Bristol Myers Squibb Company — FY 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. The filing also reports fourth-quarter results; this is an annual report, not a standalone Q4 filing. Amounts are in U.S. dollars unless noted.
Business context
BMS is a global biopharmaceutical company operating as one segment. Its 2012 portfolio spans cardiovascular, virology, oncology, neuroscience, immunoscience and metabolic diseases. The company continued its shift toward innovative biopharmaceuticals, with acquisitions and alliances supporting its pipeline and diabetes business.
Financial performance and position
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Net sales | $17.621 billion | $21.244 billion |
| Gross profit / gross margin | $13.011 billion / 73.8% | $15.646 billion / 73.6% |
| Net earnings attributable to BMS | $1.960 billion | $3.709 billion |
| Diluted EPS attributable to BMS | $1.16 | $2.16 |
| Non-GAAP diluted EPS | $1.99 | $2.28 |
| Cash from operating activities | $6.941 billion | $4.840 billion |
| Cash, cash equivalents and marketable securities | $6.352 billion | $11.642 billion |
| Long-term debt, including current portion | $7.232 billion | $5.376 billion |
| Net cash/(debt) position | $(1.042) billion | $6.151 billion |
| Working capital | $1.242 billion | $7.538 billion |
Fourth-quarter net sales were $4.191 billion versus $5.454 billion a year earlier. BMS reported Q4 net earnings of $924 million and earnings attributable to BMS of $925 million; Q4 2011 net earnings were $1.231 billion and attributable earnings were $852 million.
Operating cash flow included $3.570 billion of preliminary proceeds from AstraZeneca for the Amylin collaboration. Investing cash outflow was $6.727 billion, including business acquisitions; financing cash outflow was $4.333 billion. BMS paid $2.286 billion in dividends and repurchased $2.403 billion of common stock. Cost of products sold was 26.2% of sales, compared with 26.4% in 2011.
Material changes versus the prior comparable period
- Sales fell 17% year over year, primarily because U.S. exclusivity expired for Plavix and Avapro/Avalide. Plavix sales declined 64% to $2.547 billion; Avapro/Avalide sales declined 47% to $503 million.
- Despite growth in several newer products, including Sprycel (+27%), Orencia (+28%), Yervoy ($706 million versus $360 million) and Onglyza/Kombiglyze (+50%), this growth did not offset the mature-product declines.
- GAAP earnings attributable to BMS fell to $1.960 billion. Results included a $1.830 billion pre-tax impairment after BMS discontinued BMS-986094 for patient-safety reasons. The company reported a $161 million income tax benefit, including a $392 million capital-loss tax benefit.
- Amylin was acquired in August for an aggregate purchase price of $5.3 billion. The company received approximately $3.6 billion in preliminary proceeds from AstraZeneca for the related diabetes collaboration; these proceeds are largely deferred and amortized over time.
- Cash and marketable securities declined and debt increased, leaving BMS with a net debt position, primarily following the Amylin and Inhibitex acquisitions.
Outlook, management commentary and risks
- Management said it expects the portfolio to become more diversified and emphasized growth of newer products, pipeline advancement and cost management. No overall revenue or earnings guidance is provided in the supplied filing text.
- BMS expected 2013 common dividends of $1.40 per share. It also expected approximately $300 million of additional employee termination costs in 2013, mainly related to European sales-force reductions and alliance restructuring.
- The company expected to resubmit the U.S. Forxiga application in mid-2013, with FDA review anticipated to take six months and an advisory committee meeting expected. This was a stated expectation, not an approval assurance.
- Major commercial risks include rapid generic erosion after loss of exclusivity, particularly for Plavix and Avapro/Avalide, and potential generic competition for Baraclude after a court invalidated its U.S. composition-of-matter patent in February 2013. BMS planned to appeal; U.S. Baraclude sales were $241 million in 2012.
- Other risks include regulatory and clinical-trial uncertainty, product safety and liability, pricing and reimbursement pressure, reliance on alliance partners and third-party suppliers, foreign exchange, European customer credit exposure, and litigation and government investigations.
- Significant pending matters include Plavix product-liability claims, Byetta/Bydureon claims, patent disputes, pricing and marketing investigations, FCPA-related investigations and environmental proceedings. BMS stated that it could not reasonably assess outcomes for several matters. Its estimated share of future costs for specified environmental sites was $72 million at year-end.
- Potential future milestone obligations include $6.0 billion for R&D milestones and $2.1 billion in sales-based milestones, payable only if specified events or sales thresholds are achieved.
Most important facts for investors to verify
- How quickly generic competition and channel inventory returns affect Plavix, Avapro/Avalide and Baraclude sales, cash generation and reserves.
- Whether newer growth products and the pipeline can offset exclusivity losses, including subsequent regulatory and clinical outcomes for Eliquis, Forxiga and late-stage programs.
- The sustainability of operating cash flow excluding AstraZeneca’s $3.570 billion collaboration proceeds, and the company’s ability to manage its reduced liquidity and higher debt.
- Amylin integration and the collaboration’s accounting, amortization, governance and commercial performance, including the value and recoverability of acquired intangible assets.
- Developments in material litigation, product-liability claims, patent disputes and government investigations, along with any resulting charges or settlements.