Bristol-Myers Short on Fans

Wall Street's expectations are low, given the drugmaker's prospects for the next few years.
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Bristol-Myers Squibb

(BMY) - Get Report

approaches its third-quarter financial report Friday in the unenviable position as the most disliked of the U.S. Big Pharma companies -- and with little enthusiasm from Wall Street for its prospects for the next few years.

If you measure likability by buy and sell ratings, Bristol-Myers ranks last with eight sell recommendations, according to Thomson First Call.

Schering-Plough

(SGP)

is next on the list with six sell recommendations, but at least it has 11 buy ratings. Thomson First Call lists only one buy rating for Bristol-Myers Squibb.

In that gloomy context, Wall Street is expecting a 2004 third quarter for Bristol-Myers Squibb that will look worse than the same period last year. The Thomson First Call consensus calls for earnings of $771.4 million, or 39 cents a share, on revenue of $5.3 billion, for the three months ended Sept. 30. For the same period last year, Bristol-Myers Squibb earned $884 million, or 45 cents a share, on revenue of $5.3 billion.

Some analysts say the company could beat the consensus by a penny or so, but they warn that any good news will be transitory and only heighten the financial beating that Bristol-Myers Squibb can expect next year. Generic-drug competition continues to erode revenue, while up-and-coming products aren't coming up fast enough or strong enough.

"The pipeline is improving, but

it is still distant and risky," said Carl Seiden of UBS, in a recent earnings forecast. "We see little prospect for EPS growth until late 2007."

"The stock currently enjoys downside support because of its attractive dividend yield," said Seiden, who has a reduce rating on the stock. "While our base case does assume the dividend will be maintained, the assumption of limited downside risk could prove naive." (Seiden doesn't own shares; his firm says it does and seeks to do business with companies covered in its research reports.)

Andrew Oh of Leerink Swann said that although Bristol-Myers has some strong points, the fundamental weaknesses -- including the generic attacks on the cancer drug Paraplatin and the Glucophage diabetes franchise -- create a "hit or miss" third quarter.

Although Oh's prediction is 1 cent below consensus, he's more pessimistic about next year when he predicts year-end earnings will fall by 16% to $1.35 a share, which is 5 cents below consensus. He expects this year's EPS, excluding one-time charges, to reach $1.60, or one cent below consensus. Oh has a market perform rating on the company. (He doesn't own shares, and his firm doesn't have an investment banking relationship.)

As they have done for several quarters, analysts continue to worry about a patent challenge to Plavix, the drug that prevents blood platelets from coagulating and, thus, reduces the risk of stroke and heart attacks. With $2.47 billion in sales last year, Plavix is the company's second-best-selling drug.

Sanofi-Aventis

(SNY) - Get Report

is the developer of Plavix, but it has a co-marketing and co-development deal that gives Bristol-Myers Squibb responsibility for North American, South American and Australian markets. (Bristol-Myers Squibb also has a marketing deal with Sanofi-Aventis for the French company's Avapro/Avalide hypertension drugs, which produced $757 million in revenue for U.S. company last year.)

Many analysts believe Sanofi-Aventis and Bristol-Myers Squibb will prevail, but they warn that a defeat would be catastrophic. "We think a loss on the Plavix patent would be a significant negative," UBS's Seiden said. "In our view, earnings would fall by an estimated 40%, the dividend would have to be slashed, and the stock would suffer."

For now, analysts will have to take comfort in some good news -- sales of the HIV drugs Sustiva and Reyataz are growing strongly, as is the revenue of the antipsychotic drug Abilify. After the earnings report on Friday, analysts will focus on the company's Nov. 17 research and development presentation, where Bristol-Myers is expected to provide details about preclinical and early-stage clinical tests products as well as give updates on late-stage clinical testing drugs.

They will pay close attention to the diabetes drug muraglitazar, for which they expect Bristol-Myers Squibb will seek FDA approval in late 2004 or early 2005. In April, the company signed a co-marketing and co-development deal with

Merck

(MRK) - Get Report

.

Another prospect is Entecavir, a drug for hepatitis B, which is in late-stage clinical testing. Analysts say the company may seek FDA approval by year-end, and it also may seek FDA approval by year-end for a rheumatoid arthritis drug, Abatacept, also in late-stage clinical testing.