Bristol-Myers Squibb Plans $2.5 Bil. in Layoffs, Cuts

Bristol-Myers Squibb made a presentation this morning at the Credit Suisse Healthcare Conference that showed CFO John Marc-Huet wants to save the company $2.5 billion in "productivity initiatives." He's going to squeeze these out of "headcount and related costs" -- which sounds like a euphemism for layoffs.

BMS's own numbers show the company is indeed ripe for letting people go. While BMS had an excellent third quarter, with revenues rising 14 percent to $5.2 billion, the company said costs are also rising:

Marketing, selling and administrative expenses increased by 9%, including an unfavorable 3% foreign exchange impact, to $1.2 billion in the third quarter of 2008 compared to the same period in 2007. Advertising and product promotion spending increased by 7%, including an unfavorable 2% foreign exchange impact, to $362 million in the third quarter of 2008 compared to the same period in 2007.

Marc-Huet's presentation also told investors about the company's strategy for the future as it crosses the 2011 patent expiration trench. One particular slide (pictured) shows an orange line labeled "pre-tax earnings" dipping after 2011 and then soaring upward after 2013.

This line should be regarded largely as fiction. No one can predict that far into the future. First, there's the question of whether BMS will even exist as a company in 2013. There's already rumors that Sanofi-Aventis may acquire it. Or it could be folded in with Pfizer, its partner on the new blood thinner apixaban.

Second, BMS is committed to a strategy of diluting its ownership in one of its most successful divisions -- Mead Johnson Nutritionals. This is a controversial strategy because, as Marc-Huet's presentation makes clear, it would leave BMS more focused as a pure pharma play. Other companies -- such as Bayer, Sanofi, Johnson & Johnson and Novartis -- are diversifying out of pharma into nutritionals, generics and OTC meds precisely because they are sick of being on the pharma R&D/patent rollercoaster. (BMS should look at Pfizer's experience -- that company got out of OTC meds and paid dearly for it.)

Yes, BMS plans to keep at least 80 percent of Mead. And yes, selling Mead's other 20 percent would bring BMS a big lump of cash. On Marc-Huet's chart, the block of cash it expects to raise by floating Mead is roughly the same as the block it received from Eli Lilly when Lilly bought BMS's share of ImClone -- $1 billion.

Now look at how significant Mead is to BMS: Its biggest brand is Enfamil, infant formula. Enfamil throws off $1 billion or so per year in worldwide sales. And those are sales that will not go "off-patent". That's a cashflow equivalent to Sustiva; it's larger than any drug in its cancer portfolio -- including royalties from ImClone's Erbitux.

So one year of revenue is roughly equal to the sale price of Mead. And just like the recent payment of $1 billion for BMS's share of ImClone, that money won't be repeated again in future quarters. What will be left is 80 percent of Mead's income that BMS is currently enjoying 100 percent of. The company itself had nothing but praise for Mead:

Jean-Marc Huet - Senior Vice President and Chief Financial Officer: Turning to our nutrition business, Mead Johnson, which represents around 15% of company sales, increased to 10% or 7%, excluding foreign exchange at around $744 million.

Lamberto Andreotti - Executive Vice President and Chief Operating Officer: It has excellent brands, very strong market shares in very well of the markets. So it's a very defendable business proposition. So when it comes to the outlook, it's a positive one.