Bristol-Myers Squibb Company — Q3 2009 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2009. Figures are in millions of dollars except per-share data. The company reports BioPharmaceuticals and Mead Johnson; BMS held an 83.1% interest in Mead Johnson after its February IPO.
Financial performance
| Metric | Q3 2009 | Q3 2008 | Nine months 2009 | Nine months 2008 |
|---|---|---|---|---|
| Net sales | $5,487 | $5,254 | $15,886 | $15,348 |
| Gross margin | 72% | 69% | 72% | 68% |
| Earnings from continuing operations before tax | $1,724 | $1,155 | $4,849 | $3,583 |
| Net earnings from continuing operations | $1,290 | $847 | $3,509 | $2,687 |
| Net earnings attributable to BMS | $966 | $2,578 | $2,587 | $4,003 |
| Continuing-operations diluted EPS attributable to BMS | $0.48 | $0.29 | $1.30 | $0.98 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $2,721 | $3,311 |
- Q3 sales rose 4%, despite a 3% unfavorable foreign-exchange impact. U.S. sales increased 9%; non-U.S. sales declined 2%.
- Q3 continuing-operations earnings rose 52%. Management attributed improvement to sales growth, higher gross margins, manufacturing efficiencies and lower marketing, selling and administrative costs, including PTI savings.
- Nine-month BMS-attributable net earnings fell 35%, principally because 2008 included $2,046 of discontinued-operations earnings, including the ConvaTec divestiture gain. Continuing-operations earnings increased 31%.
- Q3 product growth included PLAVIX (+8%), ABILIFY (+16%), ORENCIA (+36%), BARACLUDE (+33%) and SPRYCEL (+30%). ERBITUX declined 3%. Mead Johnson sales fell 6% in Q3 and 3% for the nine months.
Cash, debt and liquidity
- At September 30, cash and cash equivalents were $6,367 and marketable securities totaled $1,504, including current and non-current securities. Total debt was $6,593, versus $6,739 at year-end 2008; reported net financial assets were $1,278, down from $1,714.
- Working capital was approximately $6.0 billion, compared with $8.0 billion at December 31, 2008. The filing reports no borrowings under BMS’s $2.0 billion revolving facility or Mead Johnson’s facility at quarter-end; BMS stated it was in compliance with its debt-to-capital covenant.
- Nine-month investing cash outflow was $3,353, including $2,232 for Medarex and $534 of capital expenditures. Financing cash outflow was $1,011, including $1,857 of dividends; operating cash flow was $2,721. Cash declined $1,609 during the period.
- Dividends declared were $0.31 per share for Q3 and $0.93 for the first nine months, unchanged from 2008.
Material changes, outlook and notable items
- BMS acquired Medarex in September for approximately $2.3 billion, adding full rights to ipilimumab and expanding its biologics pipeline. The preliminary purchase-price allocation included $1,252 of in-process R&D and $648 of goodwill; the filing notes substantial development, regulatory and commercial uncertainty.
- The productivity transformation initiative targets $2.5 billion in annual productivity savings and cost avoidance by 2012. Estimated charges are $1.3–$1.6 billion, including $1.1 billion already incurred as of the filing. Nine-month 2009 PTI charges, net of gains, were $199 million.
- ONGLYZA received U.S. approval in July and launched in the U.S. and Mexico; EU authorization followed in October. Q3 sales were $20 million. The U.S. launch inventory was reported at 24.1 months on hand, which management said supported the launch.
- Management said existing cash, securities, expected operating cash flows and access to capital markets should be sufficient for working capital, investment, strategic transactions and dividends. No specific revenue or earnings guidance for 2009 is provided in the filing.
- PLAVIX remains a major exposure: U.S. patent protection was described as extending to November 2011, but generic challenges and appeals remain. The company says loss of U.S. exclusivity or sustained generic competition could materially affect sales, results, cash flows, financial condition and liquidity. Generic competition was already affecting PLAVIX in Europe.
- Other significant matters include a $125 million reserve for securities litigation, pending court approval of a settlement; approximately $60 million accrued for the company’s share of environmental remediation costs; and approximately $4.4 billion of potential future R&D milestone payments, generally payable only if milestones are achieved and not recorded as liabilities.
- Other unusual comparisons include 2008’s $247 million auction-rate-securities impairment and substantial proceeds from divestitures. The company also disclosed that the Mead Johnson IPO and related transfers increased the nine-month effective tax rate to 27.6%, from 25.0%.
Important facts for investors to verify
- Progress and rulings in PLAVIX patent litigation, timing of generic entry, and exposure from additional product patent challenges.
- Whether core product demand and price growth can offset foreign-exchange headwinds, European generic competition and weakness in Mead Johnson’s North America/Europe business.
- Medarex purchase accounting, ipilimumab trial results and regulatory prospects, and the substantial remaining development costs.
- Realization and timing of the stated PTI savings relative to restructuring charges and the $2.5 billion annual target.
- Cash generation, working-capital movements, dividend capacity and the expected refinancing of approximately $1.75 billion of Mead Johnson intercompany notes.
- Developments in legal, environmental and tax contingencies, including the company’s stated uncertainty about outcomes and potential impacts.