No Long-Term Bet on Bristol-Myers

Shares of Bristol-Myers Squibb (BMY - commentary - Cramer's Take) are enjoying a healthy rebound today. On Thursday, news broke of a judge's ruling to prevent Apotex from selling a generic version of Plavix.

This legal ruling is undoubtedly an important victory for Bristol-Myers, as it maintains market exclusivity for its largest product line and should allow the company to keep its generous dividend intact. But is it enough to be bullish about Bristol-Myers for the long term?

Patent Troubles

First, the judge stopped short of granting the branded companies their request to withdraw existing generic product from the market. As a result, Bristol and marketing partner Sanofi-Aventis (SNY - commentary - Cramer's Take) are still expected to suffer from a steep dropoff in Plavix sales in the near term. This morning, Sanofi lowered its full-year 2006 earnings guidance, based on the forecast that Apotex has already distributed enough generic Plavix to satisfy market demand for the balance of 2006.

Many investors are already looking past this short-term Plavix supply disruption, with a return to normal sales for this franchise expected by early 2007. Even though Bristol and Sanofi have regained market exclusivity for this franchise, I'm not so sure everything will return to normal.

Here's some background on the legal dispute. Apotex entered the generic market for Plavix on Aug. 8. Bristol-Myers and Sanofi-Aventis responded by filing for a preliminary injunction on Aug. 15. Last night's halts further generic sales of Plavix by Apotex until a final legal decision is granted on its patent's validity. This patent case is set to begin on Jan. 22, 2007, with a ruling expected around the middle of next year.

What Lies Ahead

So what happens in the meantime? First, Bristol-Myers and Sanofi-Aventis may not be able to regain full pricing for this franchise quickly, after recent discounting in the face of generic competition. Second, the uncertainty over the Plavix patent case will likely remain an overhang for at least the first half of next year. Patent cases are always tough to handicap, so the potential for a generic win may keep wholesalers carrying leaner-than-normal inventory of Plavix. This could set the stage for a worse-than-anticipated rebound in Plavix sales in early '07.

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At the time of publication, Michael Latwis had no position in the stocks mentioned, although positions may change at any time.

Michael Latwis has directed health care content at TheStreet.com Professional Products. He also has worked at Barclays Wealth management division and was previously associated with Lazard Freres and Fiduciary Trust. Latwis covered companies in the pharmaceutical and specialty pharmaceutical sectors as well as biotech, medical technology, healthcare services, retail and media stocks. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Latwis appreciates your feedback; click here to send him an email.