Bristol-Myers Warns on '05, '06 Earnings, Shares Tumble

Bristol-Myers Squibb Co. (BMY), plagued by patent expirations on many of its drugs, posted sharply lower quarterly profit on Thursday and warned that earnings in 2005 and 2006 could miss Wall Street forecasts, sending its shares to a 15-month low.

The New York-based company said second-quarter sales were hurt by competition from generic versions of its drugs. It also had $455 million in charges related to legal matters and a scandal in which it artificially boosted sales and earnings from 1999 through 2001.

Bristol-Myers said profit in the next two years would be "somewhat below" Wall Street expectations because of patent expirations.

"What's important is the guidance for 2005 and 2006, and it's on the negative side," said David Moskowitz, an analyst with Friedman, Billings, Ramsey. "Even the company doesn't really know what those numbers will look like in the future."

Earnings fell to $527 million, or 27 cents per share, in the second quarter, from $902 million, or 46 cents per share, a year earlier.

Excluding one-time items, including the $455 million in charges and an assortment of other charges totaling $104 million, it earned 46 cents per share in the latest quarter. That exceeded the average forecast of 39 cents per share among analysts polled by Reuters Estimates, due in part to a considerably lower tax rate.

Sales rose 6 percent to $5.4 billion. Half of the rise was due to the weak dollar, which increases the value of overseas sales when converted back into dollars.

Bristol-Myers shares closed down $1, or 4.2 percent, to $22.57 on the New York Stock Exchange (search) after falling as low as $22.22 earlier in the session.

Sales of cholesterol fighter Pravachol (search) — until recently the company's biggest product — fell 6 percent to $656 million after a highly publicized clinical trial showed the drug was less effective than Pfizer Inc.'s (PFE) Lipitor.

But sales of Plavix, used to prevent blood clots, surged 38 percent to $769 million. Bristol licenses it from French drugmaker Sanofi-Synthelabo, which is attempting to stave off attempts by generic drugmakers to sell their forms of the blockbuster in the United States.

Sales of schizophrenia treatment Abilify, growing in popularity because it does not cause the weight gain seen with some rival drugs, jumped 88 percent to $122 million.

Several Bristol-Myers drugs recently lost their U.S. market exclusivity, making them prey to competition from cheaper generics, including Glucovance and Glucophage XR (search) for diabetes.

Second-quarter sales of the Glucophage and Glucovance product line plunged 69 percent to $148 million.

Declining sales of the company's key medicines caused its gross profit margin to shrink by more than 2 percentage points.

"The negative gross margin trend is concerning, reinforcing our view that earnings (are) at risk and that future earnings-per-share growth will likely be lackluster," Leerink Swann analyst Andrew Oh said in a research report.

Although exclusivity on cancer treatment Paraplatin does not lapse until October, Bristol-Myers has already allowed Israel's Teva Pharmaceutical Industries Ltd. (TEVA) to begin selling an unbranded version.

The Bristol-Myers patent on antibiotic Cefzil lapses next year, and marketing exclusivity on Pravachol ends in April 2006.

The company raised its 2004 earnings forecast to a range of $1.60 and $1.65 per share, up from its earlier view of $1.50 to $1.55. Even so, that would trail 2003 earnings of $1.69 per share as generics and the decline of Pravachol take their toll.

Analysts expected 2005 and 2006 earnings to slip to $1.49 and $1.44 per share, respectively. Bristol-Myers said those forecasts were too optimistic and cautioned its earnings prospects could grow even worse if generic drugmakers win their looming Plavix court battle.

The 1999-2001 inventory scam allowed the company to artificially boost sales by $2.5 billion by persuading wholesalers to overstock its drugs. The scheme boosted profit by $900 million, but Bristol-Myers last year restated all earnings for 1999-2001.