Business context and reporting period
Bristol-Myers Squibb Company (BMS), a global specialty biopharmaceutical company, reported unaudited results for the quarter and six months ended June 30, 2015. The company operates as a single segment. Amounts are in U.S. dollars; financial figures below are in millions unless noted.
Financial performance and position
| Metric | Q2 2015 | Q2 2014 | First half 2015 | First half 2014 |
|---|---|---|---|---|
| Total revenue | $4,163 | $3,889 | $8,204 | $7,700 |
| Net earnings/(loss) attributable to BMS | $(130) | $333 | $1,056 | $1,270 |
| GAAP diluted EPS | $(0.08) | $0.20 | $0.63 | $0.76 |
| Non-GAAP diluted EPS | $0.53 | $0.48 | $1.24 | $0.94 |
| Operating cash flow | Not separately stated | Not separately stated | $697 | $1,673 |
- Q2 net product sales were $3,572, up from $2,770; alliance and other revenues were $591, down from $1,119. First-half net product sales were $6,631 versus $5,577.
- Q2 research and development expense was $1,856, up 31%; first-half R&D expense was $2,872, up 22%. The filing does not present gross or operating margin as a headline measure.
- At June 30, cash and cash equivalents plus marketable securities totaled $10,108. Short-term borrowings were $755 and long-term debt was $6,615, for a reported net cash position of $2,738. At December 31, 2014, net cash was $4,011.
- Cash and cash equivalents declined to $4,199 from $5,571 at year-end 2014. Dividends paid in the first half were $1,242; dividends declared were $0.74 per share versus $0.72 a year earlier.
Material changes versus the prior comparable period
- Revenue rose 7% in both Q2 and the first half. Growth reflected the launch and expansion of the Hepatitis C franchise, Opdivo, Eliquis, Orencia and Sprycel, partly offset by foreign exchange, lost Abilify commercialization rights, competition and transferred or expired licensing rights.
- Q2 GAAP results swung to a loss, principally amid higher R&D expense, including an $800 million Flexus acquisition-related charge, and a $180 million loss on debt redemption. The Q2 effective tax rate was 311.5%, with the filing citing the non-deductible Flexus charge and other discrete tax items.
- First-half operating cash flow fell by $976 million year over year. Management cited alliance-payment timing, slower customer collections and reduced factoring, and the prior-year receipt of proceeds related to the diabetes divestiture arrangements.
- Product trends were mixed: first-half Eliquis revenue rose to $792 from $277 and Orencia to $861 from $765; Abilify fell to $661 from $1,095 following rights expirations, while Baraclude and several HIV franchises declined.
Outlook, management commentary, risks and unusual items
- Management expected revenue and earnings in the remaining quarters of 2015 to be lower than in the first half, citing Abilify rights expiration, lower Hepatitis C franchise sales, and higher spending to support launches, Eliquis growth and Opdivo development. The filing provides no specific full-year numerical guidance.
- Management said existing cash, marketable securities and operating cash generation should meet normal cash needs for at least the next few years. It also projected capital expenditures of approximately $1.0 billion in each of 2015 and 2016, above the roughly $500 million annual level in recent years.
- BMS issued $1.286 billion of euro-denominated notes in May and redeemed or repurchased nearly $2.0 billion of debt during Q2. It reported no borrowings under its two $1.5 billion revolving credit facilities at quarter-end.
- Key risks include generic competition and patent challenges, pricing and reimbursement pressures, foreign-exchange movements, product development and approval uncertainty, and litigation or government investigations. The company disclosed more than 5,200 Plavix product-liability claims and ongoing Byetta claims; it said outcomes and potential impacts could not generally be assessed. It estimated its share of future CERCLA environmental costs at $61 million and stated it was fully reserved for the SEC FCPA matter.
- Other notable developments: BMS agreed to transfer North American Erbitux rights to Lilly, anticipating a non-cash charge of approximately $150–$200 million on completion; and its U.S. Abilify rights expired on April 20, 2015. The filing also reported positive Opdivo trial developments, while two Yervoy Phase III trials disclosed in July 2015 did not meet their primary endpoints.
Important facts for investors to verify
- Whether Hepatitis C franchise sales and pricing, particularly in France, develop as management expected, and the extent of the forecast decline in remaining 2015 quarters.
- How much of reported GAAP earnings volatility reflects non-recurring or acquisition-related items, and whether non-GAAP adjustments provide a useful view of ongoing performance.
- Cash conversion and working-capital trends, including collections, alliance payments, factoring, and the effect of offshore cash restrictions and potential repatriation taxes.
- Commercial and regulatory progress for Opdivo and other pipeline assets, alongside competitive, safety and trial-outcome risks.
- Developments in patent disputes, product-liability matters, the FCPA investigation, and the Erbitux rights transfer and associated charge.