Bristol-Myers Squibb Company — 2014 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended December 31, 2014, with unaudited fourth-quarter results also provided. BMS is a global biopharmaceutical company operating in one BioPharmaceuticals segment. Its strategy is focused on innovative medicines, particularly in oncology and immuno-oncology, virology, immunology, specialty cardiovascular disease, fibrosis and genetically defined diseases. In February 2014, BMS sold substantially all of its diabetes business to AstraZeneca.
Key financial metrics
| Metric | 2014 | 2013 | Change or context |
|---|---|---|---|
| Total revenue | $15.879 billion | $16.385 billion | Down 3% |
| Net product sales | $11.660 billion | $12.304 billion | Down 5% |
| Gross margin dollars | $11.947 billion | $11.766 billion | Cost of products sold was 24.8% of revenue, versus 28.2% |
| Earnings before income taxes | $2.381 billion | $2.891 billion | Down 18% |
| Net earnings attributable to BMS, GAAP | $2.004 billion | $2.563 billion | Down 22% |
| Diluted EPS, GAAP | $1.20 | $1.54 | Down 22% |
| Net earnings attributable to BMS, non-GAAP | $3.085 billion | $3.019 billion | Up 2% |
| Diluted EPS, non-GAAP | $1.85 | $1.82 | Up 2% |
| Research and development expense | $4.534 billion | $3.731 billion | Up 22% |
| Cash from operating activities | $3.148 billion | $3.545 billion | Down $397 million |
| Cash, cash equivalents and marketable securities | $11.843 billion | $8.272 billion | Up $3.571 billion |
| Long-term debt | $7.242 billion | $7.981 billion | Short-term borrowings were $590 million |
At year-end, BMS reported a net cash position of $4.011 billion, based on cash and marketable securities less short- and long-term debt. Investing cash flow was positive $1.216 billion, primarily reflecting diabetes-business divestiture proceeds; financing cash flow was negative $2.437 billion, including $2.398 billion of dividends. Capital expenditures were $526 million. The company said it expected cash and securities plus operating cash generation to cover normal requirements for at least the next few years. The filing does not provide a current ratio or a formal 2015 earnings forecast.
Fourth-quarter revenue was $4.258 billion, net earnings were $27 million, net earnings attributable to BMS were $13 million, and diluted EPS was $0.01. The quarter included $740 million of pension settlement, curtailment and special termination benefit charges. Annual GAAP results also reflected $343 million of in-process R&D impairments, restructuring and other specified items; the company’s non-GAAP figures exclude specified items and should be considered alongside GAAP results.
Material changes versus the prior comparable period
- Revenue fell 3%, reflecting the diabetes divestiture, exclusivity losses and expired commercialization rights, partly offset by growth in newer and other key products.
- Growth was strongest in Eliquis, with revenue of $774 million versus $146 million in 2013; Yervoy rose 36% to $1.308 billion; Sprycel rose 17% to $1.493 billion; and Orencia rose 14% to $1.652 billion.
- Abilify revenue declined 12% to $2.020 billion. BMS’s U.S. and most international commercialization rights were expected to end in April 2015, a significant anticipated revenue headwind.
- Baraclude revenue declined 6% to $1.441 billion. Generic entecavir launched in the U.S. in September 2014 and materially affected U.S. sales beginning in the fourth quarter.
- R&D expense increased by $803 million, including impairment charges, the $148 million iPierian asset-acquisition charge, higher clinical costs and other milestone payments.
- Operating cash flow decreased $397 million, mainly due to lower upfront and contingent alliance proceeds and higher working-capital requirements.
Outlook, management commentary and risks
- Management expected growth in Eliquis, Yervoy, Sprycel, Orencia and Opdivo to partly offset 2015 revenue pressure from Abilify rights expiration, Baraclude generic competition, declining alliance and royalty revenue, mature-product erosion and foreign exchange. Certain alliance and other revenues were expected to decline by approximately $400 million in 2015, with further decline in 2016.
- BMS identified 2015 potential developments including U.S. daclatasvir approval and regulatory or clinical updates for Opdivo, Yervoy and elotuzumab. These were expectations, not assurances; the filing also described a complete response letter on the hepatitis C application and the withdrawal of the asunaprevir application.
- Planned capital expenditures were approximately $1.0 billion in each of 2015 and 2016, principally to expand biologics manufacturing, including a planned Ireland facility targeted for completion in 2019.
- Key risks include generic and biosimilar competition, patent challenges and product exclusivity uncertainty; pricing and reimbursement pressure; clinical, regulatory and commercialization risks; dependence on alliances and third-party suppliers; manufacturing interruptions; currency exposure; and legal, tax, environmental and cybersecurity matters. Management emphasized the sensitivity of the company and its share price to Opdivo and other late-stage immuno-oncology data.
- Legal matters include ongoing U.S. investigations into sales and marketing practices, including an FCPA investigation involving practices in China; more than 5,500 filed Plavix product-liability claims; and Byetta-related product-liability litigation. The filing generally states that outcomes or potential losses cannot be reasonably estimated. BMS estimated its share of future environmental remediation costs at $62 million.
- The company recorded a $713 million pension settlement charge after purchasing a group annuity contract covering approximately $1.5 billion of pension obligations. It also reported a $310 million impairment of the peginterferon lambda development asset after reassessing its commercial prospects.
Important facts for investors to verify
- Whether the expected loss of Abilify rights and U.S. Baraclude generic competition produce revenue declines consistent with management’s outlook.
- Opdivo clinical, regulatory and commercial progress, and whether subsequent data confirm the benefit underlying its accelerated U.S. melanoma approval.
- Whether growth in Eliquis, Yervoy, Sprycel and Orencia offsets mature-product erosion, alliance expirations and foreign-exchange headwinds.
- The sustainability of operating cash flow, the planned increase in capital expenditures, and the use and accessibility of offshore cash and marketable securities.
- Developments in the FCPA, product-liability, patent and other proceedings, for which the filing provides no clear aggregate estimate of potential loss.
- Non-GAAP reconciliations and the effects of pension charges, impairments, divestiture gains and other unusual items on reported earnings.