BRISTOL MYERS SQUIBB CO quarterly report, Q3 FY2020

Bristol Myers Squibb Company — Q3 2020 Form 10-Q

Reporting period: Three and nine months ended September 30, 2020. Amounts are in U.S. dollars; financial figures are in millions unless stated otherwise. BMS operates as one global biopharmaceutical segment. Results include Celgene from its November 20, 2019 acquisition, so comparisons with 2019 are not fully like-for-like.

Financial performance and position

Metric	Q3 2020	Q3 2019	Nine months 2020	Nine months 2019
Total revenue	$10,540	$6,007	$31,450	$18,200
Net earnings attributable to BMS	$1,872	$1,353	$1,012	$4,495
Diluted GAAP EPS	$0.82	$0.83	$0.44	$2.75
Diluted non-GAAP EPS	$1.63	$1.17	$4.98	$3.46

• Revenue grew 75% in Q3 and 73% year to date, driven substantially by Celgene products. Management attributed $12.9 billion, or 71%, of year-to-date revenue growth to Celgene; higher Eliquis demand also contributed.
• Calculated GAAP net margin, using net earnings attributable to BMS divided by revenue, was approximately 17.8% in Q3 versus 22.5% a year earlier, and 3.2% year to date versus 24.7%. These figures reflect substantial acquisition-related amortization and other unusual items.
• Acquired-intangible amortization was $2,491 in Q3 and $7,162 year to date, compared with $25 and $73, respectively, in 2019. Year-to-date GAAP earnings also included $853 of deferred tax expense from an internal transfer of intangible assets and a $266 GILTI tax charge related to the Otezla divestiture.
• Operating cash flow was $10,382 for the first nine months, up from $6,029 in 2019. Investing activities provided $1,268; financing activities used $4,634. Operating cash flow benefited from Celgene-related collections and payment timing, while higher tax payments and restructuring, integration and collaboration payments were offsets.
• At September 30, cash and cash equivalents were $19,435; marketable debt securities totaled $2,215. Short-term debt was $3,585 and long-term debt $41,364. The company-reported net debt position was $23,299, improved from $30,573 at year-end 2019.
• Current assets were $34,277 and current liabilities $20,464. Nine-month dividends paid were $3,054; dividends declared were $1.35 per share.
• Gross-to-net adjustments were 33% of gross product sales in Q3 and 30% year to date. These are sales deductions, not profit margins.

Material changes and business developments

• Celgene products added major revenue streams, including Q3 Revlimid sales of $3,027 and Pomalyst/Imnovid sales of $777. Eliquis revenue rose 9% in Q3 and 17% year to date; Opdivo declined 2% and 4%, respectively.
• Higher costs reflected the expanded Celgene portfolio, $2.6 billion of year-to-date inventory fair-value adjustment amortization, increased R&D and commercial expenses, and acquired-intangible amortization. Year-to-date R&D expense included $528 of license and asset acquisition charges.
• Q3 other income included a $988 favorable contingent-consideration fair-value adjustment, primarily from a lower market value for Celgene contingent value rights (CVRs), and $244 of equity-investment gains. These items materially affected period-to-period expense comparisons.
• BMS reported $10.4 billion of nine-month operating cash flow and said net debt improved by $7.3 billion, principally due to operating cash generation, partly offset by dividends.
• In Q3, BMS acquired Forbius for an upfront $185, with up to $815 in contingent milestones. Separately, a fourth-quarter agreement to acquire MyoKardia for approximately $13.1 billion in cash was pending at the filing date; BMS expected to fund it with operating cash and potentially new debt.

Outlook, commentary and risks

• The filing provides no specific full-year EPS or revenue guidance. BMS expected 2020 capital expenditures of approximately $800 and 2021 expenditures of approximately $1.3 billion.
• BMS is targeting $2.5 billion of sustainable run-rate synergies from the Celgene acquisition. Most related charges are expected through 2022, with total charges estimated at $2.5–$3.0 billion and associated cash outlays at approximately $2.5 billion. Cumulative charges were about $1.7 billion at September 30, 2020.
• Management estimated COVID-19 had reduced year-to-date revenue by approximately 1%, mainly because fewer patient visits and office visits reduced new patient starts. It reported no supply disruption to date but warned that demand, clinical-trial enrollment, product launches and regulatory reviews could be affected. The company assumed the pandemic’s peak business impact occurred in Q2, with recovery beginning in Q3 and minimal impact from Q4 onward; a longer impact could worsen results.
• FDA review of liso-cel and ide-cel, both CVR-linked assets, remained subject to required manufacturing-facility inspections and potential pandemic-related delays. Under the disclosed CVR terms, missing the specified approval deadlines could result in no CVR payment.
• Potential U.S. drug-pricing measures, including 2020 federal executive orders requiring further rulemaking, could pressure revenue and margins if implemented. BMS also cited uncertainty around clinical trials, regulatory approvals, patent challenges, competition, foreign exchange and equity-investment values.
• Legal matters include patent, product-liability, pricing and antitrust cases. BMS said most outcomes could not be reasonably estimated; it accrued environmental liabilities of $76.6 million. The Kite appeal of the CAR-T patent judgment, including a stated $1.2 billion award and continuing royalty claim, remained unresolved.

Investor verification points

• Separate underlying operating trends from Celgene acquisition effects, acquired-intangible amortization, inventory fair-value adjustments and non-GAAP exclusions.
• Track Revlimid and other Celgene product performance, Eliquis pricing and coverage-gap effects, and Opdivo demand and competition.
• Monitor CVR deadlines and FDA inspection and approval timing for liso-cel and ide-cel.
• Assess funding and leverage implications of the planned MyoKardia acquisition alongside debt maturities, dividends and integration cash costs.
• Follow COVID-19 effects on patient access, trials and launches; U.S. drug-pricing policy; patent and antitrust litigation; and potential changes in tax contingencies.