Bristol Reports Strong 2008 Earnings But Sharp Patent Cliffs Loom

Analysts question whether firm’s “string of pearls” growth strategy can offset patent hit.

Bristol-Myers Squibb reported more impressive sales and earnings for 2008 than the year before, but analysts question whether its current growth strategies are enough to offset the steep patent cliff ahead.

Bristol's net sales grew 13 percent to $20.6 billion for the full year and increased four percent, to $5.25 billion, in the fourth quarter 2008 (including a four percent foreign exchange hit) over $5.06 billion the same quarter last year, the firm said in announcing fourth quarter sales and earnings Jan. 27.

Execs maintain that the company's "string of pearls" growth strategy will boost Bristol's pipeline enough to cushion the blow from generic competition for three of its leading revenue drivers: Plavix (clopidogrel), Abilify (aripiprazole) and Avapro (irbesartan). The idea is that the firm will gradually add new products, or "pearls," to its portfolio to counter the loss of exclusivity on others (¹ (Also see "BMS Acquisition Strategy Heats Up With Kosan Buy" - Pink Sheet, 2 Jun, 2008.), p. 21).

Bristol's next potential "pearl" is the diabetes drug Onglyzu (saxagliptin), awaiting an FDA decision by April 30. That decision may be delayed, however, given the agency's track record for postponement and the recently issued cardiovascular risk guidelines for diabetes drugs ("² (Also see "FDA’s Diabetes Guidance On CV Risk Will Get First Test With Pending NDAs" - Pink Sheet, 22 Dec, 2008.) p. 25).

Sustaining this performance will prove challenging however, considering Bristol faces loss of as much as 40 percent of its 2008 revenues by 2012, as key products Plavix, Abilify and Avapro all loose patent protection in that time frame.

The firm's most important product, Plavix, which generated worldwide sales of $5.6 billion in 2008 (up 18 percent year on year), faces generic competition in the U.S. starting in 2011. More damaging than Plavix (which Bristol partners with Sanofi-Aventis), however, is the advent of generic competition against the firm's fastest-growing drug Abilify(2008 worldwide sales $2.2 billion, up 30 percent year on year), which goes off patent in the U.S. in 2012, Leerink Swann analyst Seamus Fernandez said.

"The question is whether the pipeline now is really enough to drive that kind of change," Fernandez said, adding that large-scale shifts in the pipe or acquisition deals will be needed to "temper the magnitude of the cliff."

Sanford Bernstein analyst Tim Anderson, perhaps mindful of the Pfizer-Wyeth deal, pressed Bristol execs on the call to identify tactics other than a gradual pipeline expansion to stave off a major generic setback. The firm, however, did not offer details beyond its "string of pearls" plan.

Bristol is identifying potential acquisitions and alliances that will aid the development of products for Alzheimer's disease, hepatitis C, solid tumors, cardiology and hematological malignancies, CEO James Cornelius said.

Bristol looks to '09

"Since we've started with our acquisition of Adnexus [Therapeutics] in the fall of 2007, we've added a total of six new 'pearls.' In recent months we've added collaborations with Exelixis and two novel cancer programs and went to ZymoGenetics for a novel stage [PEG] -interferon [lamba] in the development for the treatment of hepatitis C," Cornelius said.

Despite product growth, the unfavorable foreign exchange rate took a toll on the firm's international pharmaceutical business, which saw net sales decreased 9 percent to $1.7 billion, primarily because of an 8 percent negative foreign exchange hit coupled with the divestiture and erosion of some mature brands in Latin America, the Middle East and Japan.

But the firm announced a cautiously favorable 2009 outlook, with earnings per share expected to range from $1.58 to $1.73, on a GAAP basis, or $1.85 to $2.00 on a non-GAAP basis. Shares were $23.13 at the close of business Jan. 27, up from $22.25 the previous day.

Additionally, Bristol's cash and cash equivalents were $8 billion, as of Dec. 31, 2008, including a $1 billion payment received during the quarter from the sale of its shares of ImClone (³ (Also see "Bristol’s Next Cost Savings Target: Working Capital" - Pink Sheet, 13 Nov, 2008.)), which Lilly bought last fall.

-Carlene Olsen ([email protected])