Bristol-Myers Squibb (NYSE:BMY) will announce its third quarter earnings this Wednesday, October 24.  The company is coming off a patent cliff in May earlier this year when it lost patent exclusivity of its blockbuster cardiovascular drug, Plavix. As a result, it posted a decline of 18% in revenue and 38% in net income in the second quarter, on a y-o-y basis. 
In the third quarter, we anticipate the decline in revenue and net income to continue due to the ongoing fall in sales of Plavix and Avapro. This decline will be partially offset by sales growth of other key drugs namely, Yervoy, Onglyza, Baraclude, Sprycel, Orencia, Nulojix among others, in the portfolio of the company. Earnings will also benefit from the Amylin acquisition completed in the third quarter. This acquisition provided Bristol Myers with the anti-diabetic drugs Byetta and Bydureon, whose sales will add to top line growth of the company in the third quarter.
We currently have a stock price estimate of $35.24 for the company, slightly above its current market price.
Patent expiry of Plavix to continue to impact earnings
Combined sales of Plavix and Avapro were approximately $8 billion out of $21.2 billion in overall revenues of Bristol Myers in 2011.  Avapro lost patent exclusivity in March and Plavix in May earlier this year. Post patent expiry sales of both the drugs experienced a sharp and significant decline due to competition from cheaper generics. As a result in the second quarter, sales of Plavix declined 60% y-o-y or $1.1 billion, and sales of Avapro declined 53% y-o-y or $134 million.  We anticipate the decline in the sales of both of these drugs to continue in the third quarter with generics occupying a greater share of their markets.
Sales growth of other key drugs to partially offset the impact of patent cliff
This large decline in top line and earnings will be partially offset in the third quarter by continuing strong performance of several other key drugs of Bristol-Myers. In the second quarter, Yervoy which is an anti-cancer drug posted 71% y-o-y increase in sales and Onglyza which is an anti-diabetic drug posted 54% y-o-y increase in sales.
Baraclude, Sprycel, Orencia and Nulojix also posted y-o-y sales growth exceeding 20% in the second quarter. Overall, excluding Plavix and Avapro, the combined sales of all other key drugs increased by 13% y-o-y or $345 million in the second quarter  .
Amylin acquisition to add to growth in the third quarter
Bristol-Myers also completed its acquisition of Amylin Pharmaceuticals in the third quarter.  The acquisition provides the company a major anti-diabetic drug, Bydureon. Anti-diabetes drugs as a therapeutic class are poised for growth over the coming years as diabetes has become a global epidemic. Bydureon which treats type-2 diabetes is prescribed to be taken only once a week. The drug has already received approvals in the U.S. and the E.U., and we anticipate it to add to growth in revenues and earnings for Bristol-Myers in the third quarter.
The company also received approval for Erbitux as a first-line of treatment for Colorectal Cancer earlier this year. This will add to growth in sales of the drug in the third quarter. 
The share repurchase program to ease shareholder concerns
Also, in anticipation of lower earnings, the company had authorized an additional $3 billion in share repurchase in June 2012. At the end of the second quarter, the company had approximately $3.3 billion left in its share repurchase program.  Such programs send out a positive message to the investor community that the company has confidence in its long-term growth, and it will help address shareholder concerns that rise in the event of a fall in earnings.
All in all, the company will likely post a y-o-y decline in its top line and net income in the third quarter driven by patent expiry of Plavix and partially offset by growth in sales of other key drugs. However, the share repurchase program shall help alleviate shareholder concerns.Notes:
- Bristol-Myers Squibb to Announce Results for Third Quarter on October 24, October 1 2012, www.bms.com [↩]
- Bristol-Myers Squibb’s Second Quarter Highlighted by the Planned Strategic Acquisition of Amylin Pharmaceuticals and Important Clinical Data in Immuno-Oncology, July 25 2012, www.bms.com [↩] [↩]
- 2011 10-K, www.bms.com [↩]
- 2012 Q2 10-Q, www.bms.com [↩] [↩] [↩]
- Bristol-Myers Squibb Announces Successful Completion of Cash Tender Offer for Shares of Amylin Pharmaceuticals, Inc., August 8, 2012, www.bms.com [↩]