Bristol-Myers' (NYSE: BMY ) first-quarter sales appear tepid at best as revenue fell 1% to $3.8 billion, although its juicy dividend of 2.9% has certainly been attractive to income investors.However, there are some encouraging signs that Bristol may be positioned to transition back to growth, and if so, its solid earnings and margin performance may suggest investors should look beyond the lackluster top line to see those growth opportunities.
Given that backdrop, let's look more closely at Bristol's first quarter.
First, let's address the flat sales. Investors should remember that it's important to compare apples to apples, and in the case of drugmakers, that's even more important given so many of them are reorganizing their businesses.
At Bristol, the 1% sales drop masks an improvement in its pharmaceutical sales because it compares the first-quarter results to a year ago, when the company was still partnered with AstraZeneca on diabetes.
Bristol announced the sale of its half of that diabetes partnership to AstraZeneca in December, and the two companies completed that transaction in the first quarter. If you ex-out diabetes sales, Bristol's sales actually grew by 5% last quarter. With that handled, let's dive into the three things investors should know about Bristol from this past quarter (aside from the dividend and flat revenue).
1. Cost discipline
Investors should also like that Bristol's gross margin improved from 72.3% a year ago to 74.6%. The company's cost restructuring resulted in lower spending relative to revenue for SG&A, selling administrative costs, and advertising.
That combination of stable revenue and cost savings translated into earnings per share of $0.46, up from $0.41 last year, and $0.03 ahead of Street expectations.
2. Strong pipeline candidates
At the same time the company is cutting costs to improve profitability, it's staying focused on bringing new products to market. Spending on R&D grew by 2% in the quarter to nearly $950 million.
One of the most intriguing new products coming out of that R&D department is nivolumab, a PD-1 inhibiting cancer drug that analysts project could see peak sales in the billions per year.
Merck is also developing a PD-1 drug, MK-3475, and has plans to file a rolling submission with the FDA soon. But Bristol won't be far behind given that the company now plans to file a rolling submission for nivolumab as a third-line treatment for squamous cell non-small cell lung cancer by year end.
In addition to nivolumab, Bristol's pipeline also produced an interesting new hepatitis C drug. Last fall, Bristol submitted daclatasvir for approval in Japan following successful late-stage trials.
That was followed up by a decision by EU regulators to approve daclatasvir for compassionate use alongside Sovaldi in critical hepatitis C cases. And Bristol has filed daclatasvir, and its companion hepatitis C drug asunaprevir, for approval in both the EU and the U.S., with decisions expected from each in 2014.
Currently, Gilead (NASDAQ: GILD ) dominates the hepatitis C market with Sovaldi, a next-generation drug that won FDA approval in December. Gilead reported Sovaldi sales totaled more than $2 billion in the first quarter -- its first full quarter on the market.
Daclatasvir isn't likely to dethrone Gilead's dominance; however, it could carve out a solid franchise as an adjunct therapy to Sovaldi. During mid-stage trials, combining daclatasvir with Sovaldi resulted in a functional cure in up to 100% of patients, depending on the hepatitis C genotype.
To get an idea for how big that market opportunity may be, Johnson & Johnson sold roughly $350 million worth of its recently approved hepatitis C drug Olysio in the first quarter, most of which was sold as part of a Sovaldi combination in patients unable to take interferon and ribavirin.
3. Growth in already-approved drugs
If those drugs win approval, they'll join a slate of promising drugs that posted solid revenue growth for Bristol during the quarter.
Among Bristol's top sellers, the fastest growing drug was Sprycel, a drug for the treatment of Leukemia. Sprycel's revenue improved 19% to $342 million in the first quarter as U.S. sales jumped 26% to $145 million. That growth came thanks to rising use as a first line treatment in the U.S. and accelerating use in Japan.
Yervoy, Bristol's melanoma drug, saw its sales climb 18% worldwide to $271 million in the quarter as more community oncologists began prescribing it. The drug continues to win converts thanks to impressive trial results that showed patients receiving it have a median overall survival of 10 months, versus six months for those treated with tumor vaccine.
Bristol also posted solid growth for its rheumatoid arthritis drug Orencia. Orencia sales were up 13% to $363 million globally; however, U.S. sales growth for Orencia slowed to 7% year over year as competition heated up thanks to the approval of Johnson & Johnson's Simponi for the indication last summer. Johnson reported Simponi sales were up almost 11% in the U.S. in the first quarter from a year ago, and they grew slightly more than 9% globally to $259 million.
Bristol still has a solid antiviral product lineup, too. Sales of Baraclude, used to treat hepatitis B, grew 11% to $406 million, while sales of its two HIV drugs, Reyataz and Sustiva, totaled more than $660 million, despite sales falling in part to wholesalers drawing down inventory for Sustiva.
Investors should also be paying attention to the growth of Bristol's Eliquis. That drug, which is co-marketed by Pfizer, saw its sales eclipse $100 million in the quarter. That's a big improvement from the $22 million it sold a year ago, and it reflects growing interest among prescribers for non-warfarin anticoagulant alternatives for cardiovascular disease patients.
Fool-worthy final thoughts
Bristol has plenty of firepower available to reward shareholders, collaborate with others, or do an acquisition. The company's cash stands at more than $10 billion, up $3 billion from last year thanks to the diabetes sale to AstraZeneca.
The company is enjoying solid growth from its top-selling drugs, particularly in cancer, and has some news-worthy up-and-coming drugs that could move the sales needle as early as 2015. Given that backdrop, investors can see the early benefits of its cost-cutting, which could go a long way toward boosting future earnings. Watch these growth drivers moving forward, and look beyond the big dividend!
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