10-Q 1 bmy-20160331x10q.htm FORM 10-Q 10-Q


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
 
 
x

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2016
 
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM             TO             
Commission file number:              1-1136
 
 BRISTOL-MYERS SQUIBB COMPANY
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
22-0790350
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
345 Park Avenue, New York, N.Y. 10154
(Address of principal executive offices) (Zip Code)
 
(212) 546-4000
(Registrant’s telephone number, including area code)
 
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.    Yes  x   No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer  ¨    Smaller reporting company  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No x
APPLICABLE ONLY TO CORPORATE ISSUERS:
At March 31, 2016, there were 1,669,307,273 shares outstanding of the Registrant’s $0.10 par value common stock.

 




BRISTOL-MYERS SQUIBB COMPANY
INDEX TO FORM 10-Q
MARCH 31, 2016
 





PART I—FINANCIAL INFORMATION
Item  1. FINANCIAL STATEMENTS
BRISTOL-MYERS SQUIBB COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
Dollars in Millions, Except Per Share Data
(UNAUDITED)

 
Three Months Ended March 31,
EARNINGS
2016
 
2015
Net product sales
$
3,964

 
$
3,059

Alliance and other revenues
427

 
982

Total Revenues
4,391

 
4,041

 
 
 
 
Cost of products sold
1,052

 
847

Marketing, selling and administrative
1,068

 
1,029

Research and development
1,136

 
1,016

Other (income)/expense
(520
)
 
(299
)
Total Expenses
2,736

 
2,593

 
 
 
 
Earnings Before Income Taxes
1,655

 
1,448

Provision for Income Taxes
449

 
249

Net Earnings
1,206

 
1,199

Net Earnings Attributable to Noncontrolling Interest
11

 
13

Net Earnings Attributable to BMS
$
1,195

 
$
1,186

 
 
 
 
Earnings per Common Share
 
 
 
Basic
$
0.72

 
$
0.71

Diluted
$
0.71

 
$
0.71

 
 
 
 
Cash dividends declared per common share
$
0.38

 
$
0.37



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Dollars in Millions
(UNAUDITED)

 
Three Months Ended March 31,
COMPREHENSIVE INCOME
2016
 
2015
Net Earnings
$
1,206

 
$
1,199

Other Comprehensive Income/(Loss), net of taxes and reclassifications to earnings:
 
 
 
Derivatives qualifying as cash flow hedges
(86
)
 
6

Pension and postretirement benefits
(161
)
 
(44
)
Available-for-sale securities
13

 
16

Foreign currency translation
9

 
31

Other Comprehensive Income/(Loss)
(225
)
 
9

 
 
 
 
Comprehensive Income
981

 
1,208

Comprehensive Income Attributable to Noncontrolling Interest
11

 
13

Comprehensive Income Attributable to BMS
$
970

 
$
1,195

The accompanying notes are an integral part of these consolidated financial statements.


3




BRISTOL-MYERS SQUIBB COMPANY
CONSOLIDATED BALANCE SHEETS
Dollars in Millions, Except Share and Per Share Data(UNAUDITED) 
ASSETS
March 31,
2016
 
December 31,
2015
Current Assets:
 
 
 
Cash and cash equivalents
$
2,644

 
$
2,385

Marketable securities
1,663

 
1,885

Receivables
4,957

 
4,299

Inventories
1,336

 
1,221

Prepaid expenses and other
615

 
625

Total Current Assets
11,215

 
10,415

Property, plant and equipment
4,455

 
4,412

Goodwill
6,875

 
6,881

Other intangible assets
1,380

 
1,419

Deferred income taxes
3,230

 
2,844

Marketable securities
3,689


4,660

Other assets
1,048

 
1,117

Total Assets
$
31,892

 
$
31,748

 
 
 
 
LIABILITIES
 
 
 
Current Liabilities:
 
 
 
Short-term borrowings
$
106

 
$
139

Accounts payable
1,543

 
1,565

Accrued liabilities
4,311

 
4,738

Deferred income
1,165

 
1,003

Income taxes payable
472

 
572

Total Current Liabilities
7,597

 
8,017

Deferred income
606

 
586

Income taxes payable
852

 
742

Pension and other liabilities
1,693

 
1,429

Long-term debt
6,593

 
6,550

Total Liabilities
17,341

 
17,324

 
 
 
 
Commitments and contingencies (Note 18)

 

 
 
 
 
EQUITY
 
 
 
Bristol-Myers Squibb Company Shareholders’ Equity:
 
 
 
Preferred stock, $2 convertible series, par value $1 per share: Authorized 10 million shares; 4,161 issued
 
 
 
and outstanding in both 2016 and 2015, liquidation value of $50 per share

 

Common stock, par value of $0.10 per share: Authorized 4.5 billion shares; 2.2 billion issued in both 2016
 
 
 
and 2015
221

 
221

Capital in excess of par value of stock
1,503

 
1,459

Accumulated other comprehensive loss
(2,693
)
 
(2,468
)
Retained earnings
32,176

 
31,613

Less cost of treasury stock – 539 million common shares in both 2016 and 2015
(16,821
)
 
(16,559
)
Total Bristol-Myers Squibb Company Shareholders’ Equity
14,386

 
14,266

Noncontrolling interest
165

 
158

Total Equity
14,551

 
14,424

Total Liabilities and Equity
$
31,892

 
$
31,748

The accompanying notes are an integral part of these consolidated financial statements.

4




BRISTOL-MYERS SQUIBB COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in Millions
(UNAUDITED)

 
Three Months Ended March 31,
 
2016
 
2015
Cash Flows From Operating Activities:
 
 
 
Net earnings
$
1,206

 
$
1,199

Adjustments to reconcile net earnings to net cash (used in)/provided by operating activities:
 
 
 
Depreciation and amortization, net
65

 
104

Deferred income taxes
(246
)
 
(7
)
Stock-based compensation
47

 
54

Impairment charges
19

 
13

Pension settlements and amortization
39

 
50

Divestiture gains and royalties
(507
)
 
(234
)
Asset acquisition charges
100

 

Other adjustments
(10
)
 
(21
)
Changes in operating assets and liabilities:
 
 
 
Receivables
(424
)
 
(91
)
Inventories
(44
)
 
51

Accounts payable
(77
)
 
(83
)
Deferred income
235

 
334

Income taxes payable
5

 
81

Other
(794
)
 
(824
)
Net Cash (Used in)/Provided by Operating Activities
(386
)
 
626

Cash Flows From Investing Activities:
 
 
 
Sale and maturities of marketable securities
1,760

 
1,508

Purchase of marketable securities
(523
)
 
(821
)
Capital expenditures
(242
)
 
(136
)
Divestiture and other proceeds
439

 
203

Acquisition and other payments
(8
)
 

Net Cash Provided by Investing Activities
1,426

 
754

Cash Flows From Financing Activities:
 
 
 
Short-term borrowings, net
(33
)
 
(260
)
Interest rate swap contract terminations
42

 
27

Issuance of common stock
71

 
174

Repurchase of common stock
(231
)
 

Dividends
(641
)
 
(623
)
Net Cash Used in Financing Activities
(792
)
 
(682
)
Effect of Exchange Rates on Cash and Cash Equivalents
11

 
25

Increase in Cash and Cash Equivalents
259

 
723

Cash and Cash Equivalents at Beginning of Period
2,385

 
5,571

Cash and Cash Equivalents at End of Period
$
2,644

 
$
6,294

The accompanying notes are an integral part of these consolidated financial statements.

5





Note 1. BASIS OF PRESENTATION AND RECENTLY ISSUED ACCOUNTING STANDARDS

Bristol-Myers Squibb Company (which may be referred to as Bristol-Myers Squibb, BMS or the Company) prepared these unaudited consolidated financial statements following the requirements of the Securities and Exchange Commission (SEC) and United States (U.S.) generally accepted accounting principles (GAAP) for interim reporting. Under those rules, certain footnotes and other financial information that are normally required for annual financial statements can be condensed or omitted. The Company is responsible for the consolidated financial statements included in this Form 10-Q, which include all adjustments necessary for a fair presentation of the financial position, and the results of operations and cash flows. All intercompany balances and transactions have been eliminated. These financial statements and the related notes should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2015 included in the Annual Report on Form 10-K.

Revenues, expenses, assets and liabilities can vary during each quarter of the year. Accordingly, the results and trends in these unaudited consolidated financial statements may not be indicative of full year operating results. The preparation of financial statements requires the use of management estimates and assumptions. The most significant assumptions are employed in estimates used in determining the fair value and potential impairment of intangible assets; sales rebate and return accruals; legal contingencies; income taxes; estimated selling prices used in multiple element arrangements; and pension and postretirement benefits. Actual results may differ from estimates.

Certain prior period amounts were reclassified to conform to the current period presentation. The reclassifications provide a more concise financial statement presentation and additional information is disclosed in the notes if material.
 
Prior Presentation
Current Presentation
Consolidated Statements of Earnings
Advertising and product promotion
Included in Marketing, selling and administrative expenses
Consolidated Balance Sheets
Assets held-for-sale
Included in Prepaid expenses and other
Accrued expenses
Combined as Accrued liabilities

Accrued rebates and returns
Dividends payable
Pension, postretirement and postemployment liabilities
Combined as Pension and other liabilities

Other liabilities
Consolidated Statement of Cash Flows
Net earnings attributable to noncontrolling interest
Included in Other adjustments
Divestiture gains and royalties included in Other adjustments
Divestiture gains and royalties

In March 2016, the Financial Accounting Standards Board (FASB) issued amended guidance for share-based payment transactions. Excess tax benefits and deficiencies will be recognized in the consolidated statement of earnings rather than capital in excess of par value of stock on a prospective basis. A policy election will be available to account for forfeitures as they occur, with the cumulative effect of the change recognized as an adjustment to retained earnings at the date of adoption. Excess tax benefits within the consolidated statement of cash flows will be presented as an operating activity (prospective or retrospective application) and cash payments to tax authorities in connection with shares withheld for statutory tax withholding requirements will be presented as a financing activity (retrospective application). The guidance is effective beginning with interim periods in 2017 with early adoption permitted. The Company is assessing the potential impact of the new standard.

In February 2016, the FASB issued amended guidance on lease accounting. The amended guidance requires the recognition of a right-of-use asset and a lease liability, initially measured at the present value of the lease payments for leases with a term longer than 12 months. The guidance is effective beginning with interim periods in 2019 with early adoption permitted on a modified retrospective approach. The Company is assessing the potential impact of the new standard.

In January 2016, the FASB issued amended guidance to the recognition, measurement, presentation and disclosures of financial instruments effective January 1, 2018 with early adoption not permitted. The new guidance requires that fair value adjustments for equity securities with readily determinable fair values currently classified as available-for-sale be reported through earnings. The new guidance also requires a qualitative impairment assessment for equity investments without a readily determinable fair value and a charge through earnings if an impairment exists. The Company is assessing the potential impact of the new standard.

In May 2014, the FASB issued a new standard related to revenue recognition, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The new standard will replace most of the existing revenue recognition standards in U.S. GAAP when it becomes effective on January 1, 2018. Early adoption is permitted no earlier than 2017. The new standard can be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of the change recognized at the date of the initial application in retained earnings. The Company is assessing the potential impact of the new standard and has not yet selected a transition method.

6




Note 2. BUSINESS SEGMENT INFORMATION

BMS operates in a single segment engaged in the discovery, development, licensing, manufacturing, marketing, distribution and sale of innovative medicines that help patients prevail over serious diseases. A global research and development organization and supply chain organization are responsible for the discovery, development, manufacturing and supply of products. Regional commercial organizations market, distribute and sell the products. The business is also supported by global corporate staff functions. Segment information is consistent with the financial information regularly reviewed by the chief executive officer for purposes of evaluating performance, allocating resources, setting incentive compensation targets and planning and forecasting future periods.

Product revenues were as follows:
 
Three Months Ended March 31,
Dollars in Millions
2016
 
2015
Oncology
 
 
 
Empliciti (elotuzumab)
$
28

 
$

Erbitux* (cetuximab)

 
165

Opdivo (nivolumab)
704

 
40

Sprycel (dasatinib)
407

 
375

Yervoy (ipilimumab)
263

 
325

Cardiovascular
 
 
 
Eliquis (apixaban)
734

 
355

Immunoscience
 
 
 
Orencia (abatacept)
475

 
400

Virology
 
 
 
Baraclude (entecavir)
291

 
340

Hepatitis C Franchise (a)
427

 
264

Reyataz (atazanavir sulfate) Franchise
221

 
294

Sustiva (efavirenz) Franchise(b)
273

 
290

Neuroscience
 
 
 
Abilify* (aripiprazole)(c)
33

 
554

Mature Products and All Other
535

 
639

Total Revenues
$
4,391

 
$
4,041

*
Indicates brand names of products which are trademarks not owned or wholly owned by BMS. Specific trademark ownership information is included at the end of this quarterly report on Form 10-Q.
(a)
Includes Daklinza (daclatasvir) revenues of $420 million and $180 million for the three months ended March 31, 2016 and 2015, respectively, and Sunvepra (asunaprevir) revenues of $7 million and $84 million for the three months ended March 31, 2016 and 2015, respectively.
(b)
Includes alliance revenue of $241 million and $251 million for the three months ended March 31, 2016 and 2015, respectively.
(c)
Includes alliance revenue of $508 million for the three months ended March 31, 2015. BMS's U.S. commercialization rights to Abilify* expired in April 2015.

The composition of total revenues was as follows:
 
Three Months Ended March 31,
Dollars in Millions
2016
 
2015
Net product sales
$
3,964

 
$
3,059

Alliance revenues
409

 
955

Other revenues
18

 
27

Total Revenues
$
4,391

 
$
4,041


7




Note 3. ALLIANCES

BMS enters into collaboration arrangements with third parties for the development and commercialization of certain products. Although each of these arrangements is unique in nature, both parties are active participants in the operating activities of the collaboration and are exposed to significant risks and rewards depending on the commercial success of the activities. BMS may either in-license intellectual property owned by the other party or out-license its intellectual property to the other party. These arrangements also typically include research, development, manufacturing and/or commercial activities and can cover a single investigational compound or commercial product or multiple compounds and/or products in various life cycle stages. The rights and obligations of the parties can be global or limited to geographic regions. We refer to these collaborations as alliances and our partners as alliance partners. Products sold through alliance arrangements in certain markets include Empliciti, Erbitux*, Opdivo, Sprycel, Yervoy, Eliquis, Orencia, Sustiva (Atripla*), Abilify* and certain mature and other brands.

Selected financial information pertaining to our alliances was as follows, including net product sales when BMS is the principal in the third-party customer sale for products subject to the alliance. Expenses summarized below do not include all amounts attributed to the activities for the products in the alliance, but only the payments between the alliance partners or the related amortization if the payments were deferred or capitalized.
 
Three Months Ended March 31,
Dollars in Millions
2016
 
2015
Revenues from alliances:
 
 
 
Net product sales
$
1,231

 
$
994

Alliance revenues
409

 
955

Total Revenues
$
1,640

 
$
1,949

 
 
 
 
Payments to/(from) alliance partners:
 
 
 
Cost of products sold
$
476

 
$
389

Marketing, selling and administrative
1

 
25

Research and development
33

 
122

Other (income)/expense
(253
)
 
(301
)
 
 
 
 
Noncontrolling interest, pre-tax
2

 
5

 
Selected Alliance Balance Sheet information:
 
 
 
Dollars in Millions
March 31,
2016
 
December 31,
2015
Receivables - from alliance partners
$
1,113

 
$
958

Accounts payable - to alliance partners
535

 
542

Deferred income from alliances
1,506

 
1,459


Specific information pertaining to each of our significant alliances is discussed in our 2015 Form 10-K, including their nature and purpose, the significant rights and obligations of the parties and specific accounting policy elections.

Note 4. ACQUISITIONS AND DIVESTITURES

In April 2016, BMS acquired all of the outstanding shares of Padlock Therapeutics, Inc. (Padlock), a private biotechnology company dedicated to creating new medicines to treat destructive autoimmune diseases. The acquisition provides BMS with full rights to Padlock’s Protein/Peptidyl Arginine Deiminase (PAD) inhibitor discovery program focused on the development of potentially transformational treatment approaches for patients with rheumatoid arthritis. Padlock’s PAD discovery program may have additional utility in treating systemic lupus erythematosus and other autoimmune diseases. The consideration includes an upfront payment of $150 million and contingent development and regulatory milestone payments of up to $450 million. The transaction is expected to be accounted for as an asset acquisition with essentially all value allocated to the PAD discovery program which will be included in research and development expense.

In February 2016, BMS sold its investigational HIV medicines business to ViiV Healthcare which includes a number of programs at different stages of discovery, preclinical and clinical development. The transaction excluded BMS's HIV marketed medicines. BMS will provide certain R&D and other services over a transitional period. In February 2016, BMS received an upfront payment of $350 million, resulting in a gain of $269 million. BMS will also receive from ViiV Healthcare contingent development and regulatory milestone payments of up to $1.1 billion, sales-based milestone payments of up to $4.3 billion and future tiered royalties if the products are approved and commercialized.

8




Assets held-for-sale were $37 million at March 31, 2016 and $134 million at December 31, 2015 and included in prepaid expenses and other. The amounts consist primarily of allocated goodwill relating to the business comprising an alliance with Reckitt Benckiser Group plc and the investigational HIV medicines business (December 31, 2015 only). The allocation of goodwill was determined using the relative fair value of the applicable businesses to the Company's reporting unit.

Note 5. OTHER (INCOME)/EXPENSE
 
Three Months Ended March 31,
Dollars in Millions
2016
 
2015
Interest expense
$
43

 
$
51

Investment income
(24
)
 
(30
)
Provision for restructuring
4

 
12

Litigation and other settlements
43

 
12

Equity in net income of affiliates
(26
)
 
(26
)
Out-licensed intangible asset impairment
15

 
13

Divestiture gains
(270
)
 
(154
)
Royalties and licensing income
(254
)
 
(98
)
Transition and other service fees
(53
)
 
(27
)
Pension charges
22

 
27

Written option adjustment

 
(36
)
Other
(20
)
 
(43
)
Other (income)/expense
$
(520
)
 
$
(299
)

Note 6. INCOME TAXES
 
Three Months Ended March 31,
Dollars in Millions
2016
 
2015
Earnings Before Income Taxes
$
1,655

 
$
1,448

Provision for Income Taxes
449

 
249

Effective tax rate
27.1
%
 
17.2
%
The effective tax rate is lower than the U.S. statutory rate of 35% primarily attributable to undistributed earnings of certain foreign subsidiaries in low tax jurisdictions that have been considered or are expected to be indefinitely reinvested offshore. These undistributed earnings primarily relate to operations in Switzerland, Ireland and Puerto Rico. If these undistributed earnings are repatriated to the U.S. in the future, or if it were determined that such earnings are to be remitted in the foreseeable future, additional tax provisions would be required. Due to complexities in the tax laws and assumptions that would have to be made, it is not practicable to estimate the amounts of income taxes that will have to be provided. Reforms to U.S. tax laws related to foreign earnings have been proposed and if adopted, may increase taxes, which could reduce the results of operations and cash flows. BMS operates under a favorable tax grant in Puerto Rico not scheduled to expire prior to 2023.

The jurisdictional tax rates and other tax impacts attributed to divestiture transactions, research and development charges and other discrete items increased the effective tax rate by 4.4% in 2016 and reduced the effective tax rate by 3.6% in 2015. The taxes attributed to these items were impacted by higher non-deductible R&D charges and goodwill allocated to business divestitures in 2016, higher valuation allowances attributed to capital loss carryforwards released in 2015 and reversal of a tax benefit for a settlement charge previously recognized in 2015 after determining the applicable tax jurisdiction. The tax impact for discrete items are reflected immediately and are not considered in estimating the annual effective tax rates.

To a lesser extent, unfavorable earnings mix between high and low tax jurisdictions and the R&D tax credit also impacted the effective tax rates. The R&D tax credit legislation was permanently extended in December 2015 and was included in estimating the annual effective tax rate in 2016. The R&D tax credit was not extended as of March 31, 2015, therefore the tax credit was not considered in estimating the annual effective tax rate in 2015.

BMS is currently under examination by a number of tax authorities which have proposed or are considering proposing material adjustments to tax positions for issues such as transfer pricing, certain tax credits and the deductibility of certain expenses. It is reasonably possible that the total amount of unrecognized tax benefits at March 31, 2016 could decrease in the range of approximately $270 million to $330 million in the next twelve months as a result of the settlement of certain tax audits and other events. The expected change in unrecognized tax benefits may result in the payment of additional taxes, adjustment of certain deferred taxes and/or recognition of tax benefits. It is also reasonably possible that new issues will be raised by tax authorities which may require adjustments to the amount of unrecognized tax benefits; however, an estimate of such adjustments cannot reasonably be made at this time.

9




Note 7. EARNINGS PER SHARE
 
Three Months Ended March 31,
Amounts in Millions, Except Per Share Data
2016
 
2015
Net Earnings Attributable to BMS used for Basic and Diluted EPS Calculation
$
1,195

 
$
1,186

 
 
 
 
Weighted-average common shares outstanding – basic
1,669

 
1,663

Incremental shares attributable to share-based compensation plans
11

 
13

Weighted-average common shares outstanding – diluted
1,680

 
1,676

 
 
 
 
Earnings per Common Share:
 
 
 
Basic
$
0.72

 
$
0.71

Diluted
$
0.71

 
$
0.71


Note 8. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Financial assets and liabilities measured at fair value on a recurring basis are summarized below:
 
March 31, 2016
 
December 31, 2015
Dollars in Millions
Level 1
 
Level 2
 
Total
 
Level 1
 
Level 2
 
Total
Cash and cash equivalents - Money market and other securities
$

 
$
2,139

 
$
2,139

 
$

 
$
1,825

 
$
1,825

Marketable securities:
 
 
 
 
 
 
 
 
 
 
 
Certificates of deposit

 
661

 
661

 

 
804

 
804

Corporate debt securities

 
4,590

 
4,590

 

 
5,638

 
5,638

Equity funds

 
94

 
94

 

 
92

 
92

Fixed income funds

 
7

 
7

 

 
11

 
11

Derivative assets:
 
 
 
 
 
 
 
 
 
 
 
Interest rate swap contracts

 
11

 
11

 

 
31

 
31

Forward starting interest rate swap contracts

 

 

 

 
15

 
15

Foreign currency forward contracts

 
31

 
31

 

 
50

 
50

Equity investments
42

 

 
42

 
60

 

 
60

Derivative liabilities:
 
 
 
 
 
 
 
 
 
 
 
Interest rate swap contracts

 

 

 

 
(1
)
 
(1
)
Forward starting interest rate swap contracts

 
(56
)
 
(56
)
 

 
(7
)
 
(7
)
Foreign currency forward contracts

 
(55
)
 
(55
)
 

 
(10
)
 
(10
)

As further described in "Note 10. Financial Instruments and Fair Value Measurements" in our 2015 Form 10-K, our fair value estimates use inputs that are either (1) quoted prices for identical assets or liabilities in active markets (Level 1 inputs), (2) observable prices for similar assets or liabilities in active markets or for identical or similar assets or liabilities in markets that are not active (Level 2 inputs) or (3) unobservable inputs (Level 3 inputs).

There were no level 3 financial assets or liabilities as of March 31, 2016 and December 31, 2015. The following table summarizes the activity for financial assets and liabilities utilizing Level 3 fair value measurements during 2015:
 
2015
Dollars in Millions
ARS
 
Written option liabilities
 
Contingent consideration liability
Fair value at January 1
$
12

 
$
(198
)
 
$
(8
)
Settlements and other

 
69

 

Changes in fair value

 
36

 

Fair value at March 31
$
12

 
$
(93
)
 
$
(8
)


10




Available-for-sale Securities

The following table summarizes available-for-sale securities:
 
Dollars in Millions
Amortized
Cost
 
Gross
Unrealized
Gain in
Accumulated
OCI
 
Gross
Unrealized
Loss in
Accumulated
OCI
 
Fair Value
 
 
March 31, 2016
 
 
 
 
 
 
 
 
Certificates of deposit
$
661

 
$

 
$

 
$
661

 
Corporate debt securities
4,552

 
41

 
(3
)
 
4,590

 
Equity investments
74

 
2

 
(34
)
 
42

 
Total
$
5,287

 
$
43

 
$
(37
)
 
$
5,293

 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
 
 
 
 
 
 
 
Certificates of deposit
$
804

 
$

 
$

 
$
804

 
Corporate debt securities
5,646

 
15

 
(23
)
 
5,638

 
Equity investments
74

 
10

 
(24
)
 
60

 
Total
$
6,524

 
$
25

 
$
(47
)
 
$
6,502


Dollars in Millions
March 31,
2016
 
December 31,
2015
Current marketable securities(a)
$
1,663

 
$
1,885

Non-current marketable securities(b)
3,689

 
4,660

Other assets
42

 
60

Available-for-sale securities
$
5,394

 
$
6,605

(a)
The fair value option for financial assets was elected for investments in equity and fixed income funds. The fair value of these investments were $101 million at March 31, 2016 and $103 million at December 31, 2015 and were included in current marketable securities.
(b)
All non-current marketable securities mature within five years as of March 31, 2016 and December 31, 2015.

Qualifying Hedges
The following table summarizes the fair value of outstanding derivatives:
 
 
 
March 31, 2016
 
December 31, 2015
Dollars in Millions
Balance Sheet Location
 
Notional
 
Fair Value
 
Notional
 
Fair Value
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Interest rate swap contracts
Other assets
 
$
1,250

 
$
11

 
$
1,100

 
$
31

Interest rate swap contracts
Pension and other liabilities
 

 

 
650

 
(1
)
Forward starting interest rate swap contracts
Other assets
 

 

 
500

 
15

Forward starting interest rate swap contracts
Pension and other liabilities
 
750

 
(56
)
 
250

 
(7
)
Foreign currency forward contracts
Prepaid expenses and other
 
506

 
31

 
1,016

 
50

Foreign currency forward contracts
Accrued liabilities
 
1,354

 
(54
)
 
787

 
(10
)
Foreign currency forward contracts
Pension and other liabilities
 
16

 
(1
)
 

 


Cash Flow Hedges — The notional amount of outstanding foreign currency forward contracts was primarily attributed to the euro ($608 million) and Japanese yen ($732 million) at March 31, 2016.

Net Investment Hedges — Non-U.S. dollar borrowings of €950 million ($1,061 million) are designated to hedge euro currency exposures of the net investment in certain foreign affiliates.

Fair Value Hedges — The notional amount of fixed-to-floating interest rate swap contracts terminated was $500 million in 2016 and $147 million in 2015 generating proceeds of $43 million in 2016 and $28 million in 2015 (including accrued interest).


11




Debt Obligations
Long-term debt includes:
Dollars in Millions
March 31,
2016
 
December 31,
2015
Principal Value
$
6,362

 
$
6,339

Adjustments to Principal Value:
 
 
 
Fair value of interest rate swap contracts
11

 
30

Unamortized basis adjustment from swap terminations
308

 
272

Unamortized bond discounts and issuance costs
(88
)
 
(91
)
Total
$
6,593

 
$
6,550


The fair value of debt was $7,240 million at March 31, 2016 and $6,909 million at December 31, 2015 valued using Level 2 inputs. Interest payments were $33 million and $34 million for the three months ended March 31, 2016 and 2015, respectively, net of amounts related to interest rate swap contracts.

Note 9. RECEIVABLES

Dollars in Millions
March 31,
2016
 
December 31,
2015
Trade receivables
$
3,498

 
$
3,070

Less allowances
(135
)
 
(122
)
Net trade receivables
3,363

 
2,948

Alliance receivables
1,113

 
958

Prepaid and refundable income taxes
207

 
182

Other
274

 
211

Receivables
$
4,957

 
$
4,299


Non-U.S. receivables sold on a nonrecourse basis were $159 million and $93 million for the three months ended March 31, 2016 and 2015, respectively. Receivables from three pharmaceutical wholesalers in the U.S. represented 62% and 53% of total trade receivables at March 31, 2016 and December 31, 2015, respectively.

Note 10. INVENTORIES

Dollars in Millions
March 31,
2016
 
December 31,
2015
Finished goods
$
402

 
$
381

Work in process
919

 
868

Raw and packaging materials
227

 
199

Total inventories
$
1,548

 
$
1,448

 
 
 
 
Inventories
$
1,336

 
$
1,221

Other assets
212

 
227


Other assets include inventory pending regulatory approval of $94 million at March 31, 2016 and $85 million at December 31, 2015 and other amounts expected to remain on-hand beyond one year.


12




Note 11. PROPERTY, PLANT AND EQUIPMENT
Dollars in Millions
March 31,
2016
 
December 31,
2015
Land
$
107

 
$
107

Buildings
4,611

 
4,515

Machinery, equipment and fixtures
3,392

 
3,347

Construction in progress
647

 
662

Gross property, plant and equipment
8,757

 
8,631

Less accumulated depreciation
(4,302
)
 
(4,219
)
Property, plant and equipment
$
4,455

 
$
4,412


Depreciation expense was $103 million and $133 million for the three months ended March 31, 2016 and 2015, respectively.

Note 12. OTHER INTANGIBLE ASSETS

Dollars in Millions
March 31,
2016
 
December 31,
2015
Licenses
$
559

 
$
574

Developed technology rights
2,357

 
2,357

Capitalized software
1,318

 
1,302

In-process research and development
120

 
120

Gross other intangible assets
4,354

 
4,353

Less accumulated amortization
(2,974
)
 
(2,934
)
Other intangible assets
$
1,380

 
$
1,419


Amortization expense was $44 million and $52 million for the three months ended March 31, 2016 and 2015, respectively.

Note 13. ACCRUED LIABILITIES

Dollars in Millions
 
March 31,
2016
 
December 31,
2015
Accrued rebates and returns
 
$
1,519

 
$
1,324

Employee compensation and benefits
 
385

 
904

Dividends payable
 
642

 
655

Accrued research and development
 
527

 
553

Litigation and other settlements
 
169

 
189

Royalties
 
126

 
161

Restructuring
 
66

 
89

Pension and postretirement benefits
 
47

 
47

Other
 
830

 
816

Accrued liabilities
 
$
4,311

 
$
4,738


Note 14. DEFERRED INCOME
Dollars in Millions
March 31,
2016
 
December 31,
2015
Alliances
$
1,506

 
$
1,459

Other
265

 
130

Total deferred income
$
1,771

 
$
1,589

 
 
 
 
Current portion
$
1,165

 
$
1,003

Non-current portion
606

 
586


Alliances include unamortized upfront, milestone and other licensing proceeds, revenue deferrals attributed to Atripla* and undelivered elements of diabetes business divestiture proceeds. Amortization of deferred income was $82 million and $81 million for the three months ended March 31, 2016 and 2015, respectively.

13




Note 15. EQUITY

 
Common Stock
 
Capital in  Excess
of Par Value
of Stock
 
Retained
Earnings
 
Treasury Stock
 
Noncontrolling
Interest
Dollars and Shares in Millions
Shares
 
Par Value
 
Shares
 
Cost
 
Balance at January 1, 2015
2,208

 
$
221

 
$
1,507

 
$
32,541

 
547

 
$
(16,992
)
 
$
131

Net earnings

 

 

 
1,186

 

 

 
15

Cash dividends declared

 

 

 
(617
)
 

 

 

Employee stock compensation plans

 

 
(193
)
 

 
(6
)
 
309

 

Distributions

 

 

 

 

 

 
(3
)
Balance at March 31, 2015
2,208

 
$
221

 
$
1,314

 
$
33,110

 
541

 
$
(16,683
)
 
$
143

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2016
2,208

 
$
221

 
$
1,459

 
$
31,613

 
539

 
$
(16,559
)
 
$
158

Net earnings

 

 

 
1,195

 

 

 
11

Cash dividends declared

 

 

 
(632
)
 

 

 

Stock repurchase program

 

 

 

 
4

 
(231
)
 

Employee stock compensation plans

 

 
44

 

 
(4
)
 
(31
)
 

Distributions

 

 

 

 

 

 
(4
)
Balance at March 31, 2016
2,208

 
$
221

 
$
1,503

 
$
32,176

 
539

 
$
(16,821
)
 
$
165


Treasury stock is recognized at the cost to reacquire the shares. Shares issued from treasury are recognized utilizing the first-in first-out method.

The components of other comprehensive income/(loss) were as follows:
 
2016
 
2015
 
Pretax
 
Tax
 
After tax
 
Pretax
 
Tax
 
After tax
Three Months Ended March 31,
 
 
 
 
 
 
 
 
 
 
 
Derivatives qualifying as cash flow hedges:(a)
 
 
 
 
 
 
 
 
 
 
 
Unrealized gains/(losses)
$
(126
)
 
$
42

 
$
(84
)
 
$
35

 
$
(11
)
 
$
24

Reclassified to net earnings
(4
)
 
2

 
(2
)
 
(27
)
 
9

 
(18
)
Derivatives qualifying as cash flow hedges
(130
)
 
44

 
(86
)
 
8

 
(2
)
 
6

Pension and postretirement benefits:
 
 
 
 
 
 
 
 
 
 
 
Actuarial losses
(292
)
 
103

 
(189
)
 
(120
)
 
42

 
(78
)
Amortization(b)
17

 
(3
)
 
14

 
23

 
(6
)
 
17

Curtailments and settlements(c)
22

 
(8
)
 
14

 
27

 
(10
)
 
17

Pension and postretirement benefits
(253
)
 
92

 
(161
)
 
(70
)
 
26

 
(44
)
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
Unrealized gains
27

 
(14
)
 
13

 
25

 
(8
)
 
17

Realized gains

 

 

 
(1
)
 

 
(1
)
Available-for-sale securities
27

 
(14
)
 
13

 
24

 
(8
)
 
16

Foreign currency translation
2

 
7

 
9

 
46

 
(15
)
 
31

 
$
(354
)
 
$
129

 
$
(225
)
 
$
8

 
$
1

 
$
9


(a)
Included in cost of products sold.
(b)
Included in cost of products sold, research and development and marketing, selling and administrative expenses.
(c)
Included in other (income)/expense.

The accumulated balances related to each component of other comprehensive loss, net of taxes, were as follows:
Dollars in Millions
March 31,
2016
 
December 31, 2015
Derivatives qualifying as cash flow hedges
$
(52
)
 
$
34

Pension and other postretirement benefits
(2,241
)
 
(2,080
)
Available-for-sale securities
(10
)
 
(23
)
Foreign currency translation
(390
)
 
(399
)
Accumulated other comprehensive loss
$
(2,693
)
 
$
(2,468
)


14




Note 16. PENSION AND POSTRETIREMENT BENEFIT PLANS

The net periodic benefit cost/(credit) of defined benefit pension and postretirement benefit plans includes:
 
Three Months Ended March 31,
 
Pension Benefits
 
Other Benefits
Dollars in Millions
2016
 
2015
 
2016
 
2015
Service cost – benefits earned during the year
$
6

 
$
6

 
$
1

 
$
1

Interest cost on projected benefit obligation
51

 
61

 
3

 
3

Expected return on plan assets
(104
)
 
(102
)
 
(6
)
 
(7
)
Amortization of prior service credits
(1
)
 
(1
)
 
(1
)
 
(1
)
Amortization of net actuarial loss
19

 
24

 

 
1

Curtailments and settlements
22

 
27

 

 

Special termination benefits
1

 

 

 

Net periodic benefit cost/(credit)
$
(6
)
 
$
15

 
$
(3
)
 
$
(3
)

Pension settlement charges were recognized after determining that the annual lump sum payments will likely exceed the annual interest and service costs for certain pension plans, including the primary U.S. pension plan. The charges included the acceleration of a portion of unrecognized actuarial losses.

Non-current pension liabilities were $1,002 million at March 31, 2016 and $765 million at December 31, 2015. The increase resulted primarily from the remeasurement of U.S. plan assets and benefit obligations.

Defined contribution plan expense in the U.S. was $42 million and $44 million for the three months ended March 31, 2016, and 2015, respectively.

Note 17. EMPLOYEE STOCK BENEFIT PLANS

Stock-based compensation expense was as follows:
 
Three Months Ended March 31,
Dollars in Millions
2016
 
2015
Restricted stock units
$
20

 
$
21

Market share units
9

 
9

Performance share units
18

 
24

Total stock-based compensation expense
$
47

 
$
54

 
 
 
 
Income tax benefit
$
15

 
$
18


The number of units granted and the weighted-average fair value on the grant date were as follows:
 
Three Months Ended March 31, 2016
Units in Millions
Units
 
Weighted-Average Fair Value
Restricted stock units
2.1

 
$
61.23

Market share units
0.7

 
65.26

Performance share units
1.1

 
64.87


Unrecognized compensation cost related to nonvested awards of $492 million is expected to be recognized over a weighted-average period of 2.9 years.

Note 18. LEGAL PROCEEDINGS AND CONTINGENCIES
The Company and certain of its subsidiaries are involved in various lawsuits, claims, government investigations and other legal proceedings that arise in the ordinary course of business. These claims or proceedings can involve various types of parties, including governments, competitors, customers, suppliers, service providers, licensees, employees, or shareholders, among others. The resolution of these matters often develops over a long period of time and expectations can change as a result of new findings, rulings, appeals or settlement arrangements. The Company recognizes accruals for such contingencies when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. These matters involve patent infringement, antitrust, securities, pricing, sales and marketing practices, environmental, commercial, contractual rights, licensing obligations, health and safety matters, consumer fraud, employment matters, product liability and insurance coverage. Legal proceedings that are material or that the Company believes could become material are described below.

15




Although the Company believes it has substantial defenses in these matters, there can be no assurance that there will not be an increase in the scope of pending matters or that any future lawsuits, claims, government investigations or other legal proceedings will not be material. Unless otherwise noted, the Company is unable to assess the outcome of the respective litigation nor is it able to provide an estimated range of potential loss. Furthermore, failure to enforce our patent rights would likely result in substantial decreases in the respective product revenues from generic competition.
INTELLECTUAL PROPERTY
Plavix* — Australia
As previously disclosed, Sanofi was notified that, in August 2007, GenRx Proprietary Limited (GenRx) obtained regulatory approval of an application for clopidogrel bisulfate 75mg tablets in Australia. GenRx, formerly a subsidiary of Apotex Inc. (Apotex), has since changed its name to Apotex. In August 2007, Apotex filed an application in the Federal Court of Australia (the Federal Court) seeking revocation of Sanofi’s Australian Patent No. 597784 (Case No. NSD 1639 of 2007). Sanofi filed counterclaims of infringement and sought an injunction. On September 21, 2007, the Federal Court granted Sanofi’s injunction. A subsidiary of the Company was subsequently added as a party to the proceedings. In February 2008, a second company, Spirit Pharmaceuticals Pty. Ltd., also filed a revocation suit against the same patent. This case was consolidated with the Apotex case, and a trial occurred in April 2008. On August 12, 2008, the Federal Court of Australia held that claims of Patent No. 597784 covering clopidogrel bisulfate, hydrochloride, hydrobromide, and taurocholate salts were valid. The Federal Court also held that the process claims, pharmaceutical composition claims, and claim directed to clopidogrel and its pharmaceutically acceptable salts were invalid. The Company and Sanofi filed notices of appeal in the Full Court of the Federal Court of Australia (Full Court) appealing the holding of invalidity of the claim covering clopidogrel and its pharmaceutically acceptable salts, process claims, and pharmaceutical composition claims which have stayed the Federal Court’s ruling. Apotex filed a notice of appeal appealing the holding of validity of the clopidogrel bisulfate, hydrochloride, hydrobromide, and taurocholate claims. A hearing on the appeals occurred in February 2009. On September 29, 2009, the Full Court held all of the claims of Patent No. 597784 invalid. In November 2009, the Company and Sanofi applied to the High Court of Australia (High Court) for special leave to appeal the judgment of the Full Court. In March 2010, the High Court denied the Company and Sanofi’s request to hear the appeal of the Full Court decision. The case has been remanded to the Federal Court for further proceedings related to damages sought by Apotex. The Australian government has intervened in this matter and is also seeking damages for alleged losses experienced during the period when the injunction was in place. The Company and Apotex have settled the Apotex case, and the case has been dismissed. The Australian government's claim is still pending. It is not possible at this time to predict the outcome of the Australian government’s claim or its impact on the Company.
Eliquis - Inter-Partes Review (IPR)
In August 2015, Bristol-Myers Squibb received a Petition for Inter Partes Review of U.S. Patent No. 6,967,208 (“the ‘208 patent”) that was filed at the United States Patent & Trademark Office by the Coalition for Affordable Drugs, which is affiliated with entities and individuals associated with a hedge fund. The ‘208 patent is a composition of matter patent that contains claims directed to apixaban, the active ingredient in Eliquis. The petition requested that the Patent Trial and Appeal Board (PTAB) initiate a proceeding to review the validity of the ‘208 patent, including claims that cover apixaban. The Company responded to and opposed this petition in November 2015. In February 2016, the PTAB issued a decision denying the Coalition for Affordable Drugs' petition for Inter Partes Review. The petitioner did not seek reconsideration, and cannot appeal the PTAB's decision. The ‘208 patent expires in February 2023; the Company has filed a request for patent term restoration with the U.S. Patent & Trademark Office requesting that the patent expiration date be restored to December 2026.
Sprycel - European Union
In May 2013, Apotex, Actavis Group PTC ehf, Generics [UK] Limited (Mylan) and an unnamed company filed oppositions in the European Patent Office (EPO) seeking revocation of European Patent No. 1169038 (the ‘038 patent) covering dasatinib, the active ingredient in Sprycel. The ‘038 patent is scheduled to expire in April 2020 (excluding potential term extensions). On January 20, 2016, the Opposition Division of the EPO revoked the ‘038 patent. The Company will appeal the EPO’s decision to the EPO Board of Appeal. The ‘038 patent will remain in force pending the outcome of our appeal of the EPO’s decision, and we intend to pursue legal options to defend our intellectual property rights from any future infringement. Orphan drug exclusivity and data exclusivity for Sprycel in the EU expire in November 2016. The decision does not affect the validity of our other Sprycel patents within and outside Europe, including a different patent that covers the monohydrate form of dasatinib. In the U.S., the Company entered into a settlement agreement with Apotex in 2013 regarding a patent infringement suit whereby Apotex can launch its generic dasatinib monohydrate product in September 2024, or earlier in certain circumstances.

16




Anti-PD-1 Antibody Patent Oppositions and Litigation
There are a number of ongoing patent litigations against Merck & Co., Inc. (Merck) around the world with respect to patents directed to 1) methods of treating cancer using a PD-1 antibody. (the Honjo patent filing) and 2) a class of anti-PD-1 antibodies (the Korman patent filing).
Europe
Under our alliance with Ono Pharmaceutical Co., Ltd. (Ono), BMS has exclusive rights to the Honjo patent filing, including European patent (EP 1 537 878) (the ’878 patent). In 2011, Merck filed an opposition in the European Patent Office (EPO) seeking revocation of the ‘878 patent. In June 2014, the Opposition Division of the EPO maintained the validity of the claims in the ’878 patent. Merck has appealed this decision.
In May 2014, Merck filed a lawsuit in the United Kingdom (UK) seeking revocation of the UK national version of the ’878 patent. In July 2014, BMS and Ono sued Merck for patent infringement. A trial was held in the UK in July 2015. In October 2015, the court issued its judgment, finding the ’878 patent valid and infringed. Merck has appealed this judgment.
In February 2015, Merck filed a lawsuit in the Netherlands seeking revocation of the Dutch national version of the ’878 patent, and BMS and Ono subsequently sued Merck for patent infringement. A trial regarding the validity and infringement of the ’878 patent was held on January 29, 2016; the decision by the Dutch court is pending.
In December 2015, BMS and Ono filed lawsuits with respect to national versions of the ‘878 patent in several other European countries, including France, Germany, Ireland, Spain and Switzerland. BMS and Ono can file patent infringement actions against Merck in other national courts in Europe at or around the time Merck launches Keytruda*. If any of the above-mentioned national courts determine Merck infringes a valid claim in the ’878 patent, BMS and Ono may be entitled to monetary damages, including royalties on future sales of Keytruda*. BMS and Ono are not seeking an injunction to prevent Merck from marketing Keytruda* in these litigations unless an appropriate financial remedy cannot be agreed upon or awarded by the court.
In April 2014, Merck and three other companies opposed a European patent (EP 2 161 336) (the ’336 patent) which is based on the Korman patent filing. In February 2015, BMS and Ono submitted a request to amend the claims of the ’336 patent. Oral proceedings before the Opposition Division of the EPO are scheduled for July 2016.
United States
In September 2014, BMS and Ono filed a lawsuit in the United States alleging that Merck’s marketing of Keytruda* infringes U.S. Patent No. 8,728,474 (the ’474 patent) which is based on the Honjo patent filing. The trial in this matter is currently scheduled to begin in April 2017. In June and July 2015, BMS and Ono filed lawsuits in the United States alleging that Merck’s marketing of Keytruda* infringes U.S. Patent Nos. 9,067,999 (the ‘999 patent) and 9,073,994 (the ‘994 patent), respectively, which are based on the Honjo patent filing. In these lawsuits, BMS and Ono are not seeking to prevent or stop the marketing of Keytruda* in the United States unless an appropriate financial remedy cannot be agreed upon or awarded by the court.
In September 2015, Dana-Farber Cancer Institute (Dana-Farber) filed a complaint in Massachusetts federal court seeking to correct the inventorship of five related U.S. patents based on the Honjo patent filing. Specifically, Dana-Farber is seeking to add two scientists as inventors to these patents. Three of these patents (the ‘474, ‘999, and ‘994 patents) are currently subject to patent infringement proceedings filed by BMS and Ono against Merck in Delaware federal court, as specified above.
In April 2016, Merck filed an action in New Jersey federal court seeking a declaratory judgment that U.S. Patent Nos. 8,777,105 (the '105 patent) and 9,084,776 (the '776 patent), which are based on the Korman patent filing, are invalid and not infringed by Keytruda*.
Rest of World
In September 2014, Merck filed a lawsuit in Australia seeking the revocation of Australian Patent No. 2011203119, which is based on the Korman patent filing. In March 2015, BMS and Ono countersued Merck for patent infringement. Ono and BMS have similar and other patents and applications pending in the United States and other countries.
PRICING, SALES AND PROMOTIONAL PRACTICES LITIGATION
AWP Litigation
As previously disclosed, the Company, together with a number of other pharmaceutical manufacturers, has been a defendant in a number of private class actions as well as suits brought by the attorneys general of various states. In these actions, plaintiffs allege that defendants caused the Average Wholesale Prices (AWPs) of their products to be inflated, thereby injuring government programs, entities and persons who reimbursed prescription drugs based on AWPs. The Company was designated as one of four defendants for separate trials in Wisconsin in 2016. However, a settlement was reached and in February 2016, the Wisconsin state court entered a stipulation of the parties dismissing the case, thus concluding this matter.

17




Beginning in August 2010, the Company was the defendant in a trial in the Commonwealth Court of Pennsylvania (Commonwealth Court), brought by the Commonwealth of Pennsylvania. In September 2010, the jury issued a verdict for the Company, finding that the Company was not liable for fraudulent or negligent misrepresentation; however, the Commonwealth Court judge issued a decision on a Pennsylvania consumer protection claim that did not go to the jury, finding the Company liable for $28 million and enjoining the Company from contributing to the provision of inflated AWPs. The Company appealed the decision to the Pennsylvania Supreme Court, and in June 2014, the Pennsylvania Supreme Court vacated the Commonwealth judge's decision and remanded the matter back to the Commonwealth Court. In January 2015, the Commonwealth Court entered judgment in favor of the Company. The Commonwealth of Pennsylvania appealed this decision to the Pennsylvania Supreme Court, which affirmed the lower court's decision in favor of the Company in December 2015. This matter is now concluded.
Qui Tam Litigation
In March 2011, the Company was served with an unsealed qui tam complaint filed by three former sales representatives in California Superior Court, County of Los Angeles. The California Department of Insurance has elected to intervene in the lawsuit. The complaint alleges the Company paid kickbacks to California providers and pharmacies in violation of California Insurance Frauds Prevention Act, Cal. Ins. Code § 1871.7. In December 2015, the Company and the California Department of Insurance reached an agreement on the financial terms of a settlement in principle. The parties are continuing negotiations of the terms of a final settlement.
Plavix* State Attorneys General Lawsuits
The Company and certain affiliates of Sanofi are defendants in consumer protection and/or false advertising actions brought by several states relating to the sales and promotion of Plavix*. It is not possible at this time to reasonably assess the outcome of these lawsuits or their potential impact on the Company.
PRODUCT LIABILITY LITIGATION
The Company is a party to various product liability lawsuits. Plaintiffs in these cases seek damages and other relief on various grounds for alleged personal injury and economic loss. As previously disclosed, in addition to lawsuits, the Company also faces unfiled claims involving its products.
Plavix*
As previously disclosed, the Company and certain affiliates of Sanofi are defendants in a number of individual lawsuits in various state and federal courts claiming personal injury damage allegedly sustained after using Plavix*. Currently, over 5,200 claims involving injury plaintiffs as well as claims by spouses and/or other beneficiaries, are filed in state and federal courts in various states including California, New Jersey, Delaware and New York. In February 2013, the Judicial Panel on Multidistrict Litigation granted the Company and Sanofi’s motion to establish a multidistrict litigation to coordinate Federal pretrial proceedings in Plavix* product liability and related cases in New Jersey Federal Court. It is not possible at this time to reasonably assess the outcome of these lawsuits or the potential impact on the Company.
Reglan*
The Company is one of a number of defendants in numerous lawsuits, on behalf of approximately 3,000 plaintiffs, including injury plaintiffs claiming personal injury allegedly sustained after using Reglan* or another brand of the generic drug metoclopramide, a product indicated for gastroesophageal reflux and certain other gastrointestinal disorders, as well as claims by spouses and/or other beneficiaries. The Company, through its generic subsidiary, Apothecon, Inc., distributed metoclopramide tablets manufactured by another party between 1996 and 2000. The Company has reached a settlement in principle with the 29 plaintiffs who alleged that their injury resulted from tablets distributed by Apothecon, Inc. This agreement ends the Company's involvement in this litigation.
Byetta*
Amylin, a former subsidiary of the Company, and Lilly are co-defendants in product liability litigation related to Byetta*. To date, there are over 500 separate lawsuits pending on behalf of over 2,400 active plaintiffs (including pending settlements), which include injury plaintiffs as well as claims by spouses and/or other beneficiaries, in various courts in the U.S. The Company has agreed in principle to resolve over 510 of these claims. The majority of these cases have been brought by individuals who allege personal injury sustained after using Byetta*, primarily pancreatic cancer and pancreatitis, and, in some cases, claiming alleged wrongful death. The majority of cases were pending in Federal Court in San Diego in a multi-district litigation (MDL) or in a coordinated proceeding in California Superior Court in Los Angeles (JCCP) and in November 2015, the defendants' motion for summary judgment based on federal preemption was granted in both the MDL and the JCCP. Plaintiffs have appealed to the U.S. Court of Appeals for the Ninth Circuit. The cases in the JCCP have not yet been formally dismissed. Amylin has product liability insurance covering a substantial number of claims involving Byetta* and any additional liability to Amylin with respect to Byetta* is expected to be shared between the Company and AstraZeneca. It is not possible to reasonably predict the outcome of any lawsuit, claim or proceeding or the potential impact on the Company.

18




SHAREHOLDER DERIVATIVE LITIGATION
In December 2015, two shareholder derivative lawsuits were filed in New York state court against certain officers and directors of the Company. The plaintiffs allege, among other things, breaches of fiduciary duty surrounding the Company’s previously disclosed October 2015 civil settlement with the Securities and Exchange Commission of alleged Foreign Corrupt Practices Act violations in China in which the Company agreed to a payment of approximately $14.7 million in disgorgement, penalties and interest. 
GOVERNMENT INVESTIGATIONS
Like other pharmaceutical companies, the Company and certain of its subsidiaries are subject to extensive regulation by national, state and local government agencies in the U.S. and other countries in which BMS operates. As a result, the Company, from time to time, is subject to various governmental inquiries and investigations. It is possible that criminal charges, substantial fines and/or civil penalties, could result from government investigations. The most significant investigations conducted by government agencies, of which the Company is aware, are listed below.
Abilify* State Attorneys General Investigation
In March 2009, the Company received a letter from the Delaware Attorney General’s Office advising of a multi-state coalition investigating whether certain Abilify* marketing practices violated those respective states’ consumer protection statutes. It is not possible at this time to reasonably assess the outcome of this investigation.
ENVIRONMENTAL PROCEEDINGS
As previously reported, the Company is a party to several environmental proceedings and other matters, and is responsible under various state, federal and foreign laws, including the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), for certain costs of investigating and/or remediating contamination resulting from past industrial activity at the Company’s current or former sites or at waste disposal or reprocessing facilities operated by third parties.
CERCLA Matters
With respect to CERCLA matters for which the Company is responsible under various state, federal and foreign laws, the Company typically estimates potential costs based on information obtained from the U.S. Environmental Protection Agency, or counterpart state or foreign agency and/or studies prepared by independent consultants, including the total estimated costs for the site and the expected cost-sharing, if any, with other “potentially responsible parties,” and the Company accrues liabilities when they are probable and reasonably estimable. The Company estimated its share of future costs for these sites to be $62 million at March 31, 2016, which represents the sum of best estimates or, where no best estimate can reasonably be made, estimates of the minimal probable amount among a range of such costs (without taking into account any potential recoveries from other parties).
North Brunswick Township Board of Education
As previously disclosed, in October 2003, the Company was contacted by counsel representing the North Brunswick, NJ Board of Education (BOE) regarding a site where waste materials from E.R. Squibb and Sons may have been disposed from the 1940s through the 1960’s. Fill material containing industrial waste and heavy metals in excess of residential standards was discovered during an expansion project at the North Brunswick Township High School, as well as at a number of neighboring residential properties and adjacent public park areas. In January 2004, the New Jersey Department of Environmental Protection (NJDEP) sent the Company and others an information request letter about possible waste disposal at the site, to which the Company responded in March 2004. The BOE and the Township, as the current owners of the school property and the park, are conducting and jointly financing soil remediation work and ground water investigation work under a work plan approved by the NJDEP, and have asked the Company to contribute to the cost. The Company is actively monitoring the clean-up project, including its costs. To date, neither the school board nor the Township has asserted any claim against the Company. Instead, the Company and the local entities have negotiated an agreement to attempt to resolve the matter by informal means, and avoid litigation. A central component of the agreement is the provision by the Company of interim funding to help defray cleanup costs and assure the work is not interrupted. The Company transmitted interim funding payments in December 2007 and November 2009. The parties commenced mediation in late 2008; however, those efforts were not successful and the parties moved to a binding allocation process. The parties are expected to conduct fact and expert discovery, followed by formal evidentiary hearings and written argument. In addition, in September 2009, the Township and BOE filed suits against several other parties alleged to have contributed waste materials to the site; that litigation has now been settled by the parties. The Company does not currently believe that it is responsible for any additional amounts beyond the two interim payments totaling $4 million already transmitted. Any additional possible loss is not expected to be material.

19




Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EXECUTIVE SUMMARY
Bristol-Myers Squibb Company (which may be referred to as Bristol-Myers Squibb, BMS, the Company, we, our or us) is a global specialty biopharmaceutical company whose mission is to discover, develop and deliver innovative medicines that help patients prevail over serious diseases. We have transitioned to a specialty biopharmaceutical company, with a strategy designed to leverage both the reach and resources of a major pharmaceutical company as well as the entrepreneurial spirit and agility of a biotech firm. Our four strategic priorities are to drive business performance, maintain our leadership in immuno-oncology, maintain a diversified portfolio both within and outside of immuno-oncology and continue our disciplined approach to capital allocation, with business development as a top priority.

Our revenues increased by 9% for the three months ended March 31, 2016 as a result of higher Opdivo, Eliquis and Daklinza product sales. These impacts were partially offset by the expiration of our U.S. commercialization rights to Abilify*, the transfer of Erbitux* rights in North America and competitive pressures resulting from exclusivity losses and other factors for Reyataz, Baraclude and Sustiva in certain markets.

GAAP earnings per share (EPS) was $0.71 in 2016 and 2015. Higher revenues, divestiture gains and royalties were offset by higher Eliquis profit sharing, Opdivo related expenses and effective tax rate. The tax impact of specified items and earnings mix contributed to the change in the effective tax rate.

 
Three Months Ended March 31,
Dollars in Millions, except per share data
2016
 
2015
Total Revenues
$
4,391

 
$
4,041

Total Expenses
2,736

 
2,593

Earnings Before Income Taxes
1,655

 
1,448

Provision for Income Taxes
449

 
249

Effective tax rate
27.1
%
 
17.2
%
 
 
 
 
Net Earnings Attributable to BMS
 
 
 
GAAP
1,195

 
1,186

Non-GAAP
1,235

 
1,193

 
 
 
 
Diluted Earnings Per Share
 
 
 
GAAP
0.71

 
0.71

Non-GAAP
0.74

 
0.71

 
 
 
 
Cash, Cash Equivalents and Marketable Securities
7,996

 
11,886


Our non-GAAP financial measures, including non-GAAP earnings and related EPS information, are adjusted to exclude specified items which represent certain costs, expenses, gains and losses and other items impacting the comparability of financial results. For a detailed listing of all specified items and further information and reconciliations of non-GAAP financial measures refer to “—Non-GAAP Financial Measures.”

20




Significant Product and Pipeline Approvals

The following is a summary of significant approvals received in 2016.
Product
Date
Approval
Opdivo
April 2016
European Union (EU) approval for the treatment of previously treated renal cell carcinoma (RCC).
April 2016
EU approval for the treatment of previously treated patients with metastatic non-squamous (NSQ) non-small cell lung cancer (NSCLC).
January 2016
U.S. Food and Drug Administration (FDA) expanded the use of Opdivo as a single agent to include previously untreated BRAF mutation positive advanced melanoma patients.
Opdivo+
Yervoy
January 2016
FDA approval for the treatment of patients with BRAF V600 wild-type and BRAF V600 mutation positive unresectable or metastatic melanoma.
Hepatitis C Portfolio - Daklinza
February 2016
FDA approval for use with sofosbuvir for the treatment of chronic hepatitis C (HCV) in genotypes 1 and 3 in three additional patient populations.
January 2016
EU approval for use with sofosbuvir for the treatment of chronic HCV in three new patient populations.
Refer to "—Product and Pipeline Developments" for all of the developments in our marketed products and late-stage pipeline in 2016.

Acquisition and Licensing Arrangements
Acquisition and licensing transactions allow us to focus our resources behind our growth opportunities that drive the greatest long-term value. We are focused on the following core therapeutic areas: oncology, immuno-oncology, immunoscience, cardiovascular diseases, fibrosis and genetically defined diseases. Significant transactions entered into in 2016 are summarized below:

Padlock Therapeutics, Inc. (Padlock)
In April 2016, BMS acquired all of the outstanding shares of Padlock, a private biotechnology company dedicated to creating new medicines to treat destructive autoimmune diseases. The acquisition provides BMS with full rights to Padlock’s Protein/Peptidyl Arginine Deiminase (PAD) inhibitor discovery program focused on the development of potentially transformational treatment approaches for patients with rheumatoid arthritis. Padlock’s PAD discovery program may have additional utility in treating systemic lupus erythematosus and other autoimmune diseases.

Portola Pharmaceuticals, Inc. (Portola)
In February 2016, BMS and Pfizer, Inc. (Pfizer) entered into a collaboration and license agreement with Portola to develop and commercialize the investigational agent andexanet alfa in Japan. Andexanet alfa is designed to reverse the anticoagulant activity of Factor Xa inhibitors, including Eliquis. BMS and Pfizer will be responsible for all development and regulatory activities for andexanet alfa in Japan and for exclusively commercializing the agent in Japan. Portola retains the rights to andexanet alfa outside of Japan and will be responsible for the manufacturing supply.

RESULTS OF OPERATIONS

Total Revenues
 
Three Months Ended March 31,
 
Total Revenues
 
2016 vs. 2015
Dollars in Millions
2016
 
2015
 
Total Change
 
Foreign
  Exchange(b)
United States
$
2,537

 
$
2,044

 
24
 %
 

Europe
870

 
782

 
11
 %
 
(4
)%
Rest of the World
840

 
1,019

 
(18
)%
 
(7
)%
Other(a)
144

 
196

 
(27
)%
 
N/A

Total
$
4,391

 
$
4,041

 
9
 %
 
(2
)%

(a)
Other revenues include royalties and alliance-related revenues for products not sold by our regional commercial organizations.
(b)
Foreign exchange impacts were derived by applying the prior period average currency rates to the current period sales.
U.S. revenues increased 24% primarily due to higher demand (19%), particularly for Opdivo and Eliquis and the launch of Daklinza in July 2015, partially offset by the expiration of commercialization rights to Abilify* and the transfer of Erbitux* in North America. The remaining change in U.S. revenues was attributable to higher average net selling prices and the reversal of prior period gross-to-net adjustments in 2016. Refer to “-Product Revenues” below for additional information.

21




The increase in Europe revenues resulted from higher demand for Eliquis, Opdivo and Daklinza partially offset by lower demand for Yervoy and unfavorable foreign exchange. Revenues continue to be negatively impacted in many European countries as healthcare payers, including government agencies, continue to take actions that directly or indirectly impose additional price reductions.
The decrease in Rest of the World revenues resulted from lower demand due to increased competition for the Hepatitis C Franchise in Japan and unfavorable foreign exchange partially offset by higher demand for Opdivo and Eliquis.
The decrease in Other revenues resulted from the expiration of certain supply arrangements.
No single country outside the U.S. contributed more than 10% of total revenues during the three months ended March 31, 2016 and 2015. Our business is typically not seasonal.

The reconciliation of gross product sales (which excludes alliance and other revenues such as Abilify* and Atripla*) to net product sales by each significant category of gross-to-net adjustments was as follows:

 
Three Months Ended March 31,
Dollars in Millions
 
2016
 
2015
 
% Change
Gross product sales
 
$
4,966

 
$
3,635

 
37
%
Gross-to-Net Adjustments:
 
 
 
 
 
 
Charge-backs and cash discounts
 
(352
)
 
(200
)
 
76
%
Medicaid and Medicare rebates
 
(260
)
 
(146
)
 
78
%
Sales returns
 
(43
)
 
(18
)
 
139
%
Other rebates, discounts and adjustments
 
(347
)
 
(212
)
 
64
%
Total Gross-to-Net Adjustments
 
(1,002
)
 
(576
)
 
74
%
Net product sales
 
$
3,964

 
$
3,059

 
30
%

Reductions to provisions for product sales made in prior periods resulting from changes in estimates were $31 million and $5 million in the three months ended March 31, 2016 and 2015, respectively. Changes in the gross-to-net adjustments are primarily a function of changes in sales mix, contractual and legislative discounts and rebates.
Charge-backs and cash discounts increased primarily due to higher product sales in the U.S. which also increased by 76%, particularly regarding Opdivo, Eliquis and Daklinza.
Medicaid and Medicare rebates increased primarily due to higher product sales in the U.S., particularly regarding Medicare for Eliquis and Medicaid and Medicare for Daklinza.
Other rebates, discounts and adjustments increased primarily due to additional rebates and discounts for Daklinza in Europe and Eliquis worldwide.

22




Product Revenues
 
Three Months Ended March 31,
Dollars in Millions
2016
 
2015
 
% Change
 
% Change Attributable to Foreign Exchange
Oncology
 
 
 
 
 
 
 
Empliciti (elotuzumab)
$
28

 
$

 
N/A

 
N/A

U.S.
28

 

 
N/A

 

 
 
 
 
 
 
 
 
Erbitux* (cetuximab)

 
165

 
(100
)%
 

U.S.

 
157

 
(100
)%
 

Non-U.S.

 
8

 
(100
)%
 

 
 
 
 
 
 
 
 
Opdivo (nivolumab)
704

 
40

 
**

 
N/A

U.S.
594

 
38

 
**

 

Non-U.S.
110

 
2

 
**

 
N/A

 
 
 
 
 
 
 
 
Sprycel (dasatinib)
407

 
375

 
9
 %
 
(3
)%
U.S.
210

 
181

 
16
 %
 

Non-U.S.
197

 
194

 
2
 %
 
(6
)%
 
 
 
 
 
 
 
 
Yervoy (ipilimumab)
263

 
325

 
(19
)%
 
(1
)%
U.S.
199

 
181

 
10
 %
 

Non-U.S.
64

 
144

 
(56
)%
 
(5
)%
 
 
 
 
 
 
 
 
Cardiovascular
 
 
 
 
 
 
 
Eliquis (apixaban)
734

 
355

 
**

 
(2
)%
U.S.
468

 
200

 
**

 

Non-U.S.
266

 
155

 
72
 %
 
(4
)%
 
 
 
 
 
 
 
 
Immunoscience
 
 
 
 
 
 
 
Orencia (abatacept)
475

 
400

 
19
 %
 
(2
)%
U.S.
321

 
259

 
24
 %
 

Non-U.S.
154

 
141

 
9
 %
 
(6
)%
 
 
 
 
 
 
 
 
Virology
 
 
 
 
 
 
 
Baraclude (entecavir)
291

 
340

 
(14
)%
 
(3
)%
U.S.
17

 
46

 
(63
)%
 

Non-U.S.
274

 
294

 
(7
)%
 
(4
)%
 
 
 
 
 
 
 
 
Hepatitis C Franchise (daclatasvir and asunaprevir)
427

 
264

 
62
 %
 
(3
)%
U.S.
259

 

 
N/A

 

Non-U.S.
168

 
264

 
(36
)%
 
(3
)%
 
 
 
 
 
 
 
 
Reyataz (atazanavir sulfate) Franchise
221

 
294

 
(25
)%
 
(4
)%
U.S.
120

 
143

 
(16
)%
 

Non-U.S.
101

 
151

 
(33
)%
 
(8
)%
 
 
 
 
 
 
 
 
Sustiva (efavirenz) Franchise
273

 
290

 
(6
)%
 

U.S.
228

 
234

 
(3
)%
 

Non-U.S.
45

 
56