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Bristol-Myers Parts Ways With Mead Johnson

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After the spin-off, expect lower earnings.

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As the end of the year rapidly approaches, Bristol-Myers Squibb (BMY) is making some last-minute adjustments to its financial forecast.

The Big Pharma company said Wednesday that it was lowering its guidance for the full-year 2009. Excluding one-time charges, the company now expects earnings to be $1.75 to $1.80 a share, compared with a previous range of $2.00 to $2.05. Analysts surveyed by Thomson Reuters had expected, on average, earnings of $2.02 per share.

The last-minute update to the company's annual earnings forecast reflects the completion of its spin off of consumer children's health care products-maker Mead Johnson Nutrition (MJN), which it acquired in 1967. In February, Bristol-Myers Squibb spun out the century-plus-old company in an initial public offering.

Total Bristol-Myers earnings for 2009 will include discontinued operations related to Mead Johnson, as well as an expected gain of $7 billion resulting from the split-off.

Mead Johnson is one of the leading makers of pediatric formula for children. Its Enfa brand family, which includes the Enfamil formula, accounted for 67% of its sales in 2008. The company had $2.1 billion in sales for the nine months ended September 30.

Bristol-Myers said in September 2008 that it would sell about 15% of the Mead Johnson on the public market. The IPO was the first of only a few public offerings conducted in 2009 due to the poor economic conditions and lack of capital.

After the IPO, which sold off 25 million shares at $24 per share, Bristol-Myers announced last month that it would sell off its remaining 85% stake in the nutrition company. The company accepted 269 million shares of Bristol-Myers common stock in exchange for the 170 million shares of Mead Johnson common stock. The companies announced the results of the tender offer on December 23.

Mead Johnson said in its prospectus filing with the SEC that the children's nutrition industry is a $19 billion global industry, with about $14 billion coming from the infant formula side of the market.

"We're pleased to have successfully completed the split off of Mead Johnson Nutrition Company, which now focuses us completely on biopharmaceuticals," said James M. Cornelius, chairman and chief executive officer of Bristol-Myers Squibb. "As we continue our transformation into a next-generation BioPharma leader, we are confident in our ability to execute on our strategy and in the strong performance of our BioPharma business."

Bristol-Myers has been trying to hone its business focus to prepare for the patent expiration of its blockbuster blood thinner Plavix in coming years, as well as the upcoming generic competition for several other drugs. Cornelius has spoken out against doing a mega-merger deal to pad the company's pipeline like competitors Merck (MRK) and Pfizer (PFE) have done this year. He has called Bristol-Myers' strategy a "string of pearls" approach to doing business.

Earlier this year, Bristol-Myers paid $16 per share in cash for Medarex in a deal that valued the company at $2.4 billion as part of its diversification strategy. Through the acquisition, Bristol-Myers Squibb gained $300 million in cash and securities, a late-stage skin cancer drug, and Medarex technology that finds new ways to treat cancer and immunological disorders.
No positions in stocks mentioned.

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