News Column

BRISTOL MYERS SQUIBB CO - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

July 24, 2014

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 biopharmaceutical company whose mission is to discover, develop and deliver innovative medicines that help patients prevail over serious diseases. We license, manufacture, market, distribute and sell pharmaceutical products on a global basis. In July 2014, the Company announced that the Japanese Ministry of Health, Labor and Welfare approved Daklinza (daclatasvir) and Sunvepra (asunaprevir) for Japan's first all-oral, interferon- and ribavirin-free treatment regimen for patients with genotype 1 chronic hepatitis C virus (HCV) infection, particularly those with compensated cirrhosis. In July 2014, the Company announced plans for a third quarter submission to the U.S. Food and Drug Administration (FDA) of a biologics license application for Opdivo (nivolumab) for previously treated advanced melanoma. This will mark the second tumor type for which the Company has a regulatory submission underway for Opdivo in the U.S. In April 2014, the Company initiated a rolling submission for Opdivo in third-line squamous cell non-small cell lung cancer based on Study-063, which it expects to complete by year-end. In July 2014, the Company and Ono Pharmaceutical Co., Ltd (Ono), signed a collaboration agreement to jointly develop and commercialize Opdivo, Yervoy and three immunotherapy agents in early clinical development as single agents and combination regimens in Japan, South Korea and Taiwan. Also in July 2014, Ono announced that Opdivo received manufacturing and marketing approval in Japan for the treatment of unresectable melanoma. Opdivo is the first PD-1 immune checkpoint inhibitor to receive regulatory approval anywhere in the world. In June 2014, a $310 million in-process research and development (IPRD) impairment charge was recognized for peginterferon lambda which is currently in Phase III development for treatment of hepatitis C virus. See "Item 1. Financial Statements-Note 14. Other Intangible Assets" for further information. In April 2014, BMS acquired all of the outstanding shares of iPierian, Inc. (iPierian), a biotechnology company focused on new treatments for tauopathies, a class of neurodegenerative diseases. The acquisition provides BMS with full rights to IPN007, a preclinical monoclonal antibody to treat progressive supranuclear palsy and other tauopathies and advances our discovery strategy to pursue therapeutics for genetically-defined diseases. In February 2014, the Company sold to AstraZeneca substantially all of the diabetes business comprising our alliance with them. Revenues in the U.S. and expenses (excluding research and development expenses) decreased as a result of the divestiture and a $328 million after tax gain on the sale of the business was recognized in the six months ended June 30, 2014. See "Item 1. Financial Statements-Note 3. Alliances" for further information.



Highlights

The following table summarizes our financial information:

Three Months Ended June 30, Six Months Ended June 30, Dollars in Millions, except per share data 2014 2013 2014 2013 Total Revenues $ 3,889$ 4,048$ 7,700$ 7,879 Total Expenses 3,441 3,518 6,267 6,675 Earnings Before Income Taxes 448 530 1,433 1,204 Provision for Income Taxes 114 - 163 51 Effective tax rate 25.4 % - 11.4 % 4.2 % Net Earnings Attributable to BMS GAAP 333 536 1,270 1,145 Non-GAAP 798 730 1,564 1,409 Diluted Earnings Per Share GAAP 0.20 0.32 0.76 0.69 Non-GAAP 0.48 0.44 0.94 0.85 Cash, Cash Equivalents and Marketable Securities 11,051 6,022 26

-------------------------------------------------------------------------------- Our non-GAAP financial measures, including non-GAAP earnings and related earnings per share (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 see "-Non-GAAP Financial Measures" below.



Strategy

Since 2007, we have been transforming BMS into a leading specialty-care biopharma company focused exclusively on discovering, developing, and delivering innovative medicines that address serious unmet medical needs. We continue to evolve driven by this fundamental objective as we grow our marketed products and progress our pipeline. We are developing new medicines in the following core therapeutic areas: oncology, virology, immunology, specialty cardiovascular disease, fibrosis and genetically defined diseases. Within oncology, we are pioneering innovative medicines in the area of immuno-oncology which unlock the body's own immune system to battle cancer. Yervoy (ipilimumab), our first immuno-oncology agent, was introduced in 2011 for the treatment of metastatic melanoma. We continue to invest significantly in our deep pipeline of innovative medicines in this area covering a broad array of cancers. We are evolving our commercial model and growing our marketed product portfolio in a manner consistent with our overall strategy. In oncology, we are building on the success of Yervoy, which yielded 2013 revenues of nearly $1 billion, and other products such as Sprycel (dasatinib) and Erbitux* (cetuximab). Beyond oncology, we continue to support key brands in our virology franchise such as Reyataz (atazanavir sulfate) and Baraclude (entecavir) (together accounting for approximately $3 billion in revenues in 2013), in addition to investing in Orencia (abatacept), the key brand in our immunology portfolio, which accounted for approximately $1.4 billion in revenues in 2013. Additionally, we are strongly committed to Eliquis (apixaban), a novel oral anti-coagulant, which launched globally in 2013 via our alliance with Pfizer, Inc (Pfizer). The divestiture of our diabetes portfolio allows us to further accelerate the evolution of our business model into a leading specialty-care biopharma company. This transaction also allows us to focus our resources behind our growth opportunities that drive the greatest long-term value.



Looking ahead, we will continue to implement our biopharma strategy by driving the growth of key brands, executing new product launches, investing in our pipeline, maintaining a culture of continuous improvement, and pursuing disciplined capital allocation, including through business development.

Product and Pipeline Developments We manage our research and development programs on a portfolio basis, investing resources in each stage from early discovery through late-stage development. We continually evaluate our portfolio of research and development assets to ensure that there is an appropriate balance of early-stage and late-stage programs to support future growth. We consider our research and development programs that have entered into Phase III development to be significant, as these programs constitute our late-stage development pipeline. These development programs include both investigational compounds in Phase III development for initial indications and marketed products that are in Phase III development for additional indications or formulations. The following are the recent significant developments in our marketed products and our late-stage pipeline:



Opdivo - a fully human monoclonal antibody that binds to the programmed death receptor-1 (PD-1) on T and NKT cells that is being investigated as an anti-cancer treatment. Opdivo is part of our alliance with Ono. In July 2014, the Committee for Medicinal Products for Human Use (CHMP)

granted Opdivo accelerated assessment for the treatment of metastatic

melanoma. The Company expects to complete its regulatory submission in the

European Union (EU) in the third quarter of 2014.

In July 2014, following discussions with the FDA, the Company announced it is

planning a third quarter submission of a Biologics License Application

for Opdivo for previously treated advanced melanoma.

In June 2014, the Company announced that a randomized blinded comparative

Phase III study evaluating Opdivo versus dacarbazine in patients with

previously untreated BRAF wild-type advanced melanoma (CheckMate-066) was

stopped early because an analysis conducted by the independent Data

Monitoring Committee showed evidence of superior overall survival in patients

receiving Opdivo compared to the control arm. Patients in the trial will be

unblinded and allowed to cross over to Opdivo.

In June 2014, the Company announced follow up results from a Phase Ib

dose-ranging trial evaluating the safety and activity of the combination

regimen of Opdivo and Yervoy given either concurrently or sequentially in

patients with advanced melanoma (Study-004, n=127). After an additional year

of follow up of the cohort that received the concurrent combination regimen

of Opdivo 1 mg/kg plus Yervoy 3 mg/kg (n=17), the one-year overall survival

(OS) rate was 94% and the two-year OS rate was 88%. These are the doses used

in the ongoing Phase II and Phase III melanoma trials, CheckMate-069 and

-067. No new safety signals were reported in the concurrent combination cohorts with additional follow up (n=53). 27

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In May 2014, the Company announced results from a Phase1b study evaluating

the safety and efficacy of Opdivo as a single agent in patients with advanced

non-small cell lung cancer who were previously treated (Study-003) and a

Phase 1b study evaluating Opdivo as a single agent in chemotherapy-naÏve

patients (CheckMate-012). In Study-003, the two-year survival rate was 24%

across doses (n=129) for previously-treated patients who received Opdivo as a

single agent and highest at 45% in patients who received the 3 mg/kg dose

(n=37). In CheckMate-012, the overall response rate (ORR) was 50% in PD-L1

positive tumors and 0% in PD-L1 negative tumors for chemotherapy-naÏve patients who received Opdivo as a single agent (n=20). The types of treatment-related serious adverse events (SAEs) in CheckMate-012 were consistent with those in other Opdivo trials with 15% of patients



experiencing grade 3-4 treatment-related SAEs. CheckMate-012 is a multi-arm

study evaluating Opdivo as both monotherapy and in combination with other

agents.

In May 2014, the Company announced that the FDA has granted Opdivo

Breakthrough Therapy Designation for the treatment of patients with Hodgkin

lymphoma after failure of autologous stem cell transplant and brentuximab.

In May 2014, the Company announced results from a Phase II and a Phase Ib

study of Opdivo in patients with advanced or metastatic renal cell carcinoma.

In the Phase II CheckMate-010 dose-ranging trial (n=168), the ORR for Opdivo

as a single agent ranged from 20-22% with a one-year survival rate that

ranged from 63-72% in patients who received prior anti-angiogenic treatment.

In the Phase 1b CheckMate-016 trial, ORR for the investigational combination

regimen of Opdivo and Yervoy (n=44) ranged from 43-48% with a 24-week

progression free survival rate that ranged from 64-65% in previously treated

and treatment-naÏve patients.

In May 2014, the Company announced updated survival data from the advanced

melanoma cohort (n=107) of the expanded Phase Ib dose-ranging study of

Opdivo, administered as a single agent (Study-003). Results showed sustained

activity in this heavily pre-treated patient population as defined by two-

and three-year survival rates of 48% and 41%, respectively, across dose

cohorts.

In April 2014, the Company met with the FDA regarding the results of Study

063, which evaluated Opdivo in third-line squamous cell non-small cell lung

cancer, and initiated a rolling submission for this indication based on Study-063. The Company expects to complete the rolling submission by year-end.



Hepatitis C Portfolio - Daklinza (Daclatasvir (DCV)) - an NS5A replication complex inhibitor in development; Sunvepra (Asunaprevir (ASV)) - an NS3 protease inhibitor in development; BMS-791325 - an NS5B non-nucleoside polymerase inhibitor in development

In July 2014, the Company announced that the Japanese Ministry of Health,

Labor and Welfare approved Daklinza and Sunvepra as a new HCV treatment that

can lead to cure for many patients in Japan who currently have no treatment

options. The Daklinza + Sunvepra Dual Regimen is Japan's first all-oral,

interferon- and ribavirin-free treatment regimen for patients with genotype 1

chronic HCV infection, including those with compensated cirrhosis.

In June 2014, the Company announced that the CHMP of the European Medicines

Agency (EMA) has adopted a positive opinion recommending that Daklinza be

granted approval for use in combination with other medicinal products for the

treatment of chronic HCV infection in adults. The CHMP's positive opinion

will now be reviewed by the European Commission (EC).

In April 2014, the Company announced Phase III results from the global

HALLMARK-Dual study investigating the all-oral, interferon- and

ribavirin-free regimen of DCV + ASV among genotype 1b HCV infected patients.

Results showed that the 24-week regimen achieved an overall sustained

virologic response (a functional cure) 12 weeks after the end of treatment

among treatment-naÏve (90%), peginterferon/ribavirin non-responder (82%), and

peginterferon/ribavirin ineligible/intolerant (82%) patients, including

cirrhotic and non-cirrhotic patients (84% and 85%, respectively). In the

study the DCV + ASV regimen was generally well tolerated.

In April 2014, the Company announced the submission of new drug applications

(NDAs) for DCV and ASV to the FDA. The data submitted in the NDAs support the

use of DCV + ASV in patients with genotype 1b hepatitis C. The DCV NDA also

seeks approval for use of this compound in combination with other agents for

multiple genotypes. The FDA accepted the submissions for filing and assigned

both submissions priority review with a user fee goal date of November 30,

2014.



Reyataz - a protease inhibitor for the treatment of the human immunodeficiency virus (HIV)

In April 2014, the Company announced the submission of an NDA to the FDA for

a fixed-dose combination of atazanavir sulfate, a protease inhibitor marketed

as Reyataz, and cobicistat, an investigational pharmacokinetic enhancer, or

boosting agent, that can increase the level of certain HIV-1 medicines in the

blood and make them more effective. The Company is seeking approval of the

fixed-dose combination tablet for use in combination with other

antiretroviral agents for the treatment of HIV-1 infection. Cobicistat is

being developed by Gilead Sciences, Inc. (Gilead). 28

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Elotuzumab - a humanized monoclonal antibody being investigated as an anticancer treatment. Elotuzumab is part of our alliance with AbbVie Inc. (AbbVie) In May 2014, the Company and AbbVie announced that the FDA has granted

elotuzumab Breakthrough Therapy Designation for use in combination with lenalidomide and dexamethasone for the treatment of multiple myeloma in patients who have received one or more prior therapies. The designation is



based on findings from a randomized Phase II, open-label study that evaluated

two dose levels of elotuzumab in combination with lenalidomide and low-dose

dexamethasone in previously-treated patients, including the 10 mg/kg dose

that is being studied in the Phase III trials.

Yervoy - a monoclonal antibody for the treatment of patients with unresectable (inoperable) or metastatic melanoma In June 2014, the Company announced results from a Phase III randomized,



double blind study demonstrating that Yervoy 10 mg/kg significantly improved

recurrence-free survival (RFS, the length of time before recurrence or death)

versus placebo for patients with stage 3 melanoma who are at high risk of

recurrence following complete surgical resection, an adjuvant setting. A 25%

reduction in the risk of recurrence or death was observed. At three years, an

estimated 46.5% of patients treated with Yervoy were free of disease

recurrence compared to an estimated 34.8% of patients on placebo. The median

RFS was 26.1 months for Yervoy versus 17.1 months for placebo, with a median

follow-up of 2.7 years. Orencia (abatacept) - a fusion protein indicated for adult patients with moderate to severe active rheumatoid arthritis (RA) and is also indicated for reducing signs and symptoms in certain pediatric patients with moderately to severely active polyarticular juvenile idiopathic arthritis. In June 2014, the Company announced its first release of new data from a



Phase IIIb AVERT trial showing that Orencia in combination with methotrexate

(MTX) achieved significantly higher rates of DAS-defined remission at 12 months than treatment with standard of care agent MTX in biologic and MTX-naÏve patients with early active RA. Eliquis (apixaban) - an oral Factor Xa inhibitor, targeted at stroke prevention in nonvalvular atrial fibrillation (NVAF) and the prevention and treatment of venous thromboembolic (VTE) disorders. Eliquis is part of our alliance with Pfizer.



In July 2014, the Company and Pfizer announced that the first patient has

been enrolled into a Phase IV clinical trial called EMANATE assessing the

effectiveness and safety of Eliquis in patients with NVAF undergoing cardioversion.



In June 2014, the Company and Pfizer announced that the CHMP of the EMA has

adopted a positive opinion recommending that Eliquis be granted marketing

authorization for the treatment of deep vein thrombosis (DVT) and pulmonary

embolism (PE), and the prevention of recurrent DVT and PE, in adults. The

CHMP's positive opinion will now be reviewed by the EC.

RESULTS OF OPERATIONS Total Revenues Three Months Ended June 30, Six Months Ended June 30, 2014 vs. 2013 2014 vs. 2013 Total Revenues Analysis of % Change Total Revenues Analysis of % Change Dollars in Millions 2014 2013 Total Change Volume Price Foreign Exchange 2014 2013 Total Change Volume Price Foreign Exchange United States $ 1,901$ 2,045 (7 )% (12 )% 5 % - $ 3,666$ 4,016 (9 )% (12 )% 3 % - Europe 908 950 (4 )% (1 )% (7 )% 4 % 1,856 1,896 (2 )% 2 % (7 )% 3 % Rest of the World 811 835 (3 )% 3 % (2 )% (4 )% 1,641 1,600 3 % 10 % (2 )% (5 )% Other(a) 269 218 23 % N/A N/A - 537 367 46 % N/A N/A - Total $ 3,889$ 4,048 (4 )% (5 )% 1 % - $ 7,700$ 7,879 (2 )% (2 )% - -



(a) Other total revenues include royalties and other alliance-related revenues

for products not sold by our regional commercial organizations.

No single country outside the U.S. contributed more than 10% of total revenues during the six months ended June 30, 2014 and 2013. In general, our business is not seasonal. The change in U.S. revenues attributed to volume for both periods resulted from the diabetes business divestiture in February 2014 partially offset by increased demand for Eliquis, Sprycel and Yervoy. The change in U.S. revenues attributed to price for both periods was due to higher average net selling prices for Abilify*(aripiprazole) and other key products. See "-Revenues of Products" for further discussions. 29

-------------------------------------------------------------------------------- The change in Europe revenues in both periods resulted from the diabetes business divestiture, loss of exclusivity of Sustiva in 2013 and expiration of commercialization rights to Abilify* in the EU in June 2014, partially offset by higher demand for most other key products, particularly Yervoy, Eliquis and Orencia, and favorable foreign exchange. In addition, the change in revenues in both periods was negatively impacted by fiscal challenges in many European countries as healthcare payers, including government agencies, have reduced and are expected to continue to reduce healthcare costs through actions that directly or indirectly impose additional price reductions. These measures include, but are not limited to, mandatory discounts, rebates, and other restrictive measures. The change in revenues attributed to volume in Rest of the World resulted from increased demand for key products, particularly Eliquis, Yervoy and Sprycel, which was partially offset by the diabetes business divestiture and the alliance arrangement with Reckitt Benckiser Group plc that was entered into in May 2013. The volume change also reflected lower sales of Reyataz and Baraclude in the second quarter of 2014 compared to the prior period. Both periods were impacted by unfavorable foreign exchange (primarily in Japan and Argentina). Other revenues increased in both periods due to higher royalties and revenues from alliances including mature brands and over-the-counter products. These revenues are expected to decline in 2015 and 2016 upon the expiration of certain royalty and alliance agreements. We recognize revenue net of gross-to-net adjustments that are further described in "-Critical Accounting Policies" in the Company's 2013 Form 10-K. Our share of Abilify* and Atripla* (efavirenz 600 mg/emtricitabine 200 mg/tenofovir disoproxil fumarate 300 mg) is reflected net of all gross-to-net adjustments in alliance and other revenues. Although not presented as a gross-to-net adjustment in the below tables, our share of Abilify* and Atripla* gross-to-net adjustments were $405 million and $326 million for the three months ended June 30, 2014 and 2013, respectively, and $764 million and $634 million for the six months ended June 30, 2014 and 2013, respectively. The activities and ending reserve balances for each significant category of gross-to-net adjustments were as follows: Managed Healthcare Charge-Backs Rebates and Related to Other Government Contract Dollars in Millions Programs Cash Discounts



Discounts Medicaid Rebates Sales Returns Other Adjustments

Total

Balance at January 1, 2014$ 37 $ 12 $ 147

$ 227 $ 279 $ 236 $



938

Provision related to sales made in: Current period 289 67 172 199 29 276 1,032 Prior periods - - 1 (16 ) 4 (4 ) (15 ) Returns and payments (293 ) (67 ) (193 ) (148 ) (44 ) (256 ) (1,001 ) Balance at June 30, 2014 $ 33 $ 12 $ 127 $ 262 $ 268 $ 252 $ 954



The reconciliation of gross product sales to net product sales by each significant category of gross-to-net adjustments was as follows: Dollars in Millions

Three Months Ended June 30,



Six Months Ended June 30,

2014 2013 2014 2013 Gross product sales $ 3,283$ 3,581$ 6,594$ 6,973 Gross-to-Net Adjustments Charge-backs related to government programs (151 ) (135 ) (289 ) (266 ) Cash discounts (33 ) (39 ) (67 ) (74 ) Managed healthcare rebates and other contract discounts (72 ) (135 ) (173 ) (226 ) Medicaid rebates (97 ) (86 ) (183 ) (137 ) Sales returns (20 ) (32 ) (33 ) (36 ) Other adjustments (140 ) (130 ) (272 ) (253 ) Total Gross-to-Net Adjustments (513 ) (557 ) (1,017 ) (992 ) Net product sales $ 2,770$ 3,024$ 5,577$ 5,981



Changes in the gross-to-net adjustments are primarily a function of changes in sales mix and contractual and legislative discounts and rebates. Managed healthcare rebates and other contract discounts decreased

primarily due to the divestiture of the diabetes business in February

2014.

Medicaid rebates were lower in the first quarter of 2013, primarily due to

a $39 million reduction in prior period accruals based upon actual invoices received. The U.S. sales return reserves for Plavix* and Avapro*/Avalide* at



June 30, 2014 were $141 million and were determined after considering

several factors including estimated inventory levels in the distribution

channels. In accordance with Company policy, these products are eligible

to be returned between six months prior to and twelve months after product

expiration. Adjustments to these reserves might be required in the future

for revised estimates to various assumptions including actual returns.

30 --------------------------------------------------------------------------------



Product Revenues

Three Months Ended June 30, Six Months Ended June 30, % Change % Change Attributable Attributable Dollars in to Foreign to Foreign Millions 2014 2013 % Change Exchange 2014 2013 % Change Exchange Key Products Virology Baraclude (entecavir) $ 369$ 371 (1 )% 1 % $ 775$ 737 5 % (1 )% U.S. 84 73 15 % - 154 141 9 % - Non-U.S. 285 298 (4 )% 1 % 621 596 4 % (1 )% Reyataz



(atazanavir

sulfate) 362 431 (16 )% (1 )% 706 792 (11 )% (1 )% U.S. 168 200 (16 )% - 344 393 (12 )% - Non-U.S. 194 231 (16 )% (1 )% 362 399 (9 )% (2 )% Sustiva



(efavirenz)

Franchise 361 411 (12 )% 1 % 680 798 (15 )% 1 % U.S. 266 275 (3 )% - 494 526 (6 )% - Non-U.S. 95 136 (30 )% 3 % 186 272 (32 )% 2 % Oncology Erbitux* (cetuximab) 186 171 9 % N/A 355 333 7 % N/A U.S. 178 168 6 % - 336 326 3 % - Non-U.S. 8 3 ** N/A 19 7 ** N/A Sprycel (dasatinib) 368 312 18 % - 710 599 19 % (1 )% U.S. 163 135 21 % - 308 250 23 % - Non-U.S. 205 177 16 % (1 )% 402 349 15 % (3 )% Yervoy (ipilimumab) 321 233 38 % 1 % 592 462 28 % 1 % U.S. 173 140 24 % - 319 299 7 % - Non-U.S. 148 93 59 % 3 % 273 163 67 % 2 %



Neuroscience

Abilify*

(aripiprazole) 555 563 (1 )% 1 % 1,095 1,085 1 % 1 % U.S. 417 378 10 % - 742 706 5 % - Non-U.S. 138 185 (25 )% 2 % 353 379 (7 )% 2 %



Immunoscience

Orencia (abatacept) 402 352 14 % (1 )% 765 672 14 % (1 )% U.S. 254 238 7 % - 483 452 7 % - Non-U.S. 148 114 30 % (3 )% 282 220 28 % (5 )%



Cardiovascular

Eliquis (apixaban) 171 12 ** N/A 277 34 ** N/A U.S. 94 5 ** - 155 22 ** - Non-U.S. 77 7 ** N/A 122 12 ** N/A Diabetes Alliance 27 438 (94 )% - 206 796 (74 )% - U.S. - 320 (100 )% - 114 612 (81 )% - Non-U.S. 27 118 (77 )% - 92 184 (50 )% - Mature Products and All Other 767 754 2 % 1 % 1,539 1,571 (2 )% - U.S. 104 113 (8 )% - 217 289 (25 )% - Non-U.S. 663 641 3 % 1 % 1,322 1,282 3 % -



** Change in excess of 100%.

31

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Baraclude - an oral antiviral agent for the treatment of chronic hepatitis B U.S. revenues increased in both periods primarily due to higher average net

selling prices. We may experience a rapid and significant decline in U.S.

revenues due to possible generic competition following a Federal appellate

court's decision in June 2014 affirming a lower Federal court's 2013 decision

to invalidate the composition of matter patent. The Company has filed a

petition for an en banc rehearing by the entire Federal appellate court.

International revenues decreased in the three months ended June 30, 2014

primarily due to lower demand in the second quarter of 2014. During the six

months ended June 30, 2014, international revenues increased due to higher

demand in most countries partially offset by unfavorable foreign exchange.

Reyataz - a protease inhibitor for the treatment of HIV U.S. revenues decreased in both periods due to lower demand.

International revenues decreased in both periods due to lower demand, the

timing of government purchases in certain countries and unfavorable foreign

exchange.

Sustiva Franchise - a non-nucleoside reverse transcriptase inhibitor for the treatment of HIV, which includes Sustiva, an antiretroviral drug, and bulk efavirenz, which is also included in the combination therapy, Atripla*, a product sold through our joint venture with Gilead U.S. revenues decreased in both periods due to lower demand partially offset

by higher average net selling prices.

International revenues decreased in both periods due to Sustiva's loss of

exclusivity in Europe in 2013, which negatively impacted demand, average net

selling prices and Atripla* revenue sharing.

Erbitux* - a monoclonal antibody designed to exclusively target and block the Epidermal Growth Factor Receptor, which is expressed on the surface of certain cancer cells in multiple tumor types as well as normal cells and is currently indicated for use in the treatment of patients with certain types of metastatic colorectal cancer and squamous cell carcinoma of the head and neck. Erbitux* is part of our alliance with Eli Lilly and Company. U.S. revenues increased in both periods primarily due to higher demand. Sprycel - an oral inhibitor of multiple tyrosine kinases indicated for the first-line treatment of adults with Philadelphia chromosome-positive chronic myeloid leukemia in chronic phase and the treatment of adults with chronic, accelerated, or myeloid or lymphoid blast phase chronic myeloid leukemia with resistance or intolerance to prior therapy, including Gleevec* (imatinib meslylate). Sprycel is part of our alliance with Otsuka Pharmaceutical Co., Ltd (Otsuka). U.S. revenues increased in both periods primarily due to higher demand.



International revenues increased in both periods due to higher demand

partially offset by unfavorable foreign exchange.

Yervoy - a monoclonal antibody for the treatment of patients with unresectable (inoperable) or metastatic melanoma U.S. revenues increased in both periods due to higher demand. The first



quarter of 2013 included $27 million of revenues that were previously

deferred.

International revenues increased in both periods due to higher demand and

favorable foreign exchange.

Abilify* - an antipsychotic agent for the treatment of schizophrenia, bipolar mania disorder and major depressive disorder and is part of our alliance with Otsuka U.S. revenues increased in both periods primarily due to higher average net



selling prices partially offset by the reduction in our share of Abilify*

revenues from 34% in 2013 to 33%.

International revenues decreased in both periods primarily due to the

expiration of BMS's commercialization rights in June 2014 in the EU and

Otsuka becoming the principal in the end customer sales in certain markets.

As a result, these revenues are expected to continue to decline for the

remainder of 2014.

Orencia - a fusion protein indicated for adult patients with moderate to severe active RA and is also indicated for reducing signs and symptoms in certain pediatric patients with moderately to severely active polyarticular juvenile idiopathic arthritis. U.S. revenues increased in both periods primarily due to higher average net



selling prices and higher demand for the subcutaneous formulation partially

offset by wholesaler buying patterns.

International revenues increased in both periods primarily due to higher

demand for the subcutaneous formulation partially offset by unfavorable

foreign exchange.

Eliquis - an oral Factor Xa inhibitor, targeted at stroke prevention in adult patients with NVAF and the prevention and treatment of VTE disorders. Eliquis is part of our alliance with Pfizer U.S. and international revenues continued to increase in both periods



following the 2013 launches in most major markets for the reduction of the

risk of stroke and systemic embolism patients with NVAF. 32

-------------------------------------------------------------------------------- Diabetes Alliance - includes Bydureon*, Byetta*, Farxiga*, Onglyza*/Kombiglyze*, Myalept*, and Symlin*, which were part of our strategic alliance with AstraZeneca. BMS sold its diabetes business to AstraZeneca on February 1, 2014. Mature Products and All Other - includes all other products, including those which have lost exclusivity in major markets, over-the-counter brands and royalty revenue. U.S. revenues decreased in both periods due to lower demand and the continued



generic erosion of other products.

International revenues increased in both periods due to revenues attributed

to certain alliances, which were partially offset by the continued generic

erosion of other products.

Estimated End-User Demand Pursuant to the Securities and Exchange Commission (SEC) Consent Order described in our 2013 Annual Report on Form 10-K, we monitor the level of inventory on hand in the U.S. wholesaler distribution channel and outside of the U.S. in the direct customer distribution channel. We are obligated to disclose products with levels of inventory in excess of one month on hand or expected demand, subject to a de minimis exception. Estimated levels of inventory in the distribution channel in excess of one month on hand for these products were not material to our results of operations as of the dates indicated. TAXOL, an oncology product, had 1.2 months of inventory on hand internationally at March 31, 2014 and December 31, 2013. The level of inventory on hand was due to a one-time sale of short-dated inventory in Brazil as a result of a government required labeling change and additional lead time for customs clearance in China. In the U.S., we generally determine our months on hand estimates using inventory levels of product on hand and the amount of out-movement provided by our three largest wholesalers and our distributors. Our three largest wholesalers account for approximately 90% of total gross sales of U.S. products. Factors that may influence our estimates include generic competition, wholesaler purchases in light of increases in wholesaler list prices, new product launches, new warehouse openings by wholesalers and new customer stockings by wholesalers. In addition, these estimates are calculated using third-party data, which may be impacted by their recordkeeping processes. Our non-U.S. businesses have significantly more direct customers. Limited information on direct customer product level inventory and corresponding out-movement information and the reliability of third-party demand information, where available, varies widely. When direct customer product level inventory, ultimate patient/consumer demand or out-movement data does not exist or is otherwise not available, we have developed a variety of methodologies to estimate such data, including using historical sales made to direct customers and third-party market research data related to prescription trends and end-user demand. Accordingly, we rely on a variety of methods to estimate direct customer product level inventory and to calculate months on hand. Factors that may affect our estimates include generic competition, seasonality of products, direct customer purchases in light of price increases, new product launches, new warehouse openings by direct customers, new customer stockings by direct customers and expected direct customer purchases for governmental bidding situations. As a result, all of the information required to estimate months on hand in the direct customer distribution channel for non-U.S. businesses for the quarter ended June 30, 2014 is not available prior to the filing of this quarterly report on Form 10-Q. We will disclose any product with levels of inventory in excess of one month on hand or expected demand for the current quarter, subject to a de minimis exception, in the next quarterly report on Form 10-Q. Expenses Three Months Ended June 30, Six Months Ended June 30, Dollars in Millions 2014 2013 % Change 2014 2013 % Change Cost of products sold $ 991$ 1,108 (11 )% $ 1,959$ 2,171 (10 )% Marketing, selling and administrative 951 1,042 (9 )% 1,908 2,036 (6 )% Advertising and product promotion 187 218 (14 )% 350 407 (14 )% Research and development 1,416 951 49 % 2,362 1,881 26 % Other (income)/expense (104 ) 199 ** (312 ) 180 ** Total Expenses $ 3,441$ 3,518 (2 )% $ 6,267$ 6,675 (6 )%



** Change is in excess of 100%

Cost of products sold decreased in both periods primarily due to the diabetes business divestiture in February 2014 partially offset by higher profit sharing, royalties for other alliances and accelerated depreciation for certain manufacturing facilities. Cost of products sold as a percentage of total revenues was 25.5% and 27.4% in the three months ended June 30, 2014 and 2013, respectively, and 25.4% and 27.6% in the six months ended June 30, 2014 and 2013, respectively. 33

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Marketing, selling and administrative expenses and advertising and product promotion expenses decreased in both periods following the diabetes business divestiture in February 2014.

Research and development expenses increased due to $343 million IPRD impairment charges (including a $310 million charge recognized in the second quarter of 2014 for peginterferon lambda which is currently in Phase III development for treatment of hepatitis C virus) and a $148 million charge for the acquisition of iPierian in April 2014. See "Item 1. Financial Statements-Note 14. Other Intangible Assets" for further information. Intangible assets are tested for impairment whenever current facts or circumstances warrant a review, although IPRD is required to be tested annually. Intangible assets are highly vulnerable to impairment charges, particularly newly acquired assets for recently launched products or IPRD. These assets are initially measured at fair value and therefore a reduction in expectations used in the valuations could potentially lead to an impairment. Some of the more common potential risks leading to impairment include competition, earlier than expected loss of exclusivity, pricing pressures, adverse regulatory changes or clinical trial results, higher development or other operating costs, inability to achieve expected sales levels or synergies, changes in tax laws or other macro-economic changes. We operate in a very dynamic market and regulatory environment in which events can occur causing our expectations to change quickly and thus leading to potential impairment charges.



Other (income)/expense includes:

Three Months Ended June 30, Six Months Ended June 30, Dollars in Millions 2014 2013 2014 2013 Interest expense $ 46 $ 50 $ 100 $ 100 Investment income (28 ) (28 ) (51 ) (53 ) Provision for restructuring 16 173 37 206 Litigation charges/(recoveries) (20 ) (22 ) 9 (22 ) Equity in net income of affiliates (33 ) (50 ) (69 ) (86 ) Gain on sale of product lines, businesses and assets 7 - (252 ) (1 ) Other alliance and licensing income (144 ) (32 ) (252 ) (89 ) Pension curtailments, settlements and special termination benefits 45 101 109 101 Other 7 7 57 24 Other (income)/expense $ (104 )$ 199$ (312 )$ 180



Provision for restructuring was primarily attributable to employee

termination benefits including costs in the prior periods primarily due to

sales force reductions resulting from the restructuring of the Sanofi and

Otsuka agreements and streamlining operations due to challenging market

conditions in Europe. Additional employee termination costs in the aggregate

range of $210 million to $275 million are expected to be incurred in 2014 and

2015 as a result of specialty care transformation initiatives designed to

create a more simplified organization across all functions and geographic

markets. Subject to local regulations, costs will not be recognized until

completion of discussions with works councils. Employee termination costs

related to this initiative were $12 million for the three and six months

ended June 30, 2014.

Gain on sale of product lines, businesses and assets was related to the sale

of the diabetes business in February 2014. See "Item 1. Financial

Statements-Note 3. Alliances" for further details.

Other alliance and licensing income increased primarily due to royalties and

transitional service fees resulting from the diabetes business divestiture.

The royalties and transitional service fees were $124 million and $203 million for the three months and six months ended June 30, 2014, respectively. See "Item 1. Financial Statements-Note 3. Alliances" for further details.



Pension settlement charges were recognized in 2014, 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 charge included the acceleration of a portion of unrecognized

actuarial losses. Similar charges will likely occur in the future. See "Item

1. Financial Statements-Note 17. Pension and Postretirement Benefit Plans"

for further details.

Other includes a $45 million loss on debt redemptions in 2014.

34

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Income Taxes

Three Months Ended June 30, Six Months Ended June 30, Dollars in Millions 2014 2013 2014 2013 Earnings Before Income Taxes $ 448 $ 530 $ 1,433$ 1,204 Provision for Income Taxes 114 - 163 51 Effective tax rate 25.4 % - 11.4 % 4.2 % The effective tax rates were impacted by several factors including a tax benefit attributed to the gain on the sale of the diabetes business in the first quarter of 2014, no tax benefit attributable to the research and development charge resulting from the acquisition of iPierian in the second quarter of 2014, the timing of the extension for the research and development credit and look through exception legislation and other discrete tax benefits.



See "Item 1. Financial Statements-Note 8. Income Taxes" for further discussion.

Non-GAAP Financial Measures

Our non-GAAP financial measures, including non-GAAP earnings and related EPS information, are adjusted to exclude certain costs, expenses, gains and losses and other specified items that due to their significant and/or unusual nature are evaluated on an individual basis. Similar charges or gains for some of these items have been recognized in prior periods and it is reasonably possible that they could reoccur in future periods. Non-GAAP information is intended to portray the results of our baseline performance which include the discovery, development, licensing, manufacturing, marketing, distribution and sale of pharmaceutical products on a global basis and to enhance an investor's overall understanding of our past financial performance and prospects for the future. For example, non-GAAP earnings and EPS information is an indication of our baseline performance before items that are considered by us to not be reflective of our ongoing results. In addition, this information is among the primary indicators we use as a basis for evaluating performance, allocating resources, setting incentive compensation targets, and planning and forecasting for future periods. This information is not intended to be considered in isolation or as a substitute for net earnings or diluted EPS prepared in accordance with GAAP.



Specified items were as follows:

Three Months Ended June 30, Six Months Ended June 30, Dollars in Millions 2014 2013 2014 2013 Accelerated depreciation, asset impairment and other shutdown costs $ 39 $ - $ 84 $ - Amortization of acquired Amylin intangible assets - 137 - 275 Amortization of Amylin alliance proceeds - (67 ) - (134 ) Amortization of Amylin inventory adjustment - - - 14 Cost of products sold 39 70 84 155 Marketing, selling and administrative(a) 3 1 6 2 Upfront, milestone and other payments 148 - 163 - IPRD impairments 310 - 343 - Research and development 458 - 506 - Provision for restructuring 16 173 37 206 Gain on sale of product lines, businesses and assets 12 - (247 ) - Pension curtailments, settlements and special termination benefits 45 99 109 99 Acquisition and alliance related items 17 (10 ) 33 (10 ) Litigation charges/(recoveries) (23 ) (23 ) 2 (23 ) Loss on debt redemption - - 45 - Upfront, milestone and other licensing receipts - - - (14 ) Other (income)/expense 67 239 (21 ) 258 Increase to pretax income 567 310 575 415 Income taxes on items above (102 ) (116 ) (281 ) (151 ) Increase to net earnings $ 465$ 194$ 294$ 264



(a) Specified items in marketing, selling and administrative are process

standardization implementation costs. 35

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The reconciliations from GAAP to Non-GAAP were as follows:

Three Months Ended June 30, Six Months Ended June 30, Dollars in Millions, except per share data 2014 2013 2014 2013 Net Earnings Attributable to BMS used for Diluted EPS Calculation - GAAP $ 333 $ 536$ 1,270$ 1,145 Less Specified Items 465 194 294 264 Net Earnings used for Diluted EPS Calculation - Non-GAAP 798 730



1,564 1,409

Average Common Shares Outstanding - Diluted 1,669 1,660



1,668 1,658

Diluted Earnings Per Share - GAAP $ 0.20 $ 0.32$ 0.76$ 0.69 Diluted EPS Attributable to Specified Items 0.28 0.12 0.18 0.16



Diluted Earnings Per Share - Non-GAAP $ 0.48 $ 0.44

$ 0.94$ 0.85

FINANCIAL POSITION, LIQUIDITY, AND CAPITAL RESOURCES

Our net cash/(debt) position was as follows:

June 30, December 31, Dollars in Millions 2014 2013 Cash and cash equivalents $ 4,282$ 3,586 Marketable securities - current 2,893



939

Marketable securities - non-current 3,876



3,747

Cash, cash equivalents and marketable securities 11,051



8,272

Short-term borrowings and current portion of long-term debt (365 )

(359 ) Long-term debt (7,372 ) (7,981 ) Net cash/(debt) position $ 3,314$ (68 ) Cash, cash equivalents and marketable securities held in the U.S. were approximately $2.6 billion at June 30, 2014. Most of the remaining $8.5 billion is held primarily in low-tax jurisdictions and is attributable to earnings that are expected to be indefinitely reinvested offshore. Cash repatriations are subject to restrictions in certain jurisdictions and may be subject to withholding and additional U.S. income taxes. We believe that our existing cash, cash equivalents and marketable securities together with cash generated from operations will be sufficient to satisfy our normal cash requirements for at least the next few years, including dividends, capital expenditures, milestone payments and working capital. In February 2014, we sold to AstraZeneca substantially all of the diabetes business comprising our alliance with them, resulting in $3.3 billion of cash flow in the first quarter of 2014. We also redeemed our 5.45% Notes due 2018 in their entirety. The outstanding principal amount of the notes was $582 million. Management periodically evaluates potential opportunities to repurchase certain debt securities and terminate certain interest rate swap contracts prior to their maturity. No commercial paper borrowings were outstanding as of June 30, 2014. Our investment portfolio includes non-current marketable securities, which are subject to changes in fair value as a result of interest rate fluctuations and other market factors, which may impact our results of operations. Our investment policy places limits on these investments and the amount and time to maturity of investments with any institution. The policy also requires that investments are only entered into with corporate and financial institutions that meet high credit quality standards. See "Item 1. Financial Statements-Note 10. Financial Instruments." We currently have two separate $1.5 billion revolving credit facilities from a syndicate of lenders. The facilities provide for customary terms and conditions with no financial covenants and were extended to September 2018 and July 2019. Each facility is extendable annually by one year on any anniversary date with the consent of the lenders. No borrowings were outstanding under either revolving credit facility at June 30, 2014 and December 31, 2013. Additional regulations in the U.S. could be passed in the future, which could further reduce our results of operations, operating cash flow, liquidity and financial flexibility. We continue to monitor the potential impact of the economic conditions in certain European and other countries and the related impact on prescription trends, pricing discounts, creditworthiness of our customers and our ability to collect outstanding receivables from our direct customers. Currently, we believe these economic conditions will not have a material impact on our liquidity, cash flow or financial flexibility. 36 -------------------------------------------------------------------------------- We have exposure to certain European government-backed entities with a higher risk of default. We monitor them through economic factors including credit ratings, credit-default swap rates and debt-to-gross domestic product ratios in addition to entity specific factors. Our exposure has been reduced by factoring certain receivables. Our credit exposures in Europe may increase in the future due to reductions in our factoring arrangements and the ongoing sovereign debt crisis. Our credit exposure to trade receivables in Greece, Portugal, Italy and Spain was $123 million at June 30, 2014, of which approximately 80% was from government-backed entities. Sales of trade receivables in Italy, Portugal and Spain were $251 million in 2014 and $223 million in 2013. Sales of receivables in Japan were $173 million in 2014 and $282 million in 2013. Our factoring agreements do not allow for recourse in the event of uncollectibility and we do not retain interest to the underlying assets once sold.



We continue to manage our operating cash flows by focusing on working capital items that are most directly affected by changes in sales volume, such as receivables, inventories and accounts payable.

June 30, December 31, Dollars in Millions 2014 2013 Net trade receivables $ 1,799$ 1,690 Inventories 1,666 1,498 Accounts payable (2,405 ) (2,559 ) Total $ 1,060$ 629 Credit Ratings Moody's Investors Service long-term and short-term credit ratings are A2 and Prime-1, respectively, and their long-term credit outlook is negative. Standard & Poor's long-term and short-term credit ratings are A+ and A-1+, respectively, and their long-term credit outlook is stable. Fitch's long-term and short-term credit ratings are A- and F2, respectively, and long term credit outlook is negative. Our credit ratings are considered investment grade. Our long-term ratings reflect the agencies' opinion that we have a low default risk but are somewhat susceptible to adverse effects of changes in circumstances and economic conditions. Our short-term ratings reflect the agencies' opinion that we have good to extremely strong capacity for timely repayment.



Cash Flows

The following is a discussion of cash flow activities:

Six Months Ended June 30, Dollars in Millions 2014 2013 Cash flow provided by/(used in): Operating activities $ 1,673$ 1,082 Investing activities 701 218 Financing activities (1,678 ) (1,159 ) Operating Activities Cash flow from operating activities represents the cash receipts and disbursements from all of our activities other than investing and financing activities. Operating cash flow is derived by adjusting net earnings for noncontrolling interest, non-cash operating items, gains and losses attributed to investing and financing activities and changes in operating assets and liabilities resulting from timing differences between the receipt and payments of cash and when the transactions are recognized in our results of operations. As a result, changes in cash from operating activities reflect the timing of cash collections from customers and alliance partners; payments to suppliers, alliance partners and employees; pension contributions; and tax payments in the ordinary course of business.



The $591 million increase in cash provided by operating activities compared to 2013 was primarily attributable to:

Higher operating cash flow attributed to increased sales of Eliquis,

Sprycel, Yervoy and Orencia, the timing of payments with alliance partners

and other working capital requirements in 2014 by approximately $600 million;



Lower pension contributions and annual employee bonus payments in 2014 by

approximately $200 million;

Lower litigation and restructuring payments in 2014 by approximately $200

million.



Partially offset by: Lower upfront and contingent milestone proceeds from alliances in 2014 by

approximately $400 million. 37

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Investing Activities

The $483 million increase in cash provided by investing activities compared to 2013 was primarily attributable to:

Proceeds allocated to the sale of the diabetes business were $3.2 billion

in 2014. These proceeds were substantially invested in marketable

securities.

Cash used to acquire iPierian was $175 million in 2014.

Financing Activities

The $519 million increase in cash used in financing activities compared to 2013 was primarily attributable to:

Cash outflows related to the debt redemption were $676 million in 2014 (none in 2013).



Dividend payments were $1.2 billion in 2014 and 2013. Dividends declared

per common share were $0.72 in 2014 and $0.70 in 2013. Dividend decisions

are made on a quarterly basis by our Board of Directors.

Cash used to repurchase common stock was $380 million in 2013 (none in 2014).

Proceeds from stock option exercises were $98 million in 2014 (excluding

$102 million of excess tax benefits) and $347 million in 2013 (excluding

$96 million of excess tax benefits). These proceeds will vary from period

to period based on fluctuations in the market value of our stock relative

to the exercise price of the stock options and other factors.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenue and expenses. Our critical accounting policies are those that significantly impact our financial condition and results of operations and require the most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Because of this uncertainty, actual results may vary from these estimates. For a discussion of our critical accounting policies, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2013 Annual Report on Form 10-K. There have been no material changes to our critical accounting policies during the six months ended June 30, 2014.



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q (including documents incorporated by reference) and other written and oral statements we make from time to time contain certain "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify these forward-looking statements by the fact they use words such as "should", "expect", "anticipate", "estimate", "target", "may", "project", "guidance", "intend", "plan", "believe" and other words and terms of similar meaning and expression in connection with any discussion of future operating or financial performance. One can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. Such forward-looking statements are based on current expectations and involve inherent risks and uncertainties, including factors that could delay, divert or change any of them, and could cause actual outcomes to differ materially from current expectations. These statements are likely to relate to, among other things, our goals, plans and projections regarding our financial position, results of operations, cash flows, market position, product development, product approvals, sales efforts, expenses, performance or results of current and anticipated products and the outcome of contingencies such as legal proceedings and financial results, which are based on current expectations that involve inherent risks and uncertainties, including internal or external factors that could delay, divert or change any of them in the next several years. We have included important factors in the cautionary statements included in this report and in the 2013 Annual Report on Form 10-K, particularly under "Item 1A. Risk Factors," that we believe could cause actual results to differ materially from any forward-looking statement. Although we believe we have been prudent in our plans and assumptions, no assurance can be given that any goal or plan set forth in forward-looking statements can be achieved and readers are cautioned not to place undue reliance on such statements, which speak only as of the date made. We undertake no obligation to release publicly any revisions to forward-looking statements as a result of new information, future events or otherwise. 38



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