BRISTOL MYERS SQUIBB CO quarterly report, Q1 FY2017

Bristol-Myers Squibb Company — Q1 2017 Form 10-Q

Reporting period: Three months ended March 31, 2017; comparison is with Q1 2016 unless otherwise noted. BMS is a global biopharmaceutical company operating as one segment, focused on developing and commercializing medicines.

Financial performance and position

MetricQ1 2017Q1 2016 / prior date
Total revenue$4.929 billion$4.391 billion; up 12%
Net product sales$4.580 billion$3.964 billion; up 16%
Net earnings attributable to BMS$1.574 billion$1.195 billion
Diluted EPS$0.94 GAAP; $0.84 non-GAAP$0.71 GAAP; $0.74 non-GAAP
Operating cash flow$861 million$(228) million
Cash, cash equivalents and marketable securities$8.794 billion$9.069 billion at Dec. 31, 2016
Total short- and long-term debt$8.434 billion$6.708 billion at Dec. 31, 2016
Net cash position$360 million$2.361 billion at Dec. 31, 2016

Capital expenditures were $291 million; dividends paid were $655 million. Cost of products sold rose 20%, faster than revenue, primarily due to higher Eliquis profit sharing. The filing does not provide a clear consolidated operating-margin figure. Gross-to-net adjustments were 22% of gross product sales versus 20% in Q1 2016, including 28% in the U.S. versus 25%.

Material changes and business drivers

  • Growth was led by prioritized brands: Opdivo revenue rose 60% to $1.127 billion and Eliquis rose 50% to $1.101 billion. Orencia, Sprycel, Yervoy and Empliciti also grew.
  • Established brands weakened: Hepatitis C franchise revenue fell 62% to $162 million; Sustiva franchise fell 33%; Reyataz franchise fell 13%. Management cited competition, including generic competition for certain products.
  • Revenue increased across the U.S. (8%), Europe (32%) and Rest of World (10%); reported foreign-exchange effects were modest overall.
  • GAAP EPS benefited from the Merck Keytruda patent settlement. BMS recorded $481 million of its share as litigation and settlement income. Non-GAAP diluted EPS, which excludes specified items, was $0.84 versus $0.74.
  • Operating cash flow improved by approximately $1.1 billion year over year, principally due to about $500 million lower income tax payments and the $481 million settlement proceeds. Investing cash flow was $(203) million and financing cash flow was $(1.013) billion.
  • BMS issued $1.5 billion of senior notes in February. It also entered into a $2 billion accelerated share repurchase, funded with debt and cash; approximately 29 million shares had been delivered by quarter-end, with settlement expected in Q2.

Outlook, management commentary and risks

  • Management said existing cash and securities, operating cash generation and U.S. commercial-paper capacity should meet normal cash needs for at least the next few years. A $750 million principal amount of long-term debt matures in August 2017. The company reported $5 billion of undrawn revolving credit facilities.
  • Expected 2017 capital expenditures are approximately $1.0 billion, compared with $1.2 billion in 2016. The company expects about $900 million in 2018.
  • The restructuring plan announced in 2016 is expected to incur $1.5–$2.0 billion of charges through 2020, with cash outlays of approximately 40%–50% of charges. About $310 million had been recognized through Q1 2017; management expected approximately $300 million of restructuring charges in 2017, apart from accelerated-depreciation effects.
  • Management expects increased competition for Opdivo in 2017. Loss of exclusivity for Sustiva and Reyataz was expected in December 2017, with potential further revenue declines. In Europe, revocation of a key Sprycel patent may lead to generic entry and lower sales.
  • Key risks include generic and other competition, product development and approval uncertainty, pricing and healthcare regulation, foreign-exchange and tax changes, and legal proceedings. BMS disclosed challenges to Eliquis patents by 25 generic companies and product-liability cases involving, among others, Plavix and Eliquis; many legal outcomes and potential losses could not be estimated.
  • In April 2017, after quarter-end, BMS agreed to expand its CytomX collaboration, including a $200 million payment expected in Q2, and signed out-licensing agreements with Biogen and Roche that could provide upfront payments of $300 million and $170 million, respectively, subject to closing.

Important facts for investors to verify

  • Whether growth in Opdivo and Eliquis offsets declining established-brand sales and anticipated competition.
  • The recurring earnings contribution of the $481 million Keytruda settlement and other divestiture-related income; GAAP and non-GAAP EPS differ materially because of specified items.
  • Progress and cash costs of the restructuring plan, including expected 2017 charges and site-exit depreciation.
  • Completion and final share delivery or payment under the $2 billion accelerated repurchase, and the effect of increased debt on the reduced net-cash position.
  • Developments in Eliquis and Sprycel patent matters, product-liability proceedings, and tax examinations. The filing states that potential outcomes or loss ranges are often not estimable.
  • The filing reports no formal full-year revenue or EPS guidance. It notes that interim results may not indicate full-year performance.