01—Abstract
Summary
Summary of the 10-K filed March 30, 2000. Cited figures are marked; the original filing is the authoritative source.
Bristol-Myers Squibb's 1999 10-K shows a company at a high point: worldwide net sales rose 11% to $20.2 billiona, net earnings rose 33% reported to $4.17 billion (15% excluding the 1998 special charge), and diluted EPS reached $2.06 (up 15% on an adjusted basis from $1.79).
Growth was broad-based, with all four segments posting record sales and the Medicines segment contributing about 71% of revenue. Key growth drivers were PRAVACHOL ($1.7Bb), TAXOL ($1.5B, up 23%), GLUCOPHAGE ($1.3B, up 53%), and newer launches such as PLAVIX ($547M) and AVAPRO ($255M, up 107%). Gross margins compressed modestly, with cost of products sold rising to 27.4% of sales, largely due to lower-margin growth from the Oncology Therapeutics Network, while advertising and SG&A fell as a percentage of sales.
Balance sheet and cash generation remain strong. Operating cash flow reached a decade-high $4.5 billionc, cash and marketable securities were about $3.0 billion, and the company held triple-A ratings from both Moody's and S&P. Management returned $1.7 billion in dividends and repurchased $1.4 billion of stock, and the board raised the 2000 indicated dividend 14% to $0.98 per share, its 28th consecutive annual increase.
R&D spending rose 17% to $1.84 billiond, or 9.1% of sales. The main risks flagged are legal and competitive. Breast implant liabilities are largely resolved, with about 1,700 remaining opt-outs and residual settlement obligations.
The most significant near-term risk is the TAXOL patent litigation: in February 2000 a federal court invalidated most of the key patent claims, allowing generics to market paclitaxel for metastatic breast cancer, with the remaining ovarian-cancer claims set for trial in May 2000. Patent exclusivity is also scheduled to lapse for GLUCOPHAGE in September 2000 and BUSPAR in May 2000, and international CAPOTEN sales fell 24% after generic entry. Prescription drug pricing antitrust actions remain pending.
02—Key points
Key Highlights
- Record 1999 net sales of $20.2 billion, up 11% year over year, with all four segments growing; domestic sales rose 15% and international sales rose 3%
- Net earnings of $4.17 billion (diluted EPS $2.06), up 33% reported and 15% excluding the 1998 special charge; net margin improved to about 20.6% on an adjusted basis
- Growth led by GLUCOPHAGE (+53% to $1.3B), TAXOL (+23% to $1.5B), and PLAVIX ($547M, up from $144M), with PRAVACHOL reaching $1.7B
- Operating cash flow of $4.5 billion, the highest in 10 years, with about $3.0 billion in cash and marketable securities and triple-A ratings from Moody's and S&P
- Shareholder returns of $1.7B in dividends and $1.4B in buybacks; 2000 indicated dividend raised 14% to $0.98, the 28th consecutive annual increase
- Material TAXOL patent ruling in February 2000 invalidated most key claims, opening the door to generic competition for certain indications; trial on remaining claims set for May 2000
- Upcoming exclusivity losses for GLUCOPHAGE (September 2000) and BUSPAR (May 2000) and continuing breast implant opt-out claims (about 1,700 remaining) represent known overhangs
03—Questions
Frequently Asked Questions
How did Bristol-Myers Squibb perform financially in 1999?
The company reported record net sales of $20.2 billion, up 11%, and net earnings of $4.17 billion. Excluding the 1998 special charge, earnings before taxes rose 14% and diluted EPS rose 15% to $2.06. Growth came from volume (+9%) and pricing (+2%), with no net foreign exchange effect on total sales.
What is the biggest legal risk facing the company's key products?
The TAXOL patent litigation is the most significant near-term risk. A February 2000 court ruling found most of the company's paclitaxel patent claims invalid, allowing generics to market the drug for metastatic breast cancer. Claims covering low-dose, three-hour administration for ovarian cancer will go to trial in May 2000, and management said it cannot yet estimate the impact on TAXOL sales if it does not prevail.
Are the company's dividend and capital return policies sustainable?
Dividends are well covered: the payout ratio fell to about 42% of diluted EPS, excluding the special charge, from 48% in 1997. Operating cash flow of $4.5 billion comfortably funds the $1.7 billion dividend and $1.4 billion of share repurchases, and the board expanded the buyback authorization by $2 billion.
Which products face patent expirations that could hurt future sales?
GLUCOPHAGE's Hatch-Waxman exclusivity expires in September 2000, and BUSPAR's U.S. exclusivity ends in May 2000. CAPOTEN has already lost exclusivity internationally, and its sales fell 24% in 1999. PRAVACHOL's U.S. patent runs to October 2005, and ZERIT's to June 2008, so these are longer-dated concerns.
Is the breast implant litigation still a material financial exposure?
Largely no. Management states that the company's contingent liability is now limited to residual Revised Settlement payments and roughly 1,700 remaining opt-out claimants, and that these can be addressed within existing reserves. Cash payments net of insurance receipts were $631 million in 1999, and $354 million remained accrued at year end.
04—Continue