Bristol-Myers Squibb decides to split off Mead Johnson nutritional unit to concentrate on biopharma

US drug major Bristol-Myers Squibb has said that it intends to split its 83.1% holding in the nutritionals business, which operates under its subsidiary Mead Johnson and develops infant formulas such as Enfamil and other nutritional products. The move is aimed to enable the company to concentrate on its core biopharmaceutical business. The transaction is expected to be accretive to earnings beginning in 2010 B-MS shares leapt 6% to $24.58 in midday trading on November 16 following the news.

Under the terms of the deal, comment analysts at Zacks Equity Research, B-MS shareholders can exchange some, none or all of their shares of the company for stock of Mead Johnson tax-free and at a discount. On completion, the exchange offer would enable the drug major to dispose of its entire holding interest in Mead Johnson. The analysts recall that B-MS divested 17% in Mead Johnson through an Initial Public Offering in February 2009, raising $720 million in the process.

James Cornelius, chairman and chief executive of B-MS, said: 'Now is the right time to move forward with a split-off given the excellent performance of Mead Johnson since the IPO earlier this year and our confidence in the current and future performance of our biopharmaceuticals business. With a successful execution of this split-off, we fully consider ourselves a BioPharma company.'

The split-off would enable B-MS to function as a fully independent biopharmaceutical company focusing exclusively on its pharmaceuticals segment, which manufactures and sells branded pharmaceutical drugs such as Pravachol (pravastatin) for cholesterol reduction, Plavix (clopidogrel, co-marketed with France's Sanofi-Aventis) for hypertension and Erbitux (cetuximab) for cancer.

Patent expiries looming for B-MS

Even though Plavix is the top growth driver, patent expirations loom large on the company starting 2011 when the drug's patent expires, the Zacks analysts note. Furthermore, the antiplatelet blood thinner indicated to reduce the risk of heart attack in patients with atherosclerosis is facing competition from Eli Lilly's Efient (prasugrel) which was launched recently.

B-MS has lost patent protection on products worth about $4 billion in sales over the past four years. However, the $1 billion addition in cost cuts in 2012-2013, the extension of the Abilify (aripiprazole) agreement with Japan's Otsuka, and the acquisition of Medarex indicate that management is taking meaningful steps to prepare for the loss of exclusivity of Plavix, the analysts note.

Commenting on B-MS' announcement, Mead Johnson chief executive Stephen Golsby said: 'This transaction represents the important final step in our journey to be a fully independent public company. We believe the decision to split-off Mead Johnson reflects confidence in the success of our growth strategy and our strong financial performance since our IPO in February, as well as B-MS' objective to focus on their core BioPharma business.'

The company said it expects to incur costs incremental to its previous expectations for specified items in the fourth quarter of 2009, estimated in the range of $0.08 to $0.13 per share. These costs relate to the proposed exchange offer, legal expenses associated with defense and any judgment entered by the court as a result of a previously disclosed law suit filed against a Mead Johnson subsidiary, and other specified items. Consistent with its practice regarding specified items, the company intends to exclude these specified items from its non-GAAP results.