Negative headlines attributed to withdrawn clinical trials and insider trading have created opportune entry points for investors interested in adding Bristol-Myers Squibb (NYSE:BMY) to their portfolios. Below, I will explain why current shareholders should endure these temporary headwinds to benefit from an adequate dividend yield and a solid business model alongside stable financials that should eventually dictate capital appreciation. Bristol-Myers has abundant products in its portfolio and partnerships with major pharmaceutical firms that focus on capitalizing on lucrative and expansive opportunities in the drug manufacturing industry in order to offset key patent expirations in early 2012. Bristol-Myers is not one of the most dynamics plays among the large-cap pharmaceuticals, but it does serve as a defensive asset for the long-term.
Bristol-Myers Squibb is most comparable to the smaller large-caps under $60 billion, like Eli Lilly (NYSE:LLY) and AstraZeneca (NYSE:AZN). Bristol-Myers and Eil Lilly are smaller U.S firms compared to Merck (NYSE:MRK), Pfizer (NYSE:PFE) and Johnson & Johnson (NYSE:JNJ), much in the same way that AstraZeneca is a smaller competitor for GlaxoSmithKline (NYSE:GSK) in the U.K. Only AstraZeneca, Eli Lilly and GlaxoSmithKline have lower price-to-earnings ratios than Bristol-Myers. Bristol has the highest PEG ratio of all of these pharmaceuticals but also has the lowest beta of 0.44 when compared to all of the aforementioned pharmaceuticals. Bristol-Myers has a lower price-to-sales ratio than Johnson & Johnson, Pfizer, Merck and GlaxoSmithKline as well. At 4.29%, Bristol has a higher dividend yield than Merck, Pfizer and Johnson & Johnson.
Bristol's sales growth over the past five years has been around 5.56%, this is higher than AstraZeneca, Johnson & Johnson and GlaxoSmithKline as well. However, only AstraZeneca has worse sales performance than Bristol for the past quarter year-over-year (YOY). Bristol has a higher return on equity than Johnson & Johnson and Merck while its gross margin is higher than GlaxoSmithKline and Johnson & Johnson. Bristol has the second-highest operating and net margins among all of the aforementioned pharmaceuticals, trailing only AstraZeneca in both margins. Bristol has a higher current and quick ratio than GlaxoSmithKline and AstraZeneca, while its debt-to-equity ratio of 0.34 is equivalent to Merck and second lowest to Johnson & Johnson. Among all of these pharmaceuticals, Bristol has the worst market performance year-to-date (YTD) through mid-August. It is the only stock trading at a deficit YTD, while its price has decreased by 9.7% since its second quarter earnings release.
According to the second quarter earnings report, net sales in the second quarter decreased 18% YOY to $4.44 billion and during the first half of 2012 net sales decreased 7% to $9.69 billion. During the second quarter, net sales amounted to a 19% decrease in volume, 3% increase in price and 2% decrease from foreign exchange. In the first half of 2012, net sales amounted to a 10% decrease in volume, 5% increase in price and 2% decrease from foreign exchange. U.S. sales in the second quarter decreased 27% overall to $2.59 billion, from a 32% decrease in volume and 5% increase in price. U.S sales in the first half of 2012 decreased 11% overall to $6.04 billion, from an 18% decrease in volume and 7% increase in price. In the second quarter of 2012, Emerging Markets sales increased 18% overall to $254 million from a 24% increase in volume and 6% decrease from foreign exchange. Net sales in Latin America, the Middle East and Africa increased by 3% in the second quarter and decreased by 3% in the first half of 2012. Net sales in Europe decreased by 9% to $865 million in the second quarter and decreased by 4% in the first half of 2012. Japan, Asia Pacific and Canada decreased 2% overall in the second quarter and first half of 2012.
Bristol's main objective is to offset the loss of exclusivity of Plavix and Avapro/Avalide. These products generated $8 billion in revenue during 2011. Plavix revenue decreased 60% to $741 million in the second quarter and decreased 33% to $2.4 billion during the first half of 2012. Avapro/Avalide revenue decreased 53% to $117 million in the second quarter and decreased 40% to $324 million during the first half of 2012. Bristol refers to its business strategy of key acquisitions and collaborations with major pharmaceuticals as its "string of pearls." Among other partnerships, this strategy includes acquiring Inhibitex in February 2012 for its hepatitis C portfolio and the recent acquisition of Amylin in August 2012 for its diabetes portfolio in order to strengthen the diabetes initiative under the 2007 collaboration between Bristol and AstraZeneca. Onglyza/Kombiglyze nets sales, diabetes type 2 products under the collaboration, increased 54% in the second quarter and 73% in the first half of 2012. Baraclude net sales, for hepatitis B, increased by at least 20% in the second quarter and first half of 2012, while net sales of Yervoy, a melanoma drug, increased 71% in the second quarter and over 100% in the first half of 2012.
Aside from the dwindling revenues in the second quarter earnings report from losing exclusivity, Bristol stock has dropped recently after news it withdrew a hepatitis C drug from clinical trials in order to protect patient safety. Bristol's stock took another hit when news broke about the SEC and FBI charging and arresting a Bristol Myers executive for insider trading on public knowledge regarding acquisitions and generating over $300,000 in illicit profits from 2010 through 2012. The latest newsbreaks should be one-time events while Bristol has been preparing for the loss of patent exclusivity for several years. Bristol has had recent regulatory success under its collaboration with Eli Lilly on Erbitux, on Orencia, Bristol's treatment for rheumatoid arthritis and on Forxiga for diabetes, under its alliance with AstraZeneca. Under a balanced approach, no compound or product has accounted for more than 10% of Bristol's R&D expense in the past three years.
Bristol-Myers stock has dropped due to the recent negative headlines, but it doesn't face any significant headwinds that will negatively impact its operations in the near or long-term besides key patent expirations from March and May of 2012. Its focus on forming a multitude of working partnerships with major pharmaceuticals for worldwide implementation of promising products, lack of expiring patents in the future, and stable financials will be enough to offset the loss of exclusivity and support organic growth for the long-term as well. I urge current shareholders to hold onto Bristol-Myers Squibb to benefit from an adequate dividend yield and look beyond the latest one-time events, while interested investors should utilize this time to add a stable asset from a high performing sector to their portfolio at a discount.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.