Bristol-Myers Squibb Company — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. Financial statements are unaudited. BMS is a specialty biopharmaceutical company operating as a single segment.
Financial performance
| Metric | Q1 2016 | Q1 2015 | Change / context |
|---|---|---|---|
| Total revenue | $4.391 billion | $4.041 billion | Up 9% |
| Net product sales | $3.964 billion | $3.059 billion | Up 30% |
| Alliance and other revenue | $427 million | $982 million | Alliance revenue alone was $409 million versus $955 million |
| Net earnings attributable to BMS | $1.195 billion | $1.186 billion | Nearly flat |
| Diluted EPS | $0.71 | $0.71 | Unchanged; non-GAAP diluted EPS was $0.74 versus $0.71 |
| Effective tax rate | 27.1% | 17.2% | Higher partly due to tax impacts of specified items and earnings mix |
| Operating cash flow | $(386) million | $626 million | Declined about $1.0 billion |
| Cash, cash equivalents and marketable securities | $7.996 billion | $8.930 billion at Dec. 31, 2015 | Quarter-end net cash position was $1.297 billion, down from $2.241 billion |
| Debt | $6.699 billion | $6.689 billion at Dec. 31, 2015 | Includes $106 million short-term borrowings and $6.593 billion long-term debt |
Business changes and key drivers
- Revenue growth was led by Opdivo, Eliquis and Daklinza. Opdivo sales were $704 million versus $40 million; Eliquis, $734 million versus $355 million; and the hepatitis C franchise, $427 million versus $264 million.
- Growth was partly offset by the loss of U.S. Abilify commercialization rights, transfer of North American Erbitux rights, and competition affecting several mature and virology products. Abilify revenue fell to $33 million from $554 million; Erbitux revenue was zero versus $165 million.
- Cost of products sold rose 24%, marketing and administrative expense rose 4%, and R&D expense rose 12%. Management cited higher Eliquis profit sharing and expanded Opdivo development as important expense drivers.
- Other income/expense was a net benefit of $520 million, versus $299 million, reflecting divestiture gains and royalties/licensing income. The 2016 quarter included a $269 million gain on the sale of the investigational HIV medicines business and $254 million of royalties and licensing income.
- Operating cash flow was negative despite higher earnings, primarily because of approximately $600 million in higher income-tax payments and about $400 million from the timing of customer collections and alliance-partner payments. Investing cash flow was $1.426 billion, including marketable-security sales and divestiture proceeds; financing cash outflow was $792 million, including $641 million of dividends and $231 million of share repurchases.
Outlook, risks and unusual items
- No specific full-year revenue or EPS guidance is provided in the supplied filing text. Management expected 2016 capital expenditures of approximately $1.2 billion, rising from about $800 million in 2015, and approximately $1.0 billion in 2017, mainly for biologics manufacturing and facilities.
- Management said available cash and securities, operating cash generation and U.S. commercial paper issuance should meet normal cash needs for at least the next few years. Most cash and securities were held outside the U.S.; repatriation could involve restrictions, withholding taxes and additional U.S. taxes.
- Management expected Daklinza sales to decline significantly in the second half of 2016 due to competition, with international hepatitis C franchise revenue also expected to decline significantly versus prior-year periods. European payer actions and foreign exchange were additional pressures.
- In February, BMS sold its investigational HIV medicines business for $350 million upfront, recognizing a $269 million gain; potential future payments include up to $1.1 billion in development and regulatory milestones and up to $4.3 billion in sales milestones, plus royalties. In April, after quarter-end, BMS acquired Padlock Therapeutics for $150 million upfront and up to $450 million in contingent milestones.
- Material matters include ongoing Plavix product-liability claims, other product and commercial litigation, anti-PD-1 patent disputes, and tax examinations. BMS estimated its share of future CERCLA site costs at $62 million. The filing says outcomes or potential losses for many legal matters cannot be reasonably estimated.
- Tax authorities may settle certain audits or other matters, potentially reducing unrecognized tax benefits by approximately $270 million to $330 million over the next 12 months; the resulting cash or earnings effect is uncertain.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. It reported no material changes to the risk factors in the 2015 Form 10-K.
Important facts for investors to verify
- Whether Opdivo and Eliquis growth continues to offset competition, product-rights changes and declines in mature products.
- How much of reported earnings and cash generation depends on divestiture gains, royalties, alliance accounting and other nonrecurring or timing-related items.
- The causes and persistence of negative operating cash flow, including collection timing, tax payments and working-capital movements.
- The sales trajectory of Daklinza and other hepatitis C products in light of the stated competitive pressures.
- Potential outcomes and financial exposure from patent, product-liability, commercial litigation, tax and environmental matters.
- Execution and funding of the planned increase in capital spending, and the liquidity and tax implications of cash held offshore.