Bristol-Myers’ Results Are Jolted By Halted Hep C Drug Trial And Patent Cliff

Bristol-Myers (NYSE:BMY) posted a loss in the third quarter on patent expiry of Plavix and an impairment charge of $1.8 billion which resulted from the stoppage of Hepatitis C drug trial of BMS-986094 (formerly known as INX-189). ^[1] The company halted this drug trial after a patient who was administered with the drug experienced heart failure and subsequently expired. In the third quarter revenue declined 30% y-o-y to $3.7 billion and the company reported a loss of $0.43 per share, compared to earning of $0.56 per share in the third quarter of 2011. ^[1] Bristol-Myers also lowered its earnings outlook for full year 2012 largely due to the unforeseen impairment charge.

However, excluding the patent expired drugs – Plavix and Avapro – sales increased 7% y-o-y in the third quarter. ^[1] The company also received regulatory approval for additional indications for a few of its drugs. All in all, Bristol-Myers posted a tough quarter, but the outlook of the company remains stable due to the presence of several key drugs in its portfolio.

Patent expiry of Plavix and Avapro continue to impact top line

Sales of Plavix have been declining since May earlier this year when the drug lost patent exclusivity. Cheaper generics have been capturing its market share resulting in a sharp and significant decline in its net sales. But the decline in the third quarter was more than expected as sales of the drug declined 96% y-o-y, from $1.8 billion in the third quarter of 2011 to $64 million in the third quarter of 2012.

Sales of Avapro also declined 56% y-o-y to $95 million in the third quarter. ^[1] The decline in the sales of these two drugs largely caused the overall decline in sales of the company.

Impairment charge of $1.8 billion causes a net loss for Bristol-Myers

In addition, Bristol-Myers had to incur an impairment charge of $1.8 billion resulting from the stoppage of drug trials of the Hepatitis C drug BMS-986094. ^[2] The drug which was in Phase 2 of drug trials was acquired in February 2012 through the acquisition of Inhibitex Inc.. The company was acquired for $2.5 billion by Bristol-Myers primarily to gain this drug. The drug trials had to be halted after a patient who was administered with the drug expired of a heart failure while a few others had to be hospitalized. This unforeseen impairment charge caused the company to book a net loss of $711 million in the third quarter compared to a net profit of $969 million in the year-ago period. ^[1]

This also caused Bristol-Myers to lower its earnings outlook for full year 2012. The company lowered its EPS guidance range to $0.95 to $1.05, from $1.78 to $1.88 indicated earlier. ^[1]

However, Yervoy and other key drugs post strong growth in sales

However, excluding the impact of patent expiry and this one-time impairment charge, sales and earnings posted strong y-o-y growth. Sales of Yervoy which is an anti-cancer drug increased 48% y-o-y to $179 million, and sales of Onglyza, Orencia and Sprycel increased 40%, 32% and 25% respectively, on a y-o-y basis in the third quarter. Also Byetta and Bydureon which were gained through the acquisition of Amylin Pharmaceuticals in August added $75 million to the top line of Bristol-Myers. ^[1] Overall excluding Plavix and Avapro, sales increased 7% y-o-y in the third quarter. Additionally, as patent expiry for a lot of these key drugs is more than 4-5 years away, strong growth in their sales is likely to continue over the near-term.

And, a few other positive developments that will lift earnings in the coming months

There were also several important developments in Q3 that will add to the company’s growth over the coming months. Bristol-Myers received European Commission’s approval for Orencia’s subcutaneous formulation for treating patients with severe rheumatoid arthritis. The company also received a labeling update to include data on African Americans and liver transplant recipients with chronic hepatitis B. These developments will likely add to the growth of the top line in the fourth quarter and beyond.

On the whole, Bristol-Myers posted a tough quarter and the Plavix patent cliff will continue to impact earnings of the company in the near-term, until existing drugs and post approval late stage pipeline drugs offset the loss in Plavix’s sales with their sales.

We currently have a stock price estimate of $35.24 for the company, approximately 5% above its current market price. We are in the process of incorporating the third quarter results and will update our analysis shortly

See our complete analysis of Bristol-Myers here

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1. Bristol-Myers Squibb Reports Third Quarter 2012 Financial Results, October 24 2012, www.bms.com [↩] [↩] [↩] [↩] [↩] [↩] [↩]
2. Bristol-Myers Squibb Discontinues Development of BMS-986094, an Investigational NS5B Nucleotide for the Treatment of Hepatitis C, August 23 2012, www.bms.com [↩]