Bristol-Myers Squibb Company’s (BMY) third quarter 2010 earnings (excluding special items) of $0.59 per share surpassed the Zacks Consensus Estimate by $0.06. The company had earned $0.47 per share in the year-ago quarter.
On a reported basis (including special items), Bristol-Myers’ earnings in the reported quarter climbed 22% to $0.55 per share. Even though Bristol-Myers’ lead product Plavix and therapies indicated for HIV and hepatitis performed well in the quarter, the better than expected earnings were mainly driven by cost controls and lower taxes.
Net sales in the reported quarter came in flat at $4.8 billion. Revenues were short of the Zacks Consensus revenue Estimate of $4.9 billion mainly because of lower sales of Abilify, approved for the treatment of schizophrenia and depression, cancer drug Erbitux and hypertension treatment Avapro. The healthcare reform enacted earlier in the year negatively impacted net sales in the reported quarter by 1.6%.
US net sales in the quarter climbed 4% to $3.1 billion. However, international sales slipped 6% to $1.7 billion mainly because of a 3% negative foreign exchange (Fx) impact.
Global net 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), climbed 7% to $1.66 billion in the quarter.
Worldwide sales of HIV treatment drugs Sustiva and Reyataz jumped to $342 million (up 9%) and $375 million (up 4%), respectively. Sales of Baraclude (entecavir), one of the top prescribed therapies for hepatitis B virus (HBV), camein at $228 million, up 19%. Sales of the rheumatoid arthritis drug, Orencia, stood at $184 million, up 14%, while the leukemia drug, Sprycel, registered sales of $144 million, up 35%.
Furthermore, Onglyza, a type II diabetes treatment, co-developed with AstraZeneca plc (AZN) contributed approximately $47 million to sales in the quarter as against $20 million in the third quarter of 2009.
Global sales of Abilify came in at $608 million, down 7% from the year-ago quarter. Global net sales of Ixempra for the reported quarter came in at $29 million, up 4%.
Cancer drug, Erbitux, generated sales of $159 million in the reported quarter, down 11%. Global sales of Avapro came in at $303 million in the reported quarter, down 8%.
Gross margin as a percentage of net sales stood at 73.3% in the reported quarter. Marketing, selling and administrative expenses in the reported quarter declined 6% to $892 million. Advertising and product promotion for the quarter fell 10% to $231 million. Research and development expenses for the quarter came in flat at $824 million.
Pipeline Update
In addition to posting third quarter results, Bristol-Myers provided an update on its pipeline progress during the quarter. In July 2010, the New Drug Application (NDA) for Orencia was approved in Japan. In the same month, the Japanese health authorities accepted the supplemental New Drug Application (sNDA) for Sprycel as a first-line therapy for chronic myeloid leukemia.
In October, the drug received a positive opinion from the European panel for the same indication. Moreover, the quarter saw the European Medicines Agency validating the marketing application for Onglyza as a combination therapy in adults with type II diabetes.
In August 2010, the US Food and Drug Administration (FDA) accepted the Biologics License Application (BLA) for ipilimumab as a second-line therapy for metastatic melanoma and will review the application on a priority basis (target date: December 25, 2010). Moreover, during the quarter, the pharma giant presented encouraging data on its type II diabetes candidate, dapagliflozin.
In October, Bristol-Myers received a boost with the FDA approving Baraclude for an additional indication. The latest approval allows Baraclude to be marketed for treating adults suffering from chronic hepatitis B (CHB) with decompensated liver disease.
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 2010 guidance assumes a low to mid-single-digit revenue growth. The company also maintained its 2010 reported earnings projection range of $1.84 to $1.94 per share.
Our Take & Recommendation
We currently have a Neutral recommendation on Bristol-Myers, which is supported by a Zacks #3 Rank (short-term Hold rating). Our biggest concern for the company is the high exposure to generic risk on many of its leading franchises.
However, the company has already taken measures like the extension of the Abilify agreement with Otsuka, the acquisition of ZymoGenetics and Medarex to combat the threat of generics hanging over it. Moreover, the company intends to launch five compounds — apixaban, belatacept, brivanib, dapagliflozin and ipilimumab — by 2012.
Given the present scenario, we believe the ipilimumab launch could occur before 2012. The new launches are expected to drive growth in 2013 and beyond. We expect the company to look to grow revenue through partnering deals and acquisitions.
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