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BUY
$32.59 $48-53
INVESTMENT THESIS
(-) Bristol-Myers Squibbs patent on its largest volume
drug, Plavix with $7.1 billion annual sales, is set to expire in 2012. This will cause total revenue to drop a projected 15-16% in 2012 and a further 4-5% in 2013. Bristols pipeline is unprepared to compensate for this loss immediately.
1
$24.97-35.44 $55.1 1,688 68.5% 0.51 4.2% 15.11 3.41 2.56 13.64% 33.39% -0.9%
Market Capitalization (B) Shares Outstanding (M) Institutional Ownership 3 Year Weekly Beta Dividend Yield Price/Earnings (ttm) Price/Book Price/Sales ROA (ttm) ROE(ttm) Projected 5-Year Growth
continued to funnel funds back into research and development. R&D has remained over 18% of sales since 2007 and is projected to remain well above that. This will allow Bristol to remain a leader in delivering on its late-stage pipeline.
EPS ($)
Year EPS 2009 5.35 2010 1.80 2011 2.18 2012E 1.90 2013E 1.91 2014E 1.94
All earnings represent earnings from operations and have been filtered from net nonrecurring gains.
Valuation Models
Discounted Cash Flow Economic Profit Relative P/E Dividend Discount Model $52.96 $52.96 $25.20 $50.80
1% Bristol-Myers Squibb holds the premier drug pipeline in 4% United States the pharmaceutical industry. While the firm is expected 4% to have decreasing sales in 2012 due to the loss of its Europe largest product Plavix, Bristol has positioned itself well 9% to replace this lost revenue with a slew of new drugs, Japan and Canada including Yervoy and Eliquis. While others in the industry have cut R&D expenses, Bristol has remained 17% committed to investing in sustainable growth by LatinAmerica,Middle increasing R&D budgets. Bristol has also executed its East andAfrica 65% string of pearls strategy by acquiring about one firm per Emerging Markets year to strategically fortify its pipeline. Bristols shareholders have enjoyed increasing dividends and a Other $3 billion share repurchase program over the past three years. Due to Bristols strong pipeline that has continued to produce innovative drugs and Source: Bristol-Myers Squibb 2011 10-K managements commitment to returning cash back to investors, we place a buy recommendation on Bristol Bristols 2011 sales are focused in the US with over 65% of their sales, followed by Europe with 17%, and with a price range of $48 to $53. Japan with 9%. Revenue growth has largely come from Several external factors support Bristols increase in the US, Japan and Canada, and emerging markets. value. First, the aging baby boomer generation in the The five countries of Brazil, Russia, India, China, and US will drive growth in the industry over the long term. Turkey make up the emerging markets group for Bristol. Increased spending on health care and overall high While these countries represent a key growth economic growth will lead emerging markets to be a opportunity over the next decade, they share a group of main growth driver for Bristol. Finally, the improving US risks including intellectual property protection, currency economy will give millions of Americans health fluctuations, and pricing volatility. insurance which will ensure they can afford Bristols FDA Approval Process medications when necessary.
COMPANY DESCRIPTION
Bristol-Myers Squibb is a global biopharmaceutical firm that researches, discovers, designs, and develops new drugs with a focus on cardiovascular diseases, oncology, virology, and immunology. After navigating the drug approval process in multiple countries, Bristol then manufactures, markets, and distributes these patented pharmaceuticals to patients across the world. Most of Bristols products are chemically-synthesized drugs, or small molecules, but a growing proportion are manufactured by biological processes, referred to as biologics2. The company employs approximately 27,000 people in 44 countries, but the majority of its operations are in the US. Headquartered in New York, one third of Bristols 2011 revenue came from Plavix, an antiplatelet drug that is scheduled to lose exclusivity in May 2012.
Source: PhRMA
Drug manufacturers are allowed to patent compounds for 20 years in the US and several other counties. However, the average period for development, testing, and approval by the FDA is eight to 12 years 3. Therefore, the product life cycle for a branded drug is also eight to 12 years, but still requires many years for a drug to attain its peak revenue. Due to this industry model, over 59% of Bristols current drug portfolio is expected to expire within the next five years including Plavix, Avapro/Avalide, Abilify, Sustiva, Baraclude, and Erbitux2. In order for any pharmaceutical firm to grow revenue, they must continually have a strong internal pipeline, develop partnerships with other pharmaceutical firms,
or acquire promising clinical stage pharmaceuticals. must pick up the tab for 50% of US expenses during Bristol is one of the few pharmaceutical companies that this period. Due to this cost-sharing agreement, Abilify succeeded in each of these areas. is currently one of Bristols highest margin products 7. When Abilifys agreement/patent expires in 2015, there will be pressure on Bristols margins unless their pipeline drugs are able to increase prices and/or decrease costs. The US patent and the commercialization agreement with Otsuka expires in 2015 at which time it is not expected to be renewed. Abilifys estimated total US prescription demand increased 5% in both 2010 and 2011 and garnered higher average selling prices, but was partially offset by decreases in Bristols contractual share from Otsuka 2. We expect Abilify to continue to grow at 10% per year until patent expiration. Reyataz (2017)
Source: Bristol-Myers Squibb 2011 10-K
In order to break down Bristols revenue, it is best to analyze each blockbuster drug (i.e. drugs with annual revenues of greater than $1 billion) individually because each drug has its own growth profile, risks, and life cycle. Plavix (2012) Plavix, a platelet aggregation inhibitor, is prescribed to patients with cardiovascular disease. It is Bristols largest product encompassing over a third of total revenue at $6.6 billion2. Plavix was co-developed and is jointly marketed by a partnership agreement with Sanofi-Aventis. When its patent expires in May of 2012, Bristols 2012 total revenue is forecasted to decrease 15-16%. Bristols management has provided guidance of $2.7 billion in 2012 Plavix sales, but in the short term, Bristol will be unable to replace the revenue 4 lost by their major blockbuster drug . We have forecasted further declines in revenue in 2013 when Bristol will still carry Plavixs patent in some European countries before falling to zero in 2014. There are no plans to compete with generic manufacturers after the patent expires. Abilify (2015) Abilify, an atypical antipsychotic, is prescribed to adult patients with bipolar, schizophrenia, and major depressive disorder. It is also approved for some pediatric uses for the same disorders. Abilify totaled sales of nearly $2.8 billion in 2011. Bristol has a global commercialization agreement with Otsuka Pharmaceutical Co. to sell Abilify across the world except in Asia Pacific countries as well as Pakistan and Egypt. As part of this agreement, Bristol will recognize 51.5% of sales in the US with the agreement changing in 2013. From 2013 to patent expiration in 2015, Bristol will receive 50% of the first $2.7 billion in US sales, followed by 20% of sales between $2.7-$3.2 billion, and only 7% for sales between $3.2-$3.7 billion2. Otsuka
Reyataz, a protease inhibitor, is prescribed to patients with HIV. Launched in 2003, it was developed under a licensing agreement with Novartis which requires Bristol to pay a royalty based on a percentage of net sales 2. Bristol also promotes Reyataz for use in combination with Norvir, a pharmaceutical from competitor Abbott Laboratories, under the agreement that Bristol pay an additional royalty to Abbott. The drug earned over $1.5 billion in sales in 2011. Reyatazs patent expires in the US, Canada, and most EU countries in 2017, but will receive exclusivity in Japan until 2019. This product is one of the few blockbusters for Bristol that has five years of exclusivity left and is forecasted to grow 5% per year until 2017, the end of the forecast period. Sales have remained relatively flat in the US, but growth has come from higher demand in emerging markets, particularly Brazil 2. This trend is expected to continue for the next five years. Sustiva (2013/2014) Sustiva, a non-nucleoside reverse transcriptase inhibitor, is prescribed to patients with HIV. It is also used in the combination therapy Atripla, which combines Sustiva with Gilead Sciences Truvada. As with Reyataz, Bristol must pay a royalty based on a percentage of net sales in the US, Canada, and several EU countries to Merck & Co. Sales for Sustiva amounted to $1.4 billion in 2011 and are forecasted to grow until loss of exclusivity. The composition of matter patent is set to expire in the US in 2013, but the method of use patent does not expire until 2014 with the possibility of an additional six month pediatric extension. Baraclude (2015) Baraclude, a selective inhibitor of the hepatitis B virus, was approved by the FDA in 2005 after being internally discovered and developed by Bristol. Baraclude is sold in over 50 countries and revenue reached almost $1.2 billion in 2011, a nearly 28% growth rate year over year.
In November of 2011, the FDA assigned Eliquis a priority review, shrinking the review period from the standard 10 months to six12. However, earlier this month, the FDA announced that the decision would be Oncology Metabolics postponed three months to June 28 after receiving Immunology additional information from Bristol and Pfizer. Neither Cardiovascular firm detailed what additional information they provided Virology to the FDA, but only explained that it was information Neuroscience from current studies. Eliquis is projected to earn nearly $400 million this year and a large delay would materially hurt Bristols already fragile 2012 earnings. While it is expected that Eliquis will be approved by June 28, any deviation from this will have a large impact on Bristols stock price (5-10%) as Eliquis is projected to be a blockbuster drug in the near future. Eliquis composition of matter patent does not expire Source: Bristol-Myers Website until 2023 and will help replace the lost revenue from The biggest growth driver for Bristol has consistently Plavix as soon as it is approved. been its drug pipeline. Bristol had over 50 compounds 2 in FDA Phase II trials or later at the beginning of 2011 . The most disappointing news of the year for Bristol was The first notable development was the March 2011 the FDAs decision to decline the experimental diabetes dapagliflozin on January 19, 2012 13. launch of Yervoy. Yervoy is a biologic discovered by drug Medarex (now a subsidiary of the firm) that provides Dapagliflozin, an oral SGLT2 inhibitor, would be treatment for patients with inoperable or metastatic prescribed to patients to aid in the treatment of type-2 melanoma2. It is also being reviewed for treatment of diabetes. The news came as little surprise as an FDA other diseases including lung and prostate cancer, but advisory panel had recommended against its approval research on this is not expected until 2014. In the in July due to concerns over patients increased fourth quarter of 2011, Bristol announced that Yervoy likelihood of breast and bladder cancer compared with had generated $118 million in US revenue and those in the control groups. While the FDA has captured 25%-30% of US market share4. With patent requested additional information to make a new expiration in 2022 in the US and 2020 in the EU, decision, the commercial potential of dapagliflozin Yervoy will be a growth driver for Bristol for years to remains extremely limited. We forecasted no revenue from this product in our model, but with additional come. information the FDA may approve the product with Bristols most anticipated drug is Eliquis, an oral Factor revenues starting in 2013 or 2014. Xa inhibitor targeted for patients with venous thromboembolic disorders and to help prevent stroke in RECENT DEVELOPMENTS patients with atrial fibrillation. The drug was discovered internally as part of an alliance which requires Pfizer to 2011 Results and Earnings Call finance 60% of all development costs, but only receive On January 26, Bristol announced disappointing 4th half the profits2. Eliquis will be co-developed through quarter results. Analysts had estimated earnings of the clinical and marketing stages with $0.55 per share on revenue of $5.48 billion, but Bristol
In order to survive the patent cliff, pharmaceuticals have tried multiple strategies including aggressive pricing (branded drug prices increased by 9.7% in 2010), mergers and acquisitions, and licensing and partnership programs5. In addition, significant costreduction efforts have been implemented, including the elimination of over 100,000 jobs across the industry in the past three years. Even R&D budgets, the life blood of pharmaceuticals, have been cut recently, headlined by Pfizers decision to reduce its estimate of 2012 R&D by $2 billion. However, R&D across the industry is expected to continue to grow at above 5% in the near term and remain between 14%-18% of revenues5. Firms that cut R&D budgets will be forced to find strategic partnerships or acquisitions.
After years of preparation, 2011 marked the beginning of the patent cliff for major pharmaceuticals. Branded drug manufacturers are expected to lose $255 billion in total revenue, with decreased revenues of $21 billion in 2011 and $33 billion in 20125. In short, there has been a significant increase in competition from generic drug manufacturers. Once a drug comes off a patent, generic drug manufacturers will quickly challenge the patent and, within four weeks, a branded drug is expected to lose up to 70% of its market share 10. The chart above outlines the largest expirations and their manufacturers. Bristols loss of Plavix is a microcosm
Source: IBISWorld
Specialty (Orphan) Drugs Specialty drugs, commonly referred to as orphan drugs, have received renewed interest as government incentives have encouraged their development. These incentives include grants to help defray costs, tax incentives, and 7-year exclusivity (even if the
Source: PhRMA
Emerging Markets Global pharmaceutical sales growth is being driven by the high growth in emerging markets, particularly China. Consensus estimates have countries in emerging markets accounting for two-fifths of worldwide GDP and 80% of population by 20155. The projected revenue growth for pharmaceutical drugs in the US is 0%-3% over the next three years, but Chinas market is expected to grow at a rate of 19-22% spurred by $124 billion in government funding to provide health coverage to nearly 90% of their citizens 5,10. This projected growth rate in China is actually down from 10 their 2006-2010 CAGR of 23.9% . In total, emerging markets are estimated to account for 28% of global pharmaceutical sales in 2015, an increase from 18% in 2010. Conversely, developed markets will likely see their contribution to global sales drop from 53% in 2010 to 44% in 2015. In brief, emerging markets will account for 90% of the growth in pharmaceuticals until 2020 5. Pharmaceutical manufacturers that capitalize on emerging markets will likely be able to fill the void of blockbuster drugs that lose their patent protection.
Biologics
Biologics or large molecule compounds are medicines derived by living matter or organisms and are expected to grow from 20% of the pharmaceutical market to nearly half by 20169. This increase is largely due to biologics carrying a high price and requiring less capital which provides for a higher return on investment. In addition, these products are far more difficult to replicate compared to small-molecule chemicals which creates a higher barrier to entry, and therefore, less risk of competition. However, under legislation passed in the Healthcare Reform Act, biosimilar versions of biological products can be approved on a shortened track and with less data which eliminated the unlimited exclusivity that previously existed for biologics. Biologics now are limited to 12 years of exclusivity in the US. Currently, greater than one third of all the compounds in Bristols pipeline are biologics, as well as Emerging markets have also presented significant four of its key marketed drugs, including Yervoy. challenges to drug manufacturers. First, with prescription drug costs largely coming out-of-pocket in
Source: IBISWorld
Johnson & Johnson (JNJ) The well-known company, Johnson & Johnson, operates in three core segments: medical devices and diagnostics, consumer healthcare, and pharmaceuticals. Within its pharmaceutical segment, 65% of its revenue stems from small molecule chemical compounds and the remaining 35% comes from biologics9. Johnson & Johnson shares the same challenges as the rest of the industry, in particular expiring patents of blockbuster drugs and difficulty in obtaining FDA approval. The company was able to grow its US pharmaceutical and OTC medicine segment in 2011 by 6.3%, including an 8.8% increase in operating income. This was after years of decline in both measures. Johnson & Johnson has positioned itself well for the future with significant R&D investments in biologics as well as large acquisitions in the late 2000s5. In addition, they have a strong pipeline of medicines to replace lost revenue due to patent expiration. Pfizer (PFE) Pfizer, the global pharmaceutical company, operates in two core segments: biopharmaceutical and diversified. With over 42% of their revenue in drugs that will lose their patent protection before 2013, Pfizer has searched for strategies to protect their future5. First, in 2009, they acquired Wyeth in order to augment their research in biopharmaceutical development. Pfizer has also increased their presence in the generic drug market in order to protect its largest revenue source, Lipitor. Finally, Pfizer has dramatically cut R&D costs to try to improve the bottom line. Sales in Pfizers US pharmaceutical segment saw a 4.2% decrease in sales as well as an 8.0% decrease in operating income in 20119. A weaker pipeline of drugs, decreased R&D spending, and attempts to protect drugs past their
Beyond branded pharmaceuticals, Bristols biggest challenge is from generic manufacturers. With each drug having a limited average life cycle of eight to 12 years, Bristol must earn enough income in that time to provide a positive return after accounting for the R&D of that drug, the R&D of failed drugs, SG&A, and other overhead. Generics rely heavily on the expensive and time-consuming clinical trials already staged to prove
Pharmaceutical firms also face an increasing risk from government entities facing budget shortfalls. With extensive liabilities stemming from promised medical care, particularly to the elderly, governments are looking for solutions to cut costs in any way possible. Merck (MRK) For example, Bristol is required to provide a 50% Merck, the second largest pharmaceutical company, discount of its branded products to patients who fall into operates in four core segments: pharmaceutical, animal the Medicare Part D coverage gap, commonly referred 2 health, consumer care, and alliances. Unlike Pfizer, to as the donut hole . Merck has increased its R&D spending by 10% in 2009 and plans on continuing to improve its pipeline. After ECONOMIC OUTLOOK its merger with Schering-Plough in 2009, Merck has The key macroeconomic factor affecting Bristol is the attempted to reduce costs by laying off employees, unemployment rate. Nearly 60% of US workers receive including an announcement to eliminate another health insurance from their employers, and as the 12,000-13,000 employees by the end of 20159. unemployment rate drops, more individuals become Revenue in their US segment fell 5.6% in 2011, but covered5. As the economy has improved, the cost-saving measures were able to overcome the unemployment rate has continued to drop, reaching shortfall and operating income increased 8.0%. 8.3% in January of 2012. Our view is that the economy Overall, Merck is likely the best positioned for the will continue its slow recovery and that unemployment patent cliff with only one blockbuster drug, Singulair, set will continue to drop to 8.1% in six months and 7.4% in to expire in 2012. With a strong pipeline, reduced labor two years. As the unemployment rate drops and the costs, and a strong R&D investment, Mercks future number of US workers and families with health holds promise. They would be another firm worth insurance increases, the usage of prescription drugs investigating further for possible investment. will also increase. GlaxoSmithKline (GSK) Unemployment Rate GlaxoSmithKline, headquartered in the United Kingdom, operates in two core segments: pharmaceuticals and consumer healthcare. Well established as a branded pharmaceutical company, GlaxoSmithKline is also a major manufacturer of vaccines. In order to increase growth, they have focused their resources on biologics and vaccines. Like many of its competitors, GlaxoSmithKline has also instituted cost-reduction plans including cuts to R&D and the reduction in 3,000-4,000 positions by the end of 2012. Sales of their US pharmaceutical segment increased 2% in 2011, but cost-saving measures helped push their operating income up 13%9. With over 30 drugs in late-stage FDA trials, GlaxoSmithKline hopes to replace their current portfolio with new drugs over the next few years, but cuts in R&D put future growth at risk. There may be short term life in GlaxoSmithKline, but we do not believe they are a viable long term target at this time. One Year Stock Comparison
Consumer confidence and spending are also two important drivers for the pharmaceutical markets. Prescription drugs account for the highest percentage of out-of-pocket medical expenses for individuals under 65 on private insurance6. For the highest level of prescription drug utilization, higher consumer confidence and spending are required. Our expectation is that both these indicators continue to improve, but like the unemployment rate, very slowly.
Finally, the GDP growth rate provides a basic indicator for the overall health of the economy. This drivers influence on the pharmaceutical market largely stems from its influence on the previously mentioned drivers. A healthy GDP growth rate will positively influence the unemployment rate which will lead to more insured Source: Centers for Disease Control individuals with more spending. Our prediction is for Aging Demographics real GDP to remain between 2.5% and 3.5% for several years. This will likely not be a driving source of growth The aging baby boomer generation in the US for Bristol. represents a large segment of current customers that is expected to increase their consumption of pharmaceuticals as they age. In fact, elderly patients already account for 33% of industry sales and with life expectancy rates continuing to rise, the number of elderly in this country is projected to increase to nearly 80 million by 20405,15. This phenomenon is not unique to the United States. The percentage of world population over the age of 60 is projected to grow from 11.0% in 2010 to 21.8% in 2050 1. In short, the market for pharmaceuticals marketed to the elderly has strong Source: Trading Economics long-term growth potential. For Bristol, treatments Exchange rates play a large role in the profitability of aimed at patients with diabetes, cardiovascular disease, most multi-national corporations and pharmaceuticals or cancer will cater to a population that is aging around are no different. The main exchange rate driver for the world. Bristol is the exchange rate between the US dollar and the euro. Europe represents over 17% of Bristols total revenue and when the euro strengthens against the dollar it can be a strong tailwind for profits. With the Greek debt crisis coming to a close, we expect the euro to modestly appreciate against the dollar in the short term which led to a 1% increase in forecasted sales for 2012. Emerging Markets As described in detail above, emerging markets represent a great opportunity for the pharmaceutical industry. The sales growth rate in China was forecasted to grow at 25-27% in 2011 alone, due to increased government health care funding and their ever-expanding middle class5. Bristol has focused its attention on only five emerging market countries: Brazil, Russia, India, China, and Turkey. Economic CATALYSTS FOR GROWTH development and the protection of intellectual property Drug Pipeline will be critical for Bristol to be successful in these As described above, Bristol is dedicated to having the countries. best drug pipeline in the industry. This largely comes Employment in the US from acquisitions, implementing its string of pearls strategy, and internal development of compounds. In Despite having a beta of 0.51, Bristol is affected by the the short term, Eliquis will have the largest impact on unemployment rate in the US. A majority of Americans growth as the potential for this compound is significant. receive their health insurance through their employer While FDA approval has been postponed for three and as the unemployment rate continues to decline, months, we project positive momentum when the drug Bristol will have a greater number of customers is approved to prevent stroke in patients with atrial requesting their products because many more fibrillation. Yervoy has already been approved and is Americans will have health insurance.
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INVESTMENT POSITIVES
Bristol has the best drug pipeline in the industry which will help fill the vacuum from the loss of Plavix in 2012. Drugs such as Yervoy and Eliquis represent the future blockbusters for the firm with patent expirations not coming until the early 2020s. Executing its string of pearls strategy, Bristol has continued to reinvest in the firm by strategic acquisitions each year. Their acquisition of Medarex in 2009 for $2.1 billion is already paying dividends with the early success of Yervoy. With a dividend yield of 4.2% and share repurchases of $3 billion over the past three years, Bristols management remains focused on returning value to its shareholders. While dividends are expected to remain flat for over a year, Bristol generates enough cash flow to comfortably continue its current dividend. We expect a continuation of both dividend increases and share repurchases starting in 2014. The growth in emerging markets will be a key for the pharmaceutical industry as a whole, but Bristol stands to earn substantial returns as well. With double digit growth in health care spending, these countries will make up the lions share of growth across the industry and for Bristol. The aging demographics across the world will benefit pharmaceutical firms like Bristol that have treatments for diseases that affect the elderly. While this is a long term growth story, it may indicate that there is more value in Bristols drug pipeline than originally thought. The improving US economy will provide millions of Americans with new jobs and health insurance. This is particularly important for Bristol as several of their oncology drugs would be unaffordable without insurance.
VALUATION
Bristol stands at a transitional period in its history, only two months away from the loss of exclusivity of its largest product, but it also stands to gain from the significant investments it has made to its drug pipeline from R&D and acquisitions. Our discounted cash flow model places the fair value of Bristol at over $50 per share, representing a 60% premium over its current price of $32.59. This model forecasts revenues and earnings below 2011 levels until 2017. With a 3 year weekly beta of 0.51, Bristol has a very low weighted average cost of capital of 5.36% which strongly values the drugs in its pipeline that have yet to be approved or earn any revenue. Sensitivity analysis reveals that Bristols beta would have to jump to one (or the WACC would equal 7.46%) for Bristol to be fairly priced in the current market. The other major factor beyond WACC factors are the Plavix sales decline rate, pipeline revenue growth rate, and margins. While margins are expected to decline with the loss of Plavix, a 100 basis point increase in cost of goods sold (as a percentage of sales), will result in a $2-$2.50 decrease in share price. Likewise, a 4% decrease in 2017 pipeline sales growth, will result in a $2 decline in share price. However, the model is most sensitive to changes in WACC or any of the factors that compose that calculation. Bristol has the industrys best drug pipeline due to its dedication to continual investment. While investments in R&D may hurt the bottom line in the short term, Bristol stands ready to start collecting on its diligence. We forecast R&D to grow in the low single digits for the next five years, but as a percentage of sales will grow to over 22%.
INVESTMENT NEGATIVES
We also applied the fundamental P/E and relative valuation models to value Bristol. The relative valuation model indicated that Bristol was currently selling at fair price, but we do not believe this model accurately captures the value in Bristols drug pipeline. The fundamental P/E model concurred with the discounted cash flow model and priced Bristol over $50 per share. Based on these forecasts, we believe that Bristols fair So much of Bristols value is tied up in its pipeline, value is between $48-$53. that relative valuation techniques dramatically undervalue the firm. This bias is not projected to Sell Discipline reverse in the short term, but will correct itself in There are several critical factors and events that would several years as Bristols pipeline continues to turn require an updated analysis of Bristol. First, any patent out solid products. challenge from a generic manufacturer or other Bristol will lose exclusivity on a drug that earns over one third of their revenue as well as another blockbuster drug this year. In the short term, Bristols pipeline is unprepared to replace that amount of revenue and we project it may take over five years for them to get back to this level of revenue and profitability.
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IMPORTANT DISCLAIMER
This report was created by a student(s) enrolled in the Applied Securities Management (Henry Fund) program at the University of Iowas Tippie School of Management. The intent of these reports is to provide potential employers and other interested parties an example of the analytical skills, investment knowledge, and communication abilities of Henry Fund students. Henry Fund analysts are not registered investment advisors, brokers or officially licensed financial professionals. The investment opinion contained in this report does not represent an offer or solicitation to buy or sell any of the aforementioned securities. Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Henry Fund may hold a financial interest in the companies mentioned in this report.
REFERENCES
1 2 3
Yahoo! Finance, http://finance.yahoo.com Bristol-Myers Squibb 2011 10-K US Food and Drug Administration, http://www.fda.gov/
4 th
of
IBISWorld Industry Report 32541a, Brand Name Pharmaceutical Manufacturing in the US, December 2011
10 11
Wall Street Journal, Decision Delayed on Anticlot Drug, March 1, 2012. Accessed through Factiva.
13
Wall Street Journal, Drug Setback for Bristol, Astra, January 19, 2012. Accessed through Factiva.
14
Wall Street Journal, Corporate News: Bristol-Myers Bets Big on Inhibitex, January 9, 2012, Accessed through Factiva.
15 16 17 18
US Census Bureau, http://www.census.gov/ Bureau of Labor Statistics, http://www.bls.gov/ Trading Economics, http://tradingeconomics.com/ Control and Prevention,
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Bristol-Myers Squibb Co Revenue Decomposition (in millions) Fiscal Years Ending Dec. 31 Plavix (Growth) Avapro/Avalide (Growth) Abilify (Growth) Reyataz (Growth) Sustiva (Growth) Baraclude (Growth) Erbitux (Growth) Sprycel (Growth) Ixempra (Growth) Orencia (Growth) Onglyza/Kombiglyze (Growth) Pravachol (Growth) Taxol (Growth) Other (Growth)
Net sales
2006
3,257 1,097 1,282 931 791 83 652 25
2007
4,755 45.99% 1,204 9.75% 1,660 29.49% 1,124 20.73% 956 20.86% 275 231.33% 692 6.13% 158
2009
6,146 9.69% 1,283 -0.54% 2,592 20.39% 1,401 8.44% 1,277 11.14% 734 35.67% 683 -8.81% 421 35.81% 109 7.92% 602 36.51% 24 0 -100.00% 0 -100.00% 3536 -46.37% 18,808 -8.69%
2010
6,666 8.46% 1,176 -8.34% 2,565 -1.04% 1,479 5.57% 1,368 7.13% 931 26.84% 662 -3.07% 576 36.82% 117 7.34% 733
2011
7,087 6.32% 952 -19.05% 2,758 7.52% 1,569 6.09% 1,485 8.55% 1,196 28.46% 691 4.38% 803 39.41% 98 -16.24% 917
2012E
2,622
2013E
1,311
2014E
-
2015E
-
2016E
-
2017E
-
-63.00%
476
-50.00%
238
-100.00%
-
0.00%
-
0.00%
-
0.00%
-
-50.00%
3,034
-50.00%
3,337
-100.00%
2,670
0.00%
1,335
0.00%
-
0.00%
-
10.00%
1,647
10.00%
1,730
-20.00%
1,816
-50.00%
1,907
-100.00%
2,002
0.00%
1,001
5.00%
1,559
5.00%
1,637
5.00%
819
5.00%
409
5.00%
-
-50.00%
-
5.00%
1,316
5.00%
1,447
-50.00%
1,592
-50.00%
796
-100.00%
398
0.00%
-
10.00%
691
10.00%
691
10.00%
691
-50.00%
691
-50.00%
346
-100.00%
-
0.00%
923
0.00%
1,062
0.00%
1,221
0.00%
1,404
-50.00%
1,615
-100.00%
1,857
532.00% 0 15 N/A 89 231 159.55% 0 0 1197 563 7947 17,914 443 -62.99% 422 -25.04% 7413 -6.72% 19,348 8.00%
15.00%
98
15.00%
98
15.00%
98
15.00%
98
15.00%
98
15.00%
98
0.00%
1,055
0.00%
1,213
0.00%
1,395
0.00%
1,534
0.00%
1,688
0.00%
1,856
21.76% 25.10% 158 473 558.33% 199.37% 0 0 0 3053 -13.66% 19,484 3.59% 0 3215 5.31% 21,244 9.03%
15.00%
946
15.00%
1,088
15.00%
1,251
10.00%
1,439
10.00%
1,655
10.00%
1,903
100.00%
-
15.00%
-
15.00%
-
15.00%
-
15.00%
-
15.00%
-
0.00%
-
0.00%
-
0.00%
-
0.00%
-
0.00%
-
0.00%
-
0.00%
3,537
0.00%
3,890
0.00%
6,613
0.00%
8,597
0.00%
11,176
0.00%
13,412
10.00%
17,904
10.00%
17,742
70.00%
18,164
30.00%
18,210
30.00%
18,975
20.00%
20,125
(Growth)
-15.72%
-0.91%
2.38%
0.25%
4.20%
6.06%
Bristol-Myers Squibb Co Income Statement (in millions except per-share data) Fiscal Years Ending Dec. 31
Net sales Cost of products sold Marketing, selling & administrative expenses Advertising & product promotion expenses Research & development expenses Acquired in-process research & development Provision for restructuring, net Litigation expense Gain on sale of product assets & businesses Equity in net income of affiliates Total other income (expense), net Total expenses, net Earnings (loss) before income taxes & minority interest Provision for income taxes Minority interest, net of taxes Net earnings from continuing operations Net earnings from discontinued operations Net earnings (loss) Net earning attributable to noncontrolling interest Net earnings attributable to Bristol-Myers Squibb Company Year end shares outstanding Net earnings per share-basic Dividends declared per common share
2009
18,808 5,140 3,946 1,136 3,647 136 132 550 381 13,206 5,602 1,182 4,420 7,442 11,862 -1,250 10,612 1,974 5.35 1.25
2010
19,484 5,277 3,686 977 3,566 113 (19) 313 (126) 13,413 6,071 1,558 4,513 4,513 -1,411 3,102 1,713 1.8 1.29
2011
21,244 5,598 4,203 957 3,839 116 281 169 14,263 6,981 1,721 5,260 5,260 -1,551 3,709 1,700 2.18 1.33
2012E
17,904 4,834 3,939 895 3,954 0 0 0 0 150 -20 13,492 4,412 1,132 0 3,279 0 3,279 -75 3,204 1683 1.90 1.36
2013E
17,742 4,790 3,726 887 4,073 0 0 0 0 75 0 13,401 4,341 1,114 0 3,227 0 3,227 -38 3,189 1673 1.91 1.36
2014E
18,164 4,904 3,814 908 4,195 0 0 0 0 0 0 13,822 4,342 1,114 0 3,228 0 3,228 0 3,228 1664 1.94 1.40
2015E
18,210 4,917 3,824 910 4,321 0 0 0 0 0 0 13,972 4,238 1,088 0 3,150 0 3,150 0 3,150 1631 1.93 1.44
2016E
18,975 5,123 3,985 949 4,450 0 0 0 0 0 0 14,507 4,468 1,147 0 3,321 0 3,321 0 3,321 1601 2.07 1.48
2017E
20,125 5,434 4,226 1,006 4,584 0 0 0 0 0 0 15,250 4,875 1,251 0 3,624 0 3,624 0 3,624 1574 2.30 1.52
Bristol-Myers Squibb Co Balance Sheet (in millions) Fiscal Years Ending Dec. 31
Cash & cash equivalents Marketable securities Receivables, net Inventories, net Deferred income taxes Prepaid expenses Total current assets Property, plant & equipment, cost Less accumulated depreciation Property, plant & equipment, net Goodwill Other intangible assets, net Deferred income taxes Marketable securities Other assets Total assets Short-term borrowings Accounts payable Accrued expenses Deferred income Accrued rebates & returns U.S. & foreign income taxes payable Dividends payable Total current liabilities Pension, postretirement, & other postemployment liabilities Deferred income U.S. & foreign income taxes payable Other liabilities Long-term debt Total liabilities Common equity Accumulated other comprehensive income (loss) Retained earnings Stockholders' equity before treasury stock Less: Cost of treasury stock Total Bristol-Myers Squibb Company stockholders' equity Non-controlling interest Total equity Total Liabilities and Equity
2009
7,683 831 3,164 1,413 611 256 13,958 8,895 3,840 5,055 5,218 2,865 1,636 1,369 907 31,008 231 1,711 2,785 237 622 175 552 6,313 1,658 949 751 422 6,130 16,223 3,988 -2,541 30,760 32,207 17,364 14,843 -58 14,785 31,008
2010
5,033 2,268 3,480 1,204 1,036 252 13,273 8,260 3,596 4,664 5,233 3,370 850 2,681 1,005 31,076 117 1,983 2,740 402 857 65 575 6,739 1,297 895 755 424 5,328 15,438 3,902 -2,371 31,636 33,167 17,454 15,713 -75 15,638 31,076
2011
5,776 2,957 3,743 1,384 1,200 258 15,318 8,381 3,860 4,521 5,586 3,124 688 2,909 824 32,970 115 2,603 2,791 337 1,170 167 597 7,780 2,017 866 573 491 5,376 17,103 3,334 -3,045 33,069 33,358 17,402 15,956 -89 15,867 32,970
2012E
2,967 3,016 3,044 1,164 1,320 233 11,744 8,881 4,312 4,569 8,086 2,812 450 2,967 912 31,539 144 1,790 2,507 313 806 226 578 6,365 2,017 716 566 485 5,332 15,481 3,833 -3,045 33,961 34,750 18,602 16,148 -89 16,059 31,539
2013E
3,839 3,076 3,016 1,153 1,452 231 12,768 9,381 4,769 4,612 8,086 2,530 250 3,027 912 32,185 146 1,774 2,484 310 798 223 572 6,308 2,017 710 557 485 5,622 15,699 4,359 -3,045 34,862 36,177 19,602 16,575 -89 16,486 32,185
2014E
4,423 3,138 3,088 1,181 1,597 236 13,663 9,881 5,230 4,651 8,086 2,277 50 3,087 912 32,726 153 1,816 2,543 318 817 223 585 6,455 2,017 727 557 485 5,559 15,800 4,914 -3,045 35,748 37,617 20,602 17,015 -89 16,926 32,726
2015E
3,700 3,201 3,096 1,184 1,757 237 13,174 10,381 5,695 4,686 8,086 2,050 3,149 912 32,056 157 1,821 2,549 319 819 218 599 6,482 2,017 728 544 485 5,536 15,792 5,498 -3,045 36,502 38,955 22,602 16,353 -89 16,264 32,056
2016E
3,218 3,265 3,226 1,233 1,933 247 13,122 10,881 6,164 4,717 8,086 1,845 3,212 912 31,893 166 1,898 2,657 332 854 229 604 6,739 2,017 759 573 485 5,534 16,107 6,113 -3,045 37,409 40,477 24,602 15,875 -89 15,786 31,893
2017E
3,145 3,330 3,421 1,308 2,126 262 13,592 11,381 6,636 4,745 8,086 1,660 3,276 912 32,271 178 2,013 2,818 352 906 250 608 7,124 2,017 805 626 485 5,590 16,647 6,762 -3,045 38,599 42,316 26,602 15,714 -89 15,625 32,271
Bristol-Myers Squibb Co Cash Flow Statement (in millions) Fiscal Years Ending Dec. 31
Net Income Depreciation/Amortization Change in Deferred taxes Receivables Inventories Prepaid expenses Accounts payable Accrued expenses Deferred income Accrued rebates and returns Income taxes payable Dividends payable Net cash from operating activities Increase in short term investments Increase in long term investments Capital Expenditures Business Acquisitions Change in other assets Net cash from investing activities Proceeds from short term borrowing Change in other liabilities Issuance/Repayment of long term debt Proceeds from issuance of common stock Payment of dividends Repurchases of common stock Net cash from financing activities Net change in cash Cash at beginning of the year Cash at the end of the year
Bristol-Myers Squibb Co Common Size Income Statement Fiscal Years Ending Dec. 31
Net sales Cost of products sold Marketing, selling & administrative expenses Advertising & product promotion expenses Research & development expenses Acquired in-process research & development Provision for restructuring, net Litigation expense Gain on sale of product assets & businesses Equity in net income of affiliates Total other income (expense), net Total expenses, net Earnings (loss) before income taxes & minority interest Provision for income taxes Minority interest, net of taxes Net earnings from continuing operations Net earnings from discontinued operations Net earnings (loss) Net earning attributable to noncontrolling interest Net earnings attributable to Bristol-Myers Squibb Company
2009
100.00% 27.33% 20.98% 6.04% 19.39% 0.00% 0.72% 0.70% 0.00% 2.92% 2.03% 70.21% 29.79% 6.28% 0.00% 23.50% 39.57% 63.07% -6.65% 56.42%
2010
100.00% 27.08% 18.92% 5.01% 18.30% 0.00% 0.58% -0.10% 0.00% 1.61% -0.65% 68.84% 31.16% 8.00% 0.00% 23.16% 0.00% 23.16% -7.24% 15.92%
2011
100.00% 26.35% 19.78% 4.50% 18.07% 0.00% 0.55% 0.00% 0.00% 1.32% 0.80% 67.14% 32.86% 8.10% 0.00% 24.76% 0.00% 24.76% -7.30% 17.46%
2012E
100.00% 27.00% 22.00% 5.00% 22.09% 0.00% 0.00% 0.00% 0.00% 0.84% -0.11% 75.36% 24.64% 6.32% 0.00% 18.32% 0.00% 18.32% -0.42% 17.90%
2013E
100.00% 27.00% 21.00% 5.00% 22.96% 0.00% 0.00% 0.00% 0.00% 0.42% 0.00% 75.53% 24.47% 6.28% 0.00% 18.19% 0.00% 18.19% -0.21% 17.98%
2014E
100.00% 27.00% 21.00% 5.00% 23.10% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 76.10% 23.90% 6.14% 0.00% 17.77% 0.00% 17.77% 0.00% 17.77%
2015E
100.00% 27.00% 21.00% 5.00% 23.73% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 76.73% 23.27% 5.97% 0.00% 17.30% 0.00% 17.30% 0.00% 17.30%
2016E
100.00% 27.00% 21.00% 5.00% 23.45% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 76.45% 23.55% 6.04% 0.00% 17.50% 0.00% 17.50% 0.00% 17.50%
2017E
100.00% 27.00% 21.00% 5.00% 22.78% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 75.78% 24.22% 6.22% 0.00% 18.01% 0.00% 18.01% 0.00% 18.01%
Bristol-Myers Squibb Co Common Size Balance Sheet Fiscal Years Ending Dec. 31
Cash & cash equivalents Marketable securities Receivables, net Inventories, net Deferred income taxes Prepaid expenses Assets held for sale Total current assets Property, plant & equipment, cost Less accumulated depreciation Property, plant & equipment, net Goodwill Other intangible assets, net Deferred income taxes Marketable securities Other assets Total assets Short-term borrowings Accounts payable Accrued expenses Deferred income Accrued rebates & returns U.S. & foreign income taxes payable Dividends payable Accrued litigation liabilities Liabilities related to assets held for sale Total current liabilities Pension, postretirement, & other postemployment liabilities Deferred income U.S. & foreign income taxes payable Other liabilities Long-term debt Total liabilities Common stock Capital in excess of par value of stock Accumulated other comprehensive income (loss) Retained earnings Stockholders' equity before treasury stock Less: Cost of treasury stock Total Bristol-Myers Squibb Company stockholders' equity Non-controlling interest Total equity Total Liabilities and Equity
2009
40.85% 4.42% 16.82% 7.51% 3.25% 1.36% 0.00% 74.21% 47.29% 20.42% 26.88% 27.74% 15.23% 8.70% 7.28% 4.82% 164.87% 1.23% 9.10% 14.81% 1.26% 3.31% 0.93% 2.93% 0.00% 0.00% 33.57% 8.82% 5.05% 3.99% 2.24% 32.59% 86.26% 21.20% 20.03% -13.51% 163.55% 171.24% 92.32% 78.92% -0.31% 78.61% 164.87%
2010
25.83% 11.64% 17.86% 6.18% 5.32% 1.29% 0.00% 68.12% 42.39% 18.46% 23.94% 26.86% 17.30% 4.36% 13.76% 5.16% 159.49% 0.60% 10.18% 14.06% 2.06% 4.40% 0.33% 2.95% 0.00% 0.00% 34.59% 6.66% 4.59% 3.87% 2.18% 27.35% 79.23% 20.03% 18.90% -12.17% 162.37% 170.23% 89.58% 80.65% -0.38% 80.26% 159.49%
2011
27.19% 13.92% 17.62% 6.51% 5.65% 1.21% 0.00% 72.11% 39.45% 18.17% 21.28% 26.29% 14.71% 3.24% 13.69% 3.88% 155.20% 0.54% 12.25% 13.14% 1.59% 5.51% 0.79% 2.81% 0.00% 0.00% 36.62% 9.49% 4.08% 2.70% 2.31% 25.31% 80.51% 15.69% 14.66% -14.33% 155.66% 157.02% 81.91% 75.11% -0.42% 74.69% 155.20%
2012E
16.57% 16.85% 17.00% 6.50% 7.37% 1.30% 0.00% 65.59% 49.60% 24.08% 25.52% 45.16% 15.70% 2.51% 16.57% 5.09% 176.16% 0.80% 10.00% 14.00% 1.75% 4.50% 1.26% 3.23% 0.00% 0.00% 35.55% 11.27% 4.00% 3.16% 2.71% 29.78% 86.46% 21.41% 20.18% -17.01% 189.68% 194.09% 103.90% 90.19% -0.50% 89.69% 176.16%
2013E
21.64% 17.34% 17.00% 6.50% 8.18% 1.30% 0.00% 71.96% 52.87% 26.88% 25.99% 45.58% 14.26% 1.41% 17.06% 5.14% 181.40% 0.82% 10.00% 14.00% 1.75% 4.50% 1.26% 3.22% 0.00% 0.00% 35.55% 11.37% 4.00% 3.14% 2.73% 31.69% 88.48% 24.57% 23.33% -17.16% 196.50% 203.91% 110.48% 93.42% -0.50% 92.92% 181.40%
2014E
24.35% 17.28% 17.00% 6.50% 8.79% 1.30% 0.00% 75.22% 54.40% 28.79% 25.60% 44.52% 12.54% 0.28% 17.00% 5.02% 180.17% 0.84% 10.00% 14.00% 1.75% 4.50% 1.23% 3.22% 0.00% 0.00% 35.54% 11.10% 4.00% 3.07% 2.67% 30.61% 86.99% 27.05% 25.84% -16.76% 196.81% 207.10% 113.42% 93.68% -0.49% 93.19% 180.17%
2015E
20.32% 17.58% 17.00% 6.50% 9.65% 1.30% 0.00% 72.35% 57.01% 31.28% 25.73% 44.40% 11.26% 0.00% 17.29% 5.01% 176.04% 0.86% 10.00% 14.00% 1.75% 4.50% 1.19% 3.29% 0.00% 0.00% 35.60% 11.08% 4.00% 2.99% 2.66% 30.40% 86.72% 30.19% 28.98% -16.72% 200.45% 213.92% 124.12% 89.80% -0.49% 89.32% 176.04%
2016E
16.96% 17.21% 17.00% 6.50% 10.19% 1.30% 0.00% 69.15% 57.34% 32.48% 24.86% 42.61% 9.72% 0.00% 16.93% 4.81% 168.08% 0.87% 10.00% 14.00% 1.75% 4.50% 1.21% 3.18% 0.00% 0.00% 35.51% 10.63% 4.00% 3.02% 2.55% 29.17% 84.88% 32.22% 31.06% -16.05% 197.15% 213.32% 129.65% 83.66% -0.47% 83.20% 168.08%
2017E
15.63% 16.55% 17.00% 6.50% 10.56% 1.30% 0.00% 67.54% 56.55% 32.97% 23.58% 40.18% 8.25% 0.00% 16.28% 4.53% 160.35% 0.88% 10.00% 14.00% 1.75% 4.50% 1.24% 3.02% 0.00% 0.00% 35.40% 10.02% 4.00% 3.11% 2.41% 27.78% 82.72% 33.60% 32.51% -15.13% 191.79% 210.26% 132.18% 78.08% -0.44% 77.64% 160.35%
Bristol-Myers Squibb Co Value Driver Estimation (in millions unless otherwise noted) Fiscal Years Ending Dec. 31
Net sales Cost of products sold Marketing, selling & administrative expenses Removal of Operating Lease Interest Expense Advertising & product promotion expenses Research & development expenses Acquired in-process research & development EBITA Income tax provision (-) Tax on non-operating income (+) Tax on non-operating losses (+) Operating Lease Interest Expense Adjusted Taxes Change in deferred taxes NOPLAT Normal cash (10% of revenue or actual) Accounts receivable Inventory Prepaid expenses Total Operating Current Assets Accounts payable Accrued expenses Deferred revenue Income taxes payable Dividends payable Total Non-Interest Bearing Current Liabilities Net operating working capital Net PP&E Capitalized operating leases Other operating assets Other operating liabilities Total Invested Capital NOPLAT Beginning Invested Capital Change in invested capital Return on Invested Capital (ROIC) Free Cash Flow Economic Profit
2009
18,808 5,140 3,946 23 1,136 3,647 4,962 1,182 220 63 23 1,048 593 4,506 1,881 3,164 1,413 256 6,714 1,711 3,407 237 175 552 6,082 632 5,055 529 3,772 2,122 7,866 4,506 7,971 (105) 56.54% 4,611 4,079
2010
19,484 5,277 3,686 24 977 3,566 6,002 1,558 47 24 24 1,559 361 4,805 1,948 3,480 1,204 252 6,884 1,983 3,597 402 65 575 6,622 262 4,664 569 4,375 2,074 7,797 4,805 7,866 (69) 61.08% 4,874 4,383
2011
21,244 5,598 4,203 27 957 3,839 6,674 1,721 126 32 27 1,654 (2) 5,018 2,124 3,743 1,384 258 7,509 2,603 3,961 337 167 597 7,665 (156) 4,521 624 3,948 1,930 7,007 5,018 7,797 (790) 64.35% 5,807 4,599
2012E
17,904 4,834 3,939 42 895 3,954 4,324 1,132 33 11 1,110 118 3,332 1,790 3,044 1,164 233 6,231 1,790 3,312 313 226 578 6,221 10 4,569 686 3,724 1,767 7,222 3,332 7,007 215 47.55% 3,117 2,956
2013E
17,742 4,790 3,726 42 887 4,073 4,308 1,114 19 11 1,106 68 3,270 1,774 3,016 1,153 231 6,174 1,774 3,282 310 223 572 6,162 12 4,612 754 3,442 1,751 7,070 3,270 7,222 (152) 45.28% 3,422 2,883
2014E
18,164 4,904 3,814 42 908 4,195 4,384 1,114 11 1,125 55 3,314 1,816 3,088 1,181 236 6,321 1,816 3,360 318 223 585 6,303 18 4,651 830 3,189 1,768 6,920 3,314 7,070 (150) 46.87% 3,464 2,934
2015E
18,210 4,917 3,824 42 910 4,321 4,280 1,088 11 1,098 (110) 3,072 1,821 3,096 1,184 237 6,337 1,821 3,369 319 218 599 6,325 12 4,686 913 2,962 1,757 6,816 3,072 6,920 (105) 44.39% 3,176 2,700
2016E
18,975 5,123 3,985 42 949 4,450 4,510 1,147 11 1,158 (176) 3,177 1,898 3,226 1,233 247 6,603 1,898 3,510 332 229 604 6,573 30 4,717 1,004 2,757 1,817 6,692 3,177 6,816 (124) 46.61% 3,300 2,811
2017E
20,125 5,434 4,226 42 1,006 4,584 4,917 1,251 11 1,262 (193) 3,462 2,013 3,421 1,308 262 7,004 2,013 3,723 352 250 608 6,947 57 4,745 1,105 2,572 1,915 6,564 3,462 6,692 (127) 51.73% 3,589 3,103
Bristol-Myers Squibb Co Weighted Average Cost of Capital (WACC) Estimation WACC Risk Free Rate 3.16% Equity Risk Premium 4.80% Beta 0.51 Cost of Equity 5.61% Pre-Tax Cost of Debt Tax Rate After-Tax Cost of Debt Market Capitalization Book Value of Debt Capitalized Operating Leases Enterprise Value % Equity in Capital Structure % Debt in Capital Structure WACC 4.25% 25.67% 3.16% 55,403 5,491 624 61,518 90.1% 9.9% 5.36%
Bristol-Myers Squibb Co Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models Key Inputs: CV Growth of NOPLAT CV ROIC WACC NOPLAT 2017 EP 2017 Fiscal Years Ending Dec. 31 DCF Model Free Cash Flow PV of FCF at 12/31/2011 PV of Operating Assets (+)Excess Cash and Marketable Securities (-)Debt and Equivalents (-)PV of Operating Leases (-)Pension Liability (-)PV of ESOP 12/31/2011 Intrinsic Equity Value Intrinsic Value Today DCF Share Value Today EP Model Economic Profit PV of EP at 12/31/2011 PV of Operating Assets (+)Excess Cash and Marketable Securities (-)Debt and Equivalents (-)PV of Operating Leases (-)Pension Liability (-)PV of ESOP 12/31/2011 Intrinsic Equity Value Intrinsic Value Today EP Share Value Today
2.00% 51.73% 5.36% 3,462 3,103 2012E 2013E 2014E 2015E 2016E CV
3,117 2,959 90,284 9,518 7,421 624 2,017 513 89,228 90,038 $ 52.96
3,422 3,082
3,464 2,961
3,176 2,577
3,300 2,542
98,906 76,164
2,956 2,806 90,284 9,518 7,421 624 2,017 513 89,228 90,038 $ 52.96
2,883 2,597
2,934 2,509
2,700 2,191
2,811 2,165
92,215 71,011
Bristol-Myers Squibb Co Fundamental P/E Valuation Model Fundamental P/E Model CV growth of EPS CV ROE CV Payout Ratio CV Retention Ratio Cost of Equity
2.0% 23.2% 66.0% 34.0% 5.61% 2012E 2013E 1.91 2014E 1.94 2015E 1.93 2016E 2.07 CV 2.30 25.33 2.30 58.32 44.40
Earnings Per Share P/E Multiple EPS(CV) Future Stock Price Dividends Per Share Discounted Cash Flows Intrinsic Value at 12/31/2011 Intrinsic Value Today
1.90
1.36 1.22
1.40 1.19
1.44 1.16
1.48 1.13
Bristol-Myers Squibb Co Relative Valuation Model Ticker JNJ NVS GSK ABT TEVA Company Johnson & Johnson Novartis AG GlaxoSmithKline Abbott Laboratories Teva Pharmaceuticals Price 65.34 55.84 45.02 60.43 45.06 Sales 2011A 65.0 51.6 45.8 38.9 18.3 Sales 2012E Sales 2013E 66.4 69.8 58.2 58.7 45.1 46.9 40.4 42.1 21.9 22.7 Average BMY Bristol-Myers Squibb $ 32.59 21.24 17.90 17.74 P/S 2011 1.0 1.1 1.0 1.6 2.5 1.4 1.5 P/S 2012 1.0 1.0 1.0 1.5 2.1 1.3 1.8 P/S 2013 0.9 1.0 1.0 1.4 2.0 1.3 1.8
$ $ $ $ $
$ $ $ $
Fiscal Years Ending Dec. 31 Liquidity Ratios Current Ratio Cash Ratio Interest Coverage Ratio Activity or Asset-Management Ratios Assets to Sales Inventory Turnover Accounts Receivable Turnover Financial Leverage Ratios Debt to Equity Debt Ratio Debt to Non-Cash Assets Profitability Ratios Operating Margin Net Profit Margin Free Cash Margin Return on Assets Return on Equity Payout Policy Ratios Dividend Payout Total Payout including Repurchases
2009
2010
2011
2012E
2013E
2014E
2015E
2016E
2017E
Total Assets/Sales Cost of Goods Sold/Avg. Inventory Net Receivable Sales/Average Receivables
BV Debt/BV Equity Total Liabilities/Total Assets Total Liabilities/(Total Assets - (Cash + Equivalents))
Operating Profit/Sales Net Income/Sales Free Cash Flow/Sales Net Income/Beg. Assets Net Income/Beg. BV Equity
23% 23%
72% 90%
61% 94%
71% 109%
71% 103%
72% 103%
75% 138%
71% 132%
66% 121%
Bristol-Myers Squibb Co Sensitivity Analysis CV Growth Rate 1.90% 2.00% $ 70.11 $ 72.51 $ 59.98 $ 61.67 $ 52.40 $ 53.65 $ 46.52 $ 47.48 $ 41.83 $ 42.58 $ 38.00 $ 38.60 $ 34.81 $ 35.30 $ 32.11 $ 32.51 Equity Risk Premium 4.80% 5.00% $ 72.51 $ 70.95 $ 61.67 $ 60.17 $ 53.65 $ 52.24 $ 47.48 $ 46.15 $ 42.58 $ 41.34 $ 38.60 $ 37.43 $ 35.30 $ 34.20 $ 32.51 $ 31.48
$ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $
$ 52.96 1.50% 1.60% 1.70% 1.80% CV Growth Rate 1.90% 2.00% 2.10% 2.20% 2.30% 2.40% 2.50%
$ $ $ $ $ $ $ $ $ $ $
4.50% 61.24 62.97 64.82 66.81 68.95 71.26 73.76 76.49 79.46 82.71 86.29
$ $ $ $ $ $ $ $ $ $ $
4.70% 57.40 58.90 60.49 62.20 64.02 65.99 68.10 70.38 72.85 75.54 78.47
$ $ $ $ $ $ $ $ $ $ $
4.90% 54.02 55.32 56.71 58.18 59.76 61.44 63.24 65.18 67.26 69.51 71.95
$ $ $ $ $ $ $ $ $ $ $
5.10% 51.01 52.16 53.37 54.66 56.02 57.48 59.03 60.69 62.47 64.38 66.44
$ $ $ $ $ $ $ $ $ $ $
WACC 5.30% 48.32 49.33 50.40 51.53 52.73 54.00 55.35 56.78 58.32 59.95 61.71
$ $ $ $ $ $ $ $ $ $ $
5.50% 45.90 46.80 47.75 48.75 49.80 50.92 52.10 53.35 54.68 56.10 57.61
$ $ $ $ $ $ $ $ $ $ $
5.70% 43.71 44.51 45.36 46.25 47.18 48.17 49.21 50.31 51.47 52.71 54.02
$ $ $ $ $ $ $ $ $ $ $
5.90% 41.71 42.44 43.19 43.99 44.82 45.70 46.62 47.60 48.62 49.71 50.86
$ $ $ $ $ $ $ $ $ $ $
6.10% 39.89 40.55 41.23 41.94 42.69 43.47 44.30 45.16 46.07 47.03 48.04
$ $ $ $ $ $ $ $ $ $ $
6.30% 38.23 38.82 39.43 40.08 40.75 41.45 42.19 42.96 43.77 44.63 45.53
$ $ $ $ $ $ $ $ $ $ $
6.50% 36.69 37.23 37.79 38.37 38.98 39.61 40.27 40.97 41.70 42.46 43.26
$ 52.96 2.00% 2.20% 2.40% 2.60% 2.80% R&D Growth Rate 3.00% 3.20% 3.40% 3.60% 3.80% 4.00%
$ $ $ $ $ $ $ $ $ $ $
25.50% 59.46 58.89 58.32 57.74 57.16 56.57 55.98 55.38 54.77 54.16 53.55
$ $ $ $ $ $ $ $ $ $ $
25.80% 58.73 58.17 57.60 57.02 56.44 55.85 55.26 54.66 54.05 53.44 52.83
$ $ $ $ $ $ $ $ $ $ $
26.10% 58.01 57.45 56.88 56.30 55.72 55.13 54.53 53.94 53.33 52.72 52.10
$ $ $ $ $ $ $ $ $ $ $
26.40% 57.29 56.73 56.15 55.58 54.99 54.41 53.81 53.21 52.61 52.00 51.38
COGS % 26.70% $ 56.57 $ 56.00 $ 55.43 $ 54.86 $ 54.27 $ 53.69 $ 53.09 $ 52.49 $ 51.89 $ 51.28 $ 50.66
$ $ $ $ $ $ $ $ $ $ $
27.00% 55.85 55.28 54.71 54.13 53.55 52.96 52.37 51.77 51.17 50.56 49.94
$ $ $ $ $ $ $ $ $ $ $
27.30% 55.13 54.56 53.99 53.41 52.83 52.24 51.65 51.05 50.45 49.83 49.22
$ $ $ $ $ $ $ $ $ $ $
27.60% 54.41 53.84 53.27 52.69 52.11 51.52 50.93 50.33 49.72 49.11 48.50
$ $ $ $ $ $ $ $ $ $ $
27.90% 53.69 53.12 52.55 51.97 51.39 50.80 50.21 49.61 49.00 48.39 47.78
$ $ $ $ $ $ $ $ $ $ $
28.20% 52.96 52.40 51.83 51.25 50.67 50.08 49.49 48.89 48.28 47.67 47.06
$ $ $ $ $ $ $ $ $ $ $
28.50% 52.24 51.68 51.11 50.53 49.95 49.36 48.76 48.16 47.56 46.95 46.33
MS&A 2014-Continuing
$ 52.96 19.00% 19.50% 20.00% 20.50% 21.00% 21.50% 22.00% 22.50% 23.00% 23.50% 24.00%
$ $ $ $ $ $ $ $ $ $ $
19.00% 57.85 56.68 55.52 54.36 53.19 52.03 50.86 49.70 48.53 47.37 46.21
$ $ $ $ $ $ $ $ $ $ $
19.50% 57.81 56.65 55.48 54.32 53.15 51.99 50.83 49.66 48.50 47.33 46.17
$ $ $ $ $ $ $ $ $ $ $
20.00% 57.77 56.61 55.44 54.28 53.12 51.95 50.79 49.62 48.46 47.29 46.13
$ $ $ $ $ $ $ $ $ $ $
20.50% 57.73 56.57 55.41 54.24 53.08 51.91 50.75 49.59 48.42 47.26 46.09
Marketing, selling and admin expenses 2012-2013 21.00% 21.50% 22.00% 22.50% 23.00% $ 57.70 $ 57.66 $ 57.62 $ 57.58 $ 57.54 $ 56.53 $ 56.49 $ 56.46 $ 56.42 $ 56.38 $ 55.37 $ 55.33 $ 55.29 $ 55.25 $ 55.22 $ 54.20 $ 54.17 $ 54.13 $ 54.09 $ 54.05 $ 53.04 $ 53.00 $ 52.96 $ 52.93 $ 52.89 $ 51.88 $ 51.84 $ 51.80 $ 51.76 $ 51.72 $ 50.71 $ 50.67 $ 50.64 $ 50.60 $ 50.56 $ 49.55 $ 49.51 $ 49.47 $ 49.43 $ 49.40 $ 48.38 $ 48.34 $ 48.31 $ 48.27 $ 48.23 $ 47.22 $ 47.18 $ 47.14 $ 47.10 $ 47.07 $ 46.05 $ 46.02 $ 45.98 $ 45.94 $ 45.90 Plavix 2012 Decline -70% -75% $ 44.73 $ 44.63 $ 45.74 $ 45.64 $ 46.76 $ 46.65 $ 47.77 $ 47.66 $ 48.78 $ 48.67 $ 49.79 $ 49.69 $ 50.80 $ 50.70 $ 51.81 $ 51.71 $ 52.82 $ 52.72 $ 53.83 $ 53.73 $ 54.84 $ 54.74 $ 55.85 $ 55.75 $ 56.86 $ 56.76 $ 57.87 $ 57.77 $ 58.88 $ 58.78 $ 59.90 $ 59.79 $ 60.91 $ 60.80
$ $ $ $ $ $ $ $ $ $ $
23.50% 57.51 56.34 55.18 54.01 52.85 51.69 50.52 49.36 48.19 47.03 45.86
$ $ $ $ $ $ $ $ $ $ $
24.00% 57.47 56.30 55.14 53.98 52.81 51.65 50.48 49.32 48.16 46.99 45.83
$ 52.96 50.0% 52.5% 55.0% 57.5% 60.0% 62.5% 65.0% Other Sales Growth 2014 67.5% 70.0% 72.5% 75.0% 77.5% 80.0% 82.5% 85.0% 87.5% 90.0%
$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $
-50% 45.14 46.15 47.17 48.18 49.19 50.20 51.21 52.22 53.23 54.24 55.25 56.26 57.27 58.28 59.30 60.31 61.32
$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $
-55% 45.04 46.05 47.06 48.07 49.08 50.10 51.11 52.12 53.13 54.14 55.15 56.16 57.17 58.18 59.19 60.20 61.21
$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $
-60% 44.94 45.95 46.96 47.97 48.98 49.99 51.00 52.01 53.03 54.04 55.05 56.06 57.07 58.08 59.09 60.10 61.11
$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $
-65% 44.84 45.85 46.86 47.87 48.88 49.89 50.90 51.91 52.92 53.93 54.94 55.96 56.97 57.98 58.99 60.00 61.01
$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $
-80% 44.53 45.54 46.55 47.56 48.57 49.58 50.59 51.60 52.62 53.63 54.64 55.65 56.66 57.67 58.68 59.69 60.70
$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $
-85% 44.43 45.44 46.45 47.46 48.47 49.48 50.49 51.50 52.51 53.52 54.53 55.54 56.56 57.57 58.58 59.59 60.60
$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $
-90% 44.32 45.33 46.35 47.36 48.37 49.38 50.39 51.40 52.41 53.42 54.43 55.44 56.45 57.46 58.47 59.49 60.50
$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $
-95% 44.22 45.23 46.24 47.25 48.26 49.28 50.29 51.30 52.31 53.32 54.33 55.34 56.35 57.36 58.37 59.38 60.39
$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $
-100% 44.12 45.13 46.14 47.15 48.16 49.17 50.18 51.19 52.21 53.22 54.23 55.24 56.25 57.26 58.27 59.28 60.29
$ 52.96 10% 12% 14% 16% 18% 20% 22% 24% 26% 28% 30%
$ $ $ $ $ $ $ $ $ $ $
50.0% 40.20 41.13 42.07 43.01 43.94 44.88 45.81 46.75 47.69 48.62 49.56
$ $ $ $ $ $ $ $ $ $ $
52.5% 41.13 42.08 43.03 43.98 44.94 45.89 46.84 47.79 48.74 49.70 50.65
$ $ $ $ $ $ $ $ $ $ $
55.0% 42.06 43.03 44.00 44.96 45.93 46.90 47.87 48.83 49.80 50.77 51.74
$ $ $ $ $ $ $ $ $ $ $
57.5% 43.00 43.98 44.96 45.94 46.93 47.91 48.89 49.88 50.86 51.84 52.82
Other Sales Growth 2014 60.0% 62.5% $ 43.93 $ 44.86 $ $ 44.93 $ 45.87 $ $ 45.93 $ 46.89 $ $ 46.92 $ 47.90 $ $ 47.92 $ 48.92 $ $ 48.92 $ 49.93 $ $ 49.92 $ 50.95 $ $ 50.92 $ 51.96 $ $ 51.92 $ 52.97 $ $ 52.91 $ 53.99 $ $ 53.91 $ 55.00 $
65.0% 45.79 46.82 47.85 48.88 49.91 50.94 51.97 53.00 54.03 55.06 56.09
$ $ $ $ $ $ $ $ $ $ $
67.5% 46.73 47.77 48.82 49.86 50.91 51.95 53.00 54.04 55.09 56.13 57.18
$ $ $ $ $ $ $ $ $ $ $
70.0% 47.66 48.72 49.78 50.84 51.90 52.96 54.02 55.09 56.15 57.21 58.27
$ $ $ $ $ $ $ $ $ $ $
72.5% 48.59 49.67 50.74 51.82 52.90 53.97 55.05 56.13 57.20 58.28 59.36
$ $ $ $ $ $ $ $ $ $ $
75.0% 49.52 50.62 51.71 52.80 53.89 54.99 56.08 57.17 58.26 59.35 60.45
$ $ $ $ $ $ $ $ $ $ $
77.5% 50.46 51.57 52.67 53.78 54.89 56.00 57.10 58.21 59.32 60.43 61.53
$ $ $ $ $ $ $ $ $ $ $
80.0% 51.39 52.51 53.64 54.76 55.88 57.01 58.13 59.25 60.38 61.50 62.62
$ $ $ $ $ $ $ $ $ $ $
82.5% 52.32 53.46 54.60 55.74 56.88 58.02 59.16 60.30 61.43 62.57 63.71
$ $ $ $ $ $ $ $ $ $ $
85.0% 53.26 54.41 55.56 56.72 57.87 59.03 60.18 61.34 62.49 63.65 64.80