Bristol-Myers Squibb Company — Q1 2010 Form 10-Q
Business context and reporting period
Global biopharmaceutical company. This unaudited report covers the three months ended March 31, 2010, compared with the same period in 2009. Mead Johnson was split off in December 2009; its 2009 results are presented as discontinued operations, so the comparison reflects a changed business and a lower share count.
Financial performance and position
| Metric | Q1 2010 | Q1 2009 | Change / context |
|---|---|---|---|
| Net sales | $4.807 billion | $4.322 billion | Up 11%; includes 3% favorable foreign exchange |
| Earnings before tax from continuing operations | $1.452 billion | $1.195 billion | Up 22%; 30.2% of sales versus 27.6% |
| Net earnings from continuing operations | $1.101 billion | $920 million | Up 20% |
| Net earnings attributable to BMS | $743 million | $649 million | Continuing operations; up 14% |
| Diluted EPS attributable to BMS | $0.43 | $0.33 | Continuing operations; up 30% |
| Non-GAAP diluted EPS | $0.56 | $0.42 | Excludes specified items; up 33% |
| Operating cash flow | $464 million | $452 million | Working-capital changes used $793 million of cash in 2010 |
| Cash, cash equivalents and marketable securities | $9.773 billion | $9.104 billion | At March 31, 2010 and March 31, 2009, respectively |
| Total debt | $6.289 billion | $6.361 billion | At March 31, 2010 and December 31, 2009, respectively |
| Net cash position | $3.484 billion | $3.522 billion | At March 31, 2010 and December 31, 2009, respectively |
Cost of products sold was 27.2% of sales, compared with 27.0%; net earnings from continuing operations were 22.9% of sales, compared with 21.3%. Investing activities used $2.519 billion, primarily reflecting net purchases of marketable securities; financing activities used $486 million, including $551 million of dividends. The company reported $6.5 billion of working capital and no borrowings under its $2.0 billion revolving credit facility. The quarterly dividend declared was $0.32 per share, versus $0.31.
Material changes versus the prior period
- Growth in key products supported sales: PLAVIX rose 16% worldwide; BARACLUDE 42%; REYATAZ 16%; SUSTIVA franchise 15%; SPRYCEL 49%; and ORENCIA 36%.
- U.S. sales increased 11% to $3.099 billion; international sales increased 11% to $1.708 billion, including an 8% favorable foreign-exchange effect.
- BioPharmaceuticals segment income rose 15% to $1.233 billion. Lower promotion spending and higher product sales helped; increased R&D investment and declining international PLAVIX-related affiliate income partly offset gains.
- Reported results included a $200 million impairment charge for manufacturing operations in Latina, Italy, and $55 million of upfront licensing and milestone payments. Total specified items reduced continuing-operations earnings by $224 million after tax, compared with $180 million in Q1 2009.
- GAAP EPS growth also benefited from approximately 269 million fewer shares outstanding following the Mead Johnson split-off. The 2009 quarter included $104 million of litigation expense and $145 million of upfront licensing payments.
Outlook, management commentary and risks
- Management said the productivity transformation initiative remained on target to deliver $2.5 billion of annual productivity savings and cost avoidance by 2012, with approximately 90% expected by the end of 2010. No specific full-year revenue or EPS guidance is provided in the supplied filing text.
- Management expected operating cash, existing liquidity and capital-market borrowings to cover working capital, capital expenditures, alliances, acquisitions, milestones and dividends. Credit ratings were investment grade with stable outlooks.
- Healthcare reform reduced Q1 net sales by $49 million and pretax income by $42 million. Management expected rebates to increase through 2010 and estimated the negative impact in 2011 at approximately twice the impact expected in 2010; the eventual effect depends on implementation and other factors.
- PLAVIX is the largest product by sales. The company said sustained U.S. generic competition or loss of market exclusivity could materially affect sales, earnings and cash flows. Patent reexamination and litigation remained ongoing.
- Potential ABILIFY generic entry could materially reduce U.S. sales; FDA approval of generic applications could potentially occur as early as May 2010, subject to litigation and other remedies. Generic challenges to ATRIPLA and REYATAZ patents were also disclosed.
- Other uncertainties include legal proceedings, tax examinations, foreign exchange and interest-rate exposure, and product and regulatory outcomes. The company estimated its share of future CERCLA environmental costs at $67 million; other litigation exposures were generally not reasonably estimable in the filing.
- The sale of the Latina manufacturing operations was expected to close in Q2 2010 and to result in approximately $35 million of additional charges. The company also disclosed $108 million of inventory, plus $77 million of purchase obligations, not then saleable in the U.S. pending FDA approval of a manufacturing-process change.
Important facts for investors to verify
- Developments in PLAVIX patent proceedings and the timing and scale of any generic competition.
- ABILIFY generic-entry litigation and the effects of the reduced U.S. revenue share under the Otsuka agreement.
- Actual healthcare-reform rebate, discount and fee effects compared with management’s estimates.
- Whether sales growth and pipeline launches can offset generic erosion, particularly for PLAVIX and other established products.
- Completion costs and timing for the Latina facility sale, and FDA disposition of affected inventory and purchase obligations.
- Underlying cash generation, working-capital movements, and the distinction between GAAP results and adjusted non-GAAP measures.