Bristol-Myers Squibb's Thud Heard Round the World


Tick-tock, tick-tock, tick-tock ...

It was only a matter of time before Plavix, Bristol-Myers Squibb's (NYS: BMY) best-selling blood-clot-fighting drug, was set to lose patent protection. Well, folks, that day has come and gone as of last Thursday, and one-third of Bristol-Myers' annual revenue now lies exposed to the elements of generic competition.

Plavix, a drug so commonly prescribed that I'd describe it as the apple pie of the pharmaceutical industry, is set to face fierce competition from seven generic-drug producers, including Dr. Reddy's Laboratories (NYS: RDY) and India-based Sun Pharmaceuticals, to name a few. Unlike Pfizer (NYS: PFE) , which recently lost patent protection on cholesterol drug Lipitor, the best-selling drug in the world, Bristol-Myers has no intentions of trying to market a generic version of the drug on its own, while marketing partner Sanofi (NYS: SNY) has no plans to continue advertising the drug, either.

According to statements made by Bristol's management team, Plavix sales are expected to decline by 60% in the year following its patent expiration. Considering that U.S. sales of Plavix totaled $6.6 billion last year, the company is facing an immediate haircut of about $4 billion annually. Based on the historical trend of generic drugs, it's extremely likely that Plavix's sales will fall for many years to come.

The time has come for Bristol-Myers to innovate. The question then becomes: Is the company ready?

"Maybe" would be my answer. The key to Bristol-Myers' success hinges on three key developments.

First, the success of melanoma cancer treatment Yervoy is imperative to kick-starting Bristol's growth. At a price of $120,000, the four-course treatment spread over three months clocks in as one of the most expensive drug treatments on the market. However, this is also the first melanoma treatment the FDA has approved since 1998, so it can rightfully command a high price. The key will be in whether physicians can be persuaded to prescribe such a high-priced but statistically effective drug. Yervoy contributed $154 million in worldwide sales in the recently ended quarter.

Second, Bristol-Myers, its partner Pfizer, and investors have bet the boat on the success of Eliquis, an experimental treatment targeting strokes and embolisms brought on by atrial fibrillation. The drug is currently being reviewed by the FDA, with a PDUFA target date of June 28 -- in short, a decision is coming very soon on whether the FDA will approve it. If approved, Eliquis offers multibillion-dollar revenue potential and could be the next drug to fill Plavix's void.

Finally, Bristol-Myers' spending spree has it diving headfirst into the hepatitis-C race. Earlier this year, Bristol ponied up $2.5 billion for Inhibitex and its experimental hepatitis-C compound INX-189, which is currently in phase 2 trials. This particular purchase I had a very hard time wrapping my head around, given that INX-189 was hardly out of phase 1 clinical trials and the sector is already very crowded. Gilead Sciences' (NAS: GILD) GS-7977, acquired when it purchased Pharmasset for $11 billion last year, has proved extremely effective at eliminating the virus in just 12 weeks in patients, which may leave little room in the market for INX-189.

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Bristol's future is very much uncertain, but what I can tell you is it can no longer rely on the safety net of Plavix to carry its pipeline. Much of its current rally assumes the approval of Eliquis in the coming weeks. If that doesn't happen, let's just say that I wouldn't want to be a Bristol-Myers shareholder.

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At the time thisarticle was published Fool contributorSean Williamshas no material interest in any of the companies mentioned in this article, although he suddenly has a craving for apple pie. You can follow him on Motley Fool CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.Motley Fool newsletter serviceshave recommended buying shares of Dr. Reddy's Laboratories, Pfizer, and Gilead Sciences. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days. The Motley Fool has adisclosure policythat reinforces the notion that transparency has no expiration date.

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