This week we are reviewing Bristol-Myers Squibb as a possible stock acquisition. To do so we will use the Buffett four filters we discussed in a previous article.
About the Company
Bristol-Myers Squibb Company (NYSE:BMY) is engaged in the discovery, development, licensing, manufacturing, marketing, distribution and sale of pharmaceutical and nutritional products. The Company had two segments: Pharmaceuticals and Nutritionals. The Pharmaceuticals segment is made up of the global pharmaceutical and international consumer medicines business. The Nutritionals segment consists of Mead Johnson Nutritionals (Mead Johnson), primarily an infant formula and children’s nutritionals business. In January 2008, the Company completed the divestiture of Bristol-Myers Squibb Medical Imaging (Medical Imaging) to Avista Capital Partners L.P. In June 2008, BMS acquired Kosan Biosciences, Inc., a developer of oncology products. In August 2008, the Company completed the divestiture of its ConvaTec business to Cidron Healthcare Limited, an affiliate of Nordic Capital Fund VII and Avista. In December 2008, BMS completed the sale of its brand business in Egypt to GlaxoSmithKline.
Filter 1: Recent Insider Buying
Sigal Elliot EVP, CSO & President R&D Huet Jean-Marc EVP & CFO
Filter 1 Conclusion
Strong insider buying by key roles in the company- very positive signs.
Filter 2: Graham Fundamentals
|Price to Book||3.04|
|EPS Growth Rate||-0.04 over 5 yrs|
|Earnings in all of last 10 yrs||Yes|
Filter 2 Conclusion
Strong on main Graham valuations, EPS Growth Rate is weak meaning they have underperformed in their ability to generate growing earnings over the last 5 years. Compared to the sector that is achieving 5.22% they are not performing well. Price to book is also inflated meaning we are paying a premium for the value of the company. In comparison to its competition in the sector that is 2.11 they are overpriced.
Filter 3: Sustainable Competitive Advantage
Patents are the main area of advantage for a drug company so it is worth looking at some short hand notes about the largest drugs that Bristol carries, and when the patents expire.
Plavix is marketed worldwide in nearly 110 countries, with sales of US$5.9 billion in 2005. It had been the 2nd top selling drug in the world for a few years as of 2007 and was still growing by over 20% in 2007. In 2006, generic clopidogrel was briefly marketed by Apotex, a Canadian generic pharmaceutical company before a court order halted further production until resolution of a patent infringement case brought by Bristol-Myers Squibb. The court ruled that Bristol-Myers Squibb's patent was valid and provided protection until November 2011. Generic clopidogrel is also produced by several pharmaceutical companies in India at significantly lower retail prices, up to 1/30th of the price. Counterfeit Plavix is in circulation, as with many popular medicines. Wikipedia Link
The patent on aripiprazole expires on October 20, 2014; however, due to a pediatric extension, a generic will not become available until at least April 20, 2015. Barr Laboratories initiated a patent challenge under the Hatch-Waxman Act in March 2007. This challenge is still in court as of 11 December 2008. Wikipedia Link
Patent Expiration Sep 30, 2011 source
Patent Expiration Aug 7, 2012 source
Patent Expiration Feb 21, 2015 source
Filter 3 Conclusion
Diverse solid products. As with many drug companies they sell their product at a premium and once patents expire generics are quick to rush in. 2011 a number of these patents expire so there will likely be an infusion of R&D over the next few years to get new products to the market place to replace older ones.
Filter 4: Able and Trustworthy Managers
James M. Cornelius: Chairman of the Board, Chief Executive Officer
“We’ve recast our business portfolio to focus on medicines for serious disease. We’ve addressed our cost structures to be a leaner, stronger, more effective company, and we’ve accelerated innovation through our string of pearls business development execution” … “we continue to make headway against our goal of improving our gross margins, pre-tax margins, and net income margins, and again in the quarter, we saw improvement in all three.” source
Lamberto Andreotti : President, Chief Operating Officer, Director
“We are retaining the scope and resources of a traditional pharmaceutical company and adopting the agility of a biotech company,” says Lamberto. “We are creating an environment that puts a premium on innovation and speed. One of the biggest changes is our shift to a business model that embraces partnerships and opportunities that don’t fit within the traditional pharma model. This means we’re less focused on doing everything on our own. Instead, we’re selecting those things that we need to do ourselves, and doing them better and differently. In the process, we’re accelerating the things that make us very competitive in this changed environment.” source
Jean-Marc Huet : Chief Financial Officer, Executive Vice President
“We had broad-based growth in the first quarter across the entire portfolio driven by Plavix, Abilify, our virology business, as well as our newer products.” source
Filter 4 Conclusion
It is tough to get a sense of the management at this point. They do appear to understand the investor/management relationship and do seem to understand how to set a strong corporate direction. Are they trustworthy- hard to say at this point.
Final conclusions- what are your thoughts?
The writer of this article currently holds no positions in BMY