Bristol Myers Squibb — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. BMS is a global biopharmaceutical company reporting as one segment. Results include Celgene from its November 20, 2019 acquisition date, making comparisons with 2019 substantially affected by the enlarged portfolio.
Key financial results
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $10.129 billion | $6.273 billion | $20.910 billion | $12.193 billion |
| Net earnings (loss) attributable to BMS | $(85) million | $1.432 billion | $(860) million | $3.142 billion |
| GAAP diluted EPS | $(0.04) | $0.87 | $(0.38) | $1.92 |
| Non-GAAP diluted EPS | $1.63 | $1.18 | $3.35 | $2.29 |
| Operating cash flow | Not provided separately | Not provided separately | $8.163 billion | $3.473 billion |
Q2 revenue rose 61%; first-half revenue rose 71%. Management attributed most of the increase to Celgene, with higher Eliquis demand also contributing. First-half Celgene revenue was $8.4 billion. Key product trends included first-half Eliquis growth of 21%, while Opdivo declined 6%. Q2 GAAP results included $2.389 billion of acquired-intangible amortization and a 104.9% effective tax rate; the first-half effective tax rate was 163.9%. The elevated rates reflected discrete tax charges, including an $853 million deferred tax charge related to an internal intangible-asset transfer and a $255 million GILTI charge related to the Otezla divestiture.
Financial position and cash flows
- At June 30, cash and cash equivalents were $19.934 billion; marketable debt securities totaled $2.247 billion. Total cash, cash equivalents and marketable securities were $22.181 billion.
- Short-term debt was $4.819 billion and long-term debt was $41.853 billion. BMS reported net debt of $24.491 billion, down from $30.573 billion at year-end 2019.
- First-half operating cash flow was $8.163 billion; investing activities provided $1.433 billion and financing activities used $2.047 billion. Dividends paid were $2.038 billion.
- Cash and marketable securities increased by approximately $6.0 billion during the first half. No borrowings were outstanding on $6.0 billion of revolving facilities.
Material changes, outlook and risks
- Celgene integration: First-half costs included $2.134 billion to unwind acquired inventory fair-value adjustments and $4.671 billion of acquired-intangible amortization. BMS reported $641 million of Celgene integration and restructuring charges in the first half. It expects $2.5–$3.0 billion of cumulative charges, approximately $2.5 billion of cash outlays, and $2.5 billion in sustainable annual run-rate synergies; most charges are expected through 2022.
- COVID-19: BMS estimated a $600 million adverse Q2 revenue impact, comprising about $350 million of channel inventory drawdown and $250 million from lower demand associated with fewer new patient starts. Management assumed the pandemic’s peak business impact occurred in Q2, with recovery beginning in Q3 and minimal impact in Q4 and beyond; it cautioned that the full effect remains uncertain. The company reported no supply disruption to date, but clinical-trial enrollment and site activity were delayed.
- Pipeline and approvals: 2020 approvals included Zeposia, Reblozyl expansions, Pomalyst for Kaposi sarcoma, and Opdivo-based regimens. BMS reported positive Phase III results for Zeposia in ulcerative colitis and Opdivo combination trials. FDA decisions for liso-cel and ide-cel could be delayed by inspection or pandemic effects; BMS identified possible consequences for contingent value rights (CVRs).
- Other exposures: A court entered an approximately $1.2 billion judgment, plus a 27.6% running royalty through August 2024, in the Juno/SKI–Kite CAR T patent case; Kite appealed. BMS disclosed numerous other patent, product-liability, pricing, antitrust and securities matters, and stated outcomes are often difficult to estimate. Estimated BMS share of future CERCLA environmental costs was $77.4 million.
- Capital needs: Management said existing liquidity and operating cash flow should cover anticipated needs for at least the next few years. It cited approximately $9.5 billion of debt maturities through 2022 and approximately $6.8 billion of CVR payments in 2021. The filing gives no specific full-year revenue or EPS guidance; 2020 capital expenditures were expected to be approximately $800 million.
- Potential U.S. drug-pricing measures, foreign exchange and market volatility, tax examinations, clinical delays, generic competition and integration execution could affect results. Moody’s long-term rating was A2 with a negative outlook; S&P’s was A+.
Investor verification priorities
- Separate Celgene’s acquisition contribution and acquisition-related accounting from underlying organic growth and product demand.
- Track COVID-19 effects on patient starts, channel inventories, clinical trials, supply and the assumed Q3 recovery.
- Reconcile GAAP losses and EPS with non-GAAP results, including acquired amortization, inventory adjustments, restructuring, investment/CVR fair-value changes and discrete tax charges.
- Monitor debt maturities, CVR timing and value, cash generation, integration spending and delivery of the stated synergy target.
- Follow FDA review timing for liso-cel and ide-cel, patent outcomes—including the appealed CAR T judgment—and material tax and other legal contingencies.