Earnings Preview: Bristol-Myers Squibb and Celgene Corporation

Celgene and Bristol-Myers Squibb are set to report second quarter earnings this week. Here's what investors need to know.

George Budwell
George Budwell
Jul 23, 2014 at 2:00PM
Health Care

Most health care stocks have been experiencing a roller coaster ride so far this year. While the underlying cause(s) of this volatility is likely multifaceted in nature, I think a fair amount is attributable to the uncertain outlook regarding some of the top names in the sector. 

Bristol-Myers Squibb (NYSE:BMY) and Celgene Corp. (NASDAQ:CELG) are two closely watched names that nicely illustrate the market's love-hate relationship with health care this year, shown by the chart below. With both companies releasing earnings for the second quarter this week, let's take a look at the key issues that may help to either feed --or perhaps quell, this volatility moving forward.   

BMY Chart

BMY data by YCharts

Bristol-Myers will report on Thursday before the bell
Shares of Bristol-Myers have now fallen close to 8% for the year. While this lackluster performance is probably due to stagnate growth and falling revenues, the company's clinical pipeline has also had its fair share of disappointments this year as well.

For the second quarter, the Street is looking for Bristol to post non-GAAP EPS of $0.44 on $3.85 billion in revenue. What's key to understand is that this would represent flat EPS growth year over year and a 4.9% decline in revenue.

Bristol has been able to hold its EPS steady primarily by lowering its marketing, selling, and administrative expenses through a general restructuring process. After the recent acquisition of iPierian, the continued expansion of its clinical activities and research collaboration with Five Prime Therapeutics, and gearing up to launch its hepatitis C drug, I think operating costs will be a key issue to keep tabs on this quarter.

Keeping with this idea, the Street is expecting EPS to decline this quarter, compared to the first quarter, by 4.3%. On the bright side, Bristol has seen stellar top-line growth for a number of key pharma products lately, including Sprycel, Yervoy, Orencia and Baraclude. Put simply, these particular products could help offset rising costs.

On the clinical side, investors should be on the lookout for updates on the regulatory filings for Bristol's PD-1 inhibitor nivolumab. Per the last update, nivolumab was scheduled to be under review as a treatment for advanced melanoma by the third quarter. The company also has a rolling submission application in the works for nivolumab as a treatment for non-small cell lung cancer. 

Celgene reports Thursday before the bell
Celgene is looking to follow-up its first-quarter earnings beat come Thursday. However, that may be difficult to achieve given the lofty expectations the Street has this quarter.

The Street is looking for non-GAAP EPS to come in at $0.89 on $1.85 billion in revenue for the second quarter. Consensus thus represents a healthy 6.5% increase in quarter over quarter EPS, propelled mainly by a 6.9% rise in revenue. 

That being said, Revlimid and Abraxane's stellar sales growth in recent quarters are two very good reasons to believe these projections may not be far off the mark. Given Abraxane's recent label expansion as a treatment for advanced pancreatic cancer, we should see the drug continue its rapid sales growth this quarter, making it a key drug in Celgene's portfolio to watch. Pomalyst has also seen sales grow in a big way as of late, which could be the basis of an upside surprise this quarter.

Foolish wrap-up
Bristol is undoubtedly a company in transition. Nonetheless, it does have a number of irons in the fire, with the goal of creating top-line growth going forward. With over $3 billion in net cash, I think we'll end up seeing Bristol play the M&A game again this year in the hopes of accelerating this process. Nivolumab's steady progress toward a regulatory approval also gives the company a realistic shot at adding another megablockbuster to its product portfolio in the near future. Simply put, Bristol may be close to turning the corner, making it a compelling name to watch this earnings season. 

Celgene, on the other hand, is a red hot biotech that has repeatedly posted impressive revenue numbers -- even beating already optimistic estimates by Wall Street. On Thursday, I wouldn't be surprised to see Celgene will continue this trend, driven mainly by stronger than expected sales of Abraxane.