Bristol-Myers Squibb Company’s (BMY) second quarter 2014 earnings (excluding special items and the diabetes business divested earlier in the year) of 46 cents per share beat the Zacks Consensus Estimate by 2 cents. Adjusted earnings in the second quarter of 2014 were 12% above the year-ago figure due to lower costs.

Bristol-Myers Squibb Company - Earnings Surprise | FindTheBest

Including one-time items, Bristol-Myers’ second quarter 2014 earnings came in at 18 cents, down 37.5%. Reported earnings declined primarily due to the sale of most of its diabetes business to AstraZeneca (AZN). The divesture, excluding China, was completed in Feb 2014.

Net sales in the second quarter of 2014 (excluding revenues from the divested diabetes business) climbed 7% to $3.9 billion, driven by strong sales of drugs targeting the oncology market. Strong sales of rheumatoid arthritis drug, Orencia, also boosted the top line in the reported quarter. Revenues (including the divested business) slipped 4% to $3.9 billion. Revenues were in line with the Zacks Consensus Estimate.

The Second Quarter in Details

The company posted disappointing sales in the U.S. and international markets, where net sales declined 7% to $1.9 billion and 1% to $2.0 billion respectively.

Key cancer drugs at Bristol-Myers however performed very well in the second quarter of 2014. Leukemia drug, Sprycel, registered sales of $368 million, up 18%. Skin-cancer drug Yervoy, approved in the U.S. and EU in 2011, contributed $321 million to total revenues during the reported quarter, up 38%. Sales of another oncology drug, Erbitux, also improved during the quarter. Erbitux sales climbed 9% to $186 million in the reported quarter.

The performance of key drugs in the virology unit was disappointing. Sales of Baraclude declined 1% to $369 million. Sales of HIV treatments Reyataz and Sustiva also dropped 16% and 12% to $362 million and $361 million, respectively.

Global sales of Abilify, approved for the treatment of schizophrenia and depression, declined 1% to $555 million. The drug however performed encouragingly in the U.S. with sales climbing 10%. Sales of Orencia stood at $402 million, up 14%.

Sales of anti-clotting drug Eliquis were $171 million during the reported quarter, up 61.3% sequentially. In Mar 2014, Eliquis was approved in the U.S. for an additional indication – to bring down the risk of blood clots in patients who have undergone hip or knee replacement surgery. The drug also received a positive opinion from the EU advisory committee for the treatment of deep vein thrombosis (DVT.V) and pulmonary embolism (PE) and the prevention of recurrent DVT and PE in adults. Successful label expansion will boost the sales potential of the drug. Bristol-Myers has a partnership with Pfizer (PFE) on Eliquis.

Adjusted gross margin, as a percentage of net sales (excluding the diabetes business) stood at 76% in the reported quarter as against 83.4% in the comparable quarter of 2013. Adjusted marketing, selling and administrative expenses in the reported quarter were 8.9% below the year-ago figure of $1 billion. Adjusted research and development expenses for the quarter remained flat at $958 million.

2014 Earnings Outlook Maintained

Bristol-Myers continues to expect 2014 adjusted earnings in the range of $1.70–$1.80 per share. The current Zacks Consensus Estimate of $1.77 is within the company’s guidance range. The company’s 2014 revenue guidance is also maintained in the range of $15.2–$15.8 billion. The Zacks Consensus Estimate for 2014 currently stands at $15.5 billion.

Other Updates

Bristol-Myers announced that it has entered into a strategic collaboration agreement with Ono Pharmaceutical to jointly develop and commercialize several immunotherapies to help address the unmet medical needs of patients suffering from cancer in Japan, South Korea and Taiwan. The companies will also jointly develop and commercialize Opdivo and Yervoy across a broad range of tumor types.

Our Take

We are impressed by the strong sales of key drugs like Yervoy, Sprycel, Erbitux and Orencia in the second quarter of 2014. Results were also aided by lower costs.

Bristol-Myers has been trying to offset the declining sales of some of its important products by bringing in new products through in-licensing deals. We are also impressed by the company’s efforts to develop its pipeline. The company announced that it intends to file Biologics License Application for Opdivo for the previously treated advanced melanoma indication in the U.S. by Sep 30, 2014. Bristol-Myers also achieved an important regulatory milestone when the company’s Daklinza and Sunvepra dual regimen was approved in Japan for hepatitis C.

Bristol-Myers carries a Zacks Rank # 3 (Hold). A better-ranked stock in the healthcare space is Allergan Inc. (AGN) with a Zacks Rank #2 (Buy).

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