Bristol-Myers Squibb Company — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; comparison is with Q1 2016 unless otherwise noted. BMS is a global biopharmaceutical company operating as one segment, focused on developing and commercializing medicines.
Financial performance and position
| Metric | Q1 2017 | Q1 2016 / prior date |
|---|---|---|
| Total revenue | $4.929 billion | $4.391 billion; up 12% |
| Net product sales | $4.580 billion | $3.964 billion; up 16% |
| Net earnings attributable to BMS | $1.574 billion | $1.195 billion |
| Diluted EPS | $0.94 GAAP; $0.84 non-GAAP | $0.71 GAAP; $0.74 non-GAAP |
| Operating cash flow | $861 million | $(228) million |
| Cash, cash equivalents and marketable securities | $8.794 billion | $9.069 billion at Dec. 31, 2016 |
| Total short- and long-term debt | $8.434 billion | $6.708 billion at Dec. 31, 2016 |
| Net cash position | $360 million | $2.361 billion at Dec. 31, 2016 |
Capital expenditures were $291 million; dividends paid were $655 million. Cost of products sold rose 20%, faster than revenue, primarily due to higher Eliquis profit sharing. The filing does not provide a clear consolidated operating-margin figure. Gross-to-net adjustments were 22% of gross product sales versus 20% in Q1 2016, including 28% in the U.S. versus 25%.
Material changes and business drivers
- Growth was led by prioritized brands: Opdivo revenue rose 60% to $1.127 billion and Eliquis rose 50% to $1.101 billion. Orencia, Sprycel, Yervoy and Empliciti also grew.
- Established brands weakened: Hepatitis C franchise revenue fell 62% to $162 million; Sustiva franchise fell 33%; Reyataz franchise fell 13%. Management cited competition, including generic competition for certain products.
- Revenue increased across the U.S. (8%), Europe (32%) and Rest of World (10%); reported foreign-exchange effects were modest overall.
- GAAP EPS benefited from the Merck Keytruda patent settlement. BMS recorded $481 million of its share as litigation and settlement income. Non-GAAP diluted EPS, which excludes specified items, was $0.84 versus $0.74.
- Operating cash flow improved by approximately $1.1 billion year over year, principally due to about $500 million lower income tax payments and the $481 million settlement proceeds. Investing cash flow was $(203) million and financing cash flow was $(1.013) billion.
- BMS issued $1.5 billion of senior notes in February. It also entered into a $2 billion accelerated share repurchase, funded with debt and cash; approximately 29 million shares had been delivered by quarter-end, with settlement expected in Q2.
Outlook, management commentary and risks
- Management said existing cash and securities, operating cash generation and U.S. commercial-paper capacity should meet normal cash needs for at least the next few years. A $750 million principal amount of long-term debt matures in August 2017. The company reported $5 billion of undrawn revolving credit facilities.
- Expected 2017 capital expenditures are approximately $1.0 billion, compared with $1.2 billion in 2016. The company expects about $900 million in 2018.
- The restructuring plan announced in 2016 is expected to incur $1.5–$2.0 billion of charges through 2020, with cash outlays of approximately 40%–50% of charges. About $310 million had been recognized through Q1 2017; management expected approximately $300 million of restructuring charges in 2017, apart from accelerated-depreciation effects.
- Management expects increased competition for Opdivo in 2017. Loss of exclusivity for Sustiva and Reyataz was expected in December 2017, with potential further revenue declines. In Europe, revocation of a key Sprycel patent may lead to generic entry and lower sales.
- Key risks include generic and other competition, product development and approval uncertainty, pricing and healthcare regulation, foreign-exchange and tax changes, and legal proceedings. BMS disclosed challenges to Eliquis patents by 25 generic companies and product-liability cases involving, among others, Plavix and Eliquis; many legal outcomes and potential losses could not be estimated.
- In April 2017, after quarter-end, BMS agreed to expand its CytomX collaboration, including a $200 million payment expected in Q2, and signed out-licensing agreements with Biogen and Roche that could provide upfront payments of $300 million and $170 million, respectively, subject to closing.
Important facts for investors to verify
- Whether growth in Opdivo and Eliquis offsets declining established-brand sales and anticipated competition.
- The recurring earnings contribution of the $481 million Keytruda settlement and other divestiture-related income; GAAP and non-GAAP EPS differ materially because of specified items.
- Progress and cash costs of the restructuring plan, including expected 2017 charges and site-exit depreciation.
- Completion and final share delivery or payment under the $2 billion accelerated repurchase, and the effect of increased debt on the reduced net-cash position.
- Developments in Eliquis and Sprycel patent matters, product-liability proceedings, and tax examinations. The filing states that potential outcomes or loss ranges are often not estimable.
- The filing reports no formal full-year revenue or EPS guidance. It notes that interim results may not indicate full-year performance.