01—Abstract
Summary
Summary of the 10-K filed February 13, 2018. Cited figures are marked; the original filing is the authoritative source.
Bristol-Myers Squibb's 2017 Form 10-K shows a company in transition: total revenues rose 7% to $20.8 billiona, driven by Opdivo ($4.9B, up 31%) and Eliquis ($4.9B, up 46%), which offset steep declines in established brands such as the Hepatitis C franchise (down 74%), Sustiva and Reyataz.
Prioritized brands made up roughly 75% of revenues. Reported GAAP diluted EPS fell to $0.61b from $2.65, largely because of a one-time $2.9 billion U.S. tax reform charge (the Tax Cuts and Jobs Act) and $1.1 billion in license and asset acquisition charges. Management's non-GAAP diluted EPS rose to $3.01 from $2.83, a 6% increase, which investors should read alongside the GAAP figure since the adjustments are large and recurring in nature.
The filing highlights a heavy dependence on immuno-oncology. Opdivo is the backbone of the IO franchise, and the company is running many late-stage trials, several of which carry readout risk. The 10-K also notes a Phase III CheckMate-227 result and a securities class action tied to CheckMate-026.
Eliquis has a U.S. composition-of-matter patent restored to November 2026 after twenty-five Paragraph IV challenges, with settlements reached with several filers, and the company is shifting toward biologics manufacturing with a new Irish facility expected in 2019. Liquidity remains solid, with $9.3 billionc in cash and marketable securities, a $5.0 billion revolving credit facility undrawn, and a credit rating of A2/A+/A-. The main investor debate centers on whether the Opdivo and Eliquis launches can offset the erosion of the legacy portfolio and absorb rising rebate and gross-to-net pressure.
GTN adjustments reached 24% of gross product sales, up from 21%, and the U.S. loss of exclusivity for Sustiva and Reyataz in December 2017 signals further declines ahead. The $2.5 billiond deemed repatriation tax, payable over eight years, adds a cash obligation that will weigh on flexibility over the coming years.
02—Key points
Key Highlights
- Total revenues grew 7% to $20.8 billion in 2017, with Opdivo (+31% to $4.9B) and Eliquis (+46% to $4.9B) as the primary growth drivers.
- GAAP diluted EPS fell to $0.61 from $2.65, mainly due to a $2.9B U.S. tax reform charge and $1.1B in license and asset acquisition charges; non-GAAP diluted EPS rose 6% to $3.01.
- Six prioritized brands represented roughly 75% of 2017 revenues, which highlights concentration risk in Opdivo, Eliquis, Orencia, Sprycel, Yervoy and Empliciti.
- Gross-to-net adjustments rose to 24% of gross product sales from 21% in 2016, reflecting Eliquis formulary competition and higher Medicaid and Medicare rebates.
- Operating cash flow more than doubled to $5.3 billion, helped by lower tax payments and $951 million in out-licensing and litigation settlement proceeds, including the Merck Keytruda settlement.
- Eliquis U.S. composition-of-matter patent term was extended to November 2026 after twenty-five Paragraph IV challenges, and several filers have settled, leaving the projected LOE unchanged.
- Ongoing cost restructuring included $826 million in 2017 charges and a plan to close R&D sites, while the company remains committed to R&D spending of $6.4 billion.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 13, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $20.78B$19.43B | +6.9% |
| Cost of Revenue | $6.07B$4.95B | +22.6% |
| Gross Profit | $14.68B$14.48B | +1.4% |
| R&D Expenses | $6.47B$5.01B | +29.1% |
| SG&A Expenses | $4.75B$4.98B | −4.6% |
| Operating Expenses | $15.64B$13.51B | +15.8% |
| Interest Expense | $196.00M$167.00M | +17.4% |
| Net Income | $1.01B$4.46B | −77.4% |
| EPS (Basic) | $0.61$2.67 | −77.2% |
| EPS (Diluted) | $0.61$2.65 | −77.0% |
| Shares Outstanding (Basic) | 1.65B1.67B | −1.6% |
| Shares Outstanding (Diluted) | 1.65B1.68B | −1.7% |
05—Questions
Frequently Asked Questions
Why did GAAP EPS drop so sharply in 2017 even though revenue grew?
GAAP diluted EPS fell to $0.61 from $2.65 primarily because of a one-time $2.9 billion tax charge tied to the Tax Cuts and Jobs Act, including a $2.6 billion deemed repatriation tax. Higher license and asset acquisition charges of $1.1 billion, which are expensed R&D payments for acquired compounds, also weighed on results. Excluding these specified items, management reports non-GAAP EPS of $3.01, up from $2.83.
How dependent is BMS on Opdivo and Eliquis for future growth?
Both products are central. Opdivo and Eliquis together generated about $9.8 billion in 2017, close to half of total revenues, and both grew more than 30%. The filing notes that Opdivo is the only single product to exceed 10% of R&D spending, which signals a concentration of both commercial and development resources in this franchise.
What are the main near-term risks to revenue?
Key risks include loss of exclusivity on established brands, such as the U.S. Sustiva and Reyataz LOE in December 2017 and the expiration of Hepatitis C competition. Pricing pressure is also rising, with GTN adjustments up to 24% of gross sales. In addition, Opdivo faces increasing competition from other IO agents, and several late-stage readouts in 2018 and 2019 carry clinical and regulatory uncertainty.
How strong is the balance sheet and liquidity position?
BMS held $9.3 billion in cash and marketable securities and $6.9 billion in long-term debt, leaving a net cash position of $1.3 billion, down from $2.4 billion a year earlier. It maintains $5.0 billion in undrawn revolving credit facilities and credit ratings of A2, A+ and A-. It repurchased $2.5 billion of stock in 2017, funded partly by $1.5 billion in new debt, and paid $2.6 billion in dividends.
What should investors watch in the coming year?
Investors should watch Opdivo label expansions and Phase III readouts such as CheckMate-227, the FDA action dates for Opdivo plus Yervoy in renal cell carcinoma, the Eliquis patent litigation outcomes, the GTN trend, the first-year impact of the tax reform cash payments, and progress on the Irish biologics facility, which is expected to be operational in 2019.
06—Continue