Big Pharma has been in the news a lot lately - from the Supreme Court decision on "Obamacare" to the troubling fine that GlaxoSmithKline (GSK) faces - but for Bristol-Myers (BMY) Squibb, the news has been mostly positive (and with GlaxoSmithKline pleading guilty to introducing two misbranded drugs to interstate commerce, a big competitor for Bristol-Myers Squibb has had its image tarnished).
The company has purchased the diabetes drug maker Amylin Pharmaceuticals (AMLN) $5.3 billion. This is a huge step for Bristol-Myers Squibb and its forward progress in the world of diabetes treatment. Prior to this acquisition, Amylin was trading around $30.70 per share and had a market cap for 5.00 billion. In addition to being financially successful for Bristol-Myers Squibb, this move will be incredible for the financial status of Amylin. The price of the acquisition is expected to increase to around $7 billion after Amylin's debt to Eli Lilly (LLY) is factored in. Eli Lilly & Company is currently strong at $40.85 per share (towards the high end of its 52-week range) and has a dividend yield of $0.49/$4.57. Basically, Bristol-Myers will pay off Amylin's debt to the pharmaceutical giant, making Bristol-Myers an even greater competitor to Eli Lilly & Company.
Eli Lilly, along with its partner Incyte (INCY) has had massive success in the trials of its up and coming rheumatoid arthritis. The drug, Baricitinib, has achieved all of its primary goals thus far. This news is a game changer for Eli Lilly, and even though its research is in a different market than Bristol-Myers' work with diabetes, it shows investors that Eli Lilly is not a stock to be taken lightly. It's a rising and worthy competitor to Bristol-Myers Squibb.
The same day Bristol-Myers agreed to purchase Amylin Pharmaceuticals, it also threw in a third act twist regarding AstraZeneca (AZN). Bristol-Myers and AstraZeneca have an existing diabetes alliance, and now, with the purchase of Amylin, will be an even bigger diabetes research giant. AstraZeneca will $3.4 billion in cash as part of this deal, thus the two companies will share profits and losses equally. With the world's diabetes epidemic only getting worse, this is an advantageous move. The two main drugs for this partnership that are generating revenue are Byetta and Bydureon. Bydureon just received FDA approval in January, and this drug shows immense promise as it only needs to be administered to patients with Type II diabetes once a week, as opposed to the current products on the market that require twice daily injections. The company has also had success in a recent Type II diabetes research trial for a drug that caused significant reductions in blood sugar levels. All in all, this new acquisition and expanded partnership will greatly increase Bristol-Myers' cash flow.
Despite this potential price decrease, Bristol-Myers Squibb has some solid and advantageous projects and moves coming down the pipeline. These maneuvers are acting as insurance policies to protect the company in the event of such a financial storm. The pharmaceutical company has partnered up with the prestigious Emory University in Atlanta, Georgia to conduct drug trials for investigational compounds. The project will consist of Phase II, Phase III, and pediatric testing in the realms of oncology, metabolics, hepatitis C, and immunoscience. This trial puts the company at the forefront of research at Emory's Winship Cancer Institute with some of the best and brightest minds in the country.
In addition to the hepatitis drug, Bristol-Myers Squibb has also partnered with Otsuka Pharmaceuticals in Europe and recently released six-year follow-up results to its Phase III, randomized, open-label dose-optimization study of Sprycel (dasatinib) for chronic myeloid leukemia. The results of this trial indicated that this is the longest reported follow up of second generation Tyrosine Kinase Inhibitors for patients resistant or intolerant to imatinib. Financial information for competitor Otsuka is unavailable, due to the company being privately held and traded.
The company has four drugs - Plavix, Avapro, Sustiva, and Abilify - that will be going generic over the next four years. The first drug to go was Plavix this year in May. This was a challenge for the company considering that the company received $6.6 billion in revenue in 2011 alone. This is projected to lead to a 60% drop in sales and a 15% decrease in the company's revenue of $21 billion. Abilify is one of the company's biggest sources of revenue. Analysts are hoping that despite having it go off patent in 2015 the drug will still bring in substantial revenue for Bristol-Myers Squibb. It is projected to maintain its sales of $2.9 billion for 2012.
The company's forward progress in developing antidotes to chronic diseases has not particularly fueled surges in the financial realm. On June 21, 2012, Bank of America Merrill Lynch reiterated its neutral rating for Bristol-Myers Squibb. Bank of America (BAC) noted the promise and progress of the two previously mentioned drugs but wanted to see how the market responds before it changes any official opinion. Furthermore, Bristol-Myers Squibb has a relatively high multiple relative to its competitors in the same market. The company did note that it is increasing its PO to $36, up from $34.
Dividends matter for big pharma, and analysts are eyeing Bristol-Myers and competitor Abbott Laboratories with scrutiny. Abbott, consistently one of the strongest and most powerful companies in the pharmaceutical industry, has had dividends lower than the industry average (currently $0.51/$3.16). Bristol-Myers' dividend is even lower, hovering around $0.34/$3.79. Abbott consistently outperforms, however, and with an anticipated company split in the future, shareholders are in a good place at a good time. This will increase its dividend and may leave Bristol-Myers in the dust in some investors' portfolios.
There's big competition in big pharma right now. With GlaxoSmithKline dealing with a public image nightmare and a hefty $3 billion fine, all the other players are stepping up their game and fighting in the ring. Bristol-Myers Squibb and its competitors are all involved in strong research with great potential. Bristol-Myers Squibb is an attractive stock right at its current price around $35, and it will be worthwhile to follow its progress to see what's next.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.