Earnings Season: It's All About Expectations

It's all about expectations at Bristol-Myers Squibb (NYSE: BMY  ) .

Revenue slipped 23% year over year in the fourth quarter. And Bristol announced its 2013 adjusted earnings guidance of $1.78 to $1.88, down from its long-range guidance of "at least $1.95."

And shares went up 2.6% yesterday.

The massively lower revenue was expected given the loss of patents on Plavix and Avapro/Avalide. Excluding those two compounds, net sales grew 13% in the fourth quarter. And analysts had already set their 2013 guidance lower, so it wasn't a big shock when Bristol confirmed it.

The focus now is on accelerating growth post-Plavix. Sales of Bristol's now top-selling drug, the antipsychotic Abilify, rose 11% year over year, and cancer drugs Sprycel and Yervoy both saw solid sales gains of 24% and 47%, respectively.

Growth of current drugs is important, but new drugs should really drive the needle. Eliquis, which it'll sell with Pfizer (NYSE: PFE  ) , was recently approved to treat patients with atrial fibrillation. Considering how hard it is for the doctors to get the dose right for the current standard of care, wafarin, Eliquis shouldn't have any problems getting to blockbuster status and beyond.

The other key area for investors to watch is Bristol's diabetes program, which is jointly owned with AstraZeneca (NYSE: AZN  ) . The companies recently bought Amylin for its diabetes drugs Byetta and Bydureon. The latter is a once weekly formulation, which was supposed to be attractive to patients, but fourth-quarter sales of Bydureon were just $58 million, substantially below its older brother Byetta. The duo hasn't owned the products for that long, so I'd give them a pass this quarter, but they'll have to put in some marketing muscle to accelerate sales from here. Finally, the companies need to get the FDA to reconsider their stance on dapagliflozin, which was rejected a year ago. The diabetes drug was recently approved in the EU under the brand name Forxiga.

The numbers aren't going to look too pretty for Bristol this year, but if it can concentrate on growing sales of drugs not off patent, 2014 will look much nicer when the headwinds of year-over-year comparisons have subsided.

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