For Bristol, steady course may be best navigation

NEW YORK (Reuters) - Although its shares are mired near multiyear lows, Bristol-Myers Squibb Co (BMY.N) may be well advised to avoid drastic changes in its overall business strategy as it bids for ImClone Systems Inc IMCL.O.

Regardless of whether the drugmaker succeeds in its $4.5 billion bid for the roughly 83 percent of the biotechnology company it doesn't own, Bristol-Myers should continue on its path toward becoming a more pure "BioPharma" company, money managers and analysts said.

The end game for Bristol-Myers could be as takeover prey for a larger company as Big Pharma struggles to generate new drugs, but many doubt the right offer will come along any time soon.

Instead, expect Bristol to pursue small or mid-size deals to boost its pipeline in specialty areas such as oncology, and focus on brand-name pharmaceuticals and biotech medicines rather than branching out into generics, consumer products and other areas as some rivals are doing.

"Bristol basically has a two-pronged strategy: to grow, especially with biologics, and to cut costs, and I don't see any change to that overarching strategy," Morningstar analyst Matthew Coffina said.

Like other large pharmaceutical companies, Bristol-Myers faces a major patent expiration within the next few years -- to its Plavix blood-clot treatment -- and is cutting costs to gird for expected plunging sales of the $5 billion-a-year product.

"They're buying good and affordable companies and managing the cost side and cleaning up their portfolio" by divesting non-pharmaceutical businesses, said David Katz, chief investment officer of asset manager Matrix Asset Advisors, which owns about 597,000 shares of the company.

"They're doing everything right," Katz said. "We give the CEO very high marks."

STOCK UNDER PRESSURE

Although Bristol, which had sales of $19.3 billion last year, has forecast annual earnings growth of at least 15 percent through 2010, its shares have been pressured by worries over the November 2011 U.S. patent expiration of Plavix.

Further, potential competition to Plavix may be only weeks away if a new drug from partners Eli Lilly and Co (LLY.N) and Daiichi Sankyo (4568.T) wins approval.

The stock has fallen 23 percent in the past year, compared with a 4.5 percent decline for the American Stock Exchange Pharmaceutical Index .DRG of large drugmakers.

Acquiring all of its partner ImClone would give Bristol full U.S. rights to the fast-growing cancer drug Erbitux as well as a pipeline of other potential oncology treatments that could bolster future earnings. ImClone has said Bristol's $60-a-share bid is too low.

Coffina said Bristol would be able to use ImClone's new high-tech plant to make Erbitux and other biotech drugs either for sale or for internal research programs.

"I'd say they can settle down for at least a couple of years, and integrate ImClone," Coffina said.

Bristol is expected to have sufficient capital after ImClone to make more moves.

"We wouldn't expect another acquisition the size of ImClone, but we expect them to continue to do small deals," Edward Jones analyst Linda Bannister said. "It will be a successful strategy if they can come up with new drugs -- that's what it's all based upon."

INCENTIVE FOR BUYING IMCLONE

Coffina predicted Bristol would likely continue to forge drug-development deals, including partnerships to develop its own medicines as they move into later stages of testing.

Bristol is already working with AstraZeneca Plc (AZN.L) to develop diabetes treatments and with Pfizer Inc (PFE.N) on a promising blood clot preventer.

If Bristol loses ImClone, a legal battle may loom between the longtime partners over an altered form of Erbitux that is under development by ImClone and could be safer and more effective.

"We're expecting (it) to get approved in 2011 and to steal significant share from Erbitux thereafter," Coffina said. "It's something the market should be focused on."

"It would prevent a lot of legal headaches if they just acquire ImClone outright," Coffina said.

Not everyone is gung-ho about the ImClone deal.

Viren Mehta, a principal at research and advisory firm Mehta Partners, said Bristol's financial capacity is limited, "therefore it begs the question whether owning 100 percent of Erbitux versus having yet another important driver may not be a better option."

"It's not a bad idea," Mehta said, "but the question is: Are there better options?"

But Eldene Doyle, an analyst with Oblique Capital Management, said the deal would be a plus.

"They'd definitely become a more interesting company if they get ImClone because of the possibility of Erbitux continuing to grow," Doyle said. "A lot of companies are going into biotech and biologics, and that can be a wise strategy to get the higher growth rates possible with those drugs."

(Editing by Brian Moss)