Bristol-Myers Squibb (BMY.N) reported disappointing first-quarter sales, prompting a drop in shares that have risen sharply this year on enthusiasm for its lineup of promising experimental drugs.
The company on Thursday said sales plunged 27 percent to $3.83 billion, slightly below Wall Street expectations of $3.88 billion, as its Avapro blood pressure drug and Plavix blood clot preventer faced competition from cheaper generics.
Bristol-Myers, whose stock was down 2.5 percent by midday, earned $609 million, or 37 cents per share in the quarter. That was down from $1.1 billion, or 64 cents per share, a year earlier.
Excluding special items, Bristol-Myers earned 41 cents per share, matching the analysts' average forecast, according to Thomson Reuters I/B/E/S.
The company managed to meet the earnings forecast because its effective tax rate fell to 11 percent from 26.7 percent a year earlier, due to a new federal credit for research and development. Wall Street had been expecting a tax rate in the 15 percent range.
"The (results) were a bit disappointing, and Bristol-Myers didn't talk about their expectations for 2014," said Herman Saftlas, an analyst with S&P Capital Inc.
Even after Thursday's sharp decline, company shares trade at 18 times Bristol-Myers' expected per share earnings for 2013, well above the price-to-earnings ratio of 14 for the drug sector. Saftlas said even a slight miss of sales expectations was enough to convince many investors to unload shares.
"With a premium like that, you can't disappoint on anything, and even a small disappointment leads to a correction," Saftlas said.
Bristol-Myers said it still expected full-year earnings of $1.78 to $1.88 per share, which would be a decline of up to 11 percent from 2012.
Plavix sales dropped 95 percent to $91 million in the quarter, but J.P.Morgan analyst Chris Schott said that was about $45 million above expectations. Avapro's fell 78 percent to $46 million.
Most of the company's newer drugs showed strong growth, although slightly below estimates, Schott said. Sales of melanoma treatment Yervoy jumped 49 percent to $229 million, while sales of leukemia drug Sprycel rose 24 percent to $287 million.
Combined sales of diabetes drugs Onglyza and Kombiglyze increased 25 percent to $202 million, while sales of rheumatoid arthritis medicine Orencia rose 26 percent to $320 million.
"The main takeaway message is that a lot of new products are helping mitigate the Plavix loss, so Bristol-Myers is pretty well positioned," said Morningstar analyst Damien Conover.
Analysts expect Bristol-Myers' earnings to rebound next year, growing by a mid-teen percentage rate, as the Avapro and Plavix declines level off and newer drugs continue to grow.
Investors have especially high hopes for Eliquis, a blood clot preventer approved in December to prevent strokes among patients with an irregular heartbeat called atrial fibrillation. They expect the pill, developed in partnership with Pfizer Inc (PFE.N), to become a preferred alternative to the standard treatment, warfarin.
Eliquis had U.S. sales of $17 million in the quarter, below the $36 million that Wall Street expected, ISI Group analyst Mark Schoenebaum said.
"But it's very early days, and we think the company will get a pass for another quarter or two," Schoenebaum said, giving sales representatives more time to drive up sales. Morningstar's Conover predicted Eliquis will eventually capture annual sales of $6.5 billion, to be split with Pfizer.
Bristol-Myers is developing a slate of other potentially lucrative drugs, including treatments for hepatitis C and various forms of cancer. One cancer drug, which blocks a protein called PD-1, could claim the spotlight next month at a major cancer meeting in Chicago. If approved, Conover said the drug could generate annual sales of $2.5 billion.
"We think Bristol-Myers has one of the best pipelines in the industry," said Edward Jones analyst Judson Clark.
But some of Bristol-Myers' experimental drugs have recently fallen by the wayside. U.S. regulators rejected dapaglifozin, a new type of treatment for type 2 diabetes, early last year due to safety concerns. Six months later, its brivanib drug failed in a late-stage trial to prolong survival in liver cancer patients.
Bristol-Myers pulled the plug last August on another treatment for hepatitis C after a patient died of heart failure in a mid-stage trial. The company, with a charge of $1.8 billion in the 2012 third quarter, wrote off the once-promising drug.
Shares of Bristol-Myers were down $1.04 to $40.41 on the New York Stock Exchange.
(Reporting by Ransdell Pierson; Editing by Gerald E. McCormick, Lisa Von Ahn and David Gregorio)
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