BMY: Plavix Small Worry

Growth of mega-blockbuster Plavix is helping Bristol-Myers Squibb Company (BMY - Analyst Report) drive EPS growth up near 13% in 2008. Patent expirations loom very large in Bristol's future starting in 2011 when the Plavix patent expires. That being said, the company does have an attractive mid-to-late-stage pipeline, and the company has been dramatically working to reduce costs and shed less profitable and non-core businesses.

We believe the company is an attractive take-over candidate at this level for a larger pharma name such as Sanofi-Aventis SA (SNY - Analyst Report) or Pfizer Inc. (PFE - Analyst Report). EPS growth at rates near the top of big pharma and a very attractive valuation prompted our recent upgrade from Hold to Buy. We expect the shares to trade up near $27 towards the end of 2008.

On July 24, Bristol-Myers reported financial results for the second quarter and reaffirmed previously issued financial guidance for the full-year 2008. Net revenue increased by 16% over the same period including a 5% benefit from foreign exchange.

The company now has plans to extend the cost-cutting initiative to wring out another $1 billion in costs in 2012 and 2013. We think this is another strong signal that management has a keen eye on Plavix's patent expiration and is willing to take the steps necessary to right-size the company in order to extend the very solid EPS growth expected through 2010.

Bristol also announced it and KAI Pharmaceutical entered into an agreement to develop and sell KAI's proprietary heart-attack candidate, KAI-9803.

Jason Napodano, CFA, contributed to the report.

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