Bristol-Myers Squibb Company — Q2 2012 Form 10-Q
Business context and reporting period: Global biopharmaceutical company; filed for the quarter ended June 30, 2012. The unaudited results cover the three and six months ended June 30, 2012, compared with the same 2011 periods. The company reports one operating segment.
Financial results and position
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Net sales | $4.443B | $5.434B | $9.694B | $10.445B |
| Net earnings attributable to BMS | $645M | $902M | $1.746B | $1.888B |
| Diluted EPS | $0.38 | $0.52 | $1.02 | $1.10 |
| Operating cash flow | Not separately stated for the quarter | $1.521B | $1.574B |
- Q2 sales fell 18% year over year; first-half sales fell 7%. Management attributed the decline chiefly to U.S. loss of exclusivity for Plavix in May and Avapro/Avalide in March, plus foreign-exchange pressure.
- For the first half, total expenses were $6.608B versus $6.888B, and pretax earnings were $3.086B versus $3.557B. Effective tax rates were 23.7% for Q2 and 25.8% for the first half.
- Cost of products sold was 28.0% of sales in Q2 versus 27.3% a year earlier; first-half ratios were 26.3% and 27.0%, respectively. The Q2 ratio included impairment charges.
- Cash, cash equivalents and marketable securities totaled $8.769B at June 30, down from $11.642B at year-end. The company reported a $3.324B net cash position, versus $6.151B at year-end, and working capital of about $4.0B versus $7.5B.
- Short-term borrowings were $236M and long-term debt was $5.209B at June 30. Long-term debt was $5.376B at December 31, 2011.
- First-half cash used in investing was $2.801B, including $2.491B for the Inhibitex acquisition. Cash used in financing was $1.686B, including $1.154B of dividends and $860M of share repurchases. Dividends declared were $0.34 per share in Q2.
- Non-GAAP diluted EPS was $0.48 for Q2 and $1.12 for the first half, versus $0.56 and $1.14, respectively. These company-defined measures exclude specified items and are not substitutes for GAAP results.
Material changes and operating developments
- Plavix Q2 sales fell 60% to $741M; Avapro/Avalide fell 53% to $117M. Management expected continued Plavix erosion. The U.S. Plavix return reserve was $222M; channel inventory was 2.2 months at quarter-end.
- Growth in newer and other products partly offset the declines: Q2 sales rose 71% for Yervoy to $162M, 27% for Orencia to $290M, 26% for Sprycel to $244M, and 22% for Baraclude to $357M. Onglyza/Kombiglyze sales rose 54% to $172M.
- BMS acquired Inhibitex in February for approximately $2.539B in cash. Its lead asset, INX-189, was in Phase II development; BMS recorded $1.875B of acquired in-process R&D and $1.213B of goodwill.
- On June 29, BMS agreed to acquire Amylin for approximately $5.3B in cash and assume about $1.7B of net debt and contractual obligations. Closing was expected in Q3, subject to tender and regulatory conditions. Following closing, AstraZeneca was expected to pay approximately $3.4B for diabetes collaboration rights, with a further $135M option payment possible.
- At June 30, $3.3B of share repurchase authorization remained after the board added $3.0B of authorization in June.
Outlook, commentary, risks and unusual items
- No specific earnings or sales guidance is provided in the supplied filing text. Management described a strategy of growing newer products, advancing R&D, controlling costs and expanding in emerging markets, while acknowledging steep sales and cash-flow declines from exclusivity losses.
- The FDA issued a Complete Response Letter for Eliquis for stroke prevention in nonvalvular atrial fibrillation, requesting additional data-management and verification information from the ARISTOTLE trial; it did not request a new study. EU approval for Forxiga remained under review by the European Commission. Komboglyze launch was delayed to 2013 because of a manufacturing issue.
- Q2 included $147M of cost-of-products-sold impairment charges, including a $120M write-down of acquired developed technology and $27M related to a manufacturing facility. R&D included a $45M impairment of the Inhibitex FV-100 project; first-half R&D impairments totaled $103M.
- Legal and regulatory matters include more than 1,000 Plavix personal-injury claims, Abilify marketing investigations and litigation, an SEC FCPA investigation, and other patent, pricing and environmental proceedings. The company said it generally could not estimate outcomes or potential losses. Its estimated share of CERCLA environmental costs was $70M.
- Management cited potential risks from further generic competition, European pricing and sovereign-debt pressures, foreign exchange, regulatory developments, and the ability to realize expected benefits from acquisitions and pipeline assets. It said European economic conditions were not then expected to materially affect liquidity or cash flow.
- The filing states that disclosure controls were effective and that there were no material changes to the risk factors in the 2011 Form 10-K.
Investor verification priorities
- Track post-exclusivity sales, prescription demand, returns and channel inventory for Plavix and Avapro/Avalide, including the adequacy of the $222M Plavix return reserve.
- Confirm Amylin closing, total financing needs and timing and conditions of AstraZeneca’s expected collaboration payment.
- Monitor operating cash flow, liquidity and debt after the acquisitions, dividends and repurchases.
- Follow the Eliquis FDA response and regulatory progress for Forxiga and other late-stage products.
- Review developments in the disclosed litigation, product-liability matters and FCPA investigations, for which potential outcomes or losses were generally not estimable.