netrashetty
Netra Shetty
Bristol-Myers Squibb (NYSE: BMY), often referred to as BMS, is a pharmaceutical company, headquartered in New York City. The company was formed in 1989, following the merger of its predecessors Bristol-Myers and the Squibb Corporation. Squibb was founded in 1858 by Edward Robinson Squibb in Brooklyn, New York, while Bristol-Myers was founded in 1887 by William McLaren Bristol and John Ripley Myers in Clinton, New York (both were graduates of Hamilton College).
Lamberto Andreotti became the company's CEO on May 4, 2010. Former CEO James M. Cornelius remains chairman of the Board of Directors.
Bristol-Myers Squibb manufactures prescription pharmaceuticals in several therapeutic areas, including cancer, HIV/AIDS, cardiovascular disease, diabetes, hepatitis, rheumatoid arthritis and psychiatric disorders. Its mission is to "discover, develop and deliver innovative medicines that help patients prevail over serious diseases." Over the past several years BMS had been upping the price of its medicines to bolster profits. In 2008 Sprycel gained notoriety as the drug with the largest annual price increase, at 32%.
BMS' primary R&D sites are located in Princeton, New Jersey (formerly Squibb) and Wallingford, Connecticut (formerly Bristol-Myers), with other sites in Hopewell and New Brunswick, New Jersey, and in Braine-l'Alleud, Belgium, and Tokyo.
A major restructuring involves focusing on the pharmaceutical business and biologic products along with productivity initiatives and cost-cutting and streamlining business operations through a multi-year program of on-going layoffs. As another cost-cutting measure Bristol-Myers also reduced subsidies for health-care to retirees and plans to freeze their pension plan at the end of 2009.[citation needed]
In November 2009, Bristol-Myers Squibb announced that it was "splitting off" Mead Johnson Nutrition by offering BMY shareholders the opportunity to exchange their stock for shares in Mead Johnson. According to Bristol-Myers Squibb, this move is expected to further sharpen the company's focus on biopharmaceuticals.
In 1999, President Clinton awarded Bristol-Myers Squibb the National Medal of Technology, the nation's highest recognition for technological achievement, "for extending and enhancing human life through innovative pharmaceutical research and development and for redefining the science of clinical study through groundbreaking and hugely complex clinical trials that are recognized models in the industry." In 2005, BMS was among 53 entities that contributed the maximum of $250,000 to the second inauguration of President George W. Bush.[3]
BMS is a Fortune 500 Company (#114 in 2010 list). Newsweek's 2009 Green Ranking recognized Bristol-Myers Squibb as 8th among 500 of the largest U.S. corporations. Also, BMS was included in the 2009 Dow Jones Sustainability North America Index of leading sustainability-driven companies.
Bristol-Myers Squibb (NYSE: BMY) is one of the largest pharmaceutical companies by total sales, with a revenue of $18.8 billion in 2009. In 2009, sales of pharmaceuticals accounted for 81% of net sales, with the rest coming in roughly equal parts from BMY's Mead Johnson nutritionals and ConvaTec segments.
Bristol-Myers Squibb has recently been plagued by losses of market exclusivity, both expected and unexpected. This has caused a substantial drop in sales in two key drugs: Plavix, a blood thinner, and Pravachol, a cholesterol-lowering drug. However, sales of other drugs have remained strong, and no other losses of market exclusivity are expected until 2011.
Meanwhile, BMY continues to develop its strong late-stage pipeline of six strongly performing drugs, as well as various other products in earlier stages of development. It also continues to increase R&D spending to levels closer to that of similar-sized competitors like Eli Lilly and Merck, even as it seeks to improve the productivity efficiency of its development processes. 2009 R&D spending was $3.58 billion, an increase of 11% from 2007. Both of these developments will be of central importance to BMY remaining competitive in the market.
Corporate Overview
Bristol-Myers Squibb is a New York-based pharmaceutical company founded in 1989 with the merger of the Bristol-Myers and Squibb corporations. Since then BMY has developed into a leading developer, licenser and marketer of pharmaceutical and related health care products for the treatment of a wide range of diseases including cancer, cardiovascular disease, hepatitis, HIV/AIDS, and rheumatoid arthritis.
Contents
1 Corporate Overview
1.1 Business and Financial Metrics
1.2 Recent News
1.2.1 Mead Johnson Nutrition
1.2.2 Restructuring
1.3 Recent Acquisitions
2 Business Segments
2.1 Pharmaceuticals
3 Research and Development
4 Trends and Forces
4.1 Drug Market Exclusivity and Generic Competition
4.2 Pricing Pressures
4.3 Tightening FDA Regulations
5 Comparison to Competitors
6 References
Business and Financial Metrics
BMS posted third quarter 2010 net earnings of $949 million from $966 million a year ago. However with less total number of shares outstanding in the market, the EPS increased to 59 cents from 47 cents the previous year, exceeding analyst estimates of 53 cents per share. Q3 earnings included earnings from Mead Johnson, BMS’s nutrition arm, which was split off in Dec 2009. Sales for the quarter increased from $4.79 billion in Q32009 to $4.8 billion, however they failed to meet expectations of $4.9 billion. The company reiterated its prior forecast of $1.84 to $1.94 per share for 2010. [1]
BMS posted second quarter 2010 net sales of $4.8 billion, a 2% increase from Q2 of 2009. The company announced that US Health Care reform had a 1.5% negative effect on net sales in Q2. The global sales growth was attributed to it's virology franchise and PLAVIX (6% growth). In addition, BMS took the Q2 earnings call to announce positive data on key marketed and investigational compounds as well.[2] EPS from continuing operations showed a 20% increase from 44 cents in Q2 2009 to 54 cents in Q2 of 2010. The earnings also beat analyst expectations of 53 cents per share.[3]
Bristol-Myers Squibb posted first quarter 2010 net sales of $4.8 billion, an increase of 11% compared to the same period in 2009. Health care reform had a 1% negative effect on net sales in the first quarter. International net sales increased 11% to $1.7 billion. Gross margin as a percentage of net sales was 72.8% in the first quarter 2010 compared to 73.0% in 2009. U.S. net sales increased 11% to $3.1 billion in the first quarter of 2010 compared to the same period in 2009. [4]
Bristol-Myers Squibb’s global sales growth in the first quarter was led by an increase in sales of Plavix of 16%. The Company’s virology franchise, including Baraclude (42%) for hepatitis B, and Reyataz (16%) and Sustiva (15%) for HIV demonstrated consistent growth. First quarter sales of Orencia and Sprycel grew 36% and 49% respectively compared to the same period in 2009. [4]
Recent News
Mead Johnson Nutrition
On November 16, 2009, Bristol-Myers announced plans to divest its nutritional division, Mead Johnson Nutrition, for $6.5 billion in order to concentrate more on its pharmaceutical division. Mead Johnson Nutrition consists entirely of children's formulas, mainly for infants but also for children and toddlers.[5]
Mead Johnson Nutrition's 2008 financial breakdown is listed below:
Infant formula: $1.9B in 2008 revenue, up 8.2% from 2007. The best known product in this line is Enfamil.
Children's/Toddler formula: $856 million in 2008 revenue, up 23.5% from 2007.
Restructuring
The company announced plans in December 2008 to cut an additional 10% of its workforce, on top of an already announced 10% reduction the year before which includes the closing of half of its manufacturing plants. The cuts will save the company approximately $2.5 billion each year. This downsizing is consistent with the cost-cutting measures of many other big pharmaceuticals recently, such as Pfizer and Merck, which also slashed their workforce by more than 10%. [6]
Recent Acquisitions
On September 8th, 2010, BMY announced its intent to buy ZymoGenetics for $885 million. The boards of both the companies and 37% of ZymoGenetics shareholders have already agreed to this offer. This acquisition will bring strengthen BMY's Hepatitis C portfolio while bringing expertise in therapeutic proteins and revenue from a specialty surgery biologic that is already in the market.[7]
BMY has sought to strengthen its pipeline and increase revenues through acquisitions. The most recent of these is the company's purchase of Medarex (MEDX) in July 2009. The move is designed to enhance BMY's pipeline, particularly within cancer treatments. [8]
Business Segments
BMY's sales revenue were divided amongst two business segments: Pharmaceuticals and Nutritionals. The Pharmaceuticals segment consists of the global pharmaceutical/biotechnology and international consumer medicines business, which accounted for approximately 81% of the Company’s 2009 net sales. The Nutritionals segment consisted of Mead Johnson Nutrition Company (Mead Johnson), primarily an infant formula and children’s nutritionals business, which accounted for approximately 14% of the Company’s 2009 net sales.[9] However to focus on the pharmaceutical sector, the company divested the nutritional department in November 2009.[10]
Pharmaceuticals
Bristol-Myers Squibb is primarily a pharmaceuticals company, offering treatments for cardiovascular disease, HIV/AIDS, hepatitis, cancer, and rheumatoid arthritis. Cancer treatments especially represent a major portion of the long-term growth potential of the company, and have historically been a strong suit of Bristol-Myers Squibb.
However, a quick glance at sales figures make it clear that revenues from the pharmaceutical business dropped substantially last year. This was driven largely by the loss of market exclusivity on BMY's key Pravochol medication, as well as a significant loss of market share for BMY's biggest selling drug, Plavix, as a result of generic competition. The resulting drop in sales was in turn tempered by strong sales growth in a number of other key products. Meanwhile BMY continues to introduce new drugs to the market from its hefty development pipeline: last year BMY launched rheumatoid arthritis medication Orencia, as well as Gleevec alternative Sprycel for the treatment of chronic myelogenous leukemia. Both of these new products were internally developed and expected to do well in the coming years, reflecting the strength of BMY's pipeline and strategic foresight in R&D spending.
BMY's biggest earners in the pharmaceutical segment in 2008 were:[11]
Plavix: a cardiovascular drug with $6.1 billion in revenue, up 10% from 2008, Plavix is designed to prevent blood clots due to heart disease. The drug's patent expires in 2011.
Abilify: a psychiatric drug with $2.6 billion in revenue, up 20% from 2008, Abilify is a treatment for schizophrenia and depression. The drug's patent expires in 2014.
Avapro/Avalide: a cardiovascular drug with $1.3 billion in revenue, down 1% from 2008, Avapro/Avalide is a treatment for high blood pressure and kidney problems. The drug's patent expires in 2012.
Reyataz: a viral drug with $1.4 billion in revenue, up 8% from 2008, Reyataz is a drug that battles HIV. The drug's patent expires in 2017.
Sustiva: a viral drug with $1.3 billion in revenue, up 11% from 2008, Sustiva is also an HIV treatment. The drug's patent expires in 2013.
Research and Development
Research and development is of the utmost importance for pharmaceutical companies like Bristol-Myers Squibb. As explained in the above section on market exclusivity, the vast majority of a new drug's commercial potential is met during the stage in which a single company has exclusive rights to it, i.e. when the company holds a patent. As such, BMY's revenues are fundamentally tied to the ability of its internal research and development teams to produce the big revenue-earners that BMY can claim exclusivity for: drugs like Plavix, Pravochol, or Reyataz.
BMY, like other pharmaceutical companies, continues to invest heavily in R&D for new treatments and products, spending $3.6 billion on R&D in 2008, up 11% from 2007. The company now has a strong and varied late-stage pipeline consisting of six drugs in phase III of development which are expected to launch at around the 2010 mark. These include:
3 treatments for cancer: ixabepilone, vinflunine and ipilimumab. Oncology is an area of historical strength for BMY and a key source of its long-term growth potential.
The biologic belatacept, for solid-organ transplant rejection, is in clinical trials.
Saxagliptin for the treatment of type II diabetes.
Despite the strength of its pipeline, many of its new product introductions are entering markets in which they have to compete with other products that have already been introduced, which carries certain disadvantages. The company is, however, pursuing a strategy of investing in the development of products which address areas of unmet medical need.
Other important areas of development include the nascent field of protein-based treatments (biologics), of which Orencia is amongst the first: BMY recently committed nearly a billion dollars to enhance its production capabilities in the area of biologics.
In any case, pricing pressures on pharmaceuticals (see below section) as well as escalating costs for advanced research make the development of any and all kinds of drugs less lucrative, and riskier, than before. Strategic management of the pipeline is thus key.
Trends and Forces
Drug Market Exclusivity and Generic Competition
Proportion of Bristol-Meyers Squibb's revenue that is earned from drugs whose patents will expire or have expired during the time-frame on the x-axis.[12]
For a detailed discussion of brand name vs. generic medication, see also Generic drugs.
Patent exclusivity is essential within the pharmaceutical industry, where the market exclusivity granted by patents enables companies to enjoy a period of high profitability necessary to justify the high costs of development for a novel therapeutic. Moreover, in the pharmaceutical industry, a single patent covering the active ingredient of the drug can oftentimes represent the entire unique value of that product.[13]
The United States, European Union, Japan, and most developed nations in the world offer an accelerated generic drug approval process whereby competitors can develop generic versions of brand name drugs with expired patents. The accelerated approvals, known as ANDAs in the US, only require that the sponsor company show that their drug is equivalent to the name-brand drug, enabling that company to bypass the expensive and time consuming clinical trials required of a novel drug.[14] The relatively cheap cost to develop generics in comparison to name-brand drugs enables generic companies to substantially undercut prices, to the tune of $10 billion total, annually across the industry.[15] This generic competition can severely impact the revenue that pharmaceutical companies may earn from their drugs that lose patent exclusivity.
In 2006, BMY lost patent exclusivity of its cardiovascular treatment, Pravachol, which earned $2.6 billion at its peak.[16] After only two quarters of generic competition, total sales of Pravochol were barely 50% of their 2005 levels. In 2008, Pravachol sales totaled just over $200 million. Oncology drug, Taxol, which earned $1.6 billion annually in its peak,[17] now brings in less than $400 million with generic competition.
The most significant patent expiration that BMY will have faced in its history comes in November 2011, when its $5.6 billion drug, Plavix loses exclusivity. How BMY handles generic competition for Plavix, which represents over a quarter of BMY's total revenue, will be critical in the coming years for the company. After Plavix, BMY faces patent expirations for the blockbusters Avapro and Sustiva in 2012 and Abilify in 2014. By 2015, BMY will have lost patent exclusivity from drugs representing over 50% of its 2008 revenue. However, BMY spends 17.4%, almost $3.6 billion, of its revenue on research and development and has several drugs in phase III clinical trials, which will help offset losses from generic competition.[18]
Pricing Pressures
For all pharmaceutical companies, government-imposed regulations on prices have substantial impact on sales. Government regulations are especially relevant in the realm of government health programs like Medicare and Medicaid in the U.S. For example, Medicaid has recently imposed access and reimbursement restrictions in some states due to budget constraints, applying a downward pressure on prices. Internationally, greater government involvement in the provision of healthcare means that the government has even greater power to exert downward pressure on pricing (e.g. profit control plans in the UK). Other sources of downward pressure on prices include the prevalence and consolidation of Managed Care Organizations, and the importing of drugs from cheaper international sources (Canada, for example).
Tightening FDA Regulations
When FDA commissioner Margaret Hamburg began her tenure in 2009, she announced that the FDA would toughen it's enforcement efforts to protect public health.[19] As the FDA has drawn criticisms for its failures in preventing deaths caused by drugs such as Vioxx, Hamburg has come in with several fixes that include stricter monitoring of drug adverse events, more funding for the agency, stronger ability to force product recalls, and more scientific expertise within the agency.[20] On May 19, 2010, the FDA announced 21 proposals aimed at increasing transparency to the public regarding regulatory information.[21]
Such information will increase the amount of information accessible to the public with regard to companies' pipeline drugs and manufacturing facilities that might otherwise not have been disclosed. While the tightened regulations and increased transparency will eventually improve the overall quality of pharmaceutical products, there will be growing pains as companies adjust to the stricter standards and stronger enforcement. BMS's ability to adjust to these new standards will impact its valuation and financial success
Comparison to Competitors
The business of pharmaceuticals is highly dynamic and extremely competitive. Close competitors for Bristol-Myers Squibb include Merck (NYSE:MRK), Pfizer(NYSE
FE), Eli Lilly & Company (NYSE:LLY), AstraZeneca (NYSE:AZN), Sanofi-Aventis (NYSE: SNY) and GlaxoSmithKline (NYSE:GSK). It is important to note that BMY is substantially smaller than all of these competitors in both sales and market capitalization.
As such, the key to success for BMY is a strong, well-funded R&D program that has been strategically positioned to maximize efficiency, and produce the drugs that are most likely to generate huge success for the company. In this sense, BMY compares quite favourably to its competitors for a few reasons:
BMY's R&D spending in 2008 amounts to 17.4% of its total sales, a number which stacks up favorably against the industry average of 16.8%.
BMY has a hefty development pipeline for its size, with 6 products in late-stage development, all of which look to be strong performers when they are eventually launched. It also has another 15 or so products in various middle-stages of development, ensuring continued growth in the long run.
BMY has positioned itself strategically to perform more research in important areas of future discovery (the area of biologics, for example).
There is a caveat to these facts however:
Though BMY has an admittedly strong mid-to-late development pipeline, its earlier pipeline is somewhat lacking. This is a disconcerting fact considering the flurry of new drugs currently in pre-clinical development or early trials at competitors GlaxoSmithKline, AstraZeneca, Sanofi-Aventis, and Pfizer.
Overall, Bristol-Myers Squibb's smaller size could play to its advantage, in that it is under far less pressure than its larger competitors to replace the huge blockbuster drugs that have fueled their growth (Pfizer and its immensely successful Lipitor, for example). Its smaller size may also allow it to be more efficient, as is demonstrated by the fact that BMY has one of the highest proportions of sales/employee in the industry.
Competition in the pharmaceutical industry lies mostly in specific drug markets. For example, a new diabetes drug is not going to have any effect on an existing cholesterol drug, no matter how successful it is. As a result, financial data on the pharmaceutical companies do not tell the whole story. Instead, it may be more appropriate to analyze BMY's competitors by each drug market (See section on Major Drugs and Industry Trends).
Note that the total revenue for Merck and Pfizer was influenced by revenue inherited from their acquisitions of Schering-Plough and Wyeth, respectively. In addition, net income for Merck was bolstered by $3.2 billion from the sale of its animal division [22], while Bristol-Meyers Squibb's net income saw a one-time $7.2 billion increase from the sale of its nutrition division.[23]
Pharmaceutical and Biotech Industry — Competitive Operating Metrics (2009)
Johnson & Johnson (JNJ)
Pfizer (PFE)
Novartis (NVS)
Abbott Laboratories (ABT)
Merck (MRK)
Bristol-Meyers Squibb (BMY)
Eli Lilly (LLY)
Amgen (AMGN)
Gilead (GILD)
AstraZeneca (AZN)
Roche (RHHBY)
Revenue (in billions of USD)
Total Revenue
$61.9
$50.0
$44.3
$30.8
$27.4
$18.8
$21.8
$14.6
$7.0
$32.8
$49.1
Gross Profit
$43.5
$41.1
$32.1
$17.6
$18.4
$13.7
$17.6
$12.6
$5.4
$27.2
$34.4
Revenue Growth from 2008
-2.9%
3.5%
4.0%
4.2%
15.0%
6.2%
7.2%
-2.4%
31.4%
3.8%
7.5%
Income
Net Income
$12.3
$8.6
$8.4
$5.8
$12.9
$10.6
$4.3
$4.6
$2.6
$7.5
$7.8
Net Profit Margin
19.8%
17.3%
19.0%
18.7%
47.0%
56.4%
19.8
31.5%
37.6%
22.9%
15.9%
Operating Income
$15.8
$10.8
$10.0
$6.2
$15.3
$5.6
$5.4
$5.5
$3.5
-$11.5
$11.9
Diluted EPS Growth from 2008
-3.7%
2.5%
3.7%
21.8%
55.6%
20.7%
NA
19.6%
36.9%
23.6%
-11.8%
Other
R&D Spending
$7.0
$7.8
$7.5
$2.7
$5.9
$5.1
$4.3
$2.9
$0.9
$4.4
$9.9
Lamberto Andreotti became the company's CEO on May 4, 2010. Former CEO James M. Cornelius remains chairman of the Board of Directors.
Bristol-Myers Squibb manufactures prescription pharmaceuticals in several therapeutic areas, including cancer, HIV/AIDS, cardiovascular disease, diabetes, hepatitis, rheumatoid arthritis and psychiatric disorders. Its mission is to "discover, develop and deliver innovative medicines that help patients prevail over serious diseases." Over the past several years BMS had been upping the price of its medicines to bolster profits. In 2008 Sprycel gained notoriety as the drug with the largest annual price increase, at 32%.
BMS' primary R&D sites are located in Princeton, New Jersey (formerly Squibb) and Wallingford, Connecticut (formerly Bristol-Myers), with other sites in Hopewell and New Brunswick, New Jersey, and in Braine-l'Alleud, Belgium, and Tokyo.
A major restructuring involves focusing on the pharmaceutical business and biologic products along with productivity initiatives and cost-cutting and streamlining business operations through a multi-year program of on-going layoffs. As another cost-cutting measure Bristol-Myers also reduced subsidies for health-care to retirees and plans to freeze their pension plan at the end of 2009.[citation needed]
In November 2009, Bristol-Myers Squibb announced that it was "splitting off" Mead Johnson Nutrition by offering BMY shareholders the opportunity to exchange their stock for shares in Mead Johnson. According to Bristol-Myers Squibb, this move is expected to further sharpen the company's focus on biopharmaceuticals.
In 1999, President Clinton awarded Bristol-Myers Squibb the National Medal of Technology, the nation's highest recognition for technological achievement, "for extending and enhancing human life through innovative pharmaceutical research and development and for redefining the science of clinical study through groundbreaking and hugely complex clinical trials that are recognized models in the industry." In 2005, BMS was among 53 entities that contributed the maximum of $250,000 to the second inauguration of President George W. Bush.[3]
BMS is a Fortune 500 Company (#114 in 2010 list). Newsweek's 2009 Green Ranking recognized Bristol-Myers Squibb as 8th among 500 of the largest U.S. corporations. Also, BMS was included in the 2009 Dow Jones Sustainability North America Index of leading sustainability-driven companies.
Bristol-Myers Squibb (NYSE: BMY) is one of the largest pharmaceutical companies by total sales, with a revenue of $18.8 billion in 2009. In 2009, sales of pharmaceuticals accounted for 81% of net sales, with the rest coming in roughly equal parts from BMY's Mead Johnson nutritionals and ConvaTec segments.
Bristol-Myers Squibb has recently been plagued by losses of market exclusivity, both expected and unexpected. This has caused a substantial drop in sales in two key drugs: Plavix, a blood thinner, and Pravachol, a cholesterol-lowering drug. However, sales of other drugs have remained strong, and no other losses of market exclusivity are expected until 2011.
Meanwhile, BMY continues to develop its strong late-stage pipeline of six strongly performing drugs, as well as various other products in earlier stages of development. It also continues to increase R&D spending to levels closer to that of similar-sized competitors like Eli Lilly and Merck, even as it seeks to improve the productivity efficiency of its development processes. 2009 R&D spending was $3.58 billion, an increase of 11% from 2007. Both of these developments will be of central importance to BMY remaining competitive in the market.
Corporate Overview
Bristol-Myers Squibb is a New York-based pharmaceutical company founded in 1989 with the merger of the Bristol-Myers and Squibb corporations. Since then BMY has developed into a leading developer, licenser and marketer of pharmaceutical and related health care products for the treatment of a wide range of diseases including cancer, cardiovascular disease, hepatitis, HIV/AIDS, and rheumatoid arthritis.
Contents
1 Corporate Overview
1.1 Business and Financial Metrics
1.2 Recent News
1.2.1 Mead Johnson Nutrition
1.2.2 Restructuring
1.3 Recent Acquisitions
2 Business Segments
2.1 Pharmaceuticals
3 Research and Development
4 Trends and Forces
4.1 Drug Market Exclusivity and Generic Competition
4.2 Pricing Pressures
4.3 Tightening FDA Regulations
5 Comparison to Competitors
6 References
Business and Financial Metrics
BMS posted third quarter 2010 net earnings of $949 million from $966 million a year ago. However with less total number of shares outstanding in the market, the EPS increased to 59 cents from 47 cents the previous year, exceeding analyst estimates of 53 cents per share. Q3 earnings included earnings from Mead Johnson, BMS’s nutrition arm, which was split off in Dec 2009. Sales for the quarter increased from $4.79 billion in Q32009 to $4.8 billion, however they failed to meet expectations of $4.9 billion. The company reiterated its prior forecast of $1.84 to $1.94 per share for 2010. [1]
BMS posted second quarter 2010 net sales of $4.8 billion, a 2% increase from Q2 of 2009. The company announced that US Health Care reform had a 1.5% negative effect on net sales in Q2. The global sales growth was attributed to it's virology franchise and PLAVIX (6% growth). In addition, BMS took the Q2 earnings call to announce positive data on key marketed and investigational compounds as well.[2] EPS from continuing operations showed a 20% increase from 44 cents in Q2 2009 to 54 cents in Q2 of 2010. The earnings also beat analyst expectations of 53 cents per share.[3]
Bristol-Myers Squibb posted first quarter 2010 net sales of $4.8 billion, an increase of 11% compared to the same period in 2009. Health care reform had a 1% negative effect on net sales in the first quarter. International net sales increased 11% to $1.7 billion. Gross margin as a percentage of net sales was 72.8% in the first quarter 2010 compared to 73.0% in 2009. U.S. net sales increased 11% to $3.1 billion in the first quarter of 2010 compared to the same period in 2009. [4]
Bristol-Myers Squibb’s global sales growth in the first quarter was led by an increase in sales of Plavix of 16%. The Company’s virology franchise, including Baraclude (42%) for hepatitis B, and Reyataz (16%) and Sustiva (15%) for HIV demonstrated consistent growth. First quarter sales of Orencia and Sprycel grew 36% and 49% respectively compared to the same period in 2009. [4]
Recent News
Mead Johnson Nutrition
On November 16, 2009, Bristol-Myers announced plans to divest its nutritional division, Mead Johnson Nutrition, for $6.5 billion in order to concentrate more on its pharmaceutical division. Mead Johnson Nutrition consists entirely of children's formulas, mainly for infants but also for children and toddlers.[5]
Mead Johnson Nutrition's 2008 financial breakdown is listed below:
Infant formula: $1.9B in 2008 revenue, up 8.2% from 2007. The best known product in this line is Enfamil.
Children's/Toddler formula: $856 million in 2008 revenue, up 23.5% from 2007.
Restructuring
The company announced plans in December 2008 to cut an additional 10% of its workforce, on top of an already announced 10% reduction the year before which includes the closing of half of its manufacturing plants. The cuts will save the company approximately $2.5 billion each year. This downsizing is consistent with the cost-cutting measures of many other big pharmaceuticals recently, such as Pfizer and Merck, which also slashed their workforce by more than 10%. [6]
Recent Acquisitions
On September 8th, 2010, BMY announced its intent to buy ZymoGenetics for $885 million. The boards of both the companies and 37% of ZymoGenetics shareholders have already agreed to this offer. This acquisition will bring strengthen BMY's Hepatitis C portfolio while bringing expertise in therapeutic proteins and revenue from a specialty surgery biologic that is already in the market.[7]
BMY has sought to strengthen its pipeline and increase revenues through acquisitions. The most recent of these is the company's purchase of Medarex (MEDX) in July 2009. The move is designed to enhance BMY's pipeline, particularly within cancer treatments. [8]
Business Segments
BMY's sales revenue were divided amongst two business segments: Pharmaceuticals and Nutritionals. The Pharmaceuticals segment consists of the global pharmaceutical/biotechnology and international consumer medicines business, which accounted for approximately 81% of the Company’s 2009 net sales. The Nutritionals segment consisted of Mead Johnson Nutrition Company (Mead Johnson), primarily an infant formula and children’s nutritionals business, which accounted for approximately 14% of the Company’s 2009 net sales.[9] However to focus on the pharmaceutical sector, the company divested the nutritional department in November 2009.[10]
Pharmaceuticals
Bristol-Myers Squibb is primarily a pharmaceuticals company, offering treatments for cardiovascular disease, HIV/AIDS, hepatitis, cancer, and rheumatoid arthritis. Cancer treatments especially represent a major portion of the long-term growth potential of the company, and have historically been a strong suit of Bristol-Myers Squibb.
However, a quick glance at sales figures make it clear that revenues from the pharmaceutical business dropped substantially last year. This was driven largely by the loss of market exclusivity on BMY's key Pravochol medication, as well as a significant loss of market share for BMY's biggest selling drug, Plavix, as a result of generic competition. The resulting drop in sales was in turn tempered by strong sales growth in a number of other key products. Meanwhile BMY continues to introduce new drugs to the market from its hefty development pipeline: last year BMY launched rheumatoid arthritis medication Orencia, as well as Gleevec alternative Sprycel for the treatment of chronic myelogenous leukemia. Both of these new products were internally developed and expected to do well in the coming years, reflecting the strength of BMY's pipeline and strategic foresight in R&D spending.
BMY's biggest earners in the pharmaceutical segment in 2008 were:[11]
Plavix: a cardiovascular drug with $6.1 billion in revenue, up 10% from 2008, Plavix is designed to prevent blood clots due to heart disease. The drug's patent expires in 2011.
Abilify: a psychiatric drug with $2.6 billion in revenue, up 20% from 2008, Abilify is a treatment for schizophrenia and depression. The drug's patent expires in 2014.
Avapro/Avalide: a cardiovascular drug with $1.3 billion in revenue, down 1% from 2008, Avapro/Avalide is a treatment for high blood pressure and kidney problems. The drug's patent expires in 2012.
Reyataz: a viral drug with $1.4 billion in revenue, up 8% from 2008, Reyataz is a drug that battles HIV. The drug's patent expires in 2017.
Sustiva: a viral drug with $1.3 billion in revenue, up 11% from 2008, Sustiva is also an HIV treatment. The drug's patent expires in 2013.
Research and Development
Research and development is of the utmost importance for pharmaceutical companies like Bristol-Myers Squibb. As explained in the above section on market exclusivity, the vast majority of a new drug's commercial potential is met during the stage in which a single company has exclusive rights to it, i.e. when the company holds a patent. As such, BMY's revenues are fundamentally tied to the ability of its internal research and development teams to produce the big revenue-earners that BMY can claim exclusivity for: drugs like Plavix, Pravochol, or Reyataz.
BMY, like other pharmaceutical companies, continues to invest heavily in R&D for new treatments and products, spending $3.6 billion on R&D in 2008, up 11% from 2007. The company now has a strong and varied late-stage pipeline consisting of six drugs in phase III of development which are expected to launch at around the 2010 mark. These include:
3 treatments for cancer: ixabepilone, vinflunine and ipilimumab. Oncology is an area of historical strength for BMY and a key source of its long-term growth potential.
The biologic belatacept, for solid-organ transplant rejection, is in clinical trials.
Saxagliptin for the treatment of type II diabetes.
Despite the strength of its pipeline, many of its new product introductions are entering markets in which they have to compete with other products that have already been introduced, which carries certain disadvantages. The company is, however, pursuing a strategy of investing in the development of products which address areas of unmet medical need.
Other important areas of development include the nascent field of protein-based treatments (biologics), of which Orencia is amongst the first: BMY recently committed nearly a billion dollars to enhance its production capabilities in the area of biologics.
In any case, pricing pressures on pharmaceuticals (see below section) as well as escalating costs for advanced research make the development of any and all kinds of drugs less lucrative, and riskier, than before. Strategic management of the pipeline is thus key.
Trends and Forces
Drug Market Exclusivity and Generic Competition
Proportion of Bristol-Meyers Squibb's revenue that is earned from drugs whose patents will expire or have expired during the time-frame on the x-axis.[12]
For a detailed discussion of brand name vs. generic medication, see also Generic drugs.
Patent exclusivity is essential within the pharmaceutical industry, where the market exclusivity granted by patents enables companies to enjoy a period of high profitability necessary to justify the high costs of development for a novel therapeutic. Moreover, in the pharmaceutical industry, a single patent covering the active ingredient of the drug can oftentimes represent the entire unique value of that product.[13]
The United States, European Union, Japan, and most developed nations in the world offer an accelerated generic drug approval process whereby competitors can develop generic versions of brand name drugs with expired patents. The accelerated approvals, known as ANDAs in the US, only require that the sponsor company show that their drug is equivalent to the name-brand drug, enabling that company to bypass the expensive and time consuming clinical trials required of a novel drug.[14] The relatively cheap cost to develop generics in comparison to name-brand drugs enables generic companies to substantially undercut prices, to the tune of $10 billion total, annually across the industry.[15] This generic competition can severely impact the revenue that pharmaceutical companies may earn from their drugs that lose patent exclusivity.
In 2006, BMY lost patent exclusivity of its cardiovascular treatment, Pravachol, which earned $2.6 billion at its peak.[16] After only two quarters of generic competition, total sales of Pravochol were barely 50% of their 2005 levels. In 2008, Pravachol sales totaled just over $200 million. Oncology drug, Taxol, which earned $1.6 billion annually in its peak,[17] now brings in less than $400 million with generic competition.
The most significant patent expiration that BMY will have faced in its history comes in November 2011, when its $5.6 billion drug, Plavix loses exclusivity. How BMY handles generic competition for Plavix, which represents over a quarter of BMY's total revenue, will be critical in the coming years for the company. After Plavix, BMY faces patent expirations for the blockbusters Avapro and Sustiva in 2012 and Abilify in 2014. By 2015, BMY will have lost patent exclusivity from drugs representing over 50% of its 2008 revenue. However, BMY spends 17.4%, almost $3.6 billion, of its revenue on research and development and has several drugs in phase III clinical trials, which will help offset losses from generic competition.[18]
Pricing Pressures
For all pharmaceutical companies, government-imposed regulations on prices have substantial impact on sales. Government regulations are especially relevant in the realm of government health programs like Medicare and Medicaid in the U.S. For example, Medicaid has recently imposed access and reimbursement restrictions in some states due to budget constraints, applying a downward pressure on prices. Internationally, greater government involvement in the provision of healthcare means that the government has even greater power to exert downward pressure on pricing (e.g. profit control plans in the UK). Other sources of downward pressure on prices include the prevalence and consolidation of Managed Care Organizations, and the importing of drugs from cheaper international sources (Canada, for example).
Tightening FDA Regulations
When FDA commissioner Margaret Hamburg began her tenure in 2009, she announced that the FDA would toughen it's enforcement efforts to protect public health.[19] As the FDA has drawn criticisms for its failures in preventing deaths caused by drugs such as Vioxx, Hamburg has come in with several fixes that include stricter monitoring of drug adverse events, more funding for the agency, stronger ability to force product recalls, and more scientific expertise within the agency.[20] On May 19, 2010, the FDA announced 21 proposals aimed at increasing transparency to the public regarding regulatory information.[21]
Such information will increase the amount of information accessible to the public with regard to companies' pipeline drugs and manufacturing facilities that might otherwise not have been disclosed. While the tightened regulations and increased transparency will eventually improve the overall quality of pharmaceutical products, there will be growing pains as companies adjust to the stricter standards and stronger enforcement. BMS's ability to adjust to these new standards will impact its valuation and financial success
Comparison to Competitors
The business of pharmaceuticals is highly dynamic and extremely competitive. Close competitors for Bristol-Myers Squibb include Merck (NYSE:MRK), Pfizer(NYSE
FE), Eli Lilly & Company (NYSE:LLY), AstraZeneca (NYSE:AZN), Sanofi-Aventis (NYSE: SNY) and GlaxoSmithKline (NYSE:GSK). It is important to note that BMY is substantially smaller than all of these competitors in both sales and market capitalization.As such, the key to success for BMY is a strong, well-funded R&D program that has been strategically positioned to maximize efficiency, and produce the drugs that are most likely to generate huge success for the company. In this sense, BMY compares quite favourably to its competitors for a few reasons:
BMY's R&D spending in 2008 amounts to 17.4% of its total sales, a number which stacks up favorably against the industry average of 16.8%.
BMY has a hefty development pipeline for its size, with 6 products in late-stage development, all of which look to be strong performers when they are eventually launched. It also has another 15 or so products in various middle-stages of development, ensuring continued growth in the long run.
BMY has positioned itself strategically to perform more research in important areas of future discovery (the area of biologics, for example).
There is a caveat to these facts however:
Though BMY has an admittedly strong mid-to-late development pipeline, its earlier pipeline is somewhat lacking. This is a disconcerting fact considering the flurry of new drugs currently in pre-clinical development or early trials at competitors GlaxoSmithKline, AstraZeneca, Sanofi-Aventis, and Pfizer.
Overall, Bristol-Myers Squibb's smaller size could play to its advantage, in that it is under far less pressure than its larger competitors to replace the huge blockbuster drugs that have fueled their growth (Pfizer and its immensely successful Lipitor, for example). Its smaller size may also allow it to be more efficient, as is demonstrated by the fact that BMY has one of the highest proportions of sales/employee in the industry.
Competition in the pharmaceutical industry lies mostly in specific drug markets. For example, a new diabetes drug is not going to have any effect on an existing cholesterol drug, no matter how successful it is. As a result, financial data on the pharmaceutical companies do not tell the whole story. Instead, it may be more appropriate to analyze BMY's competitors by each drug market (See section on Major Drugs and Industry Trends).
Note that the total revenue for Merck and Pfizer was influenced by revenue inherited from their acquisitions of Schering-Plough and Wyeth, respectively. In addition, net income for Merck was bolstered by $3.2 billion from the sale of its animal division [22], while Bristol-Meyers Squibb's net income saw a one-time $7.2 billion increase from the sale of its nutrition division.[23]
Pharmaceutical and Biotech Industry — Competitive Operating Metrics (2009)
Johnson & Johnson (JNJ)
Pfizer (PFE)
Novartis (NVS)
Abbott Laboratories (ABT)
Merck (MRK)
Bristol-Meyers Squibb (BMY)
Eli Lilly (LLY)
Amgen (AMGN)
Gilead (GILD)
AstraZeneca (AZN)
Roche (RHHBY)
Revenue (in billions of USD)
Total Revenue
$61.9
$50.0
$44.3
$30.8
$27.4
$18.8
$21.8
$14.6
$7.0
$32.8
$49.1
Gross Profit
$43.5
$41.1
$32.1
$17.6
$18.4
$13.7
$17.6
$12.6
$5.4
$27.2
$34.4
Revenue Growth from 2008
-2.9%
3.5%
4.0%
4.2%
15.0%
6.2%
7.2%
-2.4%
31.4%
3.8%
7.5%
Income
Net Income
$12.3
$8.6
$8.4
$5.8
$12.9
$10.6
$4.3
$4.6
$2.6
$7.5
$7.8
Net Profit Margin
19.8%
17.3%
19.0%
18.7%
47.0%
56.4%
19.8
31.5%
37.6%
22.9%
15.9%
Operating Income
$15.8
$10.8
$10.0
$6.2
$15.3
$5.6
$5.4
$5.5
$3.5
-$11.5
$11.9
Diluted EPS Growth from 2008
-3.7%
2.5%
3.7%
21.8%
55.6%
20.7%
NA
19.6%
36.9%
23.6%
-11.8%
Other
R&D Spending
$7.0
$7.8
$7.5
$2.7
$5.9
$5.1
$4.3
$2.9
$0.9
$4.4
$9.9