Bristol Myers Squibb Company — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. The quarter includes Celgene’s results following its acquisition on November 20, 2019; therefore, year-over-year comparisons are materially affected by the acquisition. Dollar amounts are in U.S. dollars.
Key financial results
| Metric | Q1 2020 | Q1 2019 | Change / context |
|---|---|---|---|
| Total revenue | $10.781 billion | $5.920 billion | Up 82%; Celgene contributed $4.2 billion of revenue, and COVID-related buying patterns contributed about $500 million. |
| Net income (loss) attributable to BMS | $(775) million | $1.710 billion | GAAP diluted EPS was $(0.34), versus $1.04. |
| Non-GAAP diluted EPS | $1.72 | $1.10 | Excludes $4.731 billion of specified items after tax; the company cautions this measure is not a substitute for GAAP results. |
| Operating cash flow | $3.894 billion | $1.390 billion | Increase primarily reflected higher collections and timing of operating payments, including Celgene. |
| Investing cash flow | $653 million provided | $1.060 billion provided | |
| Financing cash flow | $1.054 billion used | $2.029 billion used | Included $1.017 billion of dividends; Q1 2019 included $1.250 billion of long-term debt repayment. |
| Cash and cash equivalents | $15.817 billion | $12.346 billion at Dec. 31, 2019 | Marketable debt securities totaled $3.156 billion at quarter-end. |
| Debt | $46.706 billion | $46.733 billion at Dec. 31, 2019 | Short-term debt was $3.862 billion and long-term debt $42.844 billion. |
| Net debt | $27.733 billion | $30.573 billion at Dec. 31, 2019 | Improved as cash and marketable securities increased. |
| Current assets / current liabilities | $31.853 billion / $19.232 billion | $29.354 billion / $18.304 billion at Dec. 31, 2019 |
The filing does not provide a single headline gross or operating margin. GAAP results included substantial acquisition-related amortization and other specified items.
Revenue and material changes
- Revenue growth reflects the Celgene acquisition, which added major products including Revlimid ($2.915 billion), Pomalyst/Imnovid ($713 million), Abraxane ($300 million) and Vidaza ($158 million) to the reported portfolio.
- Eliquis revenue rose 37% to $2.641 billion. Opdivo revenue declined 2% to $1.766 billion, including lower U.S. sales amid market and competitive pressures. Orencia rose 12% to $714 million; Sprycel rose 14% to $521 million.
- U.S. revenue increased 96% to $6.766 billion; Europe increased 73% to $2.567 billion; and Rest of World increased 53% to $1.335 billion. Foreign exchange reduced total reported growth by about 1%.
- Cost of products sold rose to $3.662 billion, including $1.420 billion of inventory purchase-accounting adjustment unwind. Acquired-intangible amortization was $2.282 billion, compared with $24 million a year earlier.
- Other expense, net was $1.163 billion, versus income of $261 million in Q1 2019. Major 2020 items included $556 million of contingent-consideration expense, $339 million of equity-investment losses, $174 million of integration expense, $160 million of restructuring provision and $362 million of interest expense.
- The GAAP effective tax rate was negative 152.0%, reflecting specified items including non-deductible contingent-value-right charges and valuation allowances. Excluding specified items, the rate was 16.0%.
Liquidity, debt and capital allocation
- BMS reported $18.973 billion of cash, cash equivalents and marketable debt securities against $46.706 billion of short- and long-term debt. It had no borrowings under its $6.0 billion revolving credit facilities or commercial paper program at March 31.
- Management said available liquidity, operating cash generation and potential commercial paper issuance should cover anticipated needs for at least the next few years. The company cited approximately $9.5 billion of debt maturities through 2022 and approximately $6.8 billion of expected CVR payments in 2021.
- Expected capital expenditures are approximately $900 million in 2020 and $1.3 billion in 2021. Q1 dividends paid were $1.017 billion; declared dividends were $0.45 per share.
- The Board increased share-repurchase authorization by $5.0 billion in February. BMS repurchased $81 million of shares in Q1 and reported approximately $5.9 billion of remaining authorization.
- Celgene integration and restructuring are intended to deliver $2.5 billion of sustainable annual synergies. Total related charges are expected to be $2.8–$3.0 billion, mostly through 2022, with estimated cash outlays of approximately $2.5 billion.
Outlook, risks and unusual items
- COVID-19: BMS said it could not reliably estimate the pandemic’s full impact. It assumed peak business impact in Q2 2020, a more stable environment in Q3 and minimal impact in Q4 and beyond; a longer disruption could worsen results. Q1 buying-pattern changes lifted revenue by about $500 million, with Eliquis particularly affected.
- The company reported no expected near-term medicine-supply disruption but warned of possible future manufacturing, supply, demand, collection and third-party risks. It suspended some clinical-trial activity and laboratory research, and delayed Zeposia commercialization. These disruptions could delay launches and development, affect future revenue, or trigger impairment charges.
- COVID-19 market volatility contributed to $674 million of downward equity-investment fair-value adjustments. Further investment losses, foreign-exchange effects and lower interest income were identified as potential risks.
- FDA approved Zeposia in March and Opdivo plus Yervoy for previously treated liver cancer in March; Reblozyl received an additional U.S. indication approval in April. BMS warned COVID-19 could delay FDA decisions for the CVR-linked liso-cel and ide-cel programs; specified approval deadlines could affect CVR value or payment.
- In April 2020, a court entered a roughly $1.2 billion judgment in Juno/SKI’s CAR-T patent litigation, plus a 27.6% running royalty on specified Yescarta sales through August 2024. Kite appealed. This post-quarter development is a material contingency to monitor.
- Other notable matters include U.S. generic patent challenges to Eliquis, Revlimid and Pomalyst, and antitrust and product-liability litigation. BMS reported estimated environmental remediation costs of $69.4 million and said many legal outcomes could not be estimated.
Investor verification checklist
- Assess how much reported growth and Q1 buying-pattern effects persist after separating Celgene’s contribution and pandemic-related early refills.
- Review the reconciliation and recurring nature of non-GAAP adjustments, especially acquired-intangible amortization, inventory fair-value unwind, CVR remeasurement and equity-investment losses.
- Monitor COVID-19 effects on patient access, launches, clinical trials, supply, collections and the company’s stated quarterly impact assumptions.
- Track integration progress against the $2.5 billion synergy target, restructuring charges and cash outlays, and debt and CVR payment obligations.
- Follow outcomes of the Juno/SKI appeal and significant patent, antitrust, product-liability and tax matters; verify any changes to accruals or potential exposures.