Bristol-Myers Squibb Company — 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. This is an annual report; it also provides unaudited fourth-quarter results. Unless otherwise indicated, amounts are in millions of dollars.
Business context
BMS operated as a single-segment global biopharmaceutical company, focused on innovative medicines and four core therapeutic areas: oncology, virology, immunology and specialty cardiovascular disease. Revenue was increasingly international: the U.S. contributed 51% of 2013 revenue, versus 59% in 2012.
Financial results and liquidity
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Total revenue | $16,385 | $17,621 | Down 7% |
| Net earnings attributable to BMS (GAAP) | $2,563 | $1,960 | Up 31% |
| Diluted EPS (GAAP) | $1.54 | $1.16 | Up 33% |
| Non-GAAP earnings attributable to BMS | $3,019 | $3,364 | Down 10% |
| Non-GAAP diluted EPS | $1.82 | $1.99 | Down 9% |
| Operating cash flow | $3,545 | $6,941 | Down $3,396 |
| Cash, equivalents and marketable securities | $8,272 | $6,352 | Up $1,920 |
| Total debt, including current portion | $8,340 | $7,394 | Up $946 |
Cost of products sold was 28.2% of revenue in 2013, compared with 26.2% in 2012; management attributed the less favorable ratio mainly to product mix and alliance royalties/profit sharing. The filing reports gross margin of $11,766 for 2013 and $13,011 for 2012. At year-end, cash and marketable securities slightly exceeded debt, resulting in a reported net debt position of negative $68 (net cash of $68). Two $1.5 billion revolving credit facilities were undrawn.
GAAP earnings improved despite lower revenue, partly because 2012 included a $1.83 billion impairment of the BMS-986094 asset and a much larger noncontrolling-interest share of earnings. The company’s 2013 operating cash flow was lower, in part reflecting lower alliance proceeds: $967 in 2013 versus $3.7 billion in 2012, including the $3.6 billion Amylin alliance payment.
Material changes versus prior periods
- Revenue fell 7% in 2013 after falling 17% in 2012. The 2013 decline reflected lower U.S. sales, including BMS’s reduced contractual share of Abilify revenue, and the Sanofi alliance restructuring. Loss of exclusivity drove steep declines in Plavix and Avapro/Avalide.
- Key growth brands included Sprycel ($1,280 revenue, up 26%), Yervoy ($960, up 36%), Orencia ($1,444, up 23%) and Baraclude ($1,527, up 10%). Abilify revenue fell 19% to $2,289; Plavix fell 90% to $258.
- In February 2014, BMS sold its diabetes business to AstraZeneca. The transaction included the Amylin business and rights to Onglyza, Forxiga, Bydureon, Byetta, Symlin and metreleptin. BMS received $2.7 billion at closing and a $600 million Farxiga approval milestone; up to a further $800 million of contingent regulatory and sales milestones and sales-based royalties through 2025 may be payable. The business was classified as held for sale at year-end.
- Sanofi assumed most global operating responsibilities for the Plavix and Avapro/Avalide alliance from January 2013, while the U.S. and Puerto Rico Plavix arrangement continued. BMS reported $489 of Sanofi-alliance revenue in 2013 versus $3,050 in 2012.
Outlook, management commentary and risks
Management emphasized growth of existing brands, new launches, pipeline investment, continuous improvement and disciplined capital allocation. No specific full-year 2014 revenue or earnings guidance is provided in the filing. The company expected a 2014 common dividend of $1.44 per share, subject to quarterly Board decisions.
For 2014, management identified potential hepatitis C submissions or approvals for daclatasvir and asunaprevir, additional nivolumab clinical data and possible Eliquis approval for VTE treatment and prevention in the U.S. These are expectations, not assured outcomes. BMS reported R&D expense of $3.7 billion in 2013 and noted the high attrition risk of drug development.
- Patent and generic exposure: A court invalidated Baraclude’s U.S. composition-of-matter patent; appeal was pending, with possible generic competition from 2014. Sustiva exclusivity was scheduled to end in March 2015 in the U.S.; Abilify rights in the EU ended in June 2014 and U.S. rights were expected to end in April 2015.
- Portfolio and execution: BMS depends on key products and successful launches and clinical development. Management highlighted potential stock-price volatility around nivolumab data and material risks from clinical failures, regulatory delays, competition, pricing pressure and market-access restrictions.
- Legal and environmental matters: Significant matters included more than 5,700 Plavix product-liability claims, Byetta litigation, ongoing pricing and marketing investigations, and New Brunswick environmental/personal-injury litigation. The filing says outcomes and potential impacts cannot generally be assessed; estimated CERCLA site costs were $66 million at year-end.
- Other exposures: The company identified reliance on third-party suppliers and alliance partners, foreign-exchange and interest-rate risk, government reimbursement and pricing controls, and potential manufacturing, product-quality, cybersecurity and data-security disruptions.
- Tax and offshore cash: Approximately $24 billion of foreign subsidiary earnings was indefinitely reinvested offshore; repatriation could result in additional U.S. tax. Tax authorities were examining multiple jurisdictions.
The independent auditor issued an unqualified opinion on the financial statements and internal controls; management also concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2013.
Important facts for investors to verify
- Resolution and timing of the Baraclude U.S. patent appeal and any generic launch; monitor the related South Korean patent challenges.
- Post-divestiture revenue, earnings and cash-flow effects of the AstraZeneca diabetes transaction, including milestone, royalty and supply-agreement terms.
- Whether growth in Sprycel, Yervoy, Orencia and Eliquis can offset mature-brand erosion and upcoming exclusivity losses.
- Clinical and regulatory outcomes for nivolumab and the hepatitis C pipeline, alongside safety, labeling and reimbursement developments.
- Reconciliation of GAAP and non-GAAP trends, including recurring acquired-intangible amortization, restructuring, pension settlements and alliance-related items.
- Developments in material litigation, environmental proceedings and tax examinations, for which the filing does not provide clear estimates of total potential exposure.