BMY Pummeled After Earnings, But Bristol-Myers Squibb Stock Still a Buy

by James Brumley | January 24, 2014 4:20 pm

BMY Pummeled After Earnings, But Bristol-Myers Squibb Stock Still a Buy

Bristol-Myers Squibb (BMY[1]) did better in the fourth quarter than most analysts and investors were expecting, beating per-share earnings exceptions by 18% and topping revenue estimates by 3.2%, thanks to strong sales of Baraclude, Orencia, Yervoy and Sprycel.

bristol 185 BMY Pummeled After Earnings, But Bristol Myers Squibb Stock Still a Buy

All told, BMY reported a profit of 51 cents per share, vs. estimates of 43 cents and a year-ago figure of 47 cents. Sales-wise, Bristol-Myers Squibb generated $4.44 billion worth of revenue, which compares favorably to the anticipated Q4 2013 top line of $4.19 million and Q4 2012′s revenue of $4.19 billion.

The bulk of the sales growth came from overseas markets, while the improvement in profits was driven by a combination of higher sales and lower R&D costs.

With all of that being said, current or prospective Bristol-Myers Squibb stock owners might want to embrace the fact that — for better or worse — the same BMY from last quarter isn’t going to be the same BMY a year from now. A significant reconfiguring of Squibb’s drug portfolio in addition to a change of plans for some of the most promising therapies in its pipeline require a more thorough look, just so shareholders know what to expect in 2014.

A New (and Likely Improved) Bristol-Myers Squibb

Last quarter, Bristol-Myers Squibb saw sales of hepatitis drug Baraclude grow 14%, reaching $412 million. Revenue from cancer drug Yervoy was up 23%, to $260 million. Immunotherapy (rheumatoid arthritis) Orencia sales expanded 22%, to $397 million. Sales of HIV treatment Sustiva grew 11% to $427 million. And, cancer drug Sprycel improved sales to the tune of 30%, reaching revenue of $365 million.

BMY stock owners and observers should know, however, there were some red flags waving in last quarter’s report. Sales of antipsychotic drug Abilify slumped 22%, to only $635 million, and though sales of blood-thinning Plavix were technically up 65% on a year-over-year basis in the fourth quarter, Plavix only generated $81 million in revenue during Q4. In 2012, Plavix sales were approaching sales of nearly $2 billion per quarter, before its patent expired.

The hot spots last quarter in its portfolio of existing drugs largely reflect the company’s new direction. Going forward, Bristol-Myers Squibb stock holders can expect an even deeper focus on cancer treatments like Yervoy and Sprycel, as well as further development of immunotherapy drugs like Orencia, and antivirals.

Conversely, though BMY has no apparent plans to shed its slumping Plavix or Abilify franchises, the company isn’t devoting a great deal of time or resources to develop replacements…. perhaps because the heir-apparent to Plavix, Eliquis, has been a very slow starter. In fact, Bristol-Myers Squibb is looking to shed many of its non-cancer and non-immunotherapy projects to better focus on those two areas. Case in point: Despite decent revenue growth from its diabetes portfolio in Q4, the company will be selling all four of its diabetes drugs[2] to AstraZeneca (AZN[3]) later in the year.

And despite growth in Baraclude’s sales, BMY also announced in November that it would be axing its hepatitis C programs.

What Now for Bristol-Myers Squibb Stock Owners?

With a new-found focus on the areas that Bristol-Myers Squibb is most interested in, “how” becomes the big question. Broadly speaking, it looks like the company is willing to let go of its partnership bent and start to do more on its own.

Selling its diabetes business to now-former-partner AstraZeneca is some evidence to that end, but it’s not the only sign that BMY is migrating to a policy of self-sufficiency. The company has also given up on partnering with Gilead (GILD[4]) on the hepatitis C front.

Gilead is the maker of Sovaldi, the first-ever pill-form hepatitis C treatment. Alone the pill works quite well, but when combined with Bristol-Myers Squibb’s daclatasvir hepatitis therapy, the drug duo is almost miraculous. Gilead wants none of such a partnership, however, opting to develop its own drugs to combine with Sovaldi to improve its efficacy. As it turns out, however, BMY stock owners may have the last laugh, though, and Gilead may regret its decision go it alone. Daclatasvir is up for a likely approval in Europe, where doctors are apt to prescribe it in off-label combinations with other hepatitis therapies. Success there in conjunction with other hepatitis drugs could serve as a launching point for approval in the United States.

Bristol-Myers Squibb stock holders will also want to keep tabs on Nivolumab. The story of this non-small-cell lung cancer therapy took an apparent wrong turn earlier in the week when it was announced that a new Phase 3 study of the drug was being initiated[5], implying that the previous study of Nivolumab (in combination with Yervoy) isn’t going as well as hoped. It’s important to note that the company has said nothing of any issues with the Yervoy/ Nivolumab trial, however, and it’s entirely possible BMY has simply chosen to pursue two parallel studies, just to see which option produces the highest efficacy.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

Endnotes:
  1. BMY: http://studio-5.financialcontent.com/investplace/quote?Symbol=BMY
  2. selling all four of its diabetes drugs: http://www.fool.com/investing/general/2013/12/21/bristol-myers-squibb-and-astrazeneca-a-big-break-u.aspx
  3. AZN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AZN
  4. GILD: http://studio-5.financialcontent.com/investplace/quote?Symbol=GILD
  5. a new Phase 3 study of the drug was being initiated: http://news.investors.com/012314-687332-bmy-stock-falls-after-nivolumab-trial-launched.htm?ven=yahoocp&src=aurlled&ven=yahoo

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