Long-term investors in pharmaceutical stocks have got to be feeling like that light at the end of the tunnel is an oncoming train. With earnings in from Bristol-Myers Squibb (NYSE:BMY), there's little reason to revise that view. Although Bristol-Myers doesn't face patient lawsuits, patent expirations are hammering the company's growth.
Sales for the fourth quarter of $5.2 billion were up over last year by 2%, but only because of favorable foreign currency adjustments. Real growth was actually no growth at all, as sales would have declined slightly on a "same-store" basis. Trying to sort out earnings growth involves a nightmarish mix of charges, one-time items, and non-GAAP gymnastics. All that aside, the company said that EPS came in at $0.39 -- down from $0.43 a year ago.
The company's current pharmaceutical business could be described as two Snow Whites and at least seven dwarves. In the fourth quarter, sales of Plavix and Pravachol totaled $1.7 billion and amounted to roughly one-third of all sales. Unfortunately for Bristol-Myers, the drug Plavix -- which the company co-markets with Sanofi-Aventis (NYSE:SNY) -- is now facing a patent challenge. The outcome is anybody's guess at this point.
While sales of drugs like Plavix, Sustiva, and Abilify are growing well, the company as a whole is getting pounded by generics competition. Of the 16 pharmaceuticals listed by Bristol-Myers in its release, seven showed year-over-year sales declines. Worse still, the impact of generics could sap as much as $1.5 billion from sales in 2005. If there's any good news here, it's that the impact of generics is likely to worsen in 2005-2006 and then improve.
Promising new drugs, such as muraglitizar for diabetes, abatacept for rheumatoid arthritis, and entecavir for hepatitis-B, should help starting in late 2005 or early 2006, but growth will be hard to come by until they're up and running.
It's difficult for me to get excited about these shares. While the trailing PE of 14, dividend yield of 4.7%, and return on equity of 25%+ all look appealing, I can't get past the truly nasty impact that generics competition is going to continue to have on this business through 2006. While more intrepid Fools may see that robust dividend as a nice payment for waiting for recovery, I'll be looking elsewhere.
Fool contributor Stephen Simpson, CFA, has no ownership interest in any stocks mentioned.
