Bristol-Myers Slashes Outlook - TheStreet

Bristol-Myers Slashes Outlook

The embattled company charges its CEO with reviving the core drugs business.
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Updated from 5:05 p.m. EST

The other shoe fell today, right on top of

Bristol-Myers Squibb

(BMY) - Get Report

.

Just days after issuing a

miniwarning of sorts in its annual report, the struggling drugmaker acknowledged Wednesday that it would be hit by a massive profit shortfall for the first quarter and the full year.

Bristol-Myers also shuffled its executive ranks, leaving CEO Peter Dolan at the top and charging him with the core drugs business.

"The company's current business performance is unacceptable," said Dolan, in a statement detailing the changes.

Bristol-Myers issued its warning after falling 26 cents Wednesday to $37.70. The stock slid 15% to $31.95 in after-hours trading.

The New York-based drug giant, struggling with bloated inventories and faltering drug sales, slashed its first-quarter earnings estimate by nearly 20%, to 44 to 47 cents a share.

Analysts were looking for first-quarter earnings of 56 cents per share, according to Thomson Financial/First Call, down from 63 cents a year earlier.

First-quarter sales will fall 7% from the year-ago quarter's sales of $4.7 billion. Generic drug competition and the aforementioned inventory problems are severely hampering the company's sales performance. On a brief conference call to discuss the shake-up, Dolan said sales of Glucophage, Buspar and Taxol will total only $100 million, combined, in the first quarter, compared with $900 million in the year-ago quarter.

The pain likely will extend throughout 2002: Bristol-Myers now expects the year's earnings to fall 25%-30% from last year's $2.41 a share. That translates into 2002 earnings of $1.68-$1.80 -- more than 20% below the First Call estimate of $2.28 per share.

But even those drastically reduced numbers are in flux because Bristol-Myers says its previously announced plan to reduce wholesale drug-inventory levels is going to erase another 35 cents to 40 cents per share from earnings over the course of the reduction process.

Bristol-Myers is not giving any guidance for how long it will take to bring inventory levels down to acceptable levels. If the process is completed by year-end, as some analysts expect, the company's 2002 earnings could fall further to a range of $1.28 per share to $1.40 per share, based on a 40-cent-per-share inventory hit.

Dolan said he is assuming direct responsibility for the company's global pharmaceuticals business. He will be assisted by Donald Hayden, who was named president of North American Medicines. Hayden was executive vice president of the company's health care group. Richard Lane, president of Worldwide Medicines, has left the company.

A Bristol-Myers executive, who asked to remain anonymous, says Lane's departure is directly tied to last month's Vanlev debacle, when the highly anticipated heart drug disappointed with poor test results.

"Morale is still the pits," he says. "Bristol-Myers has become a headhunter's dream."

Bristol-Myers has been battered throughout 2002, first by generic drug competition, then by serious delays in its partnership with

ImClone Systems

(IMCL)

to develop the cancer drug Erbitux. Then came the Vanlev hit, followed by the excess inventory problem. In the meantime, the company has very few new drugs in its pipeline that can be counted on to make up for all the shortfalls.

Acknowledging his company's multifaceted problems, Dolan is trying to convince Wall Street that he's taking aggressive steps to turn things around.

"I have taken a hard look at our business and have concluded that we must improve our current operating performance, our cost structure and our focus on bringing great drugs to the market in the near term," he said.

But today's shocking warning will only intensify speculation that Dolan's job is in jeopardy, and that the only real way to salvage shareholder value is to sell the company.