On Wednesday, October 24th, pharmaceutical giant Bristol-Myers Squibb (NYSE:BMY) is scheduled to report earnings and given that the company felt the full force of impact from expiring patents the last time it reported earnings, Wall Street will again be watching closely. On the other hand, it's not like the impact from expiring patents on Bristol-Myers Squibb the last time around came as a surprise to anyone as the company has been taking steps for some time to counter that impact - most notably with its recent acquisition of diabetes drug maker Amylin Pharmaceutical. On the other hand, Bristol-Myers Squibb has also had a major setback on the hepatitis front involving a drug it had acquired in a $2.5 billion deal earlier this year and most of that acquisition cost will need to be written off. With all of that in mind, might now be the time to get into Bristol-Myers Squibb or should you wait?
The Numbers Wall Street Expects From Bristol-Myers Squibb
To begin with the upcoming earnings report, the latest summary of analyst estimates from Yahoo Finance has the Wall Street consensus expecting Bristol-Myers Squibb to report a 25.60% revenue decline to $3.98 billion along with an EPS of $0.42 vs. $0.61 for the same period last year. The current EPS consensus estimate of $0.42 is slightly up from the $0.41 consensus number three months ago.
For the year, the Wall Street consensus for Bristol-Myers Squibb calls for a 15.90% revenue drop to $17.86 billion while EPS is expected to drop from $2.28 to $1.92, and for next year, the Wall Street consensus expects a 4.70% revenue fall to $17.03 billion along with an EPS fall from $1.92 to $1.86. However, investors still should keep in mind that these Bristol-Myers Squibb estimates for both revenue and earnings could still make moves in either direction.
In addition, investors should also keep in mind that other large-cap pharmaceutical or health care related stocks scheduled to report earnings include Eli Lilly (NYSE:LLY) on Wednesday, October 24th; Novartis (NYSE:NVS), Sanofi (NYSE:SNY) and AstraZeneca (NYSE:AZN) on Thursday, October 25th; and both Pfizer (NYSE:PFE) and GlaxoSmithKline (NYSE:GSK) on Wednesday, October 31st.
What Bristol-Myers Squibb Reported Last Earnings Season
The last time Bristol-Myers Squibb reported earnings, it broke a three consecutive quarter streak of both revenue and earnings growth when it reported an 18.2% drop in revenue to $4.44 billion while GAAP EPS fell 27% to $0.38 and Non-GAAP EPS fell 14% to $0.48 due to expiring patents on stroke medicine Plavix and high blood pressure treatments Avapro/Avalide. Specifically, Plavix sales sank 60% from $1.8 billion to $741 million due to the approval of generic versions of the drug while sales of Avapro/Avalide sank 53% to $117 million.
If sales of Plavix and Avapro/Avalide were not included, Bristol-Myers Squibb would have reported an 8% sales rise. Moreover, many of Bristol-Myers Squibb's new or other drugs performed well with sales of rheumatoid arthritis drug Orencia growing 27% to $290 million, sales of leukemia drug Sprycel rising 26% to $244 million, sales of hepatitis B drug Baraclude rising 22% to $357 million and sales of schizophrenia drug Abilify rising 1% to $711 million. However, the above sales gains along with cost cutting were not enough to offset the losses from Plavix and Avapro/Avalide.
What You Need to Consider
Investors should keep in mind that Bristol-Myers Squibb noted during its last earnings report that it has been taking measures for some time to make up for the inevitable revenue losses when its patents on Plavix and Avapro/Avalide would expire and that's what investors need to pay attention to.
For starters, at the end of June, Bristol-Myers Squibb announced it would acquire diabetes drug maker Amylin Pharmaceutical for about $5.3 billion in cash plus it would pay $1.7 billion to Eli Lilly to cover the company's debt and obligations from their collaborative work together. In addition, Bristol-Myers Squibb will enter into an alliance with UK based AstraZeneca with the later to pay $3.4 billion in cash develop and commercialize Amylin's diabetes drugs with profits and losses to be split between the two companies.
Deutsche Bank has called the Amylin Pharmaceutical deal a good strategic fit for Bristol-Myers Squibb and estimated that the acquisition could be 5% accretive in 2016 but other analysts have suggested that the company may have overpaid for it. Nevertheless, with at least 280 million people suffering from diabetes globally, including 25.8 million in the US alone, getting into the diabetes space is a good bet - especially since the disease is increasing due to higher obesity rates. More importantly, Amylin Pharmaceutical already as two diabetes drugs approved for sale in the US: The twice-daily injection drug Byetta which generated $518 million last year along with a longer-acting form of the drug called Bydureon which is taken just once a week. Hence, pay attention to any numbers associated with these drugs and any discussion by Bristol-Myers Squibb's management about Amylin Pharmaceutical and its future contributions to the company.
On the other hand, Bristol-Myers Squibb's acquisition of Inhibitex for $2.5 billion back in January in order to compete in the Hepatitis C space has turned out rather badly as development of BMS-986094 had to be discontinued in August after nine patients in a clinical trial were hospitalized and one of them died. Bristol-Myers Squibb will be taking a $1.8 billion third quarter charge - effectively wiping out most of the company's investment in Inhibitex and dealing it a major setback in the potentially lucrative hepatitis market. Likewise, there is at least one lawsuit or allegation that a patient was told to keep taking BMS-986094 even after she showed signs of heart problems and now she needs a heart transplant.
A Final Word About Bristol-Myers Squibb
Although the Inhibitex acquisition has ended poorly and that's always the risk when a biotech with unapproved drugs is acquired, the Amylin Pharmaceutical acquisition came with two approved drugs for a disease that's increasingly common. Moreover, as Bristol-Myers Squibb heads into earnings, it's doing so with around a 4% dividend yield and a P/E of 16.25 - two things that make the stock rather compelling. Hence, investors with a long-term time horizon might want to get into Bristol-Myers Squibb either before or after earnings and then just sit tight for the long-term.