Bristol Myers Squibb Company — 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. The filing also reports fourth-quarter results. BMS is a global biopharmaceutical company operating in one BioPharmaceuticals segment.
Financial performance and position
| Metric | 2017 | 2016 | Change / context |
|---|---|---|---|
| Total revenue | $20.776 billion | $19.427 billion | Up 7% |
| Net product sales | $19.258 billion | $17.702 billion | Up 9%; gross-to-net adjustments rose to 24% of gross product sales from 21% |
| Gross profit / margin | $14.710 billion / approximately 70.8% | $14.481 billion / approximately 74.5% | Margin narrowed, principally amid higher product costs and alliance profit sharing |
| Earnings before tax | $5.131 billion | $5.915 billion | Down 13% |
| Net earnings attributable to BMS | $1.007 billion | $4.457 billion | GAAP diluted EPS was $0.61 versus $2.65 |
| Non-GAAP diluted EPS | $3.01 | $2.83 | Up $0.18; excludes specified items and is not a GAAP measure |
| Operating cash flow | $5.275 billion | $3.058 billion | Increase reflected lower tax payments, licensing proceeds and settlement proceeds, among other factors |
| Cash, cash equivalents and marketable securities | $9.292 billion | $9.069 billion | At year-end |
| Debt | $7.962 billion | $6.708 billion | Year-end short-term plus long-term debt; reported net cash position was $1.330 billion |
Quarterly results were uneven: fourth-quarter revenue was $5.449 billion versus $5.243 billion a year earlier, while BMS reported a $2.329 billion net loss, including a $2.911 billion income-tax charge associated with U.S. tax reform.
Material changes versus 2016
- Growth was led by Opdivo revenue of $4.948 billion, up 31%, and Eliquis revenue of $4.872 billion, up 46%. The six prioritized brands generated approximately 75% of revenue.
- Established and hepatitis C products weakened: hepatitis C franchise revenue fell 74% to $406 million; Sustiva fell 32%, Reyataz fell 23%, and Baraclude fell 12%, amid competition and loss of exclusivity.
- R&D expense rose 30% to $6.411 billion, including $1.130 billion of license and asset-acquisition charges. Marketing, selling and administrative expense declined 5% to $4.687 billion.
- Cash from operations increased, but investing cash flow was slightly negative at $66 million and financing cash outflow was $4.077 billion, including $2.469 billion of share repurchases and $2.577 billion of dividends.
- Year-end equity declined to $11.847 billion from $16.347 billion. The filing cites the tax-reform accounting charge and share repurchases among the major factors affecting the year’s results and balance sheet.
Outlook, commentary, risks and unusual items
- Management’s strategy prioritizes growth brands, immuno-oncology (IO), a diversified pipeline, and disciplined capital allocation. BMS reported 15 major-market approvals in 2017 and continued development of Opdivo combinations and other pipeline programs. The filing does not provide a clear quantified revenue or EPS guidance range.
- Management expected 2018 capital expenditures of approximately $1.0 billion and 2019 expenditures of approximately $850 million, including investment in biologics manufacturing. It stated that available liquidity, operating cash flow and commercial paper capacity should meet normal cash requirements for at least the next few years.
- The Tax Cuts and Jobs Act produced a provisional $2.6 billion deemed-repatriation tax and a further $285 million deferred-tax remeasurement charge. The repatriation-tax estimate remained subject to finalization; management expected no significant net impact on the effective tax rate in 2018.
- Other notable items included $826 million of restructuring charges in 2017, a $146 million impairment related to the Swords, Ireland manufacturing operations, and a $481 million BMS share of an initial payment under the Merck PD-1 patent settlement. The settlement also provides royalties on Keytruda sales through 2026.
- Key risks include intense competition in IO and from generics; dependence on a small group of products; clinical-trial and regulatory uncertainty; pricing and reimbursement pressure; patent challenges; reliance on alliance partners and suppliers; and manufacturing disruption. Puerto Rico sites were operating at reduced capacity after hurricane damage. The filing also discloses unresolved legal matters, including the Australian government’s Plavix damages claim and product-liability litigation.
- Key exclusivity developments include U.S. loss of exclusivity for Sustiva and Reyataz in December 2017, and a European patent revocation affecting Sprycel. Generic Eliquis applications were challenged in litigation; BMS estimated U.S. basic exclusivity through 2026, subject to legal outcomes.
Important facts for investors to verify
- Whether Opdivo clinical readouts, label expansions and competition support management’s growth expectations.
- How gross-to-net deductions, payer access and alliance profit sharing affect future revenue and margins, particularly for Eliquis.
- The final amount and cash-payment schedule for the provisional tax-reform liability, and its effect on future taxes and liquidity.
- Progress on Eliquis and Sprycel patent disputes, generic entry timelines, and revenue erosion from established brands losing exclusivity.
- Whether Puerto Rico manufacturing returns to normal capacity and whether restructuring and biologics-facility plans proceed on schedule and within expected costs.
- Potential outcomes and financial exposure from disclosed litigation and contingencies; the filing says it cannot estimate a loss range for certain matters.