Bristol-Myers Squibb Company — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; unaudited. BMS operates as a global specialty biopharmaceutical company and reports one operating segment.
Financial performance
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Total revenue | $4.041 billion | $3.811 billion | +6% |
| Net earnings attributable to BMS | $1.186 billion | $937 million | +27% |
| Diluted EPS, GAAP | $0.71 | $0.56 | +27% |
| Diluted EPS, non-GAAP | $0.71 | $0.46 | +54% |
| Cash from operations | $626 million | $617 million | +$9 million |
- Net product sales were $3.059 billion, up from $2.807 billion; alliance and other revenues were $982 million, compared with $1.004 billion.
- Cost of products sold was 21.0% of revenue, versus 25.4% a year earlier. Research and development expense rose 7% to $1.016 billion, including $160 million of upfront payments for new alliance and licensing agreements.
- Other income/expense was a net benefit of $299 million, compared with a $208 million benefit in Q1 2014. Gains on product-line and business sales and alliance/licensing income were significant contributors. The effective tax rate was 17.2%, versus 5.0%; the prior period included a tax benefit related primarily to the diabetes-business sale.
- Cash, cash equivalents and marketable securities totaled $11.886 billion at March 31. Short-term borrowings were $330 million and long-term debt was $7.127 billion; reported net cash position was $4.429 billion.
- Total assets were $33.579 billion and total liabilities were $17.890 billion. Dividends declared were $0.37 per share; cash dividends paid were $623 million.
Material changes and business developments
- Growth reflected Eliquis ($355 million, versus $106 million), Yervoy ($325 million, +20%), Sprycel ($375 million, +10%), Orencia ($400 million, +10%), and newly launched hepatitis C products ($264 million) and Opdivo ($40 million). Eliquis and Yervoy growth was partly offset by unfavorable foreign exchange in some markets.
- Baraclude revenue fell 16% to $340 million following U.S. generic entry and lower international demand. Reyataz fell 15% to $294 million and Sustiva fell 9% to $290 million, amid competition, loss of exclusivity and foreign exchange effects.
- Abilify revenue was $554 million, up 3%, reflecting BMS’s increased U.S. revenue share. U.S. commercialization rights expired April 20, 2015; BMS said it would no longer record Abilify revenue thereafter. Mature products and all other revenue fell 33% to $639 million.
- U.S. revenue rose 16%; Europe declined 18%, including a 16% foreign-exchange impact; Rest of World rose 23%, despite a 13% foreign-exchange impact. Total revenue included a 7% adverse foreign-exchange impact.
- Opdivo received U.S. approval in March for previously treated advanced squamous non-small cell lung cancer. BMS reported additional clinical and regulatory developments for Opdivo and other pipeline programs.
Cash flow, outlook and notable items
- Operating cash flow was $626 million. Investing activities provided $754 million, while financing activities used $682 million, including $623 million of dividends. The 2014 investing cash flow was much higher, primarily because of diabetes-business divestiture proceeds.
- Management expected revenue and earnings to decline in the remaining quarters of 2015 compared with Q1 2015 and the prior-year periods, principally due to the expiration of U.S. Abilify rights. Certain alliance and royalty revenues were expected to decline by approximately $400 million in 2015 and continue declining in 2016. No specific full-year revenue or EPS guidance is provided in the supplied filing text.
- Management said existing cash, marketable securities and operating cash generation should cover normal cash requirements for at least the next few years. Capital expenditures were expected to rise to approximately $1.0 billion annually in 2015 and 2016, including biologics manufacturing expansion.
- After quarter-end, BMS acquired Flexus for $800 million upfront, with up to $450 million in contingent development and regulatory milestones; the acquisition was expected to be accounted for as an asset acquisition, with essentially all value expensed in R&D.
- Legal and regulatory exposures include patent and product-liability matters, environmental remediation (estimated BMS share of future CERCLA costs: $61 million), and ongoing FCPA-related government discussions. The filing generally says outcomes or potential losses cannot be reasonably estimated for several matters.
- Other notable items include restructuring charges of $12 million and expected 2015 employee termination costs of approximately $100 million; pension remeasurement increased liabilities and accumulated other comprehensive loss by $120 million. BMS identified no material changes to its previously disclosed risk factors.
Important facts for investors to verify
- How quickly sales and earnings respond to the loss of U.S. Abilify rights and the expected decline in alliance and royalty revenue.
- Whether growth in Eliquis, Opdivo, Yervoy and the hepatitis C franchise offsets generic erosion, pricing pressure and foreign-exchange headwinds.
- The sustainability of Q1 earnings given the significant gains and alliance-related income included in other income/expense, and the differences between GAAP and non-GAAP results.
- Progress and spending on planned capital projects, pipeline development, and the Flexus acquisition, including milestone obligations.
- Developments in material litigation, tax audits and investigations; the filing does not provide clear loss estimates for many proceedings.