Bristol Myers' Competition Causes Increased Risk

| About: Bristol-Myers Squibb (BMY)

Current shareholders should hold Bristol Myers-Squibb (NYSE:BMY) long term; interested investors may consider late-October as an opportune entry point for long-term capital appreciation or a short near term. Declining earnings are expected in 2012, as Bristol's sales have been negatively impacted by patent expirations for Plavix and Avapro. Bristol-Myers's long-term outlook is more positive as it has formed partnerships with leaders in the industry to develop products for key markets. Bristol and Pfizer's (NYSE:PFE) Eliquis is expected to get an FDA decision by March 2013, and its new Amylin diabetes franchise should gain momentum in 2013 as well. Bristol and Sanofi (NYSE:SNY) recently restructured their partnership, and Bristol is also collaborating with Vanderbilt University to develop treatments for Parkinson's.

Pfizer, Sanofi, Elli Lilly (NYSE:LLY), and AstraZeneca (NYSE:AZN) are the most comparable to Bristol Myers due to partnerships, mutual interests, or similar metrics. Bristol's 2.29% float short and 3.5 short ratio are the highest among these pharmas; this is further evidence of the consensus sentiment to short this stock in the near term. Bristol-Myers' beta score is lower than all of these firms but its average volume is around 10.7 million. Bristol-Myers' price is around 16 times earnings; both Eli Lilly and Sanofi are close to 14 times earnings.

Bristol Myers EPS is around $2.08, it increased 20.4% in 2012 and is projected to decline 2.6% in 2013. Pfizer's $1.15 EPS is the lowest and AstraZeneca's $6.24 EPS is the highest among these firms. Bristol Myers ROE is 21.9%, its operating margin is around 31.7% and its profit margin is around 23.7%. Bristol Myers annualized dividend is around $1.36, Eli Lilly's around $1.68 and AstraZeneca's is around $1.80. The stock is up 1.2% in the past month but is trading at 1.95% deficit YTD. Bristol Myers stock has decreased around 4.8% since its last earning release.

On the last Bristol Myers earnings report, second quarter total net sales decreased to $4.44 billion from $5.43 billion, YOY. Total expenses decreased to $3.38 billion from $3.64 billion, YOY; total net earnings decreased to $808 million from $1.3 billion, YOY. Long-term debt decreased to $5.2 billion from $5.37 billion, YOY. US sales totaled $2.59 billion, decreasing 27%, YOY; Europe sales totaled $865 million, decreasing 9%, YOY. Emerging markets totaled $254 million, increasing 18% overall; operations increased 24% and foreign exchange had a 6% negative impact, YOY. The majority of the 26% decrease in net sales was primarily attributable to the losses of patent exclusivity in May 2012; Bristol-Myers expects this trend to continue.

Around 85% of Bristol Myers net sales are attributable to 13 key products. Plavix was still the top selling product, but its second quarter sales totaled $741 million, declining 60%, YOY; US Plavix sales totaled $701 million. Plavix revenue in 2011 totaled $8 billion. Avapro sales totaled $117 million, decreasing 53% worldwide, YOY; US Avapro sales decreased 85%, YOY. Abilify sales totaled $711 million, increasing 1%, YOY; Baraclude sales totaled $357 million, increasing 22%, YOY. Bristol Myers believes its new products and pipeline focused on biologics, immune-ology, cardiovascular and metabolic disease, and virology are key to long-term growth in the future.

As Plavix and Avapro sales have begun to drop significantly in the second half of 2012, Sanofi and Bristol Myers recently amended and restructured their previous agreement; Bristol Myers returned the rights of both of these products to Sanofi. The new agreement will take effect on the first of January 2013. Bristol Myers will retain rights to Plavix within the US, and it will receive royalties on all sales of Plavix outside of the US and Avapro, as well, through 2018. Bristol Myers will receive $200 million at the end of 2018 and its rights to Plavix in the US will last until the end of 2019. Bristol will provide a one-time payment of $88 million for the disruption in Avalide supplies in 2011.

Bristol Myers and Pfizer recently announced that Aristotle clinical trials showed that Eliquis consistently reduced stroke, major bleeding, and mortality in comparison with warfarin. Pfizer and Bristol Myers responded to the complete response letter issued from the FDA after their first NDA earlier in the year. Pfizer and Bristol Myers resubmitted the NDA with the additional requested information and an FDA decision on Eliquis is projected for the third week of March 2013. Earlier in September, the EMA's CHMP provided a positive opinion of Eliquis for non-valvular atrial fibrillation patients with stroke or systemic embolism. After reviewing the CHMP opinion, the EC will make a final decision that will be representative of all 27 member states including Iceland and Norway as well.

Bristol Myers and AstraZeneca's GLP-1 diabetes franchise acquired with Amylin will face staunch competition from most major pharmas attempting to take market share from Merck's surging diabetes brands. Both GlaxoSmithKline (NYSE:GSK) and Eli Lilly have their own versions of GLP-1 inhibitors currently under development. The diabetes market is currently worth around $35 billion, and it's expected to exceed $58 billion by 2018, according to Standard & Poor's recent report; the GLP-1 market was nonexistent in 2007, but it's expected to reach $7 billion by 2018.

In late September, Bristol Myers announced a new partnership with Vanderbilt University aimed at developing treatments for Parkinson's disease. The Vanderbilt Center for Neuroscience Drug Discovery will be responsible for identifying new candidates from its existing program, and Bristol Myers will have rights to develop and commercialize the drugs that are discovered under this new partnership. Vanderbilt is entitled to royalties from the resulting sales of its discovered compounds.

Current shareholders shouldn't expect any significant capital appreciation until mid-2013 or later. Bristol Myers' volatility in the market and potential for a blockbuster patent approval in the near term are significantly lower than its peers. This may be an effective short squeeze in the near term if earnings reports are not as bleak as expected. Bristol Myers faces significant competition in the diabetes market and sales from Eliquis won't have any true merit until the second half of 2013 at the earliest. Interested investors will find more promising opportunities for near term ROI with other stocks in the big pharma sector.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

About this article:

Author payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500.
Tagged: , Drug Manufacturers - Major
Want to share your opinion on this article? Add a comment.
Disagree with this article? .
To report a factual error in this article, click here