Bristol-Myers Catches a Cold

Business at Bristol-Myers Squibb (NYSE:BMY) has become more interesting recently . and "interesting" is very rarely a good thing. It's far preferable to sell your drugs, make beaucoup cash flow, and go along on your merry way. But on the other hand, although Bristol-Myers is currently knee-deep in some challenges, that doesn't automatically spell doom for the pharma.

That said, fourth-quarter results weren't exactly great, either. Total sales fell by about 3% from the year-ago period, and pharmaceutical sales dropped by a like amount. Simply put, double-digit growth from a stable of drugs including Plavix, Abilify, Reyataz, and Erbitux weren't enough to outweigh losses to competition and generics -- as seen in cases like Pravachol's 18% drop. Net income, once adjusted for charges and items in both years, was also down about 23% from last year's level.

Unfortunately, things are likely to get worse before they get better. By the company's own estimation, it will lose more than another $1 billion in sales in 2006 to generic competition for drugs such as Pravachol, Taxol, and Cefzil. That's why losing out on promising diabetes-treatment drug Pargluva -- on which it once had a partnership with Merck (NYSE:MRK) -- stings all the more. Bristol-Myers certainly has some promising drugs, including some interesting anti-cancer compounds, but things probably aren't going to turn around until 2007.

And, of course, there's always the risk that even more things will go wrong. Plavix is facing a patent challenge, the company is a little bit behind Merck and Novartis (NYSE:NVS) in developing a new class of diabetes drug, and there's always the risk of trial failures and/or setbacks from the Food and Drug Administration.

Still, the dividend here is attractive, and the company is already in the process of reducing its cost base -- a move that Pfizer (NYSE:PFE) started a little while ago. It's true that you can't cost-cut your way to prosperity, but if trimming costs while waiting for the pipeline to mature and become productive helps preserve the dividend, so much the better. I can't honestly say that I'm a big fan of the stock, but I can understand why long-term investors might be willing to hold on and see how things work out.

For more Foolishness from the medicine cabinet:

• Pfizer: Less Bad Is Good Enough
• Novartis Marches On
• Bristol-Myers' Bad Mojo

Merck is a Motley Fool Income Investor recommendation, and Pfizer is a Motley Fool Inside Value pick. What's your investing style? Take a look at our family of investing newsletters and treat yourself to a free 30-day trial to whatever suits you. You'll be happy you did.

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).