Bristol Myers Squibb Company’s (BMY) second quarter 2010 earnings (excluding special items) of 54 cents per share surpassed the Zacks Consensus Estimate by a penny. The company had earned 48 cents per share in the year-ago quarter.

On a reported basis, Bristol Myers’ earnings in the reported quarter climbed 20% year-over-year to 53 cents per share. The rise was attributable to cost controls, lower taxes and strong sales of its lead product Plavix and therapies indicated for HIV and hepatitis.

Although net sales in the reported quarter climbed 2% year-over-year to $4.77 billion, sales were lower than the Zacks Consensus revenue Estimate of $4.86 billion. The healthcare reform enacted earlier in the year, which calls for lower rebates on drugs bought under government programs, negatively impacted net sales in the reported quarter by 1.5%.

U.S. net sales in the quarter climbed 4% year-over-year to $3.1 billion. However, international sales slipped 2% year-over-year to $1.7 billion, despite a 1% favorable foreign exchange (Fx) impact.

The jump in net sales for the reported quarter was primarily attributable to strong sales of Plavix, an anti-platelet blood thinner indicated to reduce the risk of heart attack in patients with atherosclerosis (the build-up of plaque and hardening of the arteries), and Baraclude for treating the hepatitis B virus. In addition, Bristol reported robust sales of HIV treatment drugs Reyataz and Sustiva.

Global net sales of Plavix, co-marketed with Sanofi-Aventis (SNY), climbed 6% year-over-year to $1.63 billion in the quarter. Worldwide sales of Sustiva in the quarter came in at $331 million, up 6%. Reyataz sales for the reported quarter stood at $357 million, up 8%, and Baraclude sales came in at $223 million, up 25% year-over-year. Sales of the rheumatoid arthritis drug Orencia stood at $178 million, up 20%, while the leukemia drug Sprycel registered sales of $132 million, up 23%.

Furthermore, Onglyza a type II diabetes treatment, co-developed with AstraZeneca plc (AZN) contributed approximately $28 million to sales in the quarter.

Global sales of Abilify, for the treatment of schizophrenia and depression, came in at $633 million, down 2% from the year-ago quarter. The global net sales of Ixempra for the reported quarter came in flat year-over-year at $29 million.

Cancer drug Erbitux generated sales of $172 million in the reported quarter, down 1%. Global sales of hypertension treatment Avapro came in at $307 million in the reported quarter, down 2%. Gross margin as a percentage of net sales stood at 73.2% in the reported quarter.

Marketing, selling and administrative expenses in the reported quarter declined 3% year-over-year to $894 million. Advertising and product promotion for the quarter fell 12% year-over-year to $263 million. Research and development expenses for the quarter stood at $822 million, up 1% year-over-year.

Bristol Myers, which made significant advances with its pipeline during the quarter, is expected to release important data on its late-stage pipeline candidates in the second half of the year. Consequently, the period will give an insight to long-term investors on the future of the stock.

Outlook Backed

Bristol Myers reaffirmed its previously issued guidance for 2010. Bristol-Myers continues to expect 2010 earnings (excluding special items) to range between $2.10 per share – $2.20 per share as the impact of healthcare reform is expected to partially offset the strong underlying business and mitigating initiatives undertaken by Bristol Myers. The Zacks Consensus Estimate for 2010 is $2.15.

The company also maintained its 2010 reported earnings projection range of $1.84 to $1.94 per share. The 2010 guidance assumes a mid-single-digit revenue growth. Furthermore, the New York-based company also maintained its 2013 earnings (excluding special items) projection of at least $1.95 per share. 2013 should be the first full year of impact following the loss of exclusivity of Plavix in the United States.

Our Take & Recommendation

Even though patent expirations loom large on Bristol in the near future, we believe the company has taken some measures — like the Medarex acquisition, among others — to counter the loss of revenues resulting from the patent expiration of its key drugs.

The company intends to launch five compounds — apixaban, belatacept, brivanib, dapagliflozin and ipilimumab — by 2012. The new launches are expected to drive growth in 2013 and beyond.

Consequently, we believe the current risk/reward profile for Bristol-Myers is balanced. This justifies not only the short-term Zacks#3 Rank on the stock but also our long-term Neutral stance on the stock.
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