Bristol-Myers Squibb Company — Q2 2016 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2016. Amounts are in U.S. dollars; financial figures are in millions unless stated otherwise. BMS is a specialty biopharmaceutical company and reports one business segment.
Financial performance
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Total revenue | $4,871 | $4,163 | $9,262 | $8,204 |
| Net earnings attributable to BMS | $1,166 | $(130) | $2,361 | $1,056 |
| Diluted GAAP EPS | $0.69 | $(0.08) | $1.41 | $0.63 |
| Diluted non-GAAP EPS | $0.69 | $0.53 | $1.43 | $1.24 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $25 | $697 |
- Q2 revenue rose 17%; six-month revenue rose 13%. Net product sales increased 24% in Q2 and 27% for the first half.
- Six-month GAAP net earnings improved substantially, while non-GAAP EPS rose 15% to $1.43. BMS says the GAAP comparison reflected higher revenue, divestiture gains and royalties, and lower R&D asset-acquisition charges, partly offset by higher Eliquis profit sharing and Opdivo-related costs.
- Opdivo sales were $840 in Q2 and $1,544 for the half, compared with $122 and $162, respectively, in 2015. Eliquis sales were $777 and $1,511, up 78% and 91%. Orencia also grew; Yervoy, Baraclude, Reyataz, Sustiva, Abilify and mature products declined in the first half.
- Q2 total expenses were $3,256 versus $4,111; first-half expenses were $5,992 versus $6,704. Lower R&D charges drove much of the comparison: 2015 included an $800 Flexus acquisition charge, while 2016 included a $139 Padlock charge.
- Other income included first-half divestiture gains of $553 and royalties and licensing income of $421. The Reckitt business sale generated a $277 gain; the ViiV investigational HIV business sale generated a $269 gain.
Cash flow, liquidity and debt
- First-half operating cash flow was $25, down from $697. Management attributed the decline primarily to approximately $1.3 billion of higher income tax payments. Receivables and income taxes payable also used cash.
- Capital expenditures were $503 in the first half, versus $301 a year earlier. Operating cash flow less capital expenditures was approximately negative $478 (a simple derived measure, not a company-reported metric).
- Cash, cash equivalents and marketable securities totaled $7,932 at June 30, compared with $8,930 at year-end. Short- and long-term debt totaled $6,736; reported net cash was $1,196, down from $2,241.
- Current assets were $12,298 and current liabilities $7,885. Cash dividends paid were $1,276 in the first half; dividends declared were $0.76 per share versus $0.74.
- BMS said existing liquidity, operating cash generation and U.S. commercial paper access should cover normal cash requirements for at least the next few years. It had no borrowings under its two $1.5 billion revolving credit facilities at June 30.
Changes, outlook and key risks
- U.S. six-month revenue increased 35%, principally on Opdivo and Eliquis demand and the Daklinza launch. Results were partly offset by expired U.S. Abilify rights and the transfer of North American Erbitux rights. Rest-of-world revenue fell 14%, including the effect of competition and foreign exchange.
- Management expects Hepatitis C revenues to decline significantly in the second half of 2016 due to competition; international franchise sales were also expected to continue declining. The filing provides no specific full-year revenue or EPS guidance.
- Capital expenditure plans were approximately $1.2 billion in 2016 and $1.0 billion in 2017, including investment in biologics manufacturing; a new Ireland facility was expected to be completed in 2019.
- Clinical and commercial outcomes remain important: Opdivo and other products face trial, approval, safety, reimbursement and competition risks. Opdivo’s cHL approval was accelerated and continued approval may depend on confirmation of clinical benefit. The filing reported positive pipeline developments but does not establish that investigational results will translate into approvals or sales.
- Other risks include payer and government pricing pressure, generic competition, foreign exchange, customer payment timing, and the potential effects of proposed U.S. tax reforms. Most cash and securities were held outside the U.S. and expected to remain indefinitely reinvested; repatriation could trigger additional tax.
- Legal matters include patent disputes involving Sprycel and anti-PD-1 patents, more than 5,400 filed Plavix product-liability claims, and Byetta and Abilify litigation. BMS said outcomes generally could not be assessed or loss ranges estimated. Estimated environmental remediation costs were $63. Tax authorities could resolve matters affecting unrecognized tax benefits, which BMS said could decrease by approximately $270–$330 over the next 12 months.
- The company reported no material change to the risk factors in its 2015 Form 10-K. Management stated disclosure controls were effective and there were no material changes to internal control over financial reporting during the quarter.
Investor verification points
- Assess the sustainability of Opdivo and Eliquis growth and the effect of competition, pricing and product mix on net sales.
- Separate recurring operating performance from divestiture gains, royalties, acquisition charges and other specified items; review BMS’s non-GAAP reconciliation alongside GAAP results.
- Track operating cash conversion, working-capital movements, tax payments, capital spending and the decline in net cash.
- Monitor Hepatitis C franchise sales, U.S. gross-to-net deductions, and the resolution of French Opdivo deferred revenue subject to price negotiations.
- Follow clinical and regulatory milestones and material litigation, patent, tax and environmental contingencies; the filing does not provide estimable loss ranges for many legal matters.