Bristol Myers' Plavix Patent Cliff Will Weigh On Results

| About: Bristol-Myers Squibb (BMY)

Bristol-Myers Squibb (NYSE:BMY) will announce its third quarter earnings this Wednesday, October 24. The company is coming off a patent cliff earlier this year in May, when it lost patent exclusivity of its blockbuster cardiovascular drug, Plavix. As a result, it posted a decline of 18% in revenue and 38% in net income in the second quarter, on a YOY basis.

In the third quarter, we anticipate the decline in revenue and net income will continue due to the ongoing fall in sales of Plavix and Avapro. This decline will be partially offset by sales growth of other key drugs in the company's portfolio, namely Yervoy, Onglyza, Baraclude, Sprycel, Orencia, and Nulojix, among others. Earnings will also benefit from the Amylin acquisition, completed in the third quarter. This acquisition provided Bristol-Myers the anti-diabetic drugs Byetta and Bydureon, whose sales will add to the company's top line growth in the third quarter.

We currently have a stock price estimate of $35.24 for the company, slightly above its current market price.

See our complete analysis of Bristol-Myers Squibb here

Patent Expiry Of Plavix Will Continue To Impact Earnings

Combined sales of Plavix and Avapro were approximately $8 billion out of $21.2 billion in overall revenues for Bristol-Myers in 2011. Avapro lost patent exclusivity in March, and Plavix in May. Post-patent expiry sales of both the drugs experienced a sharp and significant decline due to competition from cheaper generics. As a result, in the second quarter, sales of Plavix declined 60% YOY, or $1.1 billion, and sales of Avapro declined 53% YOY, or $134 million. We anticipate the decline in the sales of both of these drugs to continue in the third quarter, with generics occupying a greater share of their markets.

Sales Growth Of Other Key Drugs Will Partially Offset The Patent Cliff's Impact

This large decline in top line and earnings will be partially offset in the third quarter by continuing strong performance of several other key drugs from Bristol-Myers. In the second quarter, Yervoy, an anti-cancer drug, posted a 71% YOY increase in sales; and Onglyza, an anti-diabetic drug, posted a 54% YOY increase in sales.

Baraclude, Sprycel, Orencia, and Nulojix also posted YOY sales growth exceeding 20% in the second quarter. Overall, excluding Plavix and Avapro, the combined sales of all other key drugs increased by 13% YOY, or $345 million in the second quarter.

Amylin Acquisition Will Add To Third Quarter Growth

Bristol-Myers also completed its acquisition of Amylin Pharmaceuticals in the third quarter. The acquisition provides the company a major anti-diabetic drug, Bydureon. Anti-diabetes drugs as a therapeutic class are poised for growth over the coming years, as diabetes has become a global epidemic. Bydureon, which treats type-2 diabetes, is prescribed to be taken only once a week. The drug has already received approvals in the U.S. and the EU, and we anticipate it to add to growth in revenues and earnings for Bristol-Myers in the third quarter.

The company also received approval for Erbitux as a first-line of treatment for Colorectal Cancer earlier this year. This will add to growth in sales of the drug in the third quarter.

Share Repurchase Program May Help Ease Shareholder Concerns

Also, in anticipation of lower earnings, the company had authorized an additional $3 billion in share repurchases in June 2012. At the end of the second quarter, the company had approximately $3.3 billion left in its share repurchase program, according to Bristol-Meyers' Q2 10-Q. Such programs send a positive message to the investor community that the company has confidence in its long-term growth, and it will help address shareholder concerns in the event of a fall in earnings.

All in all, the company will likely post a YOY decline in its top line and net income in the third quarter, driven by patent expiry of Plavix, and partially offset by growth in sales of other key drugs. However, the share repurchase program should help alleviate shareholder concerns.

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