After years of turmoil and controversy, ImClone Systems ( IMCL) looked a lot healthier on Feb. 12 when the Food and Drug Administration approved its drug Erbitux as a treatment for patients with advanced colorectal cancer.

But if the FDA's second look at Erbitux represented another chance for ImClone, the drug will do much less for ImClone's partner, Bristol-Myers Squibb ( BMY). The giant drugmaker is still trying to dig out from several years of financial distress and stock-price trauma, only partly due to the two-year delay in securing Erbitux's FDA approval.

Whatever Erbitux's benefit, Bristol-Myers Squibb will need a lot more good news to pull itself and its stock out of the doldrums -- and that's why Wall Street remains skeptical.

"We estimate Erbitux's potential profit contribution to Bristol-Myers Squibb is immaterial," said David R. Risinger, of Merrill Lynch, in a note to investors just before the FDA approved the drug. He hasn't altered his view, predicting that Erbitux will produce $101 million in revenue this year, $208 million next year and $303 million in 2006.

If those predictions are correct (some analysts believe Erbitux sales will be higher), Risinger said Bristol-Myers Squibb actually could lose money on Erbitux for the next three years, given the expenses of making and selling the drug, making milestone payments to ImClone and providing ImClone with a 39% royalty based on Erbitux sales in North America.

Risinger said he didn't expect Erbitux to lift Bristol-Myers Squibb's stock. Since his report was issued four weeks ago, the stock is down about 14%. (He doesn't own shares; his firm is a market-maker in Bristol-Myers Squibb and plans to seek investment banking business with the company.)

The company's stock has been skidding this week due to surprisingly bad news: a company-sponsored study of cholesterol drugs showed that patients taking Pfizer's ( PFE) Lipitor had a 16% lower likelihood of getting a heart attack, requiring heart procedures or dying than patients taking Bristol-Myers Squibb's Pravachol, the company's best-selling drug.

Last month's Erbitux approval by the FDA didn't do much for other analysts covering Bristol-Myers Squibb, either. Within two weeks of the FDA's decision, for example, two investment banks cut their ratings on Bristol-Myers Squibb, whose stock has been bouncing between $20 and $32 for nearly two years. Just over three years ago, the stock was worth $70. The Pravachol-Lipitor news hasn't changed anyone's ratings yet, but several investment banks, including Oppenheimer and Credit Suisse First Boston, have trimmed their earnings per share and sales estimates for the next two years.

Bristol-Myers Squibb invested $1 billion in September 2001 to buy one-fifth of ImClone, and it agreed to make future milestone payments worth another $1 billion, an agreement that was later revised. Then it endured the FDA's initial rejection of the drug's application in December 2001; a tense relationship with ImClone caused by what the FDA said was a sloppily filed drug application; and the negative publicity surrounding the conviction and jailing of Samuel D. Waksal, ImClone's former CEO, for securities fraud and other crimes.

But even if Erbitux dramatically exceeds expectations, Bristol-Myers Squibb still must overcome Wall Street's jaundiced view. According to Thomson First Call, three analysts recommend buying the stock, while 12 give it a sell rating -- or semantic equivalents such as underperform or underweight. Another 12 analysts have hold ratings.

Bristol-Myers Squibb watchers are divided on a major theme: Will the company's newest drugs grow strongly enough, and will promising experimental drugs reach the market fast enough, to offset the eroding revenue due to patent and exclusivity expirations?

The few analysts who really like Bristol-Myers Squibb are betting that some new drugs -- Abilify for schizophrenia and Reyataz for HIV/AIDS -- will grab big chunks of market share, that veteran products will continue to perform well, and that those experimental drugs will meet the necessary scientific and regulatory requirement quickly.

The company continues to merit an outperform rating "based upon our expectation for near-term sales/profit contributions from Albilify and Reyataz, as well as the most undervalued R&D pipeline in the sector," said the Boston-based investment banking firm Leerink Swann in a report to customers on the day the FDA approved Erbitux. The firm believes Erbitux could produce $200 million in sales this year and $400 million next year.

Leerink also is basing its buy bet on test results due later this year and/or in early 2005 on experimental drugs for rheumatoid arthritis and diabetes. (The firm says it intends to seek investment banking compensation from Bristol-Myers Squibb in the next three months).

And if you believe the old adage that it's time to sell stocks when most analysts are bullish, you could apply the opposite corollary to Bristol-Myers Squibb. Then again, some analysts who turned sour on the stock didn't cut their ratings until the shares had sunk significantly.

Or you could listen to the folks who say if you want to buy a Big Pharma stock, don't take a chance on Bristol-Myers Squibb -- at least not now.

Some naysayers render verdicts strictly on fundamentals. They believe Bristol-Myers Squibb, which rose about 20% between early November and mid-February in anticipation of the FDA's Erbitux ruling, doesn't have enough earnings and revenue power to support the current stock price compared to peer group stocks. Shares have reversed recently, spurred by the Pravachol-Lipitor news. By late morning Thursday, the stock was at $25.42, down about 16% since the recent Erbitux euphoria level.

Other analysts with negative or even neutral views doubt the research pipeline will produce ready-for-market drugs fast enough to offset the revenue hits caused by generic competition.

"Growth of existing products plus a contribution from newly launched drugs will add to sales but are not fully expected to offset revenue losses of $1.2 billion to $1.3 billion in 2004 due to patent expirations," said Stephen A. O'Neill, of the Louisville, Ky.-based investment banking firm of Hilliard Lyons, in a report to clients last month. "As a result, 2004 EPS could be below 2003 figures." O'Neill has a neutral rating on the stock. (He doesn't own shares; his firm has had an investment banking relationship with the company within the last 12 months.)

The company recently issued 2004 earnings guidance of $1.50 to $1.55 per share on a non-GAAP basis, which was below the $1.62 consensus of analysts polled by Thomson First Call. Last year's EPS was $1.68 on a non-GAAP (generally accepted accounting principles) basis.

Although Bristol-Myers Squibb said that existing drugs would "more or less" offset the revenue lost to generic products, Shane Higgins, of Deutsche Bank Securities, doesn't share that view. In a recent report to clients, he warned that "we see increased risk here, particularly since the sales of products losing exclusivity realized higher margins than those expected to replace them."

Higgins said 29% of last year's $20.7 billion in revenue is subject to generic competition in the next two years, including Pravachol, which loses U.S. patent protection in April 2006, and will lose patent protection in some foreign markets this year. Pravachol was Bristol-Myers Squibb's top-selling drug last year, with $2.83 billion in revenue.

He also said that despite Bristol-Myers Squibb's strong research efforts, investors have to weigh the guarantee of generic competition vs. the hope of experimental drugs. "The risk of late stage clinical-testing failure, as experienced recently by Merck ( MRK) and Schering-Plough ( SGP), underscores the uncertainty of products in development, even after they have cleared numerous hurdles," he said. Merck, for example, canceled work in November on diabetes and depression drugs that were in phase III testing, the final research stage before a company seeks FDA approval.

Higgins, who doesn't own shares, rates the stock as underweight. (His firm has had an investment banking relationship with Bristol-Myers Squibb).

After the FDA approved Erbitux last month, Standard & Poor's said it wasn't changing its mind about Bristol-Myers Squibb's long-term credit rating of AA-minus or its negative outlook. S&P said upcoming patent expirations in the next few years -- culminating with the U.S. patent expiration of Pravachol -- caused it to keep its current rating.

In S&P parlance, an AA-minus rating still reflects a solid financial foundation. Bristol-Myers Squibb lost its top-grade AAA rating in 2002, slipping to AA. Last year, the rating dropped to AA-minus. In September, S&P outlined its view on Bristol-Myers Squibb: "The company could face another downgrade within the next few years" if the new drugs don't pick up where the existing drugs leave off.

Those comments were amplified Wednesday, when S&P issued a warning about ratings for the company's corporate credit, unsecured debt, commercial paper and short-term corporate credit. The ratings firm put these items on CreditWatch with negative implications, meaning some or all of the ratings could be reduced. S&P said it was acting primarily because the Pravachol-Lipitor research could hurt earnings and cash flow prospects. "Standard & Poor's is concerned about the company's long-term ability to retain its business strength."

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