Bristol-Myers Squibb — Q2 2013 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2013. BMS is a global biopharmaceutical company operating as one reportable segment. Amounts below are in millions of dollars except per-share data.
Financial performance and position
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Net sales | $4,048 | $4,443 | $7,879 | $9,694 |
| Earnings before taxes | $530 | $1,059 | $1,204 | $3,086 |
| Net earnings attributable to BMS | $536 | $645 | $1,145 | $1,746 |
| GAAP diluted EPS | $0.32 | $0.38 | $0.69 | $1.02 |
| Non-GAAP diluted EPS | $0.44 | $0.48 | $0.85 | $1.12 |
| Operating cash flow | Not separately provided | Not separately provided | $1,082 | $1,521 |
- Margins and costs: Cost of products sold was 27.4% of sales in Q2 (28.0% a year earlier) and 27.6% for the first half (26.3%). The company attributed the first-half increase principally to product mix, alliance profit-sharing and higher amortization. Q2 total expenses were $3,518, up 4% despite lower sales.
- Cash and liquidity: Cash, cash equivalents and marketable securities totaled $6,022 at June 30, versus $6,352 at year-end 2012. Cash and equivalents alone were $1,821. Current assets were $10,486 and current liabilities $8,354.
- Debt: Short-term borrowings and current portion of long-term debt were $764; long-term debt was $6,442. BMS reported net debt of $1,184, compared with $1,042 at year-end. No commercial paper was outstanding at quarter-end; $597 principal of 5.25% notes was due for repayment in Q3 2013.
- Cash uses and shareholder returns: First-half investing cash flow was positive $218, compared with a use of $2,801 in 2012, when BMS acquired Inhibitex. Financing used $1,159, including $1,155 of dividends and $380 of share repurchases. Dividends declared were $0.35 per share in Q2 and $0.70 for the half.
Material changes and operating drivers
- Sales declined 9% in Q2 and 19% in the first half. Management identified the principal cause as loss of exclusivity for Plavix; the U.S. Plavix sales decline was 97% in Q2 and 96% for the half. U.S. sales overall fell 22% in Q2 and 34% in the first half.
- Other important declines included Abilify, whose U.S. sales reflected a lower contractual share, and Avapro/Avalide, affected by exclusivity loss and the Sanofi alliance restructuring. The Sanofi restructuring also materially changed the presentation and level of reported sales and partnership income.
- Growth in newer products partly offset the declines: first-half sales rose 26% for Sprycel, 46% for Yervoy, 24% for Orencia and 33% for Onglyza/Kombiglyze. Amylin products contributed $305 of U.S. sales in the first half following the 2012 acquisition.
- First-half operating cash flow fell $439 from 2012. Management cited lower cash generation after Plavix and Avapro/Avalide exclusivity losses, litigation-related cash-flow comparisons and higher restructuring payments, partly offset by about $800 of collaboration proceeds and lower pension and bonus payments.
Outlook, commentary, risks and unusual items
- Outlook: The filing gives no quantified full-year revenue or earnings guidance. Management’s stated priorities are growing newer products, advancing the pipeline and managing costs; it expects continued exclusivity losses and cost savings over the next few years. These are forward-looking statements, not guaranteed results.
- Pipeline and regulatory events: FDA review dates disclosed included February 27, 2014 for metreleptin and January 11, 2014 for dapagliflozin; Eliquis’ supplemental application for post-surgical clot prevention had a March 15, 2014 target date. The Onglyza SAVOR-TIMI-53 trial met its cardiovascular safety non-inferiority objective but did not show superiority on the primary cardiovascular endpoint.
- Unusual charges and benefits: Q2 included $173 of restructuring charges, principally workforce reductions, and a $101 pension settlement charge. A pension remeasurement generated a $935 pre-tax actuarial gain in other comprehensive income. BMS also recorded a zero Q2 tax provision; the filing attributes the unusual tax rates to discrete tax benefits and earnings mix. Non-GAAP results exclude specified items and should not be treated as a substitute for GAAP results.
- Product recall: A precautionary recall of Fervex, Mucomyst and Questran led to a $29 sales-return reserve and $14 of inventory write-offs and recall costs. BMS did not expect resupply until sometime in 2014.
- Legal and commercial risks: A court invalidated the Baraclude composition-of-matter patent; BMS appealed, and generic entry could significantly reduce U.S. sales. The filing also describes ongoing patent, product-liability, environmental and government-investigation matters; it generally says outcomes and potential losses cannot be reasonably estimated. CERCLA environmental liabilities were estimated at $66. More than 3,600 Plavix product-liability claims were reported, among other proceedings.
- Other exposures: Most of the $6,022 in cash and securities was held outside the U.S. and expected to remain indefinitely reinvested; repatriation could trigger additional taxes. European receivables exposure in Greece, Portugal, Italy and Spain was $214. Fitch downgraded BMS in July 2013, while the filing reported investment-grade ratings.
Important facts for investors to verify
- Whether launches and demand growth in newer products can offset continuing Plavix and other legacy-product erosion.
- The outcome and timing of the Baraclude patent appeal and potential generic competition.
- Whether the reported first-half cash flow and liquidity can sustain dividends, debt repayment and investment needs as collaboration proceeds vary.
- The assumptions behind sales-return and rebate reserves, including the $151 U.S. reserve for Plavix and Avapro/Avalide and the separate product-recall reserve.
- Material developments in legal proceedings, tax audits, pipeline trials and regulatory reviews, none of which has a reliably estimated aggregate potential loss or guaranteed commercial outcome in the filing.