Bristol-Myers Squibb Company — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; balance-sheet comparisons are to December 31, 2012 unless otherwise noted. BMS is a global biopharmaceutical company reporting as one business segment. Amounts are in millions of dollars except per-share data.
Financial performance and liquidity
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Net sales | $3,831 | $5,251 |
| Earnings before income taxes | $674 | $2,027 |
| Net earnings attributable to BMS, GAAP | $609 | $1,101 |
| Diluted EPS, GAAP | $0.37 | $0.64 |
| Net earnings attributable to BMS, non-GAAP | $679 | $1,094 |
| Diluted EPS, non-GAAP | $0.41 | $0.64 |
| Operating cash flow | $(428) | $387 |
| Cash, cash equivalents and marketable securities | $5,775 | $8,614 |
- Net sales declined 27%, with U.S. sales down 44%; volume accounted for most of the total decline. Earnings were also affected by lower sales and the sharply lower Sanofi-related noncontrolling interest.
- Cost of products sold was 27.7% of net sales, compared with 24.8% a year earlier, reflecting less favorable product mix and higher amortization. Research and development expense increased 2% to $930; total expenses decreased 2% to $3,157.
- The effective tax rate was 7.6%, versus 26.9%, mainly reflecting earnings mix, an earlier intellectual-property transfer, and $43 of tax credits and related provisions recognized in Q1.
- At March 31, cash and cash equivalents were $1,355; current and non-current marketable securities totaled $4,420. Current assets were $10,076 and current liabilities $8,414; working capital was $1,668.
- Total debt reported on the balance sheet was $7,894, including $1,372 of short-term borrowings and current debt and $6,522 of long-term debt. BMS reported a net debt position of $2,119, versus $1,042 at year-end. The increase was attributed largely to payment timing and working-capital needs.
- Cash dividends paid were $580; the declared dividend was $0.35 per share. Share repurchases were $297. Operating cash flow was negative in part due to partner, rebate, bonus, pension and other working-capital payments.
Material changes and business developments
- The principal sales headwind was loss of exclusivity for Plavix and Avapro/Avalide. Plavix sales fell to $91 from $1,693; U.S. sales fell 96%. Avapro/Avalide sales fell to $46 from $207.
- Other notable product trends included growth in Yervoy (+49%), Sprycel (+24%), Orencia (+26%), and Onglyza/Kombiglyze (+25%); Abilify sales fell 16%, partly because BMS’s U.S. contractual share changed from 51.5% to an estimated 35% for 2013. Eliquis launched in several markets and recorded $22 in sales.
- Effective January 2013, Sanofi assumed most worldwide Plavix and Avapro/Avalide alliance operations. BMS’s resulting royalties in certain territories are reported in net sales; U.S. Plavix and the related partnership continue under separate terms.
- Amylin products contributed new reported sales following BMS’s 2012 acquisition. The AstraZeneca collaboration proceeds also generated deferred-income amortization, partly offsetting acquired-asset amortization costs.
- In February 2013, BMS entered a two-year Recothrom collaboration with The Medicines Company and received $115. A proposed three-year collaboration with Reckitt Benckiser, expected to close in Q2 2013, was expected to generate $482 in proceeds, subject to closing conditions and approvals.
Outlook, risks and unusual items
- The filing provides no specific full-year revenue or earnings guidance. Management’s stated priorities were to grow newer products, advance the pipeline, and manage costs. It expected additional exclusivity losses and continued economic and pricing pressures, particularly in Europe.
- Management expected approximately $200 of additional employee termination costs in 2013, primarily related to European workforce reductions; most had not yet been recognized pending local consultations.
- A Delaware federal court invalidated the Baraclude composition-of-matter patent in February 2013; BMS appealed. Generic entry following final regulatory approval could cause a rapid and significant U.S. sales decline. U.S. Baraclude sales were $241 in 2012.
- Operating cash flow was $815 lower than in Q1 2012. Management cited approximately $600 of lower cash flow from Plavix and Avapro/Avalide sales, approximately $500 of timing and working-capital effects, and the absence of a $172 Apotex damages award received in 2012; offsets included $320 of milestone proceeds and lower pension and bonus payments.
- Other notable litigation and contingencies include more than 3,000 Plavix product-liability claims, Byetta/Bydureon litigation, patent disputes, pricing and marketing investigations, and environmental matters. BMS estimated its share of future CERCLA site costs at $68; outcomes for several proceedings could not be reasonably estimated.
- Only $253 of the $5.775 billion in cash, cash equivalents and marketable securities was held in the U.S.; most remaining funds were primarily in low-tax jurisdictions and expected to be indefinitely reinvested offshore. Repatriation may incur withholding and additional U.S. taxes. BMS cited potential European receivables exposure, including $251 in Greece, Portugal, Italy and Spain, about 75% from government-backed entities.
- Q1 2013 included $33 of restructuring provision. Q1 2012 included a $172 litigation recovery and a $38 out-licensed intangible impairment; comparisons are also affected by the prior-year $2.491 billion Inhibitex acquisition cash outflow.
Most important facts for investors to verify
- Whether new-product growth can offset ongoing Plavix and other exclusivity-related erosion, and the timing and impact of possible Baraclude generic competition.
- Whether reported non-GAAP earnings adequately reflect recurring acquired-intangible amortization, alliance economics, and restructuring costs.
- Whether operating cash flow recovers as partner payments, rebates, pension contributions and other working-capital timing effects normalize.
- How the Sanofi restructuring, Abilify share changes, and Amylin/AstraZeneca collaboration accounting affect future net sales and margins.
- Developments in material patent, product-liability, pricing, regulatory and environmental matters, plus tax-audit exposures and offshore cash availability.