Bristol-Myers Squibb Company (BMY)

TOP CONTRIBUTORS

William Raasch

Dan Pan

nicholasmoy

This article is about Bristol-Myers Squibb. For the article on the company with ticker BMS, see Bemis Company (BMS).

Bristol-Myers Squibb (NYSE: BMY) is one of the world's largest pharmaceutical companies by total sales. Bristol-Myers Squibb offers treatments for cardiovascular disease, HIV/AIDS, hepatitis, cancer, and rheumatoid arthritis. Cancer treatments in particular represent a major portion of the company's long-term growth potential and have historically been a strong suit of Bristol-Myers Squibb. The company's top three blockbuster drugs (annual sales >$1 billion) are blood thinner Plavix, Abilify for schizophrenia, and Reyataz for HIV. In FY 2010, BMY generated revenues of $19.5B and net earnings of $3.1B.^[1]

Bristol-Myers Squibb has recently been plagued by losses of market exclusivity, both expected and unexpected. This has caused a substantial drop in sales for two key drugs: Plavix, a blood thinner, and Pravachol, a cholesterol-lowering drug.

Meanwhile, BMY continues to develop its strong late-stage pipeline of six well performing drug prospects, as well as various other products in earlier stages of development. It has increased its R&D spending to levels comparable to similar-sized competitors like Eli Lilly and Merck, even as it seeks to improve the productivity efficiency of its development processes.

Corporate Overview

Bristol-Myers Squibb is a New York-based pharmaceutical company founded in 1989 from the merger of the Bristol-Myers and Squibb corporations. Since then, BMY has developed into a leading developer, licenser and marketer of pharmaceutical and related health care products for the treatment of a wide range of diseases including cancer, cardiovascular disease, hepatitis, HIV/AIDS, and rheumatoid arthritis. In FY 2010, BMY generated revenues of $19.5B and net earnings of $3.1B.^[2]

Restructuring and Divestitures

In late 2009, Bristol-Myers divest its nutritional division, Mead Johnson Nutrition, for $6.5 billion in order to concentrate more on its pharmaceutical division. Mead Johnson Nutrition consisted entirely of children's formulas, mainly for infants but also for children and toddlers.^[3]

Also in late 2009, BMY divested ConvaTec, a wound care product and ostomy-related products manufacturer, for $4.05 billion.^[4]

Business Segments

Since divesting both Mead Johnson Nutrition and ConvaTec in 2009, BMY now consists of solely a pharmaceutical division that comprises the global pharmaceutical/biotechnology and international consumer medicines business. In FY 2010, BMY generated revenues of $19.5B and net earnings of $3.1B.^[5]

Pharmaceuticals

Bristol-Myers Squibb is primarily a pharmaceuticals company, offering treatments for cardiovascular disease, HIV/AIDS, hepatitis, cancer, and rheumatoid arthritis.

In 2009, BMY lost market exclusivity on Pravochol, one of its major medication, as well as a significant loss of market share for BMY's biggest selling drug, Plavix, as a result of generic competition internationally (US market exclusivity expires in 2012). Moving forward in response, BMY launched rheumatoid arthritis medication Orencia, as well as Sprycel, an alternative to Novartis' Gleevec for the treatment of chronic myelogenous leukemia.

Bristol-Myers Squibb's blockbuster drugs (>$1B annual sales) are:

• Plavix ($6.67B sales in FY 2010) is designed to prevent blood clots due to heart disease. The drug's US patent expires in 2012.
• Abilify ($2.57B sales in FY 2010) is a treatment for schizophrenia and depression. The drug's patent expires in 2014.
• Reyataz ($1.48B sales in FY 2010) is a drug that battles HIV. The drug's patent expires in 2017.
• Sustiva ($1.37B sales in FY 2010) is also an HIV treatment. The drug's patent expires in 2013.
• Avapro/Avalide ($1.18B sales in FY 2010) is a treatment for high blood pressure and kidney problems. The drug's patent expires in 2012.

Research and Development ($3.57B in FY 2010)

Research and development is of the utmost importance for pharmaceutical companies like Bristol-Myers Squibb. As explained in the above section on market exclusivity, the vast majority of a new drug's commercial potential is met during the stage in which a single company has exclusive rights to it, i.e. when the company holds a patent. As such, BMY's revenues are fundamentally tied to the ability of its internal research and development teams to produce the big revenue-earners that BMY can claim exclusivity for: drugs like Plavix, Pravochol, or Reyataz.

BMY, like other pharmaceutical companies, continues to invest heavily in R&D for new treatments and products. In addition, the company has been aggressive in acquiring smaller pharmaceutical companies with attractive products in late-stage clinical trials. The company has a strong and varied late-stage pipeline consisting of more than twenty compounds in various stages of clinical trials, FDA/EU approval, and registration. Despite the strength of its pipeline, many of its new product introductions are entering markets in which they have to compete with other products that have already been introduced, which carries certain disadvantages. The company is, however, pursuing a strategy of investing in the development of products which address areas of unmet medical need.

Other important areas of development include the nascent field of protein-based treatments (biologics). BMY recently committed nearly a billion dollars to enhance its production capabilities in the area of biologics.

Pricing pressures on pharmaceuticals (see below section) as well as escalating costs for advanced research make the development of any and all kinds of drugs less lucrative, and riskier, than before. Thus, strategic management of the pipeline is key.

Trends and Forces

Drug Market Exclusivity and Generic Competition

For a detailed discussion of brand name vs. generic medication, see also Generic drugs.

Patent exclusivity is essential within the pharmaceutical industry, where the market exclusivity granted by patents enables companies to enjoy a period of high profitability necessary to justify the high costs of development for a novel therapeutic. Moreover, in the pharmaceutical industry, a single patent covering the active ingredient of the drug can oftentimes represent the entire unique value of that product.^[6]

The United States, European Union, Japan, and most developed nations in the world offer an accelerated generic drug approval process whereby competitors can develop generic versions of brand name drugs with expired patents. The accelerated approvals, known as ANDAs in the US, only require that the sponsor company show that their drug is equivalent to the name-brand drug, enabling that company to bypass the expensive and time consuming clinical trials required of a novel drug.^[7] The relatively cheap cost to develop generics in comparison to name-brand drugs enables generic companies to substantially undercut prices, to the tune of $10 billion total, annually across the industry.^[8] This generic competition can severely impact the revenue that pharmaceutical companies may earn from their drugs that lose patent exclusivity.

BMY's largest drug, Plavix will lose its exclusivity in 2012, and all of its current blockbuster drugs will have lost patent protection by 2017. The company is hoping that several of its drugs in phase III clinical trials and awaiting FDA approval will help offset losses from generic competition.^[9]

Pricing Pressures

For all pharmaceutical companies, government-imposed regulations on prices have substantial impact on sales. Government regulations are especially relevant in the realm of government health programs like Medicare and Medicaid in the U.S. For example, Medicaid has recently imposed access and reimbursement restrictions in some states due to budget constraints, applying a downward pressure on prices. Internationally, greater government involvement in the provision of healthcare means that the government has even greater power to exert downward pressure on pricing (e.g. profit control plans in the UK). Other sources of downward pressure on prices include the prevalence and consolidation of Managed Care Organizations, and the importing of drugs from cheaper international sources (Canada, for example).

Tightening FDA Regulations

Beginning in 2009, the FDA implemented a series of reforms that include stricter monitoring of drug adverse events, more funding for the agency, stronger ability to force product recalls, more scientific expertise within the agency, more transparency. While the tightened regulations and increased transparency will eventually improve the overall quality of pharmaceutical products, companies will have to adjust to the stricter standards and stronger enforcement.^[10]

Comparison to Competitors

The business of pharmaceuticals is highly dynamic and extremely competitive. Close competitors for Bristol-Myers Squibb include Merck (MRK), Pfizer (PFE), Eli Lilly and Company (LLY), AstraZeneca (AZN), Sanofi-Aventis SA (SNY) and GlaxoSmithKline (GSK). It is important to note that BMY is substantially smaller than all of these competitors in both sales and market capitalization.

As such, the key to success for BMY, as well as its competitors, is a strong, well-funded R&D program that has been strategically positioned to maximize efficiency, and produce the drugs that are most likely to generate huge success for the company.

Overall, Bristol-Myers Squibb's smaller size could play to its advantage, in that it is under far less pressure than its larger competitors to replace the huge blockbuster drugs that have fueled their growth (Pfizer and its immensely successful Lipitor, for example). Its smaller size may also allow it to be more efficient, as is demonstrated by the fact that BMY has one of the highest proportions of sales/employee in the industry.

Competition in the pharmaceutical industry lies mostly in specific drug markets. For example, a new diabetes drug is not going to have any effect on an existing cholesterol drug, no matter how successful it is. As a result, financial data on the pharmaceutical companies do not tell the whole story. Instead, it may be more appropriate to analyze BMY's competitors by each drug market (See section on Major Drugs and Industry Trends).

References

1. ↑ BMY 2010 10-K, p. 36
2. ↑ BMY 2010 10-K, p. 36
3. ↑ BMY 2008 10-K Pg. 15
4. ↑ BMY 2010 10-K, p. 94
5. ↑ BMY 2010 10-K, p. 36
6. ↑ [www.earth.columbia.edu/cgsd/documents/lehman.pdf The Pharmaceutical Industry and the Patent System]
7. ↑ Abbreviated New Drug Application (ANDA): Generics
8. ↑ Trends in FDA Approval of Generic Drugs
9. ↑ 2008 BMY 10-K Annual Report, p. 16
10. ↑ The FDA: A tough tonic