Weathering the Storm - Pharmaceutical Executive


Weathering the Storm
Out from financial scandal, CEO Peter Dolan is steering BMS' most productive pipeline yet.

Pharmaceutical Executive

The specialty strategy brings further streamlining of non-pharma businesses. BMS owns the Mead Johnson, ConvaTec, and Medical Imaging businesses, but it recently sold its North American over-the-counter business to Novartis. Given Bristol-Myers' and Dolan's roots in consumer products—he spent his first 10 years with BMS in the OTC division—it must have been a difficult move. But there are only so many chips to hedge BMS' bets, and Dolan has placed them with pharmaceuticals.

"The other businesses [outside pharma] represent about 20 percent of the company's revenue, and what surprises most people, about 25 percent of the company's profitability," says Dolan. "They are attractive, high-margin, good growth businesses that aren't subject in most cases to the same cyclical nature of losing exclusivity. The OTC business in North America is a very small piece of that total. If we had sufficient critical mass, then we would be interested in maintaining that capability. But to be successful in terms of getting distribution in retail and having sufficient sales force capability, etcetera, you need enough clout to compete with the largest OTC companies."

The move to the streamlined specialty model makes sense—but it's not without issues. First, there's concern, in focusing on drugs that treat diseases with smaller populations, that the company will miss out on the next billion-dollar windfall.

Second, the move puts the company in more direct competition with specialty companies, such as Genentech, already firmly entrenched in specialists' offices.

Lastly, given its size, BMS will have more difficulty in achieving growth by selling smaller specialty products. To replace lost revenue, BMS must launch more drugs—and be sleek and efficient in supporting them.

"BMS is trying to morph into a leaner, more growth-oriented company over the long haul, transitioning from a large company that's burdened with substantial infrastructure and that's losing significant revenue to generic competition," says Ryan. "That's where they are, and we know where they are going. The question then is execution—and a lot of that relies on how successful their new drugs are."

In-House Investment

When you can't grow products in your pipeline, you have to buy them. In the past, BMS used that strategy to survive. Today, many of the company's leading products are licensed or acquired—including its top-seller Plavix (clopidogrel), an anti-platelet agent, which brought in $3.3 billion dollars in 2004, and Avapro/Avalide (irbesartan), an anti-hypertensive, with sales of $930 million in 2004, both gained from Sanofi-Aventis.

BMS' business development index, a metric created by Wood Mackenzie to measure the amount of companies' sales that are derived from in-licensed or acquired products, is 74.8 percent for 2004. "There's no other Big Pharma company with that kind of metric," says Stephan Gauldie, senior analyst of life sciences at Wood Mackenzie. "They're all around 15 or 20 percent."

But Dolan feels that dependence on licensing is not a good long-term strategy. That's why, despite holding down costs, BMS is investing in internal R&D. In 2004, BMS increased its research spend by 12 percent to a record $2.5 billion. Dolan says he expects the investment in R&D to continue to grow in 2005 in the low double-digit range.

"Clearly, you have to risk-adjust for what you have in your own pipeline," says Dolan. "But imagine trying to forecast five and 10 years out. If you were largely dependent on licensing, you don't know what will be available from other companies."

Besides, there are other benefits to developing drugs in-house: "You understand that drug better than anybody else does in terms of its risks, and where you can take it clinically and develop it further for additional indications when it's a drug your own scientists have created," says Bodnar.


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