Bristol-Myers' Post-Plavix Worldview Has Some Big Blind Spots

Last Updated Apr 28, 2010 3:26 PM EDT

Bristol-Myers Squibb (BMY) believes growth from existing drugs will help mitigate revenue and earnings lost to generic copycats of its best-selling cardiovascular drug Plavix come 2012. That upbeat outlook, however, downplays the risk from both branded and generic threats to existing products.

In 2009, Bristol-Myers derived almost one-third of its total sales, or $6.1 billion, from the blood-clot inhibitor Plavix (clopidogrel), co-marketed with French drug maker Sanofi-Aventis (SNY). Total stateside revenue was almost $5.6 billion for the year.

President and chief operating officer Lamberto Andreotti, who takes the helm from outgoing chief executive James Cornelius next month, said last month that 2013 profits -- the first full-year of generic intrusion in the U.S. market -- would likely decline no more than 13 percent from 2010 forecasted income of $2.15 to $2.25 per share, excluding certain items and charges, followed by a return to sustainable growth in 2014 and beyond.

"Fantasy, abandoned by reason, produces impossible monsters, " said the 18th century Spanish painter Goya. Senior management supposes that defined growth prospects of existing key products will underpin its envisioned post-Plavix world -- while willfully imagining away monstrous challenges.

Abilify (aripiprazole), an atypical anti-psychotic licensed from Japan's Otsuka Pharmaceutical Co., kicked in approximately $2.6 billion, or almost 14 percent, toward total sales last year. The original deal expired in November 2012, but was extended to the date of patent expiration in April 2015.

Although the revised agreement reduces Bristol's contractual share of sales -- a gradual step-down from 65 percent in 2010 to 50 percent beginning in 2013 through the expected loss of U.S. exclusivity in April 2015 -- management declares the deal accretive to earnings by (at least) $0.30 per share in both 2013 and 2014, as Otsuka steps up to the plate for the first time with commercialization expenses: 30 percent this year to 50 percent in 2013 through April 2015.

A share-net boost through shared marketing expenses and higher sales? Think again. Remember that sliding scale of contractual sales -- come 2013, Bristol's recognized share of net sales plunges from 50% to 20% and then to seven percent, should booked U.S. sales climb above breakpoints of $2.7 billion and $3.2 billion, respectively.

Not withstanding an ongoing patent challenge from generic powerhouse Teva Pharmaceuticals (TEVA), the schizophrenia and mood-disorder spaces are becoming increasingly crowded with all kinds of generic knock-offs:

  • Eli Lilly's (LLY) Zyprexa (olanzapine) and AstraZeneca's (AZN) Seroquel (quetiapine) -- the top two branded, atypical anti-psychotics, with almost $10 billion in worldwide sales split between them last year -- will join Johnson & Johnson's Risperdal (risperidone) at the bottom of "Lost Canyon" when pushed off the patent cliff, sometime in 2011 or early 2012. Combined with its new "socialist" disincentive to work harder (credited sales plummet as total U.S. booked sales rise), Bristol management is looking to get Otsuka to eat one-half of marketing expenses -- and (at least) grow profits through margin gains (in my opinion).
Bristol's new oral diabetes medicine Onglyza (saxagliptin), launched with AstraZeneca in August 2009, is off to a disappointing start: nominal sales of $22 million in total for 2009 and a slow-moving backlog (inventory of 3.7 months at December 31). Oh, and Merck's (MRK) Januvia (sitagliptin), the first-in-class "DPP-4" inhibitor (launched three years ago), posted juggernaut sales in fourth-quarter 2009 of $558 million ($1.9 billion for the year).

Borrowing from Post-Impressionist painter Paul Gaugin, Signore Andreotti urges we "shut our eyes in order to see," reminding analysts on the fourth-quarter 2009 earnings call that this is "just the beginning of a long journey."

With brand recognition now at 65 percent (management didn't disclose if this number referenced specialists or primary care), first-quarter 2010 prescription trends will be telling for Onglyza. Given that it's clinically indistinct from Januvia, disgruntled sales reps will need to compete on price or other benefits -- oops! Bristol tossed aside any pricing incentive for diabetes-care providers to prescribe the drug. Instead, the drug maker is looking to motivate usage with the convenience of once versus twice-daily dosing (Januvia). (Correction: Januvia is also dosed once a day.)

Nonetheless, given the expected strong marketing push behind the drug, an unmet medical need, and a probable three-year window on other DDP-4 inhibitors in the FDA pipeline, most analysts are predicting blockbuster status, according to inThought analyst Ben Weintraub.

Look for the company to face greater-than-expected competitive threats toward one of its tenured oncology drugs, the colorectal cancer drug Erbitux (cetuximab). Annual sales of its top-selling, branded oncology drug fell 9 percent to $671 million last year, as hopes for the drug as a lung cancer option faded.

Leading up to 2014, Bristol is also bracing for other patent-expiration headwinds: Its angiotensin II receptor blocker for hypertension, Avapro (irbesartan), and a key anti-infective underpinning its HIV/AIDS franchise, the once-daily anti-retroviral Sustiva (efavirenz), each with U.S. sales of $1.2 billion last year, fall off the patent cliff in 2012 and 2013, respectively.

Contrary to expressed optimism, there is little evidence to suggest management has made enough meaningful progress in beefing up its product portfolio to achieve sustainable sales and earnings growth by the targeted 2014. With a $10 billion war chest, expect Bristol-Myers to announce additional licensing agreements or strategic acquisitions in the next few years. New product launches could lift visibility, too. More on that in my next column.

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  • David Phillips

    David Phillips has more than 25 years' experience on Wall Street, first as a financial consultant and then as an equity analyst for several investment banking firms. He sifts through SEC filings for his blog The 10Q Detective, looking for financial statement soft spots, such as depreciation policies, warranty reserves and restructuring charges. He has been widely quoted in outlets such as BusinessWeek, The International Herald Tribune, Investor's Business Daily, Kiplinger's Personal Finance, and The Wall Street Journal.