Earnings Scorecard: Bristol-Myers

Following the release of first quarter 2011 results on April 28, 2011, there have been significant revisions to the annual estimates for Bristol-Myers Squibb Company (BMY) for 2011 and 2012 by a majority of the analysts covering the pharma major.

Revisions have a significant upward bias especially for 2011 and also for 2012. The upward bias is primarily attributable to the encouraging efforts of the company to combat the loss of revenues that will arise once its key drugs, particularly the blockbuster Plavix, lose market exclusivity.

First Quarter Highlights

Bristol-Myers’ first quarter 2011 earnings (excluding special items) of $0.58 per share surpassed the Zacks Consensus Estimate by $0.05 and the year-ago earnings by $0.02. Higher revenues boosted earnings in the first quarter of 2011.

On a reported basis (including special items), Bristol-Myers’ earnings in the quarter increased 33% to $0.57 per share. The US healthcare reform negatively impacted earnings by $0.03.

Net sales in the first quarter of 2011 climbed 4% to $5.0 billion. Revenues also surpassed the Zacks Consensus Revenue Estimate of $4.93 billion driven by the impressive showing of Bristol-Myers’ lead drugs including blood thinner Plavix.

(Read our detailed earnings report at: Solid Quarter at Bristol-Myers)

Agreement of Estimate Revisions

There is a significant positive bias in the estimate revisions for 2011 and 2012 over the last 30 days. Over the last 30 days, 10 of the 20 analysts following the stock for 2011 have upped their earnings estimates for 2011 with no downward movement. Meanwhile, 8 analysts following Bristol-Myers have increased their estimates for 2012 with 3 moving in the opposite direction.

We believe that the upward bias is attributable to the efforts made by the company to combat the loss of revenues due to the impending genericization of its key drugs. Bristol-Myers is looking to combat the generic threat through partnering deals and acquisitions and introducing new products to augment its product portfolio.

We believe that the US launch of cancer candidate Yervoy (ipilimumab) in April 2011 following the FDA approval in March 2011 (Please refer to BMY’s Cancer Drug Cleared in the US) contributed to the upward bias. Bristol-Myers acquired full ownership rights to Yervoy through the Medarex acquisition in 2009. Moreover, the acquisition of biotechnology firm ZymoGenetics in 2010 is also aimed at softening the impact of the loss of revenues arising from the genericization of key drugs.

The upward bias is also attributable to the robust pipeline at Bristol-Myers. The pipeline, on successful development and commercialization, will boost the pharma major’s top line significantly.

Bristol-Myers has three key action dates lined up this year. The FDA is expected to decide on a subcutaneous formulation of rheumatoid arthritis (RA) drug Orencia for treating adults suffering from moderate to severe RA by August 4, 2011.

We note that Orencia is already approved for multiple indications both in adults and children. Orencia’s approval for the additional indication would be a boost as the drug would target the highly lucrative RA market.

Moreover, the US regulatory body is expected to give its decision regarding Nulojix (belatacept) for treating adults undergoing kidney transplants by June 15, 2011. A response from the FDA regarding type II diabetes candidate dapagliflozin, co-developed with Astra Zeneca (AZN) is expected by October 28, 2011. Positive news from the FDA regarding these drugs would bolster Bristol-Myers further.

Magnitude of Revisions

Estimates for 2011 have gone up by $0.02 over the last 30 days. The current Zacks Consensus Estimate of $2.19 is towards the upper end of Bristol-Myers’ guidance of $2.10 – $2.20 per share. 2012 estimates are up $0.01 to $2.07 over the last 30 days following movements in both directions over the last 30 days.

Our Recommendation

We currently have a ‘Neutral’ recommendation on Bristol-Myers, which is supported by a Zacks #3 Rank (short-term ‘Hold’ rating).

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