Bristol Myers Squibb Company — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Amounts are in millions of dollars except per-share data. The filing is unaudited. BMS reports one operating segment.
Business context and financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $6,007 | $5,691 | $18,200 | $16,588 |
| Net earnings attributable to BMS | $1,353 | $1,901 | $4,495 | $3,760 |
| Diluted GAAP EPS | $0.83 | $1.16 | $2.75 | $2.30 |
| Diluted non-GAAP EPS | $1.17 | $1.09 | $3.46 | $3.04 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $6,029 | $3,511 |
Revenue increased 6% in Q3 and 10% year to date. Management attributed growth mainly to demand for Eliquis and Opdivo. Q3 product revenue included Eliquis of $1,928 million (+22%), Opdivo of $1,817 million (+1%), Orencia of $767 million (+14%), and Yervoy of $353 million (-8%). Year-to-date Eliquis revenue rose 25% and Opdivo rose 10%. Established brands declined, partly reflecting generic competition and divestitures.
Q3 GAAP net earnings and EPS fell year over year despite higher revenue. Other income (net) was an expense of $411 million, compared with income of $508 million in Q3 2018. Major Q3 items included a $1.5 billion pension settlement charge and a $1.2 billion gain on the UPSA business sale, as well as equity-investment losses. BMS reported a Q3 effective tax rate of -1.3%, affected by specified items. Non-GAAP EPS excludes specified items; the company cautions that this measure is supplementary, not a substitute for GAAP results.
For the first nine months, net earnings increased 19%. Management cited higher revenue, the UPSA divestiture gain and the prior-year Nektar-related R&D charge, partly offset by pension settlement charges and Celgene-related expenses. Cost of products sold rose 16% year to date, including higher royalties and profit sharing associated mainly with Eliquis sales.
Cash, debt and liquidity
- Cash and cash equivalents were $30,489 million at September 30, 2019, versus $6,911 million at year-end 2018. Cash, cash equivalents and marketable securities totaled $33,467 million.
- BMS reported a net cash position of $8,508 million, using its definition of cash and marketable securities less short- and long-term debt. Long-term debt was $24,390 million and short-term debt was $569 million.
- Operating cash flow was $6,029 million for nine months, up from $3,511 million. Investing activities provided $2,266 million, while financing activities provided $15,298 million, largely reflecting the May issuance of $19.0 billion of notes for the pending Celgene acquisition.
- The company had $6.0 billion of revolving credit facilities with no amounts drawn and an $8.0 billion term loan available upon closing of the acquisition. It said existing liquidity and available borrowing were expected to cover anticipated needs, including the acquisition.
- Cash dividends paid were $2.0 billion in the first nine months. Capital expenditures were expected to be approximately $800 million in 2019 and $600 million in 2020.
Material changes, outlook and risks
- Celgene acquisition: The proposed transaction provides for one BMS share and $50 cash per Celgene share, plus a contingent value right for up to $9 cash subject to milestones. Shareholders approved the deal; completion remained subject to closing conditions and FTC review. To address FTC concerns, Celgene agreed to sell Otezla to Amgen for $13.4 billion, subject to transaction conditions and an FTC consent order. BMS expected to complete the acquisition before year-end 2019. The new notes include special mandatory redemption provisions if the acquisition is not completed by July 30, 2020.
- Divestitures and pension: BMS sold its UPSA consumer health business in Q3, recording a $1.2 billion gain and receiving $1.51 billion in net proceeds. The pension plan termination and related settlements generated a $1.5 billion non-cash pretax charge; approximately $200 million of plan obligations were expected to be settled in Q4.
- Product and pipeline: Management noted competitive pressure affecting U.S. Opdivo and Yervoy trends and expected Opdivo’s U.S. trend to continue until the market stabilizes or new indications launch. It also reported setbacks: CheckMate-498 and CheckMate-459 did not meet their stated primary endpoints, and CheckMate-227 Part 2 did not meet its overall-survival endpoint. BMS reported positive results for other studies and approvals, including Empliciti in Europe.
- Pricing and sales deductions: Gross-to-net adjustments increased 39% in Q3 and 36% year to date, faster than gross product sales, primarily due to higher U.S. Eliquis sales and associated rebates and coverage-gap costs. U.S. average net selling prices were 2% lower in Q3; management expected them to be roughly flat for full-year 2019.
- Other risks: The filing describes patent, product-liability, pricing, antitrust, securities, environmental and other proceedings; BMS generally could not estimate potential losses for many matters. Its estimated share of future CERCLA remediation costs was $69.7 million. Tax authorities were examining various positions; BMS said unrecognized tax benefits could decrease by approximately $300–$340 million over the next twelve months, though outcomes could vary. The company noted healthcare pricing and regulatory changes, generic competition, and possible credit-rating pressure associated with the acquisition.
No specific full-year revenue or EPS guidance is provided in the filing text. Management’s stated outlook includes the acquisition timing, capital expenditure expectations and pricing comments above.
Important facts for investors to verify
- Whether and when the FTC consent order and other conditions permit the Celgene acquisition and Otezla divestiture to close, and the final funding and integration costs.
- How the increase in debt and interest expense affects credit ratings, cash generation and post-acquisition financial flexibility.
- Whether growth in Eliquis and other prioritized products offsets rebates, competition and declines in established brands; monitor gross-to-net adjustments and U.S. net pricing.
- The recurring earnings and cash-flow effects of pension settlements, divestiture gains, acquisition costs and other items excluded from non-GAAP results.
- Developments in key clinical trials, product approvals, patent challenges and material legal or tax contingencies.