Bristol-Myers Squibb Company — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2010. Figures are unaudited and, unless stated otherwise, in millions of dollars. The company reports a single BioPharmaceuticals segment. Mead Johnson, split off in December 2009, is reported as discontinued operations in the 2009 comparisons.
Financial performance and position
| Metric | Q3 2010 | Q3 2009 | Nine months 2010 | Nine months 2009 |
|---|---|---|---|---|
| Net sales | $4,798 | $4,788 | $14,373 | $13,775 |
| Earnings from continuing operations before tax | $1,614 | $1,565 | $4,658 | $4,282 |
| Net earnings from continuing operations | $1,302 | $1,199 | $3,671 | $3,288 |
| Net earnings attributable to BMS | $949 | $966 | $2,619 | $2,587 |
| Diluted EPS from continuing operations attributable to BMS | $0.55 | $0.45 | $1.51 | $1.21 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $2,896 | $2,721 |
- Margins: Pretax margin was 33.6% in Q3 versus 32.7% a year earlier, and 32.4% for the first nine months versus 31.1%. Net continuing-operations margin was 27.1% versus 25.0% and 25.5% versus 23.9%, respectively. Cost of products sold was 26.7% of sales in Q3 and 26.9% for the nine-month periods.
- Cash and debt: At September 30, cash, cash equivalents and marketable securities totaled $10,921, compared with $9,883 at year-end 2009. Total debt was $6,722; reported net cash position was $4,199. Working capital was approximately $8.1 billion. Current assets were $14,376 and current liabilities $6,284.
- Cash uses: Nine-month investing cash flow was a $1,333 outflow, including $299 of capital expenditures and net purchases of marketable securities. Financing cash flow was a $1,679 outflow, including $1,653 of dividends paid and $353 of stock repurchases. Cash decreased $102 during the period.
- Dividends and shares: Dividends declared were $0.32 per share in Q3 and $0.96 for the first nine months. The company repurchased 14.5 million shares for $362 million during the nine-month period. Lower share count following the Mead Johnson split-off contributed to EPS growth.
Material changes and operating drivers
- Q3 sales were essentially flat year over year; nine-month sales rose 4%. U.S. sales increased 4% in Q3 and 7% year to date, while non-U.S. sales fell 6% in Q3 and were flat year to date. Q3 non-U.S. performance reflected foreign exchange, generic competition and pricing pressure in Europe.
- Growth in PLAVIX in the U.S., BARACLUDE, SPRYCEL, ORENCIA and other products was offset by declines in mature brands and other products. Q3 sales included PLAVIX $1,658, ABILIFY $608, REYATAZ $375, BARACLUDE $228 and SPRYCEL $144. PLAVIX represented 49% of U.S. sales and 81% of U.S. sales growth for the nine-month period.
- Q3 BMS-attributable continuing earnings rose 6%, although total BMS-attributable earnings fell 2% because 2009 included $74 million of discontinued-operations earnings attributable to BMS. For the nine months, continuing earnings attributable to BMS rose 8%, while total attributable earnings rose 1%.
- Lower marketing, selling and administrative and promotional costs helped results. The effective tax rate declined to 19.3% for Q3 from 23.4%, and to 21.2% for the nine months from 23.2%; favorable tax adjustments contributed. PLAVIX-related international affiliate income declined due to generic competition.
- Gross-to-net sales adjustments rose to 10.5% of gross sales in Q3 from 8.3%, and to 9.8% for the nine months from 8.3%, with higher Medicaid rebates among the drivers.
Outlook, management commentary, risks and unusual items
- PLAVIX and concentration risk: Management expects rapid, substantial declines in PLAVIX U.S. sales after expected loss of exclusivity in November 2011, with lower net income and operating cash flow. Generic competition is already eroding international sales and affiliate income.
- Healthcare reform: Higher Medicaid rebates reduced net sales by $77 million and pretax income by $60 million in Q3; for the nine months the reductions were $205 million and $164 million. Management expected the overall negative impact in 2011 to be approximately twice the impact expected in 2010, including new Medicare Part D discounts and an annual pharmaceutical fee. The filing does not provide a precise dollar estimate for the total 2011 impact.
- Cost program: The productivity transformation initiative targets $2.5 billion of annual cost savings and cost avoidance by the end of 2012; management expected approximately 90% of that amount on an annualized run-rate basis by the end of 2010. These run-rate savings do not directly equate to reported-period results.
- FDA manufacturing warning: The FDA issued a warning letter concerning GMP processes at the Manati, Puerto Rico facility. BMS said it did not expect a production interruption and targeted inspection readiness by year-end. The FDA required resolution of the issues before approval of the NULOJIX application; the company expected FDA action in Q2 2011, subject to remediation.
- Pipeline and transactions: Ipilimumab received priority review, with an FDA action date stated as December 25, 2010. BMS and Pfizer planned to complete an apixaban NDA submission in Q1 2011. Management expected U.S. and EU dapagliflozin submissions later in 2010 or early 2011. In October 2010, BMS acquired ZymoGenetics for approximately $885 million.
- Unusual charges and events: Nine-month results included a $218 million loss on the sale of the Latina, Italy manufacturing operations (including a $200 million impairment) and $22 million of litigation expense. Specified items reduced continuing earnings by $309 million after tax in the first nine months; company-reported non-GAAP diluted EPS was $1.69 versus GAAP $1.51. The non-GAAP measure excludes selected items and is not a substitute for GAAP results.
- Legal contingencies: In October 2010, after quarter-end, a court awarded the BMS/sanofi partnership $442 million plus costs and interest in the Apotex PLAVIX patent case; the award was appealable and Apotex’s ability to pay was not assessable. A Pennsylvania court separately found BMS liable for $27.6 million on a consumer-protection claim in AWP litigation; motions remained pending. BMS estimated its share of future environmental remediation costs at $66 million. Other patent, antitrust, product-liability and commercial matters remain pending, with outcomes generally not estimable from the filing.
- Liquidity outlook: Management expected operating cash, existing liquidity and capital-market borrowings to cover working capital, capital expenditures, alliances, acquisitions, milestones, dividends and repurchases. The $2.0 billion revolving credit facility had no borrowings outstanding; BMS reported compliance with its covenant. Fitch had changed its long-term outlook from stable to negative in August; Moody’s and S&P outlooks remained stable.
Most important facts for investors to verify
- PLAVIX U.S. patent/exclusivity timing, generic entry and the effect on sales, earnings and cash flow.
- Progress and any consequences of the Manati FDA warning letter, including the timing of NULOJIX review.
- Implementation and realized benefits of the cost-savings program, distinguished from annualized run-rate targets.
- Actual healthcare-reform rebate, discount and fee costs, especially the expected 2011 impact.
- Developments in material litigation, including the appeal and collectability of the $442 million Apotex award and the pending Pennsylvania AWP motions.
- Post-quarter ZymoGenetics acquisition accounting, integration costs and funding, as well as the company’s liquidity and debt position.