01—Abstract
Summary
Summary of the 10-K filed February 13, 2015. Cited figures are marked; the original filing is the authoritative source.
Bristol-Myers Squibb's FY2014 10-K shows a company in transition.
Total revenues fell 3% to $15.9 billiona (from $16.4 billion), driven by the February 2014 divestiture of the diabetes business to AstraZeneca, loss of exclusivity for several products, and expiring alliance rights. GAAP diluted EPS dropped to $1.20 from $1.54, mainly because of a $877 million pension settlement and charge tied to a $1.5 billion Prudential annuity transfer, plus $343 million of IPR&D impairments. Non-GAAP diluted EPS rose to $1.85 from $1.82.
Management highlighted growth in Eliquis (up $628 million to $774 millionb), Yervoy (up 36% to $1.3 billion), Sprycel, Orencia, and the newly launched Opdivo, which received U.S. accelerated approval in December 2014 for melanoma. The balance sheet strengthened materially. Cash, cash equivalents and marketable securities reached $11.8 billion, up from $8.3 billion, after the $3.8 billion diabetes sale proceeds, and BMS moved to a $4.0 billion net cash position from $(68) million net debt.
Operating cash flow fell to $3.1 billionc from $3.5 billion. The dividend was raised to $0.37 per quarter, and the company remains rated investment grade. The key investor concerns are near-term revenue erosion and pipeline dependence.
Generic entecavir entered the U.S. market in September 2014 after the Baraclude patent was invalidated, and Abilify's U.S. commercial rights expire April 20, 2015, with management expecting roughly $400 milliond of alliance and royalty revenue to decline in 2015. Investors will watch Opdivo's lung cancer and melanoma regulatory milestones, the Daklinza HCV filing timeline, and whether growth products can offset these losses.
02—Key points
Key Highlights
- Total revenues declined 3% to $15,879 million in 2014, reflecting the diabetes divestiture, exclusivity losses, and expiring alliance rights; U.S. revenues fell 7% to $7,716 million.
- GAAP diluted EPS fell to $1.20 from $1.54, while non-GAAP diluted EPS rose to $1.85 from $1.82; the gap reflects an $877 million pension settlement charge and $343 million of IPR&D impairments.
- The diabetes business sale to AstraZeneca generated $3.8 billion of 2014 cash flow and a $536 million gain, and lifted cash and marketable securities to $11.8 billion with a $4.0 billion net cash position.
- Growth products performed well: Eliquis reached $774 million (up from $146 million), Yervoy $1,308 million (up 36%), Sprycel $1,493 million (up 17%), and Orencia $1,652 million (up 14%).
- Baraclude U.S. sales fell 26% after generic entecavir launched in September 2014 following the invalidation of its composition-of-matter patent; the company has petitioned the U.S. Supreme Court.
- Abilify U.S. commercialization rights expire April 20, 2015, and management expects about $400 million of alliance and royalty revenue to decline in 2015, with further declines in 2016.
- Opdivo received FDA accelerated approval in December 2014 for melanoma, and a Phase III lung cancer study was stopped early for superior overall survival; R&D spending rose to $4.5 billion (up 22%).
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 13, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $15.88B$16.39B | −3.1% |
| Cost of Revenue | $3.93B$4.62B | −14.9% |
| Gross Profit | $11.95B$11.77B | +1.5% |
| R&D Expenses | $4.53B$3.73B | +21.5% |
| SG&A Expenses | $4.82B$4.94B | −2.4% |
| Operating Expenses | $13.50B$13.49B | 0.0% |
| Interest Expense | $203.00M$199.00M | +2.0% |
| Net Income | $2.00B$2.56B | −21.8% |
| EPS (Basic) | $1.21$1.56 | −22.4% |
| EPS (Diluted) | $1.20$1.54 | −22.1% |
| Shares Outstanding (Basic) | 1.66B1.64B | +0.8% |
| Shares Outstanding (Diluted) | 1.67B1.66B | +0.5% |
05—Questions
Frequently Asked Questions
Why did GAAP EPS decline in 2014 even though revenue was only modestly lower?
GAAP diluted EPS fell to $1.20 from $1.54 mainly because of non-recurring and non-cash items: an $877 million pension settlement and curtailment charge (largely from the $1.5 billion Prudential annuity transfer), $343 million of IPR&D impairments including $310 million for peginterferon lambda, and a $148 million charge for the iPierian acquisition. These were partly offset by the $536 million diabetes divestiture gain. Non-GAAP diluted EPS rose to $1.85 from $1.82.
How exposed is BMS to generic competition over the next few years?
Exposure is significant. Baraclude lost U.S. exclusivity in 2014 and Abilify loses U.S. rights on April 20, 2015, with both products declining sharply. Reyataz and Sustiva U.S. exclusivity is expected around 2017, and Sprycel and Erbitux have later dates. Management expects alliance and other revenue to fall roughly $400 million in 2015 and further in 2016. Revenue from Abilify alone was $2.0 billion (13% of 2014 revenue), so its loss is the largest single near-term headwind.
What are the main growth drivers and pipeline catalysts for investors to watch in 2015?
The main growth drivers are Eliquis, Yervoy, Opdivo, Orencia, Sprycel and the Hepatitis C franchise (Daklinza, $256 million in 2014 sales). Key 2015 catalysts include potential Opdivo approval in lung cancer in the U.S. and EU, EU melanoma approval, Yervoy adjuvant melanoma approval, and the FDA resubmission timeline for daclatasvir after a Complete Response Letter in November 2014. Elotuzumab Phase III multiple myeloma data are also expected. Management notes that immuno-oncology news is likely to drive significant stock price volatility.
How strong is the company's financial position and capital return capacity?
The balance sheet is strong. At year-end 2014 BMS held $11.8 billion in cash and marketable securities against $7.8 billion of total debt, producing a $4.0 billion net cash position versus $68 million of net debt a year earlier. Credit ratings are investment grade (Moody's A2, S&P A+, Fitch A-), though Moody's outlook is negative. Dividends were $2.4 billion in 2014 and the quarterly dividend was raised to $0.37. Capital expenditures are expected to rise to about $1.0 billion in 2015 and 2016 for biologics manufacturing, and $2.0 billion of stock repurchase authorization remained unused.
06—Continue