01—Abstract
Summary
Summary of the 10-K filed February 24, 2020. Cited figures are marked; the original filing is the authoritative source.
Bristol-Myers Squibb's 2019 10-K reflects a transformational year defined by the November 20, 2019 completion of the Celgene acquisition (approximately $80.3 billiona total consideration, including $35.7 billion cash and $40.4 billion in BMS stock, plus a CVR worth up to $9.00 per Celgene share).
Total revenues rose 16% to $26.1 billionb, driven by Eliquis (+23%), Opdivo (+7%) and the $1.9 billion contribution from Celgene's post-closing results. However, GAAP diluted EPS fell to $2.01 from $3.01, weighed down by a $1.6 billion non-cash pension settlement charge, $1.1 billion of amortization of acquired intangibles, $660 million of inventory fair value unwinding, $657 million of acquisition expenses, and $1.6 billion of tax-related costs tied to the Otezla divestiture. Management's non-GAAP diluted EPS rose to $4.69 from $3.98, a 18% increase.
The balance sheet changed dramatically. Total assets more than tripled to $129.9 billionc, with $64.0 billion of intangible assets and $22.5 billion of goodwill. Long-term debt rose to $43.4 billion (total debt of roughly $46 billion), producing a net debt position of about $30.6 billion versus net cash of $3.2 billion a year earlier.
Management has prioritized deleveraging, while noting that it still plans to pursue business development, and it expects $2.5 billiond in cost synergies through 2022. Dividends were $1.68 per share, and the company repurchased $5.9 billion of stock in 2019, including a $7.0 billion accelerated share repurchase program. Operating cash flow was $8.1 billion.
Investors should weigh several concentration and legal risks. Eliquis, Opdivo and Revlimid (which received U.S. generic challenges and has European erosion starting in 2022) together account for much of the growth profile, and the company disclosed material patent and litigation exposures, including a pending Eliquis U.S. patent trial and an Australian Plavix damages claim of up to 449 million AUD.
The company also disclosed a $585 million upfront judgment owed to Juno/SKI in the Kite CAR T case, and an agreement in principle to resolve the Average Manufacturer Price qui tam suit. Integration execution, the Celgene pipeline (notably liso-cel and ide-cel), and the timing of CVR milestones remain key items to monitor.
02—Key points
Key Highlights
- Revenue grew 16% to $26.1 billion (U.S. +22%, Europe +11%, Rest of World +8%); Celgene contributed $1.9 billion post-closing, roughly half of the total growth.
- GAAP diluted EPS declined to $2.01 from $3.01, while non-GAAP diluted EPS rose 18% to $4.69 from $3.98, reflecting large acquisition-related and non-cash charges.
- Celgene acquisition closed November 20, 2019 at approximately $80.3 billion in total consideration, plus a CVR of up to $9.00 per share tied to FDA approvals of ozanimod, liso-cel and ide-cel (maximum payout about $6.8 billion).
- Net debt position swung to $(30.6) billion from $3.2 billion net cash; long-term debt reached $43.4 billion, and intangible assets rose to $64.0 billion.
- Eliquis revenue reached $7.9 billion (+23%) and Opdivo reached $7.2 billion (+7%), with Revlimid contributing $1.3 billion in its first year under BMS ownership.
- Targeting $2.5 billion in cost synergies by 2022; the company divested Otezla to Amgen ($13.4 billion), UPSA to Taisho, and its Anagni plant to Catalent to simplify the portfolio.
- Returned capital through $2.7 billion in dividends ($1.68 per share declared) and $5.9 billion in 2019 share repurchases, with the Board adding $5 billion to the authorization in February 2020.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 24, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $26.14B$22.56B | +15.9% |
| Cost of Revenue | $8.08B$6.47B | +24.9% |
| Gross Profit | $18.07B$16.09B | +12.3% |
| R&D Expenses | $6.15B$6.33B | −2.9% |
| SG&A Expenses | $4.87B$4.55B | +7.0% |
| Operating Expenses | $21.17B$16.59B | +27.6% |
| Interest Expense | $656.00M$183.00M | +258.5% |
| Net Income | $3.44B$4.92B | −30.1% |
| EPS (Basic) | $2.02$3.01 | −32.9% |
| EPS (Diluted) | $2.01$3.01 | −33.2% |
| Shares Outstanding (Basic) | 1.71B1.63B | +4.4% |
| Shares Outstanding (Diluted) | 1.71B1.64B | +4.6% |
05—Questions
Frequently Asked Questions
Why did GAAP EPS fall sharply in 2019 even though revenue grew 16%?
GAAP EPS fell to $2.01 from $3.01 because of Celgene-related costs and non-cash charges. Key items included $1.1 billion of amortization of acquired intangibles, $660 million of inventory fair value unwinding, $657 million of acquisition expenses, a $1.6 billion pension settlement charge from terminating the BMS Retirement Income Plan, $523 million of CVR fair value adjustments, and tax costs of about $808 million tied to the Otezla divestiture. Management excludes these specified items to present non-GAAP EPS of $4.69.
How much debt did BMS take on for the Celgene deal, and what is the deleveraging plan?
Long-term debt rose to $43.4 billion at year-end 2019 (total debt about $46.2 billion), up from $6.9 billion. The company issued approximately $19.0 billion of notes in May 2019 and assumed about $19.9 billion of Celgene debt through exchange offers, and it used the $13.4 billion Otezla proceeds to repay the $8 billion term loan. Management stated it is committed to reducing this debt, but it also intends to keep pursuing business development, which may limit near-term deleveraging pace. The 10-K also flags a potential credit rating downgrade risk, though Moody's (A2, negative outlook) and S&P (A+) confirmed ratings after the deal.
What are the biggest patent and product-exclusivity risks for investors?
The most important exposures include Revlimid, which faces European generic entry beginning in January and February 2022 and U.S. volume-limited generic licenses from March 2022, with unlimited entry in January 2026. Eliquis's U.S. composition-of-matter patent (basis for projected LOE) was extended to November 2026 by patent term restoration, but a trial with remaining generic filers was held in late 2019 and a decision is pending. Opdivo's estimated U.S. LOE is 2028, and Sprycel faces U.S. generic entry as early as 2020 from a Dr. Reddy's challenge, though Apotex can launch in September 2024. The company notes that 10 prioritized brands comprised about 91% of 2019 revenue, so concentration is high.
What do the CVRs mean for shareholders, and what is their potential cost?
Each Celgene share converted into one BMS share, $50.00 in cash, and one CVR entitling the holder to $9.00 in cash if the FDA approves three specified products: ozanimod by December 31, 2020, liso-cel by December 31, 2020, and ide-cel by March 31, 2021. If any milestone is missed, the CVRs expire without value. The maximum potential payment is roughly $6.8 billion, and at year-end the CVR liability was valued at $2.3 billion based on the traded price, creating non-cash earnings volatility as the price changes.
What major litigation could materially affect BMS's results?
Several matters carry potential financial impact. In the Kite CAR T patent case, a December 2019 jury found Kite willfully infringed the '190 patent and awarded Juno and SKI a $585 million upfront payment plus a 27.6% running royalty through August 2024, with post-trial motions pending. An Australian government claim seeks up to 449 million AUD (about $311 million) related to Plavix pricing, which BMS and Sanofi dispute. BMS also reached an agreement in principle to resolve an Average Manufacturer Price qui tam lawsuit, with terms subject to a definitive agreement. Additional exposures include Abilify product liability claims, Humana's antitrust and off-label marketing suits against Celgene, and a Thalomid/Revlimid antitrust class action that was settled and then terminated in December 2019.
06—Continue