Beyond Bristol's Big Dividend: 3 Things Investors Need to Know

Bristol-Myers (BMY) reported flat sales, but earnings and sales of its top selling drugs grew suggesting investors should look beyond the first quarter top line numbers.

Apr 30, 2014 at 6:30PM

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.

BMY Chart

BMY data by YCharts.

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!

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Todd Campbell owns shares of Gilead Sciences. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. Todd owns Gundalow Advisors, LLC. Gundalow's clients do not own positions in the companies mentioned. The Motley Fool recommends Gilead Sciences and Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers