Business Context and Reporting Period
Company: Bristol-Myers Squibb Company (BMS)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2009
Segments: BioPharmaceuticals (86% of sales) and Mead Johnson Nutrition Company (14% of sales).
Key Event: Mead Johnson completed an Initial Public Offering (IPO) in February 2009, raising $782 million in net proceeds. BMS retains an 83.1% interest.
Key Financial Metrics
| Metric ($ Millions) | Q1 2009 | Q1 2008 |
|---|---|---|
| Net Sales | 5,015 | 4,891 |
| Gross Margin | 3,602 | 3,321 |
| Gross Margin % | 72% | 68% |
| Net Earnings (Total) | 921 | 891 |
| Net Earnings Attributable to Shareholders | 638 | 661 |
| Diluted EPS (Shareholders) | $0.32 | $0.33 |
| Operating Cash Flow | 452 | 775 |
| Long-Term Debt | 6,492 | 6,585 |
| Cash & Cash Equivalents | 7,832 | 7,976 |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 3% year-over-year, driven by a 10% increase in U.S. sales. This growth occurred despite a 5% unfavorable foreign exchange impact.
- Product Performance:
- ABILIFY: Sales up 30% ($589M) due to increased demand and new indications.
- PLAVIX: Sales up 10% ($1,435M) driven by U.S. price increases and demand, offset by international generic competition.
- ERBITUX: Sales down 12% ($164M) due to study results regarding K-ras gene expression.
- Profitability: Net earnings attributable to shareholders decreased 3% to $638 million. While total net earnings rose 5%, the increase was largely offset by higher noncontrolling interest ($283M vs $230M) resulting from the Mead Johnson IPO and Sanofi partnerships.
- Expenses:
- R&D: Increased 18% to $923 million, primarily due to upfront payments to ZymoGenetics ($105M) and Nissan ($40M).
- Litigation: A $104 million expense was recorded, primarily a $100 million reserve for securities litigation.
- Restructuring: Provision for restructuring increased to $27 million (from $11M) related to the Productivity Transformation Initiative (PTI).
- Tax Rate: Effective tax rate increased to 33.5% (from 27.3%) due to the transfer of international units to Mead Johnson prior to the IPO.
Guidance, Outlook, and Risks
- Strategy: BMS is executing a multi-year strategy to transform into a "next-generation BioPharma company," targeting $2.5 billion in annual productivity savings by 2012 via the PTI.
- Pipeline Updates:
- ONGLYZA (Saxagliptin): FDA advisory committee recommended approval but requested a post-marketing cardiovascular trial; PDUFA date extended to July 30, 2009.
- Apixaban: Phase III program for Acute Coronary Syndrome initiated in April 2009.
- IXEMPRA: Marketing authorization application withdrawn in Europe.
- Legal Risks:
- PLAVIX Litigation: Ongoing patent infringement lawsuits with Apotex and others. Loss of exclusivity would be material to sales and cash flows.
- Securities Litigation: $100 million reserve established for class action regarding PLAVIX settlement disclosures.
- Environmental: Ongoing proceedings regarding the Passaic River and New Brunswick facility contamination.
- Liquidity: Management believes cash, marketable securities, and operating cash flows are sufficient to fund operations and dividends despite credit market liquidity concerns.
Investor Verification Checklist
- PLAVIX Patent Status: Monitor the outcome of the Apotex appeal and potential generic entry dates in the U.S. and EU.
- Noncontrolling Interest Impact: Verify the ongoing impact of the Mead Johnson IPO and Sanofi partnerships on net earnings attributable to BMS shareholders.
- R&D Milestone Payments: Track the timing and magnitude of future milestone payments to partners (e.g., ZymoGenetics, Exelixis, AstraZeneca) which are excluded from segment results.
- Securities Litigation Reserve: Assess if the $100 million reserve is sufficient or if additional charges are likely.
- Productivity Transformation Initiative (PTI): Monitor progress toward the $2.5 billion annual savings target and associated restructuring charges.