Bristol-Myers Squibb: On the Patent Cliff's Edge

Bristol-Myers Squibb (NYSE: BMY  ) changed its huge patent cliff into two smaller falls with a larger ledge in the middle. It's a good deal for the company, but it doesn't fix the ultimate problem: hitting the bottom is going to hurt.

Bristol-Myers was expected to lose both blood thinner Plavix, which it sells with sanofi-aventis (NYSE: SNY  ) , and its antipsychotic Abilify almost on top of each other; a major hit considering the two combined accounted for over 37% of sales last year. Plavix will go off patent at the end of 2011 and Bristol-Myers' agreement with Otsuka Pharmaceutical to market Abilify was set to expire about a year later.

In order to shorten the cliff's fall, Bristol-Myers announced yesterday that it was extending its agreement with Otsuka until 2015 when the patent on Abilify expires. Bristol-Myers will pay $400 million up front for the pleasure and reduce its share of the revenue, currently at 65% but ramping it down to about 51%. On the other hand, Otsuka will begin to pick up some of the tab for marketing Abilify.

The patent cliff that almost every drugmaker is facing is the dark side of developing blockbuster drugs. Be it Pfizer's (NYSE: PFE  ) Lipitor, Eli Lilly's (NYSE: LLY  ) Zyprexa, or AstraZeneca's (NYSE: AZN  ) Nexium, it's going to hurt when the drugmakers start to face generic competition. Fortunately, investors can see the patents coming and the loss of revenue won't be a shock, unlike when Merck (NYSE: MRK  ) had to suddenly pull Vioxx off the market prematurely.

With the cliff in plain sight, share prices will be determined by what the companies do between now and their rapidly approaching fall. Adding a parachute in the form of marketing deals like this one along with its developmental-stage deal with Exelixis (Nasdaq: EXEL  ) should help Bristol-Myers. It certainly has the cash to keep arranging them.

More Foolishness:

Pfizer is a Motley Fool Inside Value pick. Exelixis is a Rule Breakers recommendation. Whether you like your companies big or small, dividend-laden or with multibagger written all over them, we've got a newsletter for you.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool owns shares of Exelixis and has a disclosure policy that pouts if we don't tell you stuff like that.


Read/Post Comments (0) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 870090, ~/Articles/ArticleHandler.aspx, 8/20/2014 2:07:18 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement