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Bristol to shed two units
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September 28, 2000: 2:21 p.m. ET
Drug maker to divest Clairol hair care, medical device units to focus on drugs
By Staff Writer Martha Slud
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NEW YORK (CNNfn) - Bristol-Myers Squibb Co. announced plans Thursday to divest its Clairol hair care and Zimmer orthopedics device divisions to focus on its core pharmaceuticals business.
The No. 3 U.S. drug maker made the announcement in a meeting with Wall Street analysts, its first such forum in nearly three years. Struggling to lift its share price and bounce back from a series of product setbacks, the New York-based company gave an upbeat earnings forecast for the next few years, saying it plans to meet or exceed consensus earnings growth rate expectations next year and should improve upon that growth in 2002.
"This new plan is intended to challenge the company over the next five years to again double sales, earnings and earnings per share, to create 'mega-blockbuster' products of several billion dollars and to pursue 'mega-blockbuster ideas' that can also add billions of dollars in revenue growth," company President Peter Dolan said.
 The moves are designed to create "a renewed, reinvigorated and redefined Bristol-Myers Squibb," he said.
Bristol-Myers (BMY: Research, Estimates) shares rose $2.38, or 4 percent, to $58.88 in afternoon trading. The stock has risen about 10 percent in the past two weeks amid speculation that the company would announce a major strategic shift.
Bristol-Myers shares have been among the worst performing pharmaceutical stocks this year, and are trading about 26 percent below their 52-week high of $79.25.
The stock plunged in April after the company was forced to withdraw its application for U.S. regulatory approval of hypertension drug Vanlev. Some patients participating in clinical trials developed severe facial swelling while taking the treatment. The company was forced to take the product back to the laboratory and initiate a costly, new trial. The company now hopes to reapply for Vanlev approval next year.
Bristol-Myers also has lost its patent protection for cancer treatment Taxol. Generic drug maker Ivax Corp. (IVX: Research, Estimates) is expected to introduce the first generic competitor to the drug as early as next month.
The right Rx?
Bristol-Myers said it hopes to sell or spin off the Clairol and Zimmer divisions in the next six to 12 months. Once the divestitures are complete, medicines should account for 85 percent of the company's revenues, up from the current 72 percent. The company is retaining two non-pharmaceutical units, its Mead Johnson Nutritionals division and the ConvaTec wound care products business.
Although Wall Street has speculated for years that the company might divest some of its non-pharmaceutical assets, many observers thought it would hold on to Clairol. The hair coloring business, acquired by Bristol-Myers in 1959, was founded in the 1930s by the family of former Bristol CEO Richard Gelb.
 "In many ways and for many years, Clairol and Zimmer have been among the many crown jewels of our company - providing stability at times and energy for growth at other times in our history," Chairman and CEO Charles A. Heimbold Jr. said. "But now is the time for us to focus on our core businesses."
Clairol had sales of $2 billion in 1999, while Zimmer had sales of $926 million. The Zimmer unit was acquired in 1972.
One analyst attending the meeting, Alex Zisson of Chase H&Q, said it's hard to gauge the impact yet of the planned divestitures on the company's growth prospects.
Shedding the units "do give the company more growth, but just by subtracting low-growth businesses," he said. "The real question will be what they do with the proceeds."
The company expects to lift earnings per share growth next year by at least 11 percent, which still would be among the lowest growth rates among major pharmaceutical companies. In 2002, growth should exceed 2001 levels, while the growth rate is hoped to reach the "mid- to upper teens" in 2003 through 2005, Heimbold said.
Click here to see the company's statement to analysts.
The company also said it intends to actively pursue co-promotions, joint ventures and acquisitions, particularly in Japan, the world's second-largest pharmaceutical market.  Dolan said discussions currently are under way to broaden the company's presence in Japan during the next two years.
Bristol-Myers' biggest product is cholesterol-lowering treatment Pravachol, which is expected to register sales of about $1.8 billion this year.
But the drug is battling to keep its market share, losing ground to newer rival, Lipitor, made by Pfizer Inc. (PFE: Research, Estimates), as well as a treatment made by Merck & Co. (MRK: Research, Estimates) and other competing drugs. Bristol-Myers said it will invest more in advertising for Pravachol to compete in the fast-growing market.
The company's other leading products are Taxol and Glucophage, a diabetes treatment. Sales of both drugs are expected to hit about $1.5 billion apiece this year. The company last month introduced a successor to Glucophage, called Glucovance.
The introduction of a generic competitor to Taxol in the United States should sharply reduce sales of the cancer drug. The company said Taxol sales are expected to total about $1 billion in 2001, saying despite pressure on the U.S. market the drug still has good growth potential abroad. Taxol retains patent exclusivity in Europe and Japan.
Next month, Bristol-Myers plans to introduce its first so-called "lifestyle" drug, Vaniqa, a topical treatment for women with excessive facial hair. The drug will be co-marketed with consumer products maker Gillette Co. (G: Research, Estimates). The drug could hit annual sales of about $500 million by 2005, according to company projections.
Other products in the pipeline include MaxiPost, a stroke treatment, and schizophrenia drug aripiprazole. 
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Bristol-Myers Squibb
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