Bristol-Myers Squibb Company: FY2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. The filing also reports fourth-quarter results. BMS is a global biopharmaceutical company reporting one BioPharmaceuticals segment. Dollar amounts are in millions unless noted.
Financial performance and position
| Metric | FY2011 | FY2010 | Change |
|---|---|---|---|
| Net sales | $21,244 | $19,484 | +9% |
| Earnings from continuing operations before tax | $6,981 | $6,071 | +15% |
| Net earnings attributable to BMS | $3,709 | $3,102 | +20% |
| Diluted EPS attributable to BMS | $2.16 | $1.79 | +21% |
| Operating cash flow | $4,840 | $4,491 | +8% |
| Cash, cash equivalents and marketable securities | $11,642 | $9,982 | +$1,660 |
| Long-term debt | $5,376 | $5,328 | +$48 |
Cost of products sold was 26.4% of sales, compared with 27.1% in 2010; gross margin was approximately 73.6% of sales, versus 72.9%. The effective tax rate was 24.7%, down from 25.7%. Working capital was approximately $7.5 billion. Management reported a $6.151 billion net cash position, including short-term borrowings.
Fourth-quarter sales were $5,454, compared with $5,111 a year earlier; BMS-attributable earnings were $852 versus $483, and diluted EPS was $0.50 versus $0.28. Annual free cash flow is not stated as a defined metric in the supplied filing text.
Material changes and operating drivers
- Sales growth reflected higher volume, pricing and favorable foreign exchange. U.S. sales rose 10%; Europe rose 6%; Japan, Asia Pacific and Canada rose 13%.
- Growth products included BARACLUDE ($1,196; +28%), SPRYCEL ($803; +39%), ORENCIA ($917; +25%) and ONGLYZA/KOMBIGLYZE ($473, versus $158). YERVOY, launched in 2011, generated $360 in sales.
- PLAVIX remained the largest product at $7,087, about 33% of sales; ABILIFY contributed $2,758, about 13%. AVAPRO/AVALIDE sales fell 19% to $952, while mature products and other sales declined 7% to $2,950.
- Gross-to-net deductions increased to $2,763 from $2,197; they were 11.5% of gross sales versus 10.1%. The filing attributes the rise to government-program charge-backs, Medicaid rebates and healthcare-reform discounts.
- R&D spending increased 8% to $3,839. Marketing, selling and administrative expense rose 14% to $4,203, including a $220 pharmaceutical-company fee under U.S. healthcare reform and increased launch support.
- Operating cash flow increased to $4,840. Investing cash use was $1,437 and financing cash use was $2,657. Capital expenditures were $367; dividends paid were $2,254 and share repurchases were $1,221.
Outlook, commentary and risks
- Management expected rapid, material U.S. sales declines after PLAVIX exclusivity ended in May 2012 and AVAPRO/AVALIDE patent protection ended in March 2012. It cited the resulting risk to earnings and operating cash flow; no quantified full-year 2012 earnings guidance is provided in the supplied text.
- BMS expected to pay $1.36 per common share in dividends for 2012, subject to quarterly board decisions. Management said available cash, U.S. operating cash flows and capital-market access were expected to fund dividends, repurchases, acquisitions, alliances, milestones, working capital and capital spending.
- In January 2012, FDA issued a complete response letter for dapagliflozin, requesting additional data to assess its benefit-risk profile; further trials may be needed. BMS and Pfizer were pursuing potential U.S. and EU approval of ELIQUIS for stroke prevention in atrial fibrillation, with an FDA decision goal date of March 28, 2012. ELIQUIS’s ADOPT trial did not meet its primary superiority endpoint.
- BMS acquired Inhibitex in February 2012 for approximately $2.5 billion, after year-end. Its lead hepatitis C candidate, INX-189, was in Phase II development. The acquisition followed 2011’s $360 million Amira acquisition.
- Key risks include product concentration and patent cliffs; generic challenges and patent litigation involving ABILIFY, ATRIPLA, BARACLUDE and SPRYCEL; pipeline trial and approval uncertainty; pricing and reimbursement pressure; manufacturing and third-party supply dependence; and legal, tax, pension, currency and European sovereign-debt exposures.
- Significant contingencies include product-liability claims, pricing and marketing investigations, environmental matters and patent disputes. BMS reported $69 million estimated share of future costs for specified environmental sites, but stated that it could not reasonably estimate potential losses for many legal matters.
- Unusual or non-GAAP items reduced FY2011 net earnings by $212 million after tax, including restructuring, licensing payments, impairment, litigation and product-liability items. The company also recorded a $1.3 billion increase in pension and postretirement liabilities, primarily through other comprehensive income.
Important facts for investors to verify
- Actual PLAVIX and AVAPRO/AVALIDE sales erosion, returns and cash-flow impact following 2012 U.S. exclusivity losses.
- Patent-litigation outcomes and timing for key products, particularly ABILIFY, ATRIPLA, BARACLUDE and SPRYCEL.
- FDA and other regulatory decisions, additional data requirements and commercial prospects for dapagliflozin and ELIQUIS.
- Whether growth in newer products offsets declines in mature brands, and the sustainability of margins after partner shares, rebates and discounts.
- Integration, cash use and development progress following the $2.5 billion Inhibitex acquisition; also monitor the $5.5 billion of potential R&D milestone payments disclosed.
- Developments in significant litigation, tax examinations, pension funding and European receivable factoring. The filing reports $430 million of expected 2012 pension contributions.