Bristol Myers Squibb — FY 2016 Form 10-K
Business context and reporting period. BMS is a global biopharmaceutical company operating in one segment. This audited 10-K covers the fiscal year ended December 31, 2016; it also reports fourth-quarter results. Revenue is concentrated in oncology, cardiovascular, immunoscience and virology medicines. The independent auditor issued an unqualified opinion on the financial statements and internal controls.
Key financial metrics
| Metric | FY 2016 | FY 2015 |
|---|---|---|
| Total revenue | $19.427 billion | $16.560 billion |
| Net earnings attributable to BMS (GAAP) | $4.457 billion | $1.565 billion |
| Diluted EPS (GAAP) | $2.65 | $0.93 |
| Diluted EPS (non-GAAP) | $2.83 | $2.01 |
| Gross profit / gross margin | $14.481 billion / approximately 74.5% | $12.651 billion / approximately 76.4% |
| Cash flow from operating activities | $2.850 billion | $1.832 billion |
| Cash, cash equivalents and marketable securities | $9.069 billion | $8.930 billion |
| Debt, including current maturities and short-term borrowings | $6.708 billion | $6.689 billion |
| Net cash position, as reported by BMS | $2.361 billion | $2.241 billion |
Revenue increased 17%; net product sales rose 26% to $17.702 billion, while alliance and other revenue declined to $1.725 billion from $2.515 billion. U.S. revenue grew 31%, and average U.S. net selling prices increased approximately 5%. Cash dividends paid were $2.547 billion. The filing does not provide a clear consolidated operating-margin figure.
For Q4 2016, revenue was $5.243 billion and net earnings were $898 million, versus revenue of $4.287 billion and a net loss of $188 million in Q4 2015.
Material changes versus prior period
- Growth was led by Opdivo ($3.774 billion, versus $942 million), Eliquis ($3.343 billion, up 80%) and Orencia ($2.265 billion, up 20%).
- Declines in Abilify, Erbitux, hepatitis C products, Baraclude and mature products reflected rights transfers, divestitures and/or competition. BMS expected hepatitis C franchise revenue to fall significantly in 2017.
- GAAP earnings benefited from higher revenue, divestiture gains and royalties, and lower R&D asset-acquisition charges. Other income included $576 million of divestiture gains and $719 million of royalties and licensing income.
- R&D expense declined 17% to $4.940 billion, principally due to lower acquisition and licensing charges; 2015 included $1.679 billion of such charges versus $439 million in 2016.
- Operating cash flow increased by about $1.0 billion. Management cited higher sales and cash collections and lower upfront and milestone payments, partly offset by approximately $1.4 billion of higher income tax payments. Capital expenditures increased to $1.215 billion.
Outlook, management commentary and risks
- Management’s strategy prioritizes growth brands, immuno-oncology, a diversified pipeline and disciplined capital allocation. BMS reported 19 major-market approvals during 2016 and continued development of Opdivo across multiple indications.
- A significant setback was the failure of the CheckMate-026 first-line lung cancer trial to meet its primary endpoint. Management planned further studies and cited additional anticipated Opdivo trial readouts through 2018; success and commercial potential remain uncertain.
- BMS announced a multi-year operating-model restructuring expected to cost $1.5–$2.0 billion through 2020, with approximately 40%–50% of charges expected to be cash outlays. The company expected about $300 million of restructuring charges in 2017 and approximately $250 million of accelerated R&D-site depreciation. Capital expenditures were forecast at about $1.0 billion in 2017 and $900 million in 2018.
- No formal full-year 2017 revenue or EPS guidance is stated in the supplied filing text. Management expected increased Opdivo competition and significant 2017 declines in hepatitis C sales. Loss of U.S. exclusivity for Reyataz and Sustiva was expected in December 2017.
- The European Patent Office upheld revocation of a key Sprycel patent in February 2017; BMS warned of possible European revenue declines in the second half of 2017 if generic entry occurs. Other Sprycel patents remain, but protection and timing are uncertain.
- Key risks include reliance on a limited number of growth products, clinical and regulatory outcomes, generic competition, pricing and reimbursement pressure, foreign-exchange exposure, manufacturing and supply continuity, and alliance dependence. Royalties were approximately $1.0 billion of pretax income in 2016, making future earnings exposed to reductions in those streams.
- Legal matters include product-liability claims involving Plavix, Byetta, Abilify and Eliquis, and other disputes. The filing says outcomes and potential impacts cannot generally be estimated; it recorded an estimated $62 million share of future environmental remediation costs. BMS also remained subject to monitoring under its 2015 FCPA settlement.
Most important facts for investors to verify
- Whether Opdivo clinical results and approvals support continued growth, particularly following the CheckMate-026 setback, and how competitive developments affect sales.
- Product-level growth, U.S. net pricing, gross-to-net deductions and the effect of payer mix; gross-to-net adjustments rose to $4.662 billion from $3.121 billion.
- The durability and composition of royalty and licensing income, divestiture-related gains, and the distinction between GAAP and non-GAAP earnings.
- Sprycel’s European patent position and generic-entry timing, alongside the expected Reyataz and Sustiva exclusivity losses and hepatitis C competition.
- Execution, cash costs and savings from the restructuring; liquidity and debt maturities; and the outcome of material legal, product-liability, environmental and tax contingencies.