Bristol-Myers Reduces 2009 Outlook

Wednesday, Bristol-Myers Squibb (BMY) lowered its fiscal 2009 outlook as a result of the split-off of pediatric nutrition company Mead Johnson Nutrition Co (MJN). Bristol-Myers expects earnings per share from continuing operations in the range of $1.75 -$1.80, down from its earlier guidance of $2.00 - $2.05. Earlier, in Nov, Bristol-Myers decided to split off its 83.1% holding in Mead Johnson.

Mead Johnson completed a public offering in Feb 2009. Since then, its shares have risen considerably. Following the completion of the spin-off, Bristol-Myers expects the transaction to be net cash flow positive to its biopharmaceutical business and accretive to earnings beginning in 2010. Earlier this month, the share swap ratio between the two companies was amended to 0.6313 shares of Mead Johnson per 1 Bristol-Myers common share from the earlier 0.6027. The offer expired on December 17.

The split-off would enable Bristol-Myers to operate as a fully independent biopharmaceutical company, focusing exclusively on its Pharmaceuticals segment, which manufactures and sells branded pharmaceutical drugs, such as Pravachol for cholesterol reduction, Plavix for hypertension and Erbitux for cancer.

Plavix, the antiplatelet blood thinner indicated for reducing heart attack risks in patients with atherosclerosis, is the top growth driver at Bristol. However, patent expirations loom large on the company starting 2011, when Plavix is likely to face generics in the United States.

The company has lost patent protection on products worth about $4 billion in sales over the past four years. Generic competition has resulted in drugs such as Cefzil, Paraplatin, Glucophage, Monopril and Taxol experiencing sales declines. However, the $1 billion addition in cost cuts in 2012−2013, the extension of the Abilify agreement with Otsuka and the acquisition of Medarex are indications that management is taking meaningful steps to prepare for the loss of exclusivity of Plavix.

Currently, we are Neutral on Bristol-Myers.