Bristol Myers Squibb — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This is an annual report, not a standalone fourth-quarter filing; fourth-quarter figures are identified where relevant. Amounts are U.S. dollars.
Business context
BMS is a global biopharmaceutical company operating as one segment. It completed its acquisition of Celgene on November 20, 2019, for approximately $80.3 billion in total consideration, including cash, BMS shares and contingent value rights (CVRs). Celgene’s results are consolidated only from the acquisition date. BMS also divested Otezla to Amgen for $13.4 billion to secure regulatory clearance, and sold its UPSA consumer health business.
Financial performance and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Total revenue | $26.145 billion | $22.561 billion |
| GAAP net earnings attributable to BMS | $3.439 billion | $4.920 billion |
| Diluted GAAP EPS | $2.01 | $3.01 |
| Diluted non-GAAP EPS | $4.69 | $3.98 |
| Operating cash flow | $8.067 billion | $5.940 billion |
| Capital expenditures | $836 million | $951 million |
Revenue increased 16%; management attributed growth to demand for priority brands, including Eliquis and Opdivo, and Celgene, which contributed $1.9 billion of revenue after closing. Net product sales were $25.174 billion, up 17%. Gross margin was approximately 69.1% of revenue, versus 71.3% in 2018; net margin was approximately 13.2%, versus 21.8%. The filing attributes lower GAAP earnings principally to taxes on the Otezla divestiture, acquired-intangible amortization, purchase-accounting inventory charges, and other acquisition-related and unusual expenses. Management reported non-GAAP EPS growth, but that measure excludes substantial specified items, some of which may recur.
Priority-brand sales included Eliquis of $7.929 billion, up 23%; Opdivo of $7.204 billion, up 7%; and Orencia of $2.977 billion, up 10%. Opdivo U.S. revenue growth slowed to 2%, which BMS linked to market and competitive factors. Gross-to-net deductions rose to $12.032 billion from $8.593 billion; deductions were 32% of gross sales versus 28% in 2018.
Fourth-quarter revenue was $7.945 billion, while BMS recorded a net loss attributable to the company of $1.056 billion (diluted loss per share of $0.55), reflecting significant charges and tax effects.
Operating cash flow rose by $2.1 billion, with management citing higher collections and lower R&D licensing payments, partly offset by higher taxes and Celgene-related payments. Investing cash flow was a $9.770 billion outflow, largely reflecting the acquisition; financing cash flow was a $7.621 billion inflow, reflecting borrowing and share repurchases.
At year-end, cash and cash equivalents were $12.346 billion and marketable debt securities totaled $3.814 billion. BMS disclosed net debt of $30.573 billion, compared with net cash of $3.185 billion in 2018. Debt obligations were materially higher following the transaction; approximately $2.8 billion of debt was due in 2020. The company reported $6.0 billion in revolving credit facilities, with no borrowings outstanding under them. Ratings remained A2 (Moody’s, negative outlook) and A+ (S&P).
Material changes, outlook and management commentary
- Celgene added major marketed products and pipeline assets, but also increased leverage, interest expense, acquired intangible assets and integration demands. BMS expects $2.5 billion of cost synergies through 2022; related integration and restructuring charges were estimated at $2.8–$3.0 billion, with about $2.5 billion of cash outlays.
- Management expected capital expenditures of approximately $900 million in 2020 and $1.3 billion in 2021. It stated that cash, operating cash generation and available credit should cover anticipated needs for at least the next few years, including dividends, debt service and other commitments. The filing does not provide a clear consolidated revenue or EPS forecast.
- Management’s priorities include integrating Celgene, growing priority brands, advancing the combined pipeline and reducing transaction-related debt while continuing to invest in innovation and biologics manufacturing.
- Key commercial and development risks include pricing and reimbursement pressure, intense competition in immuno-oncology, generic entry and patent challenges, dependence on a limited number of major products, clinical-trial failure, regulatory delay, and complex manufacturing and supply requirements, especially for cell therapies.
- Clinical outcomes were mixed: the CheckMate-227 Part 2 Opdivo-plus-chemotherapy study did not meet its primary overall-survival endpoint; other Opdivo studies and combinations reported positive and negative results. Pipeline and approval timing remain uncertain.
Unusual items, contingencies and other matters
- 2019 included a $1.6 billion pension settlement charge, $657 million of acquisition expenses, $415 million of integration expenses, $301 million of restructuring charges, and $660 million of Celgene inventory fair-value adjustment expense. The Otezla divestiture contributed a $1.157 billion gain, alongside an $808 million tax charge attributed to the divestiture.
- CVRs could require a maximum payment of approximately $6.8 billion if all specified FDA milestones are met: ozanimod and liso-cel by December 31, 2020, and ide-cel by March 31, 2021. No payment is due if any required milestone is missed.
- A jury found willful infringement in Juno/SKI’s CAR-T patent case and awarded $585 million upfront plus a 27.6% royalty on Yescarta sales through August 2024. Post-trial proceedings remained pending as of the filing. BMS also disclosed major patent disputes involving Eliquis, Revlimid, Pomalyst and other products.
- Environmental remediation liabilities for identified sites were estimated at $68.6 million. BMS also disclosed significant tax uncertainties, including $1.905 billion of unrecognized tax benefits at year-end; outcomes and possible losses in many legal matters could not be estimated clearly.
- The auditor issued unqualified opinions on the financial statements and internal control over financial reporting. The audit highlighted gross-to-net U.S. rebate accruals, transfer-pricing tax liabilities and valuation of Celgene intangible assets as critical audit matters. Celgene’s controls were excluded from management’s 2019 internal-control assessment while integration continued.
Important facts for investors to verify
- Whether the combined company realizes the stated $2.5 billion of synergies on schedule and reduces net debt while maintaining investment and dividends.
- Celgene product performance and the durability of growth in Eliquis and Opdivo, including the impact of pricing, rebates, competition and any slowing demand.
- Progress on CVR milestones and the timing and commercial prospects of ozanimod, liso-cel and ide-cel.
- Material developments in the Eliquis, Revlimid, Pomalyst and CAR-T patent litigation, including potential launch dates, damages or royalties.
- The quality and sensitivity of the acquisition’s preliminary purchase-price allocation, future intangible amortization and potential impairment charges.
- Changes in debt maturities, interest expense, cash generation and liquidity; confirm that the reported non-GAAP measures are assessed alongside GAAP results and recurring costs.