Bristol-Myers Squibb (BMY) is the maker of the blood thinner Plavix, the world's second highest revenue-producing drug behind Lipitor, from Pfizer (PFE). Plavix, used primarily to treat patients with heart disease, tallied worldwide sales of $5.9 billion in 2005. Given the significance of Plavix to Bristol-Myers Squibb's portfolio, the events that led to the departure of its former CEO in early September of this year were quite unexpected and difficult to discern at best.

Bristol-Myers Squibb and their international distributor Sanofi-Aventis (SNY) attempted to strike a deal to protect sales of Plavix against sales of a generic version of the drug from Canadian-based drug maker Apotex. The deal set forth that Bristol-Myers Squibb would pay Apotex to not begin sales of their FDA-approved generic version of Plavix.

The real wonder is why the deal had concessions in place to limit the amount of damages that Bristol-Myers Squibb could seek to a percentage of the generic sales should Apotex violate the agreement.

Another hazy part of the agreement stipulated that Bristol-Myers Squibb could not take legal action against Apotex for 5 days once sales of the generic had begun.

In early August Apotex went ahead and launched sales of its generic without seeking court approval or a finalized agreement with Bristol-Myers Squibb. I'm not sure how a CEO could agree to such a deal, and neither could Bristol Myers Squibb's board of directors.

By the time Bristol-Myers Squibb did seek an injunction, Apotex had sold enough of its generic to keep buyers stocked for 6 months. The loss of sales from Plavix showed up in Bristol-Myers Squibb's 3rd quarter earnings ended September 30, 2006. While Bristol-Myers Squibb's top line revenues of $4.2 billion were only down fractionally from the same period a year ago, net earnings took a significant thumping. Net earnings lost nearly two thirds of its value from a year ago, down to $338 million from $964 million.

Bristol-Myers Squibb also attributed part of the earnings pullback to the loss of patent protection on its cholesterol drug Pravachol earlier in the year. For the first nine months of the year, Bristol-Myers Squibb's net earnings came in at $1.7 billion, down 47% from the same period a year ago.


While Bristol-Myers Squibb does pay an attractive 4.6% annual dividend yield, it has a relatively high 5 year expected PEG (price to earnings growth) ratio of 3.36. Companies with strong forecasts for earnings growth will typically have PEG forecasts closer to 1. Companies with lower PEG ratios include Novartis (NVS), driven by the strength of its heart and cancer drug sales, Johnson & Johnson (JNJ) based on strong sales of schizophrenia drug Risperdal and Eli Lilly (LLY) based on its own schizophrenia drug Zyprexa.

On a good note, Bristol-Myers Squibb's forward P/E ratio of 20.51 is below its trailing P/E ratio of 21.79, suggesting that earnings are expected to increase into 2007. However, management did note that the impacts of the loss of Plavix sales will continue into 2007. Bristol-Myers Squibb's three fastest-growing drugs -- Erbitux for cancer, Reyataz for HIV and Ablify for schizophrenia -- combined to make up approximately 1/3 of its major drug sales.

The overall theme is that big pharma is desperate to hold ground against generic drug makers. Federal Trade Commission reports are stating that pay-for-delay type deals, also known as reverse settlement agreements, such as the one attempted by Bristol-Myers Squibb are on the rise. News of companies signing deals to protect their sales of an existing drug on the market is a protective measure that cannot be avoided.

However, the ace in the hole for the drug industry is the growing demand for drugs by the aging population of the U.S. and countries abroad. Global sales of prescription drugs exceeded $600 billion in 2005, after registering $500 billion in sales for 2003. The five fastest-growing drug sales in the U.S. last year by ailment and company, according to IMS Health, included a cholesterol drug from Merck (MRK), a depression drug from Eli Lilly, a collateral cancer drug from Genentech (DNA), an arthritis pain drug from Boerhinger Ingelheim and a bacterial infection drug from Abbott Labs (ABT).

In just two years time, Bristol-Myers Squibb's Plavix went from the #8 best selling drug in the world to #2. Only Pfizer's mega drug Lipitor, with worldwide sales of $12.9 billion, was superior. Bristol-Myers Squibb clearly knows drug sales and they also know a thing or two about marketing, as evidenced by television ads of Lance Armstrong touting the progress of its cancer drugs. Bristol-Myers Squibb closed on November 13th at $24.41, up just 5% for the year. While all of the statistical fundamentals are not in Bristol-Myers Squibb's favor, it definitely remains a stock to watch, given the favorable demographics of the market is serves.

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  3. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  6. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  7. Professionals

    What to do During a Market Correction

    The market has what? Here's what you should consider rather than panicking.
  8. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  9. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  10. Professionals

    Tips for Helping Clients Though Market Corrections

    When the stock market sees a steep drop, clients are bound to get anxious. Here are some tips for talking them off the ledge.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!