Bristol-Myers faces challenges

As it strives to increase its product pipeline, the drug company could make a takeover bid -- or entertain a takeover offer.

By TheStreet Staff Mar 6, 2013 2:06PM

thestreet logo Pills copyright Sean Justice, CorbisBy Marc Courtenay   

 

The business of being an international pharmaceutical company is challenging and fraught with many issues.

 

For every big business, as the old song goes, "sometimes you win and sometimes you lose, and sometimes the blues gets a hold of you..." That song would be appropriate after a Food and Drug Administration rejection or when a drug loses its patent protection and becomes fair game for generic drug manufacturers.

 

When an investor studies the recent history of Bristol-Myers Squibb (BMY), one can see something very similar. Back in 2012 the company lost patent protection on its blockbuster blood-thinning drug Plavix. It was an expensive loss.

 

To attempt to rebound from this multi-billion-dollar revenue driver, Bristol-Myers went into high gear and ever since has done its utmost to redefine itself and its product line. The results have been so positive that BMY shares recently hit a 52-week high of $37.60 on Tuesday.

 

Let's take a peek at a five-year chart that is certain to impress shareholders and potential shareholders alike. I've included the trailing 12-month revenue per share, which peaked almost a year ago.

 

bmy chart

 

It illustrates the challenge the company faces, unless it is taken over by a bigger drug company or if it can buy another revenue driver from one of its smaller competitors.

 

Both possibilities are realistic. Bristol-Myers, with its current market cap of $61.5 billion, could conceivably be "affordable" for a Jolly Giant like Johnson & Johnson (JNJ), which also hit a 52-week high Tuesday of $77.71, leaving its market cap somewhere north of a colossal $217 billion.

 

According to the Bristol-Myers's website, the company is working on a new-generation blood-thinner called Eliquis, as well as drugs for the growing need to successfully treat widespread health problems such as hepatitis C and cancer.

 

The website states:

 

In 2011, we invested $3.8 billion in the discovery and development of medicines in key areas such as diabetes, oncology, cardiovascular, neuroscience, virology and immunology.

 

The website then lists from A to Z the names of these drugs -- its product pipeline -- or, what the company refers to as its "string of pearls." 

 

Can Bristol-Myers develop or buy more "pearls" that it can add to its "string?" We might find out soon when the company presents at the Barclays 2013 Global Health Care Conference on Tuesday, March 12, in Miami.

 

Michael Giordano, senior vice president and head of development, oncology & immunology, will make a formal presentation about the company at 9:30 a.m. ET. It would not surprise me to hear some encouraging news as to the company's strategy going forward on filling its pipeline and, at the very least, sustaining the sales profits at the 2012 levels.

 

By the end of 2012 Bristol-Myers had operating cash flow of nearly $7 billion and total cash (most recent quarter) of $2.83 billion. It can generate more revenue with wider distribution of Eliquis, which has been touted as a drug that can prevent strokes. It will be sold in partnership with Pfizer (PFE).

 

There are numerous other ways the company can preserve and grow its triumphant share price, including international sales expansions in areas like Asia. The challenges the world faces with diseases like hepatitis C are growing, and by some estimates could eventually present a $5 billion to $10 billion market if aggressively marketed.

 

In the meantime don't count out the possibility that Bristol-Myers is already on the radar screen of some cashed-up predators that will pay dearly for its "string of pearls," including the ones in late-stage development.

 

At the time of publication the author had a position in PFE.

 

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