Bristol-Myers Squibb Company — Q3 2013 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2013. BMS is a global biopharmaceutical company reporting as one business segment. Amounts are in U.S. dollars unless noted.
Financial performance
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Net sales | $4.065 billion | $3.736 billion | $11.944 billion | $13.430 billion |
| Net earnings attributable to BMS | $692 million | $(711) million | $1.837 billion | $1.035 billion |
| Diluted EPS, GAAP | $0.42 | $(0.43) | $1.11 | $0.61 |
| Diluted EPS, non-GAAP | $0.46 | $0.41 | $1.31 | $1.52 |
| Operating cash flow | Not provided separately | Not provided separately | $2.135 billion | $6.105 billion |
- Q3 sales increased 9% year over year; nine-month sales fell 11%. Q3 pretax earnings were $818 million, versus a $1.259 billion loss a year earlier. The nine-month effective tax rate was 8.8%, compared with 13.7%.
- Cost of products sold was 28.9% of sales in Q3 and 28.0% for nine months, versus 26.4% and 26.3%, respectively, in 2012. The filing attributes the increase mainly to alliance profit sharing and royalties, product mix, and higher amortization.
- Nine-month operating cash flow declined $3.970 billion, primarily because 2012 included substantial AstraZeneca collaboration proceeds, alongside lower cash flows following Plavix and Avapro/Avalide exclusivity losses and higher working-capital needs. Capital spending was $337 million.
- At September 30, cash and marketable securities totaled $6.345 billion; short-term borrowings and current debt were $680 million and long-term debt was $6.532 billion. Net debt was $867 million, improved from $1.042 billion at year-end 2012. Two $1.5 billion revolving credit facilities were undrawn.
- Cash dividends declared were $0.35 per share for Q3 and $1.05 for the first nine months. BMS repurchased $433 million of stock in the first nine months and said it did not anticipate further repurchases at that time.
Material changes and business drivers
- Q3 U.S. sales were nearly flat, while Europe grew 15%; nine-month U.S. sales declined 26%, largely reflecting Plavix and Avapro/Avalide losses of exclusivity in 2012. The comparison is also affected by the 2012 Amylin acquisition and expanded AstraZeneca collaboration.
- Q3 growth included Sprycel (+20%), Yervoy (+33%), Orencia (+22%), and diabetes alliance products; Abilify declined 16%, principally because BMS’s U.S. contractual sales share fell from 51.5% to an estimated 34.1%. Nine-month Plavix sales fell 93% and Abilify fell 18%.
- GAAP results benefited from the absence of the $1.830 billion BMS-986094 impairment recorded in Q3 2012. Nine-month 2013 results included $212 million of restructuring charges and $138 million of pension settlement charges. Non-GAAP results exclude specified items and are not a substitute for GAAP results.
- Operating cash flow was also affected by the timing and amount of collaboration receipts: BMS reported $875 million of collaboration proceeds in 2013, compared with $3.8 billion in 2012.
Outlook, developments and risks
- No specific company-wide revenue or EPS guidance is provided in the filing. Management describes priorities as growing newer products, advancing the pipeline, managing costs, and pursuing cost savings; it expects further exclusivity losses and increasing product and geographic diversification.
- Pipeline and regulatory milestones included a January 11, 2014 FDA action date for dapagliflozin’s resubmitted NDA and a March 15, 2014 action date for Eliquis’ supplemental application for post-hip/knee-replacement prophylaxis. The filing reports that Yervoy’s prostate-cancer Phase III trial did not meet its primary overall-survival endpoint.
- Baraclude faces material generic risk: a court invalidated its U.S. composition-of-matter patent, and Teva’s generic application received tentative FDA approval in October 2013. BMS warned that U.S. sales could decline rapidly beginning in late 2013. BMS also faces continued generic erosion of mature products and pricing pressure, particularly from European healthcare payers.
- Material legal and contingent exposures include more than 5,000 Plavix injury claims, approximately 900 plaintiffs in Byetta/Bydureon litigation, and more than 400 New Brunswick environmental/personal-injury cases. BMS generally says outcomes cannot be assessed or quantified; it estimated its share of future CERCLA site costs at $67 million. It is cooperating with SEC/FCPA inquiries.
- Most cash and marketable securities were held outside the U.S. and expected to remain indefinitely reinvested; repatriation could incur withholding and additional U.S. taxes. Moody’s revised its long-term outlook to negative in September 2013; BMS said its ratings remained investment grade. Management reported no material change in risk factors from the 2012 Form 10-K.
Important facts for investors to verify
- Whether and when generic entecavir launches, and the outcome of BMS’s appeal of the Baraclude patent ruling.
- Sales momentum, margins, and alliance economics for newer growth products, especially Eliquis, Yervoy, Sprycel, Orencia, and the diabetes portfolio.
- Future effects of Abilify’s changing revenue share and the Sanofi restructuring, alongside continuing Plavix and other mature-product erosion.
- Actual cash generation excluding unusually large collaboration receipts, and the accessibility and tax consequences of offshore cash.
- Developments and potential financial exposure from product-liability, environmental, patent, and regulatory matters; many outcomes and loss estimates remain uncertain.