Bristol-Myers Squibb Company — 2009 Form 10-K
Reporting period: Fiscal year ended December 31, 2009. The filing also reports fourth-quarter results. Unless noted, amounts are U.S. dollars; financial figures are in millions.
Business context
BMS reported one operating segment, BioPharmaceuticals, following its transformation toward an innovation-focused biopharmaceutical business. On December 23, 2009, it completed the split-off of its remaining Mead Johnson Nutrition Company interest; Mead Johnson results and the disposal gain are reported in discontinued operations. BMS also acquired Medarex in September 2009 for approximately $2.3 billion.
Financial performance and liquidity
| Metric | 2009 | 2008 | Change or context |
|---|---|---|---|
| Net sales | $18,808 | $17,715 | Up 6% reported; up 8% excluding unfavorable foreign exchange |
| Gross profit | $13,668 | $12,399 | Gross margin 72.7%, versus 70.0% |
| Continuing-operations pretax earnings | $5,602 | $4,776 | Up 17%; 29.8% of sales versus 27.0% |
| Continuing-operations net earnings attributable to BMS | $3,239 | $2,697 | Up 20%; diluted EPS $1.63 versus $1.35 |
| Net earnings attributable to BMS, including discontinued operations | $10,612 | $5,247 | Includes a $7,157 after-tax gain on the Mead Johnson split-off in 2009 |
| Cash from operating activities | $4,065 | $3,707 | Capital expenditures were $730 versus $941 |
| Cash, cash equivalents and marketable securities | $9,883 | $8,453 | At December 31 |
| Total debt | $6,361 | $6,739 | Net cash position of $3,522, versus $1,714 |
| Working capital | $7,600 | $8,000 | Approximate amounts reported by management |
The continuing-operations effective tax rate was 21.1%, down from 22.8%. The company paid $2,483 in dividends and reported $1.25 in dividends declared per common share for 2009.
Fourth-quarter 2009 net sales were $5,033, compared with $4,542 in fourth-quarter 2008. Fourth-quarter continuing-operations earnings were $1,132, compared with $1,384; earnings from discontinued operations attributable to BMS included $7,207 in the quarter, primarily reflecting the Mead Johnson disposal gain.
Material changes versus the prior comparable period
- U.S. sales rose 12% to $11,909; international sales fell 3% to $6,899, or rose 3% excluding foreign exchange.
- Key product growth included ABILIFY (+20%), BARACLUDE (+36%), SPRYCEL (+36%), and ORENCIA (+37%). PLAVIX sales rose 10% overall, but its international sales fell 14% amid generic and alternative-salt competition; ERBITUX sales declined 9%.
- Cost of products sold fell to 27.3% of sales from 30.0%, which management attributed to product mix, pricing, foreign exchange and productivity efficiencies. R&D spending increased 4% to $3,647.
- BioPharmaceutical segment results increased 27% to $4,492. BMS-attributable continuing-operations diluted EPS increased 21% on a GAAP basis and 24% on the company’s non-GAAP basis.
- Cash from operations rose $358. Investing activities used $4,380, principally reflecting the Medarex acquisition, net purchases of securities, capital spending and cash transferred with Mead Johnson’s split-off.
Outlook, management commentary, risks and unusual items
- Management expected 2010 common dividends of $1.28 per share. It said existing liquidity and expected operating cash flows should support operations, investment, alliances and dividends; no specific earnings or revenue guidance is provided in the supplied filing text.
- BMS targeted $2.5 billion in annual productivity savings and cost avoidance by 2012, with approximately 90% expected by the end of 2010. The initiative had incurred about $1.3 billion in costs. These are management targets, not guaranteed results.
- The most prominent commercial exposure is PLAVIX: it represented approximately 33% of 2009 net sales. EU generic competition had eroded sales, with further declines expected; U.S. exclusivity depended on patent litigation and reexamination. The PTO issued a non-final action rejecting several patent claims, while the company and sanofi intended to respond.
- ABILIFY represented approximately 14% of sales and faced U.S. generic patent litigation, with potential FDA approval of generic applications discussed as possible in 2010. Management warned that early or sustained generic competition could materially reduce sales and cash flows.
- Other risks include pricing and reimbursement pressure, healthcare reform, product-label or safety changes, clinical and regulatory setbacks, manufacturing and supplier interruptions, alliance dependence, foreign exchange, pension funding and pending litigation. The filing says outcomes of significant legal matters could not generally be assessed reliably.
- Unusual items include the Mead Johnson split-off gain, the 2008 ConvaTec disposal gain, the $125 million securities-litigation settlement expense in 2009, and $347 million of upfront licensing and milestone payments expensed in R&D. Non-GAAP results exclude specified items and should be considered alongside GAAP results.
- Approximately $5.0 billion of potential future R&D milestone payments, plus approximately $1.6 billion of sales-based milestones, were disclosed; payments depend on achievement of specified milestones or sales levels. Expected 2010 pension contributions were up to $430 million.
- The independent auditor gave an unqualified opinion on the financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.
Important facts for investors to verify
- How quickly PLAVIX and ABILIFY face generic competition, including the status and potential effect of relevant patent proceedings.
- Underlying continuing-business earnings and cash generation, separated from the large Mead Johnson disposal gain and other specified items.
- Whether the targeted productivity savings are achieved without impairing R&D productivity, product supply or commercial execution.
- Pipeline progress, particularly belatacept, apixaban, ipilimumab and diabetes candidates, and the timing and risks of regulatory decisions.
- Actual future pension contributions, milestone obligations and the effect of litigation, tax matters and pricing or reimbursement changes.