Bristol-Myers Tops Profit Estimates on Tax Benefit

Bristol-Myers Squibb Co.’s fourth-quarter earnings beat analysts’ estimates after the company took a tax benefit from a hepatitis C drug that failed last year.

Profit, excluding one-time items, was 47 cents a share, 5 cents more than the average of 15 analysts’ estimates compiled by Bloomberg. The earnings included an $83 million tax benefit the company recorded from Inhibitex Inc., acquired in 2012 for the hepatitis C drug that later was abandoned after patients suffered heart ailments in studies. Bristol-Myers lowered its full-year forecast to match what analysts had been projecting.

“We think 2013 guidance will be viewed as far more important to investors than the fourth-quarter results,” said Mark Schoenebaum, an analyst with ISI Group Inc. in New York. “The ’main event’ for the year is clearly Eliquis sales. If Eliquis ’beats’ then the stock should do reasonably well in 2013,” he said in a note to clients today.

Eliquis is the potential blockbuster blood thinner New York-based Bristol-Myers developed with Pfizer Inc. U.S. regulators approved the drug in December, and it’s a key part of Bristol-Myers’ portfolio to move past last year’s loss of sales exclusivity for former top medicine Plavix, an anti-stroke medication that sold $7.09 billion in 2011.

Bristol-Myers rose 2.6 percent to $35.81 at the close in New York. The stock has gained 11 percent during the 12 months.

Transition Year

Chief Executive Officer Lamberto Andreotti called 2012 a transition year for Bristol-Myers as it turns to new products such as its skin-cancer drug Yervoy. The company has “continued to build the post-Plavix portfolio and operating structure that provide a solid foundation for our future growth,” he said in a statement announcing the financial results.

Sales growth may have to wait past 2013, which the company projected as another year of declining results. Bristol-Myers reduced the 2013 forecast it gave two years ago to $1.78 a share to $1.88 a share, after promising at least $1.95. The forecast was in line with Wall Street’s lower estimates.

The company said its 2013 tax rate would be 16 percent. The 8 percentage point drop compared with the 2012 rate is primarily for three reasons: a U.S. research and development tax credit of 2.5 percentage points; the decline of Plavix sales in the U.S., which are taxed at a higher rate than overseas sales; and a “legal restructuring,” said Chief Financial Officer Charles Bancroft. After the research and development tax credit expires next year, Bristol-Myers taxes will rise to about 17 percent or 18 percent, Bancroft said.

Aggressive Effort

Analysts called the rates aggressive. “At the guided level, the 2013 tax rate is now well below any other drug name we cover,” said Tim Anderson, an analyst with Sanford C. Bernstein & Co. The low tax rate made up for what the company is projecting will be higher costs, said Schoenebaum. Both analysts questioned whether the projected rate will be sustainable past 2013.

Bristol-Myers also predicted annual sales of $16.2 billion to $17 billion, compared with analysts’ estimates of $16.6 billion.

The company has made strides to prepare for life without Plavix. Eliquis may provide $1 billion in sales next year, to be split by Bristol-Myers and Pfizer, said Jeff Jonas, an investor with Gabelli & Co. in New York who owns shares of Bristol-Myers.

Potential Sales

“As you go out a couple years, $2 billion or $3 billion is reasonable,” he said in a telephone interview. And the company has said it may still gain U.S. approval for the diabetes therapy Forxiga, which was rejected last January.

Net income rose to $925 million, or 56 cents a share, from $852 million, or 50 cents, a year earlier, the drugmaker said. Fourth-quarter sales fell 23 percent from a year earlier to $4.19 billion, higher than the $4.14 billion estimated by analysts. Sales of Plavix have almost disappeared, falling 97 percent to $49 million.

Bristol-Myers reduced costs. Total expenses fell 4.7 percent, including a 26 percent cut in advertising and product promotion from no longer actively pushing the anti-stroke drug.

The outlook begins to look better in 2014 for the drugmaker, said Anderson of Sanford C. Bernstein. “The company is likely to have growth that finally starts to accelerate from 2013, driven by new product launches and the annualization of certain big patent losses” including Plavix, Anderson said in a Jan. 21 note to clients. Much of investors’ focus is on the company’s experimental treatments and new products, he said.

Future Products

Despite the failure of the Inhibitex drug for hepatitis C, gained in a $2.5 billion acquisition, Bristol-Myers has a backup regimen of pills now in clinical trials. Among its top prospects is an oncology medicine that could be used in lung, kidney and skin cancers. The drug, called BMS-936558, blocks an immune-system switch in the cancer cells that would otherwise shield them from the body’s natural defenses.

The therapy is in the last of three stages of clinical trials usually needed for U.S. regulatory approval. It could sell $675 million a year by 2016, Jami Rubin, an analyst with Goldman Sachs Group Inc., said in a note to clients.

The company plans to present new data on the drug at the American Society of Clinical Oncologists meeting this summer, said Chief Science Officer Elliott Sigal. It’s also looking for bio-markers to better target the drug to the right patient.

Bristol-Myers also will continue to see the growth of Yervoy, a treatment for malignant melanoma that was approved in 2011. Fourth-quarter sales of the drug increased 47 percent to $211 million. Abilify, an anti-psychotic that is now Bristol-Myers’s top drug, saw sales grow 11 percent to $819 million in the quarter. Sales of Reyataz, used to treat the viral infection HIV, fell 5 percent to $394 million.

The company had taken a $1.8 billion charge in the third quarter as a result of ending development of the hepatitis C drug gained in the Inhibitex acquisition. Bristol-Myers also has reached a settlement with patients injured during trials of the medicine, said Jennifer Mauer, a company spokeswoman.

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