Bristol Myers Squibb — Q3 2014 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2014. BMS is a global biopharmaceutical company reporting as one business segment. Dollar amounts are in millions except per-share data.
Key financial results
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Total revenue | $3,921 | $4,065 | $11,621 | $11,944 |
| Net earnings attributable to BMS | $721 | $692 | $1,991 | $1,837 |
| Diluted GAAP EPS | $0.43 | $0.42 | $1.19 | $1.11 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $2,576 | $2,135 |
- Q3 revenue declined 4% year over year; nine-month revenue declined 3%. Net product sales were $2,843 in Q3 and $8,420 year to date, while alliance and other revenue was $1,078 and $3,201, respectively.
- Q3 earnings before tax were $1,008, versus $818; the effective tax rate rose to 27.4% from 15.4%. For nine months, earnings before tax were $2,441 versus $2,022 and the tax rate was 18.0% versus 8.8%.
- Cost of products sold was 25.7% of revenue in Q3 versus 28.9%; nine-month ratios were 25.5% and 28.0%. The filing does not provide a consolidated operating-margin figure.
- Nine-month investing cash flow was positive $865, including $3,277 proceeds from business sales; financing cash flow was negative $2,206, including $1,800 of dividends. Cash and equivalents ended at $4,851.
- Cash, cash equivalents and marketable securities totaled $11,549 at September 30, versus $8,272 at year-end 2013. Debt totaled $7,668, including current debt; BMS reported a net cash position of $3,881, compared with net debt of $68 at year-end.
- Quarterly dividend declared was $0.36 per share, versus $0.35. Nine-month declared dividends were $1.08 per share, versus $1.05.
Changes and operating drivers
- The diabetes business sale to AstraZeneca in February reduced reported product revenue and related expenses. BMS recognized a $539 gain on sale during the nine months, including $292 in Q3; the transaction generated approximately $3.5 billion of cash flow excluding royalties.
- Growth in Sprycel, Yervoy, Orencia and Eliquis partly offset declines from the diabetes divestiture, Abilify’s reduced international contribution, and mature-product erosion. Eliquis revenue rose to $216 in Q3 from $41; Yervoy to $350 from $238; and Sprycel to $385 from $316.
- Research and development expense increased 10% in Q3 and 21% year to date. It included $343 of year-to-date in-process research and development impairment charges and a $148 charge for the iPierian acquisition.
- U.S. Baraclude generic competition began after Teva launched in September. BMS expected a rapid, significant sales decline in Q4; 2013 U.S. Baraclude sales were $289. U.S. Abilify commercialization rights were expected to expire in April 2015, with a significant revenue decline anticipated.
Outlook, risks and unusual items
- The filing provides no specific full-year revenue or EPS guidance. Management said cash and investments plus operating cash generation should cover normal cash needs, including dividends, capital expenditures, milestone payments and working capital, for at least the next few years.
- BMS expected certain alliance and royalty revenues to decline by approximately $400 in 2015 and continue declining in 2016 as agreements expire. It also noted that healthcare payer cost controls and discounts, particularly in Europe, could pressure revenue.
- In October 2014, after quarter-end, BMS said it would not pursue U.S. approval of the daclatasvir/asunaprevir combination for HCV genotype 1b and withdrew the asunaprevir application. It continued pursuing daclatasvir in other regimens. Opdivo had priority review for previously treated advanced melanoma, with an FDA decision target of March 30, 2015; it had also received EU review milestones and Breakthrough Therapy Designation.
- A planned $1.4 billion pension-obligation transfer to Prudential was expected to close in Q4 2014 and produce an estimated pretax settlement charge of $600–$700, subject to final valuation.
- Other notable items included an additional $112 branded prescription drug fee expense in 2014, a $45 loss on debt redemption, and expected restructuring termination costs of $230–$280 in 2014–2015. A $310 impairment was recorded for peginterferon lambda after outlook weakened amid oral HCV competition.
- Risks and contingencies include patent and generic competition, product-development and regulatory uncertainty, pricing and reimbursement pressure, tax audits, and litigation. Baraclude patent protection was unsuccessful in the U.S.; a Korean patent challenge also remained. The company disclosed more than 6,300 Plavix-related injury claims and Byetta litigation, among other matters; many legal outcomes and potential losses could not be estimated. CERCLA site costs were estimated at $63.
- Most overseas cash was held in low-tax jurisdictions and expected to remain indefinitely reinvested; repatriation could trigger additional tax. BMS also cited European sovereign and customer credit exposure, including $122 of trade receivables in Greece, Portugal, Italy and Spain.
Important facts for investors to verify
- Whether the Q4 Baraclude decline and April 2015 Abilify U.S. exclusivity expiration materially affect the revenue base.
- Commercial uptake, approvals and competitive position of Opdivo, Eliquis and the HCV portfolio, including the implications of the withdrawn U.S. asunaprevir application.
- Recurring earnings and cash generation excluding the diabetes-sale gain and other specified items; Q3 non-GAAP EPS was $0.45 versus GAAP EPS of $0.43.
- Final pension-settlement charge, diabetes-sale contingent milestones and deferred consideration, and the timing of expected alliance-revenue declines.
- Developments in major litigation, patent challenges, tax audits, and potential product or intangible-asset impairments.