BRISTOL MYERS SQUIBB CO quarterly report, Q1 FY2012

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Bristol-Myers Squibb Company — Q1 2012 Form 10-Q

Reporting period: Three months ended March 31, 2012; unaudited. BMS is a global biopharmaceutical company reporting one operating segment.

Financial performance

MetricQ1 2012Q1 2011Change
Net sales$5.251 billion$5.011 billion+5%
Earnings before income taxes$2.027 billion$1.767 billion+15%
Net earnings attributable to BMS$1.101 billion$986 million+12%
Diluted EPS attributable to BMS$0.64$0.57+12%
Operating cash flow$387 million$481 million−20%
  • Cost of products sold was 24.8% of sales, versus 26.8% a year earlier; gross margin on this basis was 75.2%, versus 73.2%.
  • Effective tax rate rose to 26.9% from 22.6%. Non-GAAP net earnings were $1.094 billion and diluted EPS was $0.64, versus $1.000 billion and $0.58 in Q1 2011.
  • At March 31, cash and cash equivalents were $2.307 billion and marketable securities totaled $6.307 billion. Total cash, equivalents and securities were $8.614 billion, down from $11.642 billion at December 31, 2011. Net cash position was $3.199 billion, versus $6.151 billion at year-end.
  • Short-term borrowings were $145 million and long-term debt was $5.270 billion. Working capital was approximately $4.6 billion. No borrowings were outstanding under the $1.5 billion revolving credit facility.
  • Cash used in investing was $3.027 billion, including $2.491 billion for the Inhibitex acquisition; financing used $836 million. Cash and equivalents fell by $3.469 billion during the quarter.

Changes and key drivers

  • Sales growth reflected higher average selling prices and growth in several products, partly offset by unfavorable foreign exchange and lower sales of mature products, PLAVIX and AVAPRO/AVALIDE. Overall price, volume and foreign-exchange effects were +7%, −1% and −1%, respectively.
  • Growth leaders included SPRYCEL (+34%), ORENCIA (+28%), BARACLUDE (+18%), SUSTIVA franchise (+13%) and ONGLYZA/KOMBIGLYZE (+99%, from a smaller base). YERVOY, launched in 2011, generated $154 million.
  • PLAVIX sales declined 4% to $1.693 billion; AVAPRO/AVALIDE fell 29% to $207 million. U.S. sales of AVAPRO/AVALIDE were already affected by loss of exclusivity in March.
  • Reported earnings included a $172 million litigation recovery related to the PLAVIX/Apotex damages award; BMS also reported receiving $172 million in cash related to that award. Higher income taxes and other expenses partly offset the recovery. Intangible-asset impairment charges were $96 million, including $58 million of acquired in-process R&D impairment.

Outlook, risks and notable items

  • Management expected a rapid, material decline in PLAVIX U.S. sales following anticipated loss of exclusivity in May 2012, and further declines in AVAPRO/AVALIDE. BMS warned this would reduce net income and operating cash flow. No numerical full-year earnings or sales guidance is stated in the provided filing text.
  • BMS said existing cash, U.S. operating cash generation and access to capital markets were expected to cover dividends, repurchases, alliances, acquisitions, milestones, working capital and capital spending. It does not rely on short-term borrowing for liquidity needs.
  • Inhibitex was acquired for $2.539 billion in February. The preliminary allocation included $1.875 billion of in-process R&D and $1.213 billion of goodwill; valuation and development outcomes remain uncertain.
  • Pipeline and regulatory uncertainties included an FDA complete response letter for dapagliflozin seeking additional clinical data, an extended FDA review date for ELIQUIS to June 28, 2012, and a complete response letter indicating ERBITUX’s first-line lung-cancer indication was not approvable on the submitted data. Phase III brivanib studies did not meet their primary overall-survival endpoints.
  • Material risks include generic competition and patent litigation, product-liability and commercial-practices proceedings, environmental matters, and government investigations. The filing says the outcomes of many proceedings cannot be reasonably assessed. Estimated CERCLA site costs were $72 million; BMS stated potential additional loss in the North Brunswick matter was not expected to be material.
  • The company reported effective disclosure controls and no material changes to the risk factors in its 2011 Form 10-K. Pension contributions were expected to be about $340 million for U.S. plans and $75–90 million for international plans in 2012.

Investor verification priorities

  1. Track the timing and financial effect of PLAVIX and AVAPRO/AVALIDE exclusivity losses, including sales, rebates, returns reserves and operating cash flow.
  2. Reconcile reported earnings with the $172 million litigation recovery and other specified items; compare GAAP and non-GAAP results.
  3. Assess post-acquisition cash, liquidity and debt levels, and the assumptions and clinical progress underlying Inhibitex’s $1.875 billion in-process R&D valuation.
  4. Follow FDA decisions and clinical milestones for ELIQUIS, dapagliflozin and other key pipeline programs, as well as patent challenges affecting marketed products.
  5. Monitor legal, tax and regulatory contingencies, including the SEC FCPA subpoena and ABILIFY sales-and-marketing inquiries.