MJN called out in this WSJ article.
Bristol May Be Poised
To Get Much Smaller
By PETER LOFTUS
November 30, 2007 2:25 p.m.
Bristol-Myers Squibb Co. is about to get smaller.
The drug maker is expected to cut its work force by at least 10%, or about 4,300 jobs, and potentially close up to half of its manufacturing plants as part of a long-awaited cost-savings program to be announced next week, Wall Street analysts predict.
Also, the New York company might lay out plans to shed some of its nonpharmaceutical assets, a possibility that Bristol executives have hinted at this year. Some analysts believe these units, which make baby formula and other products, could fetch $10 billion.
Bristol, which co-markets the popular anti-blood-clotting drug Plavix with Sanofi-Aventis of France, is undertaking the moves to boost profit margins and increase its focus on areas of growth such as biologic therapies and treatments for diabetes and cancer. Also, like the situation at many of its rivals, Bristol's sales growth has come under pressure from competition from generic drugs.
Bristol Chief Executive James Cornelius and his lieutenants are expected to unveil details of the cost-saving plan Wednesday in a meeting with investors and analysts in New York. Mr. Cornelius first disclosed in July that job cuts were likely to result from a strategic review of the business, and last month he said some cost cuts were already under way.
Mr. Cornelius said in October the company has made occasional job cuts and "productivity improvements," but next week's plan is likely to be "much larger." Executives have suggested cuts are likely to be made primarily in the areas of back-office and infrastructure functions, as opposed to research and sales and marketing.
The new program "will include transforming and streamlining the company to increase productivity and focus more resources on discovering, developing and delivering innovative medicines and other health-care products to patients," Bristol spokesman Tony Plohoros said Wednesday, adding that Bristol isn't disclosing exact plans until next week. (On Friday, Mr. Plohoros disclosed he will be leaving the company as part of the program.)
Big Job Cuts Predicted
Analysts at UBS and Citigroup both predicted job cuts between 10% and 20% of the work force. That could result in savings of $1 billion to $2 billion; Bristol had $17.9 billion in sales last year. UBS analyst Roopesh Patel said Bristol could shutter up to half of its 38 manufacturing sites around the world.
Bristol's work force has held steady at about 43,000 since 2004, according to its annual reports. Since then, other large drug makers have cut jobs and costs significantly, including Pfizer Inc. and Merck & Co. In addition to battling generic-drug makers, big pharmaceutical companies have faced difficulties getting new products on the market to replace lost sales.
"The business is changing pretty rapidly and the cost structure out of the industry is out of sync," Deutsche Bank analyst Barbara Ryan said in an interview. "You have a pretty violent loss of earnings from patent expirations and therefore an inherent cyclicality to the earnings. The industry needs to find ways to be more efficient and also to make its cost structure more flexible."
Ms. Ryan believes the size of the work-force reduction will be about 10%, with a good portion of those affected being in manufacturing. She predicts the savings could add five cents to 10 cents to Bristol's annual per-share earnings. Ms. Ryan rates Bristol shares at "buy" and has a price target of $35, or 19% higher than Thursday's closing price of $29.40. The stock was recently trading at $29.56, up 16 cents.
For full-year 2007, Bristol has said it expects to earn $1.42 to $1.47 a share, excluding any restructuring charges and certain other items, rising to $1.60 to $1.70 a share in 2008. In 2006, Bristol earned $1.09 a share excluding certain items, which reflected a downturn in Plavix sales due to the temporary availability of a generic version.
Takeover Speculation Has Waned
Whether Bristol's moves would make it a more attractive takeover candidate remains to be seen. The company has been the frequent subject of takeover speculation since last year, but that talk has died down more recently. Bristol executives have played down such talk, saying the company has a "good future" remaining independent.
Ms. Ryan believes a takeover of Bristol-Myers is "pretty unlikely," partly because one rumored buyer, Sanofi-Aventis, doesn't have a strong stock price to help fund such a deal. A financial source close to the matter said Bristol isn't interested in a merger with Sanofi and prefers to grow independently, Dow Jones Newswires reported Wednesday.
Bristol shares are up 11.7% year-to-date, above the 3.6% gain by the S&P 500. The stock's valuation, at about 20 times projected 2007 earnings, is among the highest in the industry, and its market capitalization is about $58 billion, which would be no small meal for a buyer to digest.
A key element of Mr. Cornelius's strategic review was to group the company into four "clusters" and review strategic options for each: cardiovascular and
metabolic-disease treatments; specialty medicines; mature brands; and non-pharmaceutical health-care products. The company has examined options for each cluster that might enhance shareholder value.
As a hint of how this might play out, Bristol has pointed to its agreement made in June to sell the Bufferin and Excedrin brands of pain relievers in Japan and other Asian countries to Lion Corp. of Japan for $250 million. Mr. Cornelius called this a "mature, noncore business" and said "there will be more of this in the future."
The pharmaceutical unit generates nearly 80% of Bristol's total sales. The rest consists primarily of Mead Johnson nutritionals; ConvaTec, which sells wound-care and other products; and a medical-imaging unit.
If Bristol were to sell the nutritionals unit, which had about $2.3 billion in sales last year, it could fetch a price between $5 billion and $7 billion, said Deutsche Bank's Ms. Ryan. One potential buyer is Nestle SA of Switzerland, some market watchers say. Nestle doesn't comment on market rumors, a spokesman said.
Combined, the non-pharmaceutical assets could generate sale proceeds of more than $10 billion, Citi analyst George Grofik wrote in a note.
UBS's Mr. Patel said it's possible Bristol would unload certain "low-growth mature" products or businesses such as the medical-imaging unit. The analyst also suggested Bristol might even want to get out of its co-marketing arrangement with Sanofi-Aventis for the anti-hypertension drug Avapro. Bristol recorded $1.1 billion in sales from the drug last year, but Mr. Patel said it's "apparently not a very profitable drug" for Bristol.
--Laetitia Bachelot-Fontaine and Martin Gelnar contributed to this article.
Write to Peter Loftus at firstname.lastname@example.org