Bristol-Myers Squibb Company — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2015. Amounts are in millions of dollars except per-share data. Comparisons are with the corresponding 2014 periods unless noted.
Business context
BMS is a global specialty biopharmaceutical company reporting one operating segment. Management described a continued shift toward specialty medicines, with focus areas including oncology, virology, immunology and specialty cardiovascular disease. Growth from newer products was partly offset by foreign exchange, loss of product rights and competition.
Financial performance
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Total revenue | $4,069 | $3,921 | $12,273 | $11,621 |
| Net product sales | $3,552 | $2,843 | $10,183 | $8,420 |
| Earnings before income taxes | $987 | $1,008 | $2,487 | $2,441 |
| Net earnings attributable to BMS | $706 | $721 | $1,762 | $1,991 |
| Diluted GAAP EPS | $0.42 | $0.43 | $1.05 | $1.19 |
| Effective tax rate | 26.0% | 27.4% | 26.9% | 18.0% |
- Revenue increased 4% in Q3 and 6% year to date. Product sales rose 25% and 21%, respectively; alliance and other revenue fell to $517 million in Q3 from $1,078 million, and to $2,090 million year to date from $3,201 million.
- Reported diluted non-GAAP EPS was $0.39 in Q3 versus $0.45; year-to-date non-GAAP EPS was $1.63 versus $1.39. These company-defined measures exclude specified items and are not GAAP results.
- Research and development expense rose 15% in Q3 and 20% year to date, to $1,132 million and $4,004 million. Year-to-date expenses included an $800 million Flexus acquisition charge and $1,125 million of upfront, milestone and other payments.
- Year-to-date operating cash flow was $1,221 million, down from $2,576 million. Investing activities used $588 million versus providing $865 million; financing activities used $2,265 million versus $2,206 million.
- Cash, cash equivalents and marketable securities totaled $10,040 million at September 30, versus $11,843 million at December 31, 2014. Short-term borrowings were $642 million and long-term debt $6,632 million; reported net cash position was $2,766 million. Dividends paid year to date were $1,859 million.
Material changes and drivers
- Key growth contributors included the Hepatitis C franchise, Opdivo, Eliquis, Orencia and Sprycel. Year-to-date revenues included previously deferred Daklinza sales of approximately $170 million recognized after French pricing was finalized.
- Abilify sales fell sharply following the expiration of BMS’s U.S. commercialization rights in April 2015 and earlier expiration of EU rights. Baraclude, Reyataz and Sustiva faced exclusivity losses or competitive pressure; Yervoy sales declined as other immuno-oncology therapies, including Opdivo, gained use.
- Foreign exchange reduced reported total revenue growth by 7 percentage points in both Q3 and the first nine months. Other revenue is expected to continue declining through 2016, according to management.
- The year-to-date operating cash flow decline primarily reflected timing of alliance-partner payments, customer collections and lower divestiture-related proceeds. Management cited approximately $900 million of partner-payment timing and approximately $500 million of customer-collection timing.
- Debt activity included $1.286 billion of euro-denominated notes issued in May and nearly $2.0 billion of debt redeemed or repurchased during the second quarter. The nine-month debt redemption loss was $180 million.
Outlook, commentary and notable items
- No specific full-year revenue or EPS guidance is provided in the supplied filing text. 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.
- Capital expenditures were expected to rise to approximately $800 million in 2015 and $1.0 billion in 2016, including biologics manufacturing expansion and a planned Ireland facility targeted for completion in 2019.
- October 2015 subsequent developments included FDA approval of Opdivo for previously treated non-squamous NSCLC and approval of Opdivo plus Yervoy for certain advanced melanoma patients. These events occurred after the reporting date.
- BMS transferred North American Erbitux rights to Lilly in October 2015; the transaction was expected to generate a non-cash charge of approximately $170 million in Q4. BMS expects future royalties through September 2018.
- A September 2015 warrant for Promedior involved an $84 million amount expensed for the warrant and a $66 million amount allocated to study obligations. Exercising the warrant could require an additional $250 million or $300 million, plus up to $800 million in contingent milestones. A separate October agreement with Five Prime included a $350 million upfront payment and up to $1.4 billion in contingent milestones.
- Risks include pricing and reimbursement pressure, product competition and patent challenges, foreign exchange, concentration of U.S. trade receivables, and legal and regulatory matters. BMS disclosed an IPR petition challenging the Eliquis patent; it intended to oppose the petition. Baraclude’s Korean patent expired in October 2015, and the company expected a significant decline in South Korean sales beginning in Q4.
- The filing reports $61 million of estimated CERCLA environmental costs. It also describes numerous legal proceedings for which outcomes or loss estimates were not clear, including Plavix product-liability claims and other litigation. An SEC FCPA settlement concerning China sales and marketing practices was approved in October 2015, with approximately $14.7 million payable, accrued in prior quarters.
Most important facts for investors to verify
- Whether growth in Opdivo, Eliquis and the Hepatitis C franchise can offset product-rights expirations, generic competition and declining legacy-product sales.
- How much of reported earnings and cash flow depends on unusual acquisition charges, alliance payments, divestiture gains and other specified items; compare GAAP with the company’s non-GAAP reconciliations.
- Whether working-capital timing reverses, particularly receivables and alliance-related payments, and whether cash generation supports planned investment and dividends.
- The commercial and legal consequences of the Eliquis patent challenge and Baraclude’s loss of exclusivity in South Korea, along with the financial impact of the Erbitux rights transfer.
- Potential tax, pricing, litigation, regulatory and foreign-exchange exposures, including the substantial share of cash and securities held outside the U.S.