The headline figure from Bristol-Myers Squibb's (NYSE:BMY) fourth-quarter results should have sent shockwaves down every shareholder's spine. Despite reporting higher drug sales, the health-care behemoth also reported profits that were down 21.5% compared with the previous year's fourth quarter.
Of course, delving down into the details showed that the reason profits were down by such a large extent was a one-off tax credit in the previous year that made it an unjust comparable. Therefore, the results weren't so bad and actually beat Wall Street estimates (as many companies seem to be doing lately) and showed that Bristol-Myers Squibb continues to make encouraging progress with its vast restructuring program.
This program will see Bristol-Myers Squibb transformed from mass-market drugmaker to specialist niche player. Company management hopes that such a move will enable the business to deliver higher margins in the long run. The restructuring included the sale of the company's stake in the diabetes alliance joint venture with AstraZeneca (NYSE:AZN), with Bristol-Myers Squibb receiving up to $4.3 billion for its share.
Indeed, AstraZeneca and Johnson & Johnson (NYSE:JNJ) are following their own restructuring plans, so it seems as though such happenings are en vogue in the health-care space at present. While Bristol-Myers Squibb is focusing on becoming a creator of specialty drugs for complex disorders and is divesting assets such as its share of the diabetes alliance, AstraZeneca is on an acquisition spree through which it hopes to overcome its patent cliff issues. Unlike Bristol-Myers Squibb, it will focus on mass-market conditions such as diabetes, targeting growth in emerging markets as well as in more developed markets.
Meanwhile, Johnson & Johnson is following a path of divestment, where it is selling off slower-growth divisions such as its blood-testing unit that was sold to private equity firm Carlyle Group for more than $4 billion recently. Such a strategy is perhaps an obvious one, as Johnson & Johnson seeks to stimulate a top line that has delivered only sluggish growth in the past five years. Its strategy appears to lie somewhere in between the seeking of specialism by Bristol-Myers Squibb and the acquisition spree of AstraZeneca, combining aspects of both companies' plans.
Of course, Bristol-Myers Squibb is unlikely to sell assets and not buy any, especially as its former blockbusters continue to be hit hard by sales of generic drugs. Former blockbusters Plavix and Avapro (used to thin blood and treat high blood pressure, respectively) saw sales fall heavily, although there was positive news flow from improved sales of rheumatoid arthritis drug Orencia and hepatitis B treatment Baraclude. It was, however, a very mixed bag and was perhaps typical of a company going through a restructuring process.
However, this process could lead to a higher share price, even before it's concluded. For instance, AstraZeneca is still expected to report declining earnings over the next couple of years (as is Bristol-Myers Squibb) but has benefited from improved sentiment as the market begins to realize that it could be a strong turnaround story.
While change is awash at Bristol-Myers Squibb and results are slightly disappointing, progress with restructuring could mean shareholders benefit -- even if the bottom line doesn't for a few years yet.