Bristol: Weak results only temporary

NEW YORK (CNNMoney.com) -- Bristol-Myers Squibb executives blamed flagging fourth-quarter earnings on generic competition against its top-selling drug, the blood thinner Plavix but said Thursday the problem will be temporary thanks to pending products.

The New York-based drugmaker said it lost $134 million, or 7 cents per share, in the fourth quarter, compared with income of $499 million, or 26 cents, a year earlier.

Sales fell 16 percent in the fourth quarter to $4.2 billion, from $5 billion in the same period the prior year.

Plavix was the biggest contributor to the hemorrhaging sales, as its revenue plunged 53 percent from the year-earlier quarter, to $496 million. Plavix sales totaled $3.3 billion for the full year, a 15 percent drop from 2005.

Bristol-Myers' (down $0.71 to $26.28, Charts)s stock price slipped as much as 2.7 percent in early trading.

But James Cornelius, interim chief executive for Bristol-Myers, said in a teleconference with analysts that the company would return to growth in the "transitional year" of 2007.

Cornelius said performance would be driven by recently launched products. They are Orencia, a treatment for rheumatoid arthritis; Sprycel, a treatment for two types of leukemia; and Atripla, a combination HIV treatment produced with partners Merck (down $0.22 to $46.00, Charts) and Gilead Sciences (down $0.84 to $63.41, Charts).

The company projected 2007 earnings of $1.20 to $1.30 a share, excluding extraordinary items, for the full year. That would be significantly higher than the company's reported EPS for full-year 2006 of 81 cents.

But analysts adopted a wait-and-see attitude for 2007. After the results and a conference call, Barbara Ryan of Deutsche Bank North America and Joseph Tooley of A.G. Edwards both maintained their "hold" ratings for the company. They identified the Plavix problem as the company's chief hurdle going forward.

Bristol-Myers holds the patent on Plavix, which prevents dangerous blood clots and is sold in partnership with the French drugmaker Sanofi-Aventis (down $0.53 to $45.68, Charts).

In 2006, the Food and Drug Administration gave the Canadian drugmaker Apotex the green light to produce a generic form of Plavix. But Apotex, a privately held company, still lacked the legal clearance to do so because the Bristol-Myers patent doesn't expire until 2011.

That didn't stop Apotex. Last Aug. 5, Apotex started producing its own version of Plavix and quickly flooded the market with the low-cost generic. The competition drove down Plavix sales for Bristol-Myers as patients started using the cheaper alternative.

On Aug. 31, Bristol-Myers convinced a federal judge in New York to halt Apotex's production of generic Plavix, but only after the market was already inundated. Apotex tried to overturn that decision, but its attempt was shot down last week by the U.S. Court of Appeals for the Federal Circuit in Washington.

The companies are currently locked in a patent litigation court battle in federal court in New York.

The outcome of this battle will have a significant impact on the company's stock, according to analysts. Tooley of A.G. Edwards wrote, in a published note, that "the ongoing Plavix litigation and related uncertainty will cap the share price upside until it is resolved," possibly in late 2007 or early 2008.

Ryan of Deutsche Bank said, in a published note, that Bristol-Myers's stock price could fall to $20 a share in the "unlikely" event that it loses the patent battle or could edge up to $29 a share if it wins.

Investors might have to wait for months before they learn the outcome of the patent litigation trial. In a conference call with reporters, Bristol-Myers's Chief Financial Officer Andrew Bonfield said the trial is expected to continue for weeks, and after it ends the judge could take months before issuing the ruling.

Bonfield said the company is "continuing to invest behind the product" with the expectation that Bristol-Myers will win its battle for Plavix.

Ryan estimates that pharmacy inventories of Apotex's generic Plavix will run dry in the current quarter, easing the pressure on Bristol-Myers sales.

The Plavix debacle was the last straw for senior management, which forced out chief executive Peter Dolan on Oct. 26, and appointed veteran company official Cornelius as interim CEO.

Apotex wasn't Dolan's only mishap. In 2001, the year that he took over, he was blamed for "channel stuffing," or persuading wholesalers to pack their inventories with Bristol-Myers drugs to inflate sales, but this backfired the following year when sales took a dive.

Dolan was also blamed for Bristol-Myers's purchase of a 17 percent stake in the biotech ImClone Systems (down $0.92 to $26.89, Charts) for $1.2 billion in 2001. Soon afterward, ImClone's most promising pipeline product, the cancer drug Erbitux, was temporarily held up by the FDA, and the company's CEO Sam Waksal was investigated - and eventually imprisoned - for an insider trading scandal involving domestic diva Martha Stewart.

Erbitux, a treatment for colorectal cancer as well as cancer of the head and neck, is now one of Bristol-Myers's fastest-growing products, with sales surging 58 percent in 2006 to $652 million.

Cornelius, the interim chief executive, said Bristol-Myers is continuing its search for a permanent CEO but declined to go into details.

The analysts quoted in this story do not own shares of Bristol-Myers stock. A.G. Edwards conducted noninvestment banking services for the company within the past several months, and Deutsche Bank may have sought business with Bristol-Myers during that time.

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