors in improving Bristol's positioning on the hepatitis C market. This acquisition significantly improved Bristol's patents and portfolio of HCV compounds for treatment.
In the first quarter, Bristol's sales for Plavix and Avapro decreased by four percent and 29 percent, respectively. However, other lines for Bristol are showing promise. For the previous quarter, Bristol's Orecnia franchise increased by 28 percent, while the Sprycael insulin went up 34 percent. Bristol increased sales, marketing and admin expenses increased by eight percent from promoting its newer brands. Bristol has a number of products it will be focusing on in the US, Europe and Japan as well.
Pricing for Bristol will be steady until the next earnings report or developments mature concerning Eliquis. Business development regarding long-term and short-term improvement in Bristol's growth profile is the foremost concern for management at the present time. With an annual dividend rate of $1.36 per share, at best, this can be a long-term defensive asset for new investors. I recommend investors hold on to this stock for an extended period of time into 2014.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.