Note 1. ACCOUNTING POLICIES AND RECENTLY ISSUED ACCOUNTING STANDARDS
Nature of Operations and Basis of Consolidation
Bristol-Myers Squibb Company (“BMS”, or “the Company”) is a global biopharmaceutical company whose mission is to discover, develop and deliver innovative medicines that help patients prevail over serious diseases.
The consolidated financial statements are prepared in conformity with U.S. GAAP, including the accounts of Bristol-Myers Squibb Company and all of its controlled majority-owned subsidiaries and certain variable interest entities. All intercompany balances and transactions are eliminated. Material subsequent events are evaluated and disclosed through the report issuance date. Refer to the Summary of Abbreviated Terms at the end of this 2022 Form 10-K for definitions of capitalized terms used throughout the document.
Alliance and license arrangements are assessed to determine whether the terms provide economic or other control over the entity requiring consolidation of an entity. Entities controlled by means other than a majority voting interest are referred to as variable interest entities and are consolidated when BMS has both the power to direct the activities of the variable interest entity that most significantly impacts its economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the entity.
Business Segment Information
BMS operates in a single segment engaged in the discovery, development, licensing, manufacturing, marketing, distribution and sale of innovative medicines that help patients prevail over serious diseases. A global research and development organization and supply chain organization are responsible for the discovery, development, manufacturing and supply of products. Regional commercial organizations market, distribute and sell the products. The business is also supported by global corporate staff functions. Consistent with BMS’s operational structure, the Chief Executive Officer (“CEO”), as the chief operating decision maker, manages and allocates resources at the global corporate level. Managing and allocating resources at the global corporate level enables the CEO to assess both the overall level of resources available and how to best deploy these resources across functions, therapeutic areas, regional commercial organizations and research and development projects in line with our overarching long-term corporate-wide strategic goals, rather than on a product or franchise basis. The determination of a single segment is consistent with the financial information regularly reviewed by the CEO for purposes of evaluating performance, allocating resources, setting incentive compensation targets, and planning and forecasting future periods. For further information on product and regional revenue, see “—Note 2. Revenue.”
Use of Estimates and Judgments
The preparation of financial statements requires the use of management estimates, judgments and assumptions. The most significant assumptions are estimates used in determining accounting for acquisitions; impairments of intangible assets; charge-backs, cash discounts, sales rebates, returns and other adjustments; legal contingencies; and income taxes. Actual results may differ from estimates.
Reclassifications
Certain reclassifications were made to conform the prior period consolidated financial statements to the current period presentation. Upfront and contingent milestone charges in connection with asset acquisitions or licensing of third-party intellectual property rights previously presented in Research and development are now presented in Acquired IPRD in the consolidated statements of earnings.
Cash and Cash Equivalents
Cash and cash equivalents include bank deposits, time deposits, commercial paper and money market funds. Cash equivalents consist of highly liquid investments with original maturities of three months or less at the time of purchase and are recognized at cost, which approximates fair value.
Marketable Debt Securities
Marketable debt securities are classified as “available-for-sale” on the date of purchase and reported at fair value. Fair value is determined based on observable market quotes or valuation models using assessments of counterparty credit worthiness, credit default risk or underlying security and overall capital market liquidity. Marketable debt securities are reviewed for impairment by assessing if the decline in market value of the investment below the carrying value is other than temporary, which considers the intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in market value, the duration and extent that the market value has been less than cost and the investee's financial condition.
Equity Investments
Equity investments with readily determinable fair values are recorded at fair value with changes in fair value recorded in Other (income)/expense, net. Equity investments without readily determinable fair values are recorded at cost minus any impairment, plus or minus changes in their estimated fair value resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Changes in the estimated fair value of equity investments without readily determinable fair values are recorded in Other (income)/expense, net.
BMS holds investments in limited partnerships, which primarily invest in early-stage life sciences companies. Such limited partnership investments are measured by using our proportionate share of the net asset values of the underlying investments held by the limited partnerships as a practical expedient. These investments are typically redeemable only through distributions upon liquidation of the underlying assets. Investments in 50% or less owned companies, as well as limited partnerships, are accounted for using the equity method of accounting when the ability to exercise significant influence over the operating and financial decisions of the investee is maintained. The proportional share of the investee's net income or losses of equity investments accounted for using the equity method are included in Other (income)/expense, net.
Equity investments without readily determinable fair values and equity investments accounted for using the equity method are assessed for potential impairment on a quarterly basis based on qualitative factors.
Inventory Valuation
Inventories are stated at the lower of average cost or net realizable value.
Property, Plant and Equipment and Depreciation
Expenditures for additions, renewals and improvements are capitalized at cost. Depreciation is computed on a straight-line method based on the estimated useful lives of the related assets ranging from 20 to 50 years for buildings and 3 to 20 years for machinery, equipment and fixtures.
Current facts or circumstances are periodically evaluated to determine if the carrying value of depreciable assets to be held and used may not be recoverable. If such circumstances exist, an estimate of undiscounted future cash flows generated by the long-lived asset, or appropriate grouping of assets, is compared to the carrying value to determine whether an impairment exists at its lowest level of identifiable cash flows. If an asset is determined to be impaired, the loss is measured based on the difference between the asset’s fair value and its carrying value. An estimate of the asset’s fair value is based on quoted market prices in active markets, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques using unobservable fair value inputs, such as a discounted value of estimated future cash flows.
Capitalized Software
Eligible costs to obtain internal use software are capitalized and amortized over the estimated useful life of the software ranging from three to ten years.
Acquisitions
Businesses acquired are consolidated upon obtaining control. The fair value of assets acquired and liabilities assumed are recognized at the date of acquisition. Any excess of the purchase price over the estimated fair values of the net assets acquired is recognized as goodwill. Business acquisition costs are expensed when incurred. Contingent consideration from potential development, regulatory, approval and sales-based milestones and sales-based royalties are included in the purchase price for business combinations and excluded for asset acquisitions.
If the assets acquired do not meet the definition of a business, primarily because no significant processes were acquired or substantially all of the relative fair value was allocated to a single asset, the transaction is accounted for as an asset acquisition rather than a business combination and no goodwill is recorded. In addition, in an asset acquisition, acquired in-process research and development ("IPRD") assets with no alternative future use are charged to Acquired IPRD.
Goodwill, IPRD and Other Intangible Assets
The fair value of acquired intangible assets is determined using an income-based approach referred to as the excess earnings method utilizing Level 3 fair value inputs. Market participant valuations assume a global view considering all potential jurisdictions and indications based on discounted after-tax cash flow projections, risk adjusted for estimated probability of technical and regulatory success.
Finite-lived intangible assets, including licenses, marketed product rights and IPRD projects that reach commercialization are amortized on a straight-line basis over their estimated useful life. Estimated useful lives are determined considering the period assets are expected to contribute to future cash flows. Finite-lived intangible assets are tested for impairment when facts or circumstances suggest that the carrying value of the asset may not be recoverable. If the carrying value exceeds the projected undiscounted pretax cash flows of the intangible asset, an impairment loss equal to the excess of the carrying value over the estimated fair value (discounted after-tax cash flows) is recognized.
Goodwill is tested at least annually for impairment by assessing qualitative factors in determining whether it is more likely than not that the fair value of net assets is below their carrying amounts. Examples of qualitative factors assessed include BMS’s share price, financial performance compared to budgets, long-term financial plans, macroeconomic, industry and market conditions as well as the substantial excess of fair value over the carrying value of net assets from the annual impairment test performed in a prior year. Each relevant factor is assessed both individually and in the aggregate.
IPRD is tested for impairment at least annually or more frequently if events occur or circumstances change that would indicate a potential reduction in the fair values of the assets below their carrying value. Impairment charges are recognized to the extent the carrying value of IPRD is determined to exceed its fair value.
Derivatives
All derivative instruments are recognized as either assets or liabilities at fair value on the consolidated balance sheets and are classified as current or long-term based on the scheduled maturity of the instrument. Derivatives designated as hedges, are assessed at inception and quarterly thereafter, to determine whether they are highly effective in offsetting changes or cash flows of the hedged item. The changes in fair value of a derivative designated as a fair value hedge and of the hedged item attributable to the hedged risk are recognized in earnings immediately. The effective portions of changes in the fair value of a derivative designated as a cash flow hedge are reported in Accumulated other comprehensive loss and are subsequently recognized in earnings consistent with the underlying hedged item. If a derivative is no longer highly effective as a hedge, the Company discontinues hedge accounting prospectively. The earnings impact related to discontinued cash flow hedges and hedge ineffectiveness was not material during all periods presented. If a hedged forecasted transaction becomes probable of not occurring, any gains or losses are reclassified from Accumulated other comprehensive loss to earnings. Derivatives that are not designated as hedges are adjusted to fair value through current earnings. The Company also uses derivative instruments or foreign currency denominated debt to hedge its net investments in certain foreign subsidiaries and affiliates. Realized and unrealized gains and losses from these hedges are included in foreign currency translation in Accumulated other comprehensive loss. Derivative cash flows, with the exception of net investment hedges, are principally classified in the operating section of the consolidated statements of cash flows, consistent with the underlying hedged item. Cash flows related to net investment hedges are classified in investing activities.
Restructuring
Restructuring charges are recognized as a result of actions to streamline operations, realize synergies from acquisitions and reduce the number of facilities. Estimating the impact of restructuring plans, including future termination benefits, integration expenses and other exit costs, requires judgment. Actual results could vary from these estimates. Restructuring charges are recognized upon meeting certain criteria, including finalization of committed plans, reliable estimates and discussions with local works councils in certain markets.
Contingencies
Loss contingencies from legal proceedings and claims may occur from government investigations, shareholder lawsuits, product and environmental liability, contractual claims, tax and other matters. Accruals are recognized when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. Gain contingencies (including contingent proceeds related to the divestitures) are not recognized until realized. Legal fees are expensed as incurred.
Revenue Recognition
Refer to “—Note 2. Revenue” for a detailed discussion of accounting policies related to revenue recognition, including deferred revenue and royalties. Refer to “—Note 3. Alliances” for further details regarding alliances.
Research and Development and Acquired IPRD
Research and development costs are expensed as incurred. Clinical study and certain research costs are recognized over the service periods specified in the contracts and adjusted as necessary based upon an ongoing review of the level of effort and costs actually incurred. Research and development costs are presented net of reimbursements from alliance partners.
Nonrefundable advance payments for services to be received in the future for use in research and development activities are recorded as prepaid assets and expensed in the period when the services are performed.
Acquired IPRD expenses include upfront payments, contingent milestone payments in connection with asset acquisitions or in-license arrangements of third-party intellectual property rights, as well as any upfront and contingent milestones payable by BMS to alliance partners prior to regulatory approval.
The Company's Acquired IPRD by type of transaction was as follows:
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| Type of transaction | Year ended December 31, |
| Dollars in Millions | 2022 | | 2021 | | 2020 |
| Alliance (Note 3) | $ | 100 | | | $ | 730 | | | $ | 258 | |
| In-license arrangements and other (Note 4) | 715 | | | 429 | | | 659 | |
| Asset acquisitions (Note 4) | — | | | — | | | 11,616 | |
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| Acquired IPRD | $ | 815 | | | $ | 1,159 | | | $ | 12,533 | |
Advertising and Product Promotion Costs
Advertising and product promotion costs are expensed as incurred. Advertising and product promotion costs are included in Marketing, selling and administrative expenses and were $1.3 billion in 2022 and 2021 and $990 million in 2020.
Foreign Currency Translation
Foreign subsidiary earnings are translated into U.S. dollars using average exchange rates. The net assets of foreign subsidiaries are translated into U.S. dollars using current exchange rates. The U.S. dollar effects that arise from translating the net assets of these subsidiaries at changing rates are recognized in Other Comprehensive Income/(Loss).
Income Taxes
The provision for income taxes includes income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from differences between the financial and tax basis of assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recognized to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. The assessment of whether or not a valuation allowance is required often requires significant judgment including the long-range forecast of future taxable income and the evaluation of tax planning initiatives. Adjustments to the deferred tax valuation allowances are made to earnings in the period when such assessments are made. The tax effects of global intangible low-taxed income from certain foreign subsidiaries is recognized in the income tax provision in the period the tax arises.
Tax benefits are recognized from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefit recognized in the financial statements for a particular tax position is based on the largest benefit that is more likely than not to be realized upon settlement.
Recently Issued Accounting Standards Not Yet Adopted
Business Combinations
In October 2021, the FASB issued amended guidance on accounting for contract assets and contract liabilities from contracts with customers in a business combination. The guidance is intended to address inconsistency related to recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized. At the acquisition date, an entity should account for the related revenue contracts in accordance with existing revenue recognition guidance generally by assessing how the acquiree applied recognition and measurement in their financial statements. The amended guidance is effective January 1, 2023 on a prospective approach.
Fair Value Measurements
In June 2022, the FASB issued amended guidance on measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security. The guidance clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The guidance also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. The amendment requires the following disclosures for equity securities subject to contractual sale restrictions: the fair value of equity securities subject to contractual sale restrictions reflected in the balance sheet; the nature and remaining duration of the restriction(s); and the circumstances that could cause a lapse in the restriction(s). The amended guidance is effective January 1, 2024 on a prospective basis. Early adoption is permitted.
Note 2. REVENUE
The following table summarizes the disaggregation of revenue by nature:
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| | Year Ended December 31, |
| Dollars in Millions | 2022 | | 2021 | | 2020 |
| Net product sales | $ | 44,671 | | | $ | 45,055 | | | $ | 41,321 | |
| Alliance revenues | 742 | | | 716 | | | 615 | |
| Other revenues | 746 | | | 614 | | | 582 | |
| Total Revenues | $ | 46,159 | | | $ | 46,385 | | | $ | 42,518 | |
Net product sales represent more than 95% of total revenues for all periods presented. Products are sold principally to wholesalers, distributors, specialty pharmacies, and to a lesser extent, directly to retailers, hospitals, clinics and government agencies. Customer orders are generally fulfilled within a few days of receipt resulting in minimal order backlog. Contractual performance obligations are usually limited to transfer of control of the product to the customer. The transfer occurs either upon shipment, upon receipt of the product after considering when the customer obtains legal title to the product, or upon infusion for cell therapies and when BMS obtains a right of payment. At these points, customers are able to direct the use of and obtain substantially all of the remaining benefits of the product.
Gross revenue to the three largest pharmaceutical wholesalers in the U.S. as a percentage of U.S. gross revenues was as follows:
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| | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| McKesson Corporation | 32 | % | | 32 | % | | 31 | % |
| AmerisourceBergen Corporation | 25 | % | | 25 | % | | 25 | % |
| Cardinal Health, Inc. | 21 | % | | 20 | % | | 19 | % |
Wholesalers are initially invoiced at contractual list prices. Payment terms are typically 30 to 90 days based on customary practices in each country. Revenue is reduced from wholesaler list price at the time of recognition for expected charge-backs, discounts, rebates, sales allowances and product returns ("GTN adjustments"). These GTN adjustments are attributed to various commercial arrangements, managed healthcare organizations and government programs such as Medicare, Medicaid and the 340B program containing various pricing implications, such as mandatory discounts, pricing protection below wholesaler list price or other discounts when Medicare Part D beneficiaries are in the coverage gap. In addition, non-U.S. government programs include different pricing schemes such as cost caps, volume discounts, outcome-based pricing and pricing claw-backs determined on sales of individual companies or an aggregation of companies participating in a specific market. Charge-backs and cash discounts are reflected as a reduction to receivables and settled through the issuance of credits to the customer, typically within one month. All other rebates, discounts and adjustments, including Medicaid and Medicare, are reflected as a liability and settled through cash payments to the customer, typically within various time periods ranging from a few months to one year.
Significant judgment is required in estimating GTN adjustments considering legal interpretations of applicable laws and regulations, historical experience, payer channel mix, current contract prices under applicable programs, unbilled claims, processing time lags and inventory levels in the distribution channel.
The following table summarizes GTN adjustments:
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| | Year Ended December 31, |
| Dollars in Millions | 2022 | | 2021 | | 2020 |
| Gross product sales | $ | 69,633 | | | $ | 67,897 | | | $ | 60,016 | |
GTN adjustments(a) | | | | | |
| Charge-backs and cash discounts | (7,469) | | | (7,253) | | | (5,827) | |
| Medicaid and Medicare rebates | (11,362) | | | (9,374) | | | (7,595) | |
| Other rebates, returns, discounts and adjustments | (6,131) | | | (6,215) | | | (5,273) | |
| Total GTN adjustments | (24,962) | | | (22,842) | | | (18,695) | |
| Net product sales | $ | 44,671 | | | $ | 45,055 | | | $ | 41,321 | |
(a) Includes adjustments for provisions for product sales made in prior periods resulting from changes in estimates of $229 million in 2022, $319 million in 2021 and $106 million in 2020.
Alliance and other revenues consist primarily of amounts related to collaborations and out-licensing arrangements. Each of these arrangements are evaluated for whether they represent contracts that are within the scope of the revenue recognition guidance in their entirety or contain aspects that are within the scope of the guidance, either directly or by reference based upon the application of the guidance related to the derecognition of nonfinancial assets (ASC 610).
Performance obligations are identified and separated when the other party can benefit directly from the rights, goods or services either on their own or together with other readily available resources and when the rights, goods or services are not highly interdependent or interrelated.
Transaction prices for these arrangements may include fixed upfront amounts as well as variable consideration such as contingent development and regulatory milestones, sales-based milestones and royalties. The most likely amount method is used to estimate contingent development, regulatory and sales-based milestones because the ultimate outcomes are binary in nature. The expected value method is used to estimate royalties because a broad range of potential outcomes exist, except for instances in which such royalties relate to a license. Variable consideration is included in the transaction price only to the extent a significant reversal in the amount of cumulative revenue recognized is not probable of occurring when the uncertainty associated with the variable consideration is subsequently resolved. Significant judgment is required in estimating the amount of variable consideration to recognize when assessing factors outside of BMS’s influence such as likelihood of regulatory success, limited availability of third party information, expected duration of time until resolution, lack of relevant past experience, historical practice of offering fee concessions and a large number and broad range of possible amounts. To the extent arrangements include multiple performance obligations that are separable, the transaction price assigned to each distinct performance obligation is reflective of the relative stand-alone selling price and recognized at a point in time upon the transfer of control.
Three types of out-licensing arrangements are typically utilized: (i) arrangements when BMS out-licenses intellectual property to another party and has no further performance obligations; (ii) arrangements that include a license and an additional performance obligation to supply product upon the request of the third party; and (iii) collaboration arrangements, which include transferring a license to a third party to jointly develop and commercialize a product.
Most out-licensing arrangements consist of a single performance obligation that is satisfied upon execution of the agreement when the development and commercialization rights are transferred to a third party. Upfront fees are recognized immediately and included in Other (income)/expense, net. Although contingent development and regulatory milestone amounts are assessed each period for the likelihood of achievement, they are typically constrained and recognized when the uncertainty is subsequently resolved for the full amount of the milestone and included in Other (income)/expense, net. Sales-based milestones and royalties are recognized when the milestone is achieved or the subsequent sales occur. Sales-based milestones and royalties are included in Alliance and other revenues.
Certain out-licensing arrangements may also include contingent performance obligations to supply commercial product to the third party upon its request. The license and supply obligations are accounted for as separate performance obligations as they are considered distinct because the third party can benefit from the license either on its own or together with other supply resources readily available to it and the obligations are separately identifiable from other obligations in the contract in accordance with the revenue recognition guidance. After considering the standalone selling prices in these situations, upfront fees, contingent development and regulatory milestone amounts and sales-based milestone and royalties are allocated to the license and recognized in the manner described above. Consideration for the supply obligation is usually based upon stipulated cost-plus margin contractual terms which represent a standalone selling price. The supply consideration is recognized at a point in time upon transfer of control of the product to the third party and included in Alliance and other revenues. The above fee allocation between the license and the supply represents the amount of consideration expected to be entitled to for the satisfaction of the separate performance obligations.
Although collaboration arrangements are unique in nature, both parties are active participants in the operating activities and are exposed to significant risks and rewards depending on the commercial success of the activities. Performance obligations inherent in these arrangements may include the transfer of certain development or commercialization rights, ongoing development and commercialization services and product supply obligations. Except for certain product supply obligations which are considered distinct and accounted for as separate performance obligations similar to the manner discussed above, all other performance obligations are not considered distinct and are combined into a single performance obligation since the transferred rights are highly integrated and interrelated to the obligation to jointly develop and commercialize the product with the third party. As a result, upfront fees are recognized ratably over time throughout the expected period of the collaboration activities and included in Other (income)/expense, net as the license is combined with other development and commercialization obligations. Contingent development and regulatory milestones that are no longer constrained are recognized in a similar manner on a prospective basis. Royalties and profit sharing are recognized when the underlying sales and profits occur and are included in Alliance and other revenues. Refer to “—Note 3. Alliances” for further information.
The following table summarizes the disaggregation of revenue by product and region:
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| | Year Ended December 31, |
| Dollars in Millions | 2022 | | 2021 | | 2020 |
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| In-Line Products | | | | | |
| Eliquis | $ | 11,789 | | | $ | 10,762 | | | $ | 9,168 | |
| Opdivo | 8,249 | | | 7,523 | | | 6,992 | |
| Pomalyst/Imnovid | 3,497 | | | 3,332 | | | 3,070 | |
| Orencia | 3,464 | | | 3,306 | | | 3,157 | |
| Sprycel | 2,165 | | | 2,117 | | | 2,140 | |
| Yervoy | 2,131 | | | 2,026 | | | 1,682 | |
| Empliciti | 296 | | | 334 | | | 381 | |
| Mature and other brands | 1,749 | | | 1,900 | | | 2,217 | |
| New Product Portfolio | | | | | |
| Reblozyl | 717 | | | 551 | | | 274 | |
| Abecma | 388 | | | 164 | | | — | |
| Opdualag | 252 | | | — | | | — | |
| Zeposia | 250 | | | 134 | | | 12 | |
| Breyanzi | 182 | | | 87 | | | — | |
| Onureg | 124 | | | 73 | | | 17 | |
| Inrebic | 85 | | | 74 | | | 55 | |
| Camzyos | 24 | | — | | | — | |
| Sotyktu | 8 | | — | | | — | |
Recent LOE Products(a) | | | | | |
| Revlimid | 9,978 | | | 12,821 | | | 12,106 | |
| Abraxane | 811 | | | 1,181 | | | 1,247 | |
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| Total Revenues | $ | 46,159 | | | $ | 46,385 | | | $ | 42,518 | |
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| United States | $ | 31,828 | | | $ | 29,214 | | | $ | 26,577 | |
| International | 13,497 | | | 16,319 | | | 15,310 | |
Other(b) | 834 | | | 852 | | | 631 | |
| Total Revenues | $ | 46,159 | | | $ | 46,385 | | | $ | 42,518 | |
(a) Recent LOE Products include products with significant decline in revenue from the prior reporting period as a result of a loss of exclusivity.
(b) Other include royalties and alliance-related revenues for products not sold by BMS’s regional commercial organizations.
Contract assets are primarily estimated future royalties and termination fees not eligible for the licensing exclusion and therefore recognized under ASC 606 and ASC 610. Contract assets are reduced and receivables are increased in the period the underlying sales occur. Cumulative catch-up adjustments to revenue affecting contract assets or contract liabilities were not material during the years ended December 31, 2022, 2021 and 2020. Revenue recognized from performance obligations satisfied in prior periods was $556 million in 2022, $561 million in 2021 and $338 million in 2020 consisting primarily of revised estimates for GTN adjustments related to prior period sales and royalties from out-licensing arrangements.
Sales commissions and other incremental costs of obtaining customer contracts are expensed as incurred as the amortization periods would be less than one year.
Note 3. ALLIANCES
BMS enters into collaboration arrangements with third parties for the development and commercialization of certain products. Although each of these arrangements is unique in nature, both parties are active participants in the operating activities of the collaboration and exposed to significant risks and rewards depending on the commercial success of the activities. BMS may either in-license intellectual property owned by the other party or out-license its intellectual property to the other party. These arrangements also typically include research, development, manufacturing, and/or commercial activities and can cover a single investigational compound or commercial product or multiple compounds and/or products in various life cycle stages. The rights and obligations of the parties can be global or limited to geographic regions. BMS refers to these collaborations as alliances and its partners as alliance partners.
The most common activities between BMS and its alliance partners are presented in results of operations as follows:
•When BMS is the principal in the end customer sale, 100% of product sales are included in Net product sales. When BMS's alliance partner is the principal in the end customer sale, BMS’s contractual share of the third-party sales and/or royalty income are included in Alliance revenues as the sale of commercial products are considered part of BMS’s ongoing major or central operations. Refer to “—Note 2. Revenue” for information regarding recognition criteria.
•Amounts payable to BMS by alliance partners (who are the principal in the end customer sale) for supply of commercial products are included in Alliance revenues as the sale of commercial products are considered part of BMS’s ongoing major or central operations.
•Profit sharing, royalties and other sales-based fees payable by BMS to alliance partners are included in Cost of products sold as incurred.
•Cost reimbursements between the parties are recognized as incurred and included in Cost of products sold; Marketing, selling and administrative expenses; or Research and development expenses, based on the underlying nature of the related activities subject to reimbursement.
•Upfront and contingent development and regulatory approval milestones payable to BMS by alliance partners for investigational compounds and commercial products are deferred and amortized over the expected period of BMS's development and co-promotion obligation through the market exclusivity period or the periods in which the related compounds or products are expected to contribute to future cash flows. The amortization is presented consistent with the nature of the payment under the arrangement. For example, amounts received for investigational compounds are presented in Other (income)/expense, net as the activities being performed at that time are not related to the sale of commercial products included in BMS’s ongoing major or central operations; amounts received for commercial products are presented in alliance revenue as the sale of commercial products are considered part of BMS’s ongoing major or central operations.
•Upfront and contingent regulatory approval milestones payable by BMS to alliance partners for commercial products are capitalized and amortized over the shorter of the contractual term or the periods in which the related products are expected to contribute to future cash flows.
•Upfront and contingent milestones payable by BMS to alliance partners prior to regulatory approval are expensed as incurred and included in Acquired IPRD expense.
•Royalties and other contingent consideration payable to BMS by alliance partners related to the divestiture of such businesses are included in Other (income)/expense, net when earned.
•All payments between BMS and its alliance partners are presented in Cash Flows From Operating Activities except for upfront and milestone payments which are presented in Cash Flows From Investing Activities.
Selected financial information pertaining to alliances was as follows, including net product sales when BMS is the principal in the third-party customer sale for products subject to the alliance. Expenses summarized below do not include all amounts attributed to the activities for the products in the alliance, but only the payments between the alliance partners or the related amortization if the payments were deferred or capitalized.
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| Year Ended December 31, |
| Dollars in Millions | 2022 | | 2021 | | 2020 |
| Revenues from alliances: | | | | | |
| Net product sales | $ | 12,001 | | | $ | 10,840 | | | $ | 9,364 | |
| Alliance revenues | 742 | | | 716 | | | 615 | |
| Total Revenues | $ | 12,743 | | | $ | 11,556 | | | $ | 9,979 | |
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| Payments to/(from) alliance partners: | | | | | |
| Cost of products sold | $ | 5,768 | | | $ | 5,227 | | | $ | 4,485 | |
| Marketing, selling and administrative | (223) | | | (183) | | | (128) | |
| Research and development | 49 | | | 42 | | | 91 | |
| Acquired IPRD | 100 | | | 730 | | | 258 | |
| Other (income)/expense, net | (53) | | | (62) | | | (74) | |
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| Selected alliance balance sheet information: | December 31, |
| Dollars in Millions | 2022 | | 2021 |
| Receivables – from alliance partners | $ | 317 | | | $ | 320 | |
| Accounts payable – to alliance partners | 1,249 | | | 1,229 | |
Deferred income from alliances(a) | 289 | | | 330 | |
(a) Includes unamortized upfront and milestone payments.
Specific information pertaining to significant alliances is discussed below, including their nature and purpose; the significant rights and obligations of the parties; specific accounting policy elections; and the statements of earnings classification of and amounts attributable to payments between the parties.
Pfizer
BMS and Pfizer jointly develop and commercialize Eliquis, an anticoagulant discovered by BMS. Pfizer funds between 50% and 60% of all development costs depending on the study. Profits and losses are shared equally on a global basis except in certain countries where Pfizer commercializes Eliquis and pays BMS a sales-based fee.
The co-exclusive license rights granted to Pfizer in exchange for an upfront payment and potential milestone payments were recorded to Deferred income and are being amortized in Other (income)/expense, net, as Eliquis was not a commercial product at the commencement of the alliance. The upfront payment and any subsequent contingent milestone proceeds are amortized over the expected period of BMS's co-promotion obligation through the market exclusivity period. Both parties assumed certain obligations to actively participate in a joint executive committee and various other operating committees and have joint responsibilities for the research, development, distribution, sales and marketing activities of the alliance using resources in their own infrastructures. BMS and Pfizer manufacture the product in the alliance and BMS is the principal in the end customer product sales in the U.S., significant countries in Europe, as well as Canada, Australia, China, Japan and South Korea. In certain smaller countries, Pfizer has full commercialization rights and BMS supplies the product to Pfizer at cost plus a percentage of the net sales price to end-customers, which is recorded in full upon transfer of control of the product to Pfizer.
Summarized financial information related to this alliance was as follows:
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| Dollars in Millions | 2022 | | 2021 | | 2020 |
| Revenues from Pfizer alliance: | | | | | |
| Net product sales | $ | 11,488 | | | $ | 10,431 | | | $ | 8,942 | |
| Alliance revenues | 301 | | | 331 | | | 226 | |
| Total Revenues | $ | 11,789 | | | $ | 10,762 | | | $ | 9,168 | |
| | | | | |
| Payments to/(from) Pfizer: | | | | | |
| Cost of products sold – Profit sharing | $ | 5,604 | | | $ | 5,064 | | | $ | 4,331 | |
| Other (income)/expense, net – Amortization of deferred income | (42) | | | (36) | | | (55) | |
| | | | | | | | | | | |
| Selected alliance balance sheet information: | December 31, |
| Dollars in Millions | 2022 | | 2021 |
| Receivables | $ | 191 | | | $ | 235 | |
| Accounts payable | 1,208 | | | 1,195 | |
| Deferred income | 222 | | | 264 | |
Ono
BMS and Ono jointly develop and commercialize Opdivo, Yervoy and several BMS investigational compounds in Japan, South Korea and Taiwan. BMS is responsible for supply of the products. Profits, losses and development costs are shared equally for all combination therapies involving compounds of both parties. Otherwise, sharing is 80% and 20% for activities involving only one of the party’s compounds.
BMS and Ono also jointly develop and commercialize Orencia in Japan. BMS is responsible for the order fulfillment and distribution of the intravenous formulation and Ono is responsible for the subcutaneous formulation. Both formulations are jointly promoted by both parties with assigned customer accounts and BMS is responsible for the product supply. A co-promotion fee of 60% is paid when a sale is made to the other party’s assigned customer.
Summarized financial information related to this alliance was as follows:
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| Dollars in Millions | 2022 | | 2021 | | 2020 |
| Revenues from Ono alliances: | | | | | |
| Net product sales | $ | 216 | | | $ | 251 | | | $ | 194 | |
| Alliance revenues | 441 | | | 385 | | | 382 | |
| Total Revenues | $ | 657 | | | $ | 636 | | | $ | 576 | |
BMS is the principal in the end customer product sales and has the exclusive right to develop, manufacture and commercialize Opdivo worldwide except in Japan, South Korea and Taiwan. Ono is entitled to receive royalties of 4% in North America and 15% in all territories excluding the three countries listed above, subject to customary adjustments.
Nektar
In 2022, BMS and Nektar discontinued the global clinical development program for bempegaldesleukin (NKTR-214) in combination with Opdivo based on results from pre-planned analyses of three late-stage clinical studies in RCC and bladder cancer. These studies and all other ongoing studies in the program are being discontinued. Research and development cost reimbursements were not material in 2022, 2021 and 2020.
BridgeBio
In May 2022, BMS and BridgeBio commenced a collaboration to develop and commercialize BBP-398, a SHP2 inhibitor, in oncology. The transaction included an upfront payment of $90 million which was expensed to Acquired IPRD. BridgeBio is eligible to receive contingent development, regulatory and sales-based milestones up to $815 million, as well as royalties on global net sales, excluding certain markets. BridgeBio is responsible for funding and completing ongoing BBP-398 Phase I monotherapy and combination therapy trials. BMS will lead and fund all other development and commercial activities. BridgeBio has an option to co-develop BBP-398 and receive higher royalties in the U.S.
2seventy bio
BMS and 2seventy bio jointly develop and commercialize novel disease-altering gene therapy product candidates targeting BCMA. The collaboration includes (i) a right for BMS to license any anti-BCMA products resulting from the collaboration, (ii) a right for 2seventy bio to participate in the development and commercialization of any licensed products resulting from the collaboration through a 50/50 co-development and profit share in the U.S. in exchange for a reduction of milestone payments, and (iii) sales-based milestones and royalties payable to 2seventy bio upon the commercialization of any licensed products resulting from the collaboration should 2seventy bio decline to exercise their co-development and profit sharing rights. The option to license idecabtagene vicleucel (Abecma) was exercised in 2016.
All profits and losses relating to developing, commercializing and manufacturing ide-cel within the U.S. are shared equally. BMS is exclusively responsible for the development and commercialization of ide-cel outside the U.S.
In 2021, the FDA approved Abecma for the treatment of relapsed or refractory multiple myeloma. Net product sales of Abecma were $297 million and $158 million; and the related profit sharing costs were $49 million and $42 million in 2022 and 2021, respectively. Cost reimbursements were not material.
In 2020, terms of the collaboration were amended including certain manufacturing obligations. Both parties were also released from future exclusivity related to BCMA-directed T cell therapies. BMS paid $200 million to extinguish its obligation for future ex-U.S. milestones and royalties on ide-cel, which was expensed to Acquired IPRD in 2020.
Eisai
In 2021, BMS and Eisai commenced an exclusive global strategic collaboration for the co-development and co-commercialization of MORAb-202, a selective folate receptor alpha antibody-drug conjugate being investigated in endometrial, ovarian, lung and breast cancers. MORAb-202 is currently in Phase I/II clinical trials for solid tumors.
The parties will jointly develop and commercialize MORAb-202 in the U.S., Canada, Europe, Russia, Japan, China and certain other countries in the Asia-Pacific region (the “collaboration territory”). Eisai will be responsible for the global manufacturing and supply. Profits, research and development and commercialization costs are shared in the collaboration territories. BMS will be responsible for development and commercialization outside of the collaboration territory and will pay a royalty on those sales.
A $650 million upfront collaboration fee was expensed to Acquired IPRD in 2021. BMS is also obligated to pay up to $2.5 billion upon the achievement of contingent development, regulatory and sales-based milestones. Cost reimbursements were not material.
Note 4. ACQUISITIONS, DIVESTITURES, LICENSING AND OTHER ARRANGEMENTS
Acquisitions
Turning Point
On August 17, 2022, BMS acquired Turning Point for $4.1 billion of cash (or $3.3 billion net of cash acquired). Turning Point was a clinical-stage precision oncology company with a pipeline of investigational medicines designed to target the common mutations and alterations that drive cancer growth. The acquisition provided BMS rights to Turning Point's lead asset, repotrectinib, and other clinical and pre-clinical stage assets. The transaction was accounted for as a business combination requiring all assets acquired and liabilities assumed to be recognized at their fair value as of the acquisition date.
The total consideration for the acquisition consisted of the following:
| | | | | |
| Dollars in Millions | Total Consideration |
| Cash consideration for outstanding shares | $ | 3,811 | |
| Cash consideration for equity awards | 302 | |
| Consideration paid | 4,113 | |
Less: Unvested stock awards (a) | 153 | |
| Total consideration to be allocated | $ | 3,960 | |
(a) Includes unvested equity awards of $73 million expensed in Marketing, selling, and administrative and $80 million expensed in Research and development in 2022.
The purchase price allocation resulted in the following amounts being allocated to the assets acquired and liabilities assumed as of the acquisition date based upon their respective fair values summarized below:
| | | | | |
| Dollars in Millions | Purchase Price Allocation |
| Cash and cash equivalents | $ | 795 | |
| Other current assets | 14 | |
Intangible assets (a) | 2,971 | |
| Deferred income tax assets | 229 | |
| Other non-current assets | 10 | |
| Deferred income tax liabilities | (643) | |
| Other current liabilities | (111) | |
| Identifiable net assets acquired | $ | 3,265 | |
Goodwill (b) | 695 | |
| Total consideration allocated | $ | 3,960 | |
(a) Intangible assets primarily consist of IPRD allocated to repotrectinib ($2.8 billion), a potential best-in-class tyrosine kinase inhibitor targeting the ROS1 and NTRK oncogenic drivers in NSCLC and other advanced solid tumors. Repotrectinib is currently in registrational Phase II study in adults and a Phase I/II study in pediatric patients. The estimated fair value of IPRD assets was determined using an income approach valuation method.
(b) Goodwill resulted primarily from the recognition of deferred tax liabilities and is not deductible for tax purposes.
The results of Turning Point's operations were included in the consolidated financial statements commencing August 18, 2022, and were not material. Historical financial results of the acquired entity were not significant.
MyoKardia
In November 2020, BMS acquired MyoKardia for $13.1 billion, including cash settlements of equity stock awards. MyoKardia was a clinical-stage biopharmaceutical company pioneering a precision medicine approach to discover, develop and commercialize targeted therapies for the treatment of serious cardiovascular diseases. The acquisition provided BMS with rights to MyoKardia’s lead asset, mavacamten, a potential first-in-class cardiovascular medicine for the treatment of obstructive hypertrophic cardiomyopathy. Mavacamten was approved by FDA in April 2022 under the brand name Camzyos.
BMS funded the transaction through a combination of cash on hand from its operations and net proceeds received in connection with the 2020 senior unsecured notes offering. The transaction was accounted for as an asset acquisition since mavacamten represented substantially all of the fair value of the gross assets acquired (excluding cash and deferred income taxes). As a result, $11.4 billion was expensed to Acquired IPRD during 2020. Additionally, in connection with this acquisition, BMS recorded approximately $1.4 billion of assets primarily consisting of cash, deferred income taxes, licenses; liabilities assumed were $226 million. Total consideration paid also included $482 million of unvested stock awards expensed to Marketing, selling and administrative ($241 million) and Research and development ($241 million).
Forbius
In 2020, BMS acquired all of the outstanding shares of Forbius for $185 million and contingent development, regulatory and sales-based milestone payments up to $815 million. Forbius was a privately held, clinical-stage protein engineering company that designed and developed biotherapeutics for the treatment of cancer and fibrotic diseases. The acquisition provided BMS with full rights to Forbius' TGF-beta program, including the program’s lead investigational asset, AVID200, which was in Phase I development. BMS accounted for the transaction as an asset acquisition since AVID200 represented substantially all of the fair value of the gross assets acquired. As a result, $178 million was expensed to Acquired IPRD and $7 million was allocated to deferred tax assets.
Divestitures
The following table summarizes the financial impact of divestitures including royalty income, which is included in Other (income)/expense, net. Revenue and pretax earnings related to all divestitures were not material in all periods presented (excluding divestiture gains or losses).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Proceeds(a) | | Divestiture (Gains)/Losses | | Royalty Income |
| Dollars in Millions | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 |
| Diabetes business | $ | 767 | | | $ | 612 | | | $ | 558 | | | $ | — | | | $ | — | | | $ | — | | | $ | (810) | | | $ | (622) | | | $ | (567) | |
| Mature products and other | 390 | | | 136 | | | 157 | | | (211) | | | (9) | | | (55) | | | (22) | | | (44) | | | (77) | |
| Total | $ | 1,157 | | | $ | 748 | | | $ | 715 | | | $ | (211) | | | $ | (9) | | | $ | (55) | | | $ | (832) | | | $ | (666) | | | $ | (644) | |
(a) Includes proceeds from royalties received subsequent to the related sale of the asset or business.
Diabetes Business
In February 2014, BMS and AstraZeneca terminated their diabetes business alliance agreements and BMS sold to AstraZeneca substantially all of the diabetes business comprising the alliance. Consideration for the transaction included tiered royalty payments ranging from 10% to 25% based on net sales through 2025. Royalties were $924 million in 2022, $725 million in 2021 and $673 million in 2020.
In 2015 and 2017, BMS transferred a percentage of its future royalty rights on Amelyn, Onglyza* and Farxiga* net product sales to third parties. As a result of these transfers, the royalty income associated with these products was reduced by $114 million in 2022, $103 million in 2021 and $106 million in 2020.
Mature Products and Other
Manufacturing Operations
In January 2023, BMS sold its manufacturing facility in Syracuse, New York to LOTTE Corporation resulting in cash proceeds of $159 million, which was received in December 2022. The business was accounted for as held-for-sale as of December 31, 2022, and its assets were reduced to the estimated relative fair value resulting in a $63 million impairment charge recorded to Cost of products sold in 2022. Assets and liabilities reclassified to held-for-sale and included within Other current assets and Other current liabilities were $172 million and $20 million, respectively, as of December 31, 2022.
Other
In 2022, product rights to several mature products were sold to Cheplapharm, resulting in cash proceeds of $221 million and a divestiture gain of $211 million.
In 2020, the product rights to a mature brand were sold resulting in proceeds of $50 million and divestiture gain of $49 million.
Licensing and Other Arrangements
Royalty and Licensing Income
The following table summarizes the financial impact of Keytruda* royalties, Tecentriq* royalties, upfront licensing fees and milestones for products that have not obtained commercial approval, which are included in Other (income)/expense, net.
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| Dollars in Millions | 2022 | | 2021 | | 2020 |
Keytruda* royalties | $ | (1,001) | | | $ | (841) | | | $ | (681) | |
Tecentriq* royalties | (93) | | | (90) | | | (19) | |
| Upfront licensing fees | — | | | (34) | | | (30) | |
| Contingent milestone income | (50) | | | (18) | | | (72) | |
| Amortization of deferred income | (53) | | | (39) | | | (58) | |
| Biohaven sublicense income | (55) | | | — | | | — | |
| Other royalties | (31) | | | (45) | | | (23) | |
| Total | $ | (1,283) | | | $ | (1,067) | | | $ | (883) | |
Keytruda* Patent License Agreement
In 2017, BMS and Ono entered a global patent license agreement with Merck related to Merck's PD-1 antibody Keytruda*. In accordance with the agreement, Merck is obligated to pay ongoing royalties on global sales of Keytruda* of 6.5% from January 1, 2017 through December 31, 2023, and 2.5% from January 1, 2024 through December 31, 2026. The companies also granted certain rights to each other under their respective patent portfolios pertaining to PD-1. Payments and royalties are shared between BMS and Ono on a 75/25 percent allocation, respectively after adjusting for each parties' legal fees.
Tecentriq* Patent License Agreement
In 2020, BMS and Ono entered a global patent license agreement with Roche Group related to Tecentriq*, Roche’s anti-PD-L1 antibody. Under the agreement, Roche paid $324 million, which included royalties in 2020, and will pay single-digit royalties on worldwide net sales of Tecentriq* through December 31, 2026. The upfront payment and royalties are shared between BMS and Ono consistent with existing agreements. BMS recorded $239 million in Other (income)/expense, net for the settlement in 2020.
In-license and other arrangements
Immatics
In 2022, BMS obtained a global exclusive license to Immatics’ TCR bispecific IMA401 program. IMA401 is being studied in oncology and a Clinical Trial Application has been approved by the German federal regulatory authority. The trial commenced in May 2022. BMS and Immatics collaborate on the development and BMS will be responsible for the commercialization of IMA401 worldwide, including strategic decisions, regulatory responsibilities, funding and manufacturing. Immatics has the option to co-fund U.S. development in exchange for enhanced U.S. royalty payments and/or to co-promote IMA401 in the U.S. The transaction included an upfront payment of $150 million which was expensed to Acquired IPRD in 2022. In addition, Immatics is eligible to receive contingent development, regulatory and sales-based milestones up to $770 million, as well as royalties on global net sales.
Agenus
In 2021, BMS obtained a global exclusive license to Agenus’ proprietary AGEN1777 bispecific antibody program that blocks TIGIT and an additional target. AGEN1777 is being studied in oncology and a Phase I clinical trial was initiated in October 2021. BMS is responsible for the development and any subsequent commercialization of AGEN1777 and its related products worldwide, including strategic decisions, regulatory responsibilities, funding and manufacturing. The transaction included a payment of $200 million which was included in Acquired IPRD. In addition, Agenus is eligible to receive contingent development, regulatory and sales-based milestones up to $1.4 billion as well as royalties on global net sales.
Dragonfly
In 2020, BMS obtained a global exclusive license to Dragonfly’s interleukin-12 ("IL-12") investigational immunotherapy program, including its extended half-life cytokine DF6002. BMS is responsible for the development and any subsequent commercialization of DF6002 and its related products worldwide, including strategic decisions, regulatory responsibilities, funding and manufacturing. Dragonfly continues to be involved in the development of DF6002 in current and certain future Phase I/II clinical trials. BMS paid $475 million to Dragonfly for the rights in 2020, which was expensed to Acquired IPRD. The payment included $75 million following the commencement of a Phase I combination clinical study. Dragonfly is eligible to receive additional contingent consideration comprised of development, regulatory and sales-based milestone payments up to $2.7 billion and royalties on global net sales. In 2022, a Phase I development milestone for IL-12 was achieved resulting in a $175 million payment to Dragonfly which was included in Acquired IPRD. The parties also amended the terms of three future milestones by requiring the achievement of certain criteria by specified dates unless BMS notifies Dragonfly that it will discontinue development of IL-12. These milestones continue to be considered substantive and contingent because the decision to proceed will be based on an assessment of clinical data prior to the specified dates.
In January 2023, BMS notified Dragonfly that it was terminating the global exclusive license that relates to Dragonfly’s IL-12. The termination is effective 90 days after notification at which time all rights will revert back to Dragonfly.
Nimbus
BMS and Nimbus Therapeutics entered into a settlement resolving all legal claims and business interests pertaining to Nimbus’ TYK2 inhibitor in 2022 resulting in $40 million of income. The settlement also provides for BMS to receive additional amounts for contingent development, regulatory and sales-based milestones upon the occurrence of certain events and approximately 10% of any change in control proceeds received by Nimbus Therapeutics related to its TYK2 inhibitor. In February 2023, Takeda acquired 100% ownership of Nimbus Therapeutics' TYK2 inhibitor for approximately $4.0 billion of upfront proceeds plus contingent sales-based milestones aggregating up to $2.0 billion.
Other
In 2022, BMS amended the terms of a license arrangement and paid a third party $295 million to extinguish a future royalty obligation related to mavacamten, prior to its FDA approval in April 2022, resulting in an Acquired IPRD charge.
Note 5. OTHER (INCOME)/EXPENSE, NET
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| Dollars in Millions | 2022 | | 2021 | | 2020 |
| Interest expense | $ | 1,232 | | | $ | 1,334 | | | $ | 1,420 | |
| Royalty and licensing income (Note 4) | (1,283) | | | (1,067) | | | (883) | |
| Royalty income - divestitures (Note 4) | (832) | | | (666) | | | (644) | |
| Equity investment losses/(income), net (Note 9) | 801 | | | (745) | | | (1,228) | |
| Integration expenses (Note 6) | 440 | | | 564 | | | 717 | |
| Loss on debt redemption (Note 9) | 266 | | | 281 | | | — | |
| Divestiture gains (Note 4) | (211) | | | (9) | | | (55) | |
| Litigation and other settlements | 178 | | | 82 | | | (194) | |
| Investment income | (171) | | | (39) | | | (121) | |
| Provision for restructuring (Note 6) | 75 | | | 169 | | | 530 | |
| Contingent consideration | (9) | | | (542) | | | (1,757) | |
| Other | 90 | | | (82) | | | (99) | |
| Other (income)/expense, net | $ | 576 | | | $ | (720) | | | $ | (2,314) | |
Contingent Consideration
Contingent consideration in 2021 and 2020 primarily included fair value adjustments resulting from the change in the traded price of contingent value rights issued with the Celgene acquisition. The contractual obligation to pay the contingent value rights terminated in January 2021 because the FDA did not approve liso-cel (JCAR017) by December 31, 2020.
Note 6. RESTRUCTURING
Celgene Acquisition Plan
In 2019, a restructuring and integration plan was implemented as an initiative to realize sustainable run rate synergies resulting from cost savings and avoidance from the Celgene acquisition ("Celgene Acquisition Plan") that have resulted in annual synergies of at least $3.0 billion. The synergies realized are in Cost of products sold, Marketing, selling and administrative expense and Research and development expense. Charges of approximately $3.5 billion are expected to be incurred including cash outlays of approximately $3.1 billion. Cumulative charges of approximately $3.1 billion have been recognized to date including integration planning and execution expenses, employee termination benefit costs and accelerated stock-based compensation, contract termination costs and other shutdown costs associated with site exits. The remaining charges are primarily related to IT system integration which are expected to be incurred through 2024. Employee workforce reductions were approximately 170 in 2022, 405 in 2021 and 1,565 in 2020.
Other Restructuring
Restructuring and integration plans were initiated to realize expected cost synergies resulting from the Turning Point acquisition on August 17, 2022, the MyoKardia acquisition in 2020 (acquisition-related initiatives), as well as other costs saving initiatives. Charges of approximately $250 million are expected to be incurred through the end of 2023 for the acquisition-related initiatives, and consist of integration planning and execution expenses, employee termination benefit costs and other costs. Cumulative charges of approximately $165 million have been recognized for these actions to date.
Company Transformation
In 2016, a restructuring plan was announced to evolve and streamline BMS’s operating model. Cumulative charges of approximately $1.5 billion were recognized for these actions since the announcement. Actions under the plan were completed as of December 31, 2020.
The following provides the charges related to restructuring initiatives by type of cost:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| Dollars in Millions | 2022 | | 2021 | | 2020 |
| Celgene Acquisition Plan | $ | 472 | | | $ | 673 | | | $ | 1,244 | |
| Other Restructuring | 48 | | | 78 | | | 39 | |
| Company Transformation | — | | | — | | | 127 | |
| Total charges | $ | 520 | | | $ | 751 | | | $ | 1,410 | |
| | | | | |
| Employee termination costs | $ | 69 | | | $ | 159 | | | $ | 457 | |
| Other termination costs | 6 | | | 10 | | | 73 | |
| Provision for restructuring | 75 | | | 169 | | | 530 | |
| Integration expenses | 440 | | | 564 | | | 717 | |
| Accelerated depreciation | 5 | | | 2 | | | 53 | |
| Asset impairments | — | | | 24 | | | 103 | |
| Other shutdown costs, net | — | | | (8) | | | 7 | |
| Total charges | $ | 520 | | | $ | 751 | | | $ | 1,410 | |
| | | | | |
| Cost of products sold | $ | — | | | $ | 24 | | | $ | 32 | |
| Marketing, selling and administrative | 5 | | | 3 | | | 10 | |
| Research and development | — | | | — | | | 113 | |
| Other (income)/expense, net | 515 | | | 724 | | | 1,255 | |
| Total charges | $ | 520 | | | $ | 751 | | | $ | 1,410 | |
The following summarizes the charges and spending related to restructuring plan activities:
| | | | | | | | | | | | | |
| Year Ended December 31, | | |
| Dollars in Millions | 2022 | | 2021 | | |
| Liability at January 1 | $ | 101 | | | $ | 148 | | | |
Provision for restructuring(a) | 75 | | | 156 | | | |
| Foreign currency translation and other | (7) | | | (4) | | | |
| Payments | (122) | | | (199) | | | |
| Liability at December 31 | $ | 47 | | | $ | 101 | | | |
(a) Includes reductions to the liability resulting from changes in estimates of $7 million in 2022, $19 million in 2021. Excludes $13 million in 2021 of accelerated stock-based compensation relating to the Celgene Acquisition Plan.
Note 7. INCOME TAXES
The provision/(benefit) for income taxes consisted of:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| Dollars in Millions | 2022 | | 2021 | | 2020 |
| Current: | | | | | |
| U.S. | $ | 3,017 | | | $ | 1,879 | | | $ | 1,245 | |
| Non-U.S. | 1,089 | | | 598 | | | (104) | |
| Total current | 4,106 | | | 2,477 | | | 1,141 | |
| Deferred: | | | | | |
| U.S. | (2,889) | | | (1,255) | | | 229 | |
| Non-U.S. | 151 | | | (138) | | | 754 | |
| Total deferred | (2,738) | | | (1,393) | | | 983 | |
| Total Provision for Income Taxes | $ | 1,368 | | | $ | 1,084 | | | $ | 2,124 | |
Effective Tax Rate
The reconciliation of the effective tax rate to the U.S. statutory Federal income tax rate was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| % of Earnings Before Income Taxes |
| Dollars in Millions | 2022 | | 2021 | | 2020 |
| Earnings/(Loss) before income taxes: | | | | | | | | | | | |
| U.S. | $ | (140) | | | | | $ | 1,593 | | | | | $ | (10,106) | | | |
| Non-U.S. | 7,853 | | | | | 6,505 | | | | | 3,235 | | | |
| Total | 7,713 | | | | | 8,098 | | | | | (6,871) | | | |
| U.S. statutory rate | 1,620 | | | 21.0 | % | | 1,701 | | | 21.0 | % | | (1,443) | | | 21.0 | % |
| GILTI, net of foreign derived intangible income deduction | 634 | | | 8.2 | % | | 645 | | | 8.0 | % | | 685 | | | (10.0) | % |
| Foreign tax effect of certain operations in Ireland, Puerto Rico and Switzerland | (416) | | | (5.4) | % | | (143) | | | (1.8) | % | | (86) | | | 1.3 | % |
| Internal transfers of intangible and other assets | (93) | | | (1.2) | % | | (983) | | | (12.1) | % | | 853 | | | (12.4) | % |
| U.S. Federal, state and foreign contingent tax matters | (297) | | | (3.9) | % | | 154 | | | 1.9 | % | | 136 | | | (2.0) | % |
| U.S. Federal research-based credits | (142) | | | (1.8) | % | | (165) | | | (2.0) | % | | (165) | | | 2.4 | % |
| Charitable contributions of inventory | (94) | | | (1.2) | % | | (42) | | | (0.5) | % | | (36) | | | 0.5 | % |
| Contingent value rights | — | | | — | | | (108) | | | (1.3) | % | | (363) | | | 5.3 | % |
| Non-deductible R&D charges | — | | | — | | | — | | | — | | | 2,461 | | | (35.8) | % |
| Puerto Rico excise tax credit | (144) | | | (1.9) | % | | (152) | | | (1.9) | % | | (147) | | | 2.1 | % |
| State and local taxes (net of valuation allowance) | 103 | | | 1.3 | % | | 33 | | | 0.4 | % | | 103 | | | (1.5) | % |
| Foreign and other | 197 | | | 2.6 | % | | 144 | | | 1.7 | % | | 126 | | | (1.8) | % |
| Total | $ | 1,368 | | | 17.7 | % | | $ | 1,084 | | | 13.4 | % | | $ | 2,124 | | | (30.9) | % |
Internal transfers of intangible and other assets to streamline our legal entity structure subsequent to the Celgene acquisition resulted in a tax benefit in 2022 and 2021 and in a tax charge in 2020 upon adjusting deferred taxes for the book and revalued tax basis differences of the related assets.
The 2022 U.S. Federal, state and foreign contingent tax matters include a $522 million tax benefit with respect to lapse of statutes and effectively settled contingent tax matters.
Fair value adjustments for contingent value rights are not taxable or tax deductible.
Non-deductible R&D charges primarily resulted from the $11.4 billion MyoKardia IPRD charge in 2020.
Puerto Rico imposes an excise tax on the gross company purchase price of goods sold from BMS’s manufacturer in Puerto Rico. The excise tax is recognized in Cost of products sold when the intra-entity sale occurs. For U.S. income tax purposes, the excise tax is not deductible but results in foreign tax credits that are generally recognized in BMS’s provision for income taxes when the excise tax is incurred. As of December 31, 2022, BMS has amended its existing Puerto Rico decree, eliminating the excise tax and increasing its Puerto Rico tax rate to 10.5% effective for the tax year beginning January 1, 2023, and extending BMS’s tax grants an additional 15 years to 2038.
Deferred Taxes and Valuation Allowance
The components of deferred income tax assets/(liabilities) were as follows:
| | | | | | | | | | | |
| | December 31, |
| Dollars in Millions | 2022 | | 2021 |
| Deferred tax assets | | | |
| Foreign net operating loss and other carryforwards | $ | 566 | | | $ | 945 | |
| State net operating loss and credit carryforwards | 329 | | | 304 | |
| U.S. Federal net operating loss and credit carryforwards | 236 | | | 226 | |
| Milestone payments and license fees | 1,030 | | | 887 | |
| | | |
| | | |
| Capitalized research expenditures | 1,573 | | | — | |
| Other | 1,284 | | | 1,390 | |
| Total deferred tax assets | 5,018 | | | 3,752 | |
| Valuation allowance | (873) | | | (1,056) | |
| Deferred tax assets net of valuation allowance | $ | 4,145 | | | $ | 2,696 | |
| | | |
| Deferred tax liabilities | | | |
| Acquired intangible assets | $ | (4,362) | | | $ | (4,867) | |
| Goodwill and other | (605) | | | (891) | |
| Total deferred tax liabilities | $ | (4,967) | | | $ | (5,758) | |
| | | |
| Deferred tax liabilities, net | $ | (822) | | | $ | (3,062) | |
| | | |
| Recognized as: | | | |
| Deferred income taxes assets – non-current | $ | 1,344 | | | $ | 1,439 | |
| | | |
| Deferred income taxes liabilities – non-current | (2,166) | | | (4,501) | |
| Total | $ | (822) | | | $ | (3,062) | |
BMS is not indefinitely reinvested with respect to its undistributed earnings from foreign subsidiaries and has provided a deferred tax liability for foreign and state income and withholding tax that would apply. BMS remains indefinitely reinvested with respect to its financial statement basis in excess of tax basis of its foreign subsidiaries. A determination of the deferred tax liability with respect to this basis difference is not practicable.
The U.S. Federal net operating loss carryforwards were $709 million at December 31, 2022. These carryforwards were acquired as a result of certain acquisitions and are subject to limitations under Section 382 of the Internal Revenue Code. The net operating loss carryforwards expire in varying amounts beginning in 2023. The foreign and state net operating loss carryforwards expire in varying amounts beginning in 2023 (certain amounts have unlimited lives).
At December 31, 2022, a valuation allowance of $873 million exists for the following items: $295 million primarily for foreign net operating loss and tax credit carryforwards, $261 million for state deferred tax assets including net operating loss and tax credit carryforwards and $317 million for U.S. Federal deferred tax assets including equity investment fair value adjustments and U.S. Federal net operating loss carryforwards.
Changes in the valuation allowance were as follows:
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| Dollars in Millions | 2022 | | 2021 | | 2020 |
| Balance at beginning of year | $ | 1,056 | | | $ | 2,809 | | | $ | 2,844 | |
| Provision | 213 | | | 201 | | | 62 | |
| Utilization | (68) | | | (1,087) | | | (488) | |
| Foreign currency translation | (59) | | | (157) | | | 212 | |
| Acquisitions/(dispositions)/(liquidations), net | (271) | | | (720) | | | 179 | |
| Non U.S. rate change | 2 | | | 10 | | | — | |
| Balance at end of year | $ | 873 | | | $ | 1,056 | | | $ | 2,809 | |
In 2022 and 2021, certain foreign net operating losses and related valuation allowances were utilized or eliminated as a result of internal legal entity restructurings.
Income tax payments were $5.4 billion in 2022, $3.5 billion in 2021 and $3.4 billion in 2020.
In connection with the enactment of the TCJA, we were required to pay a one-time transition tax and elected to pay over a period of eight years as permitted under the TCJA. The remaining amounts payable are as follows: $567 million in 2023; $799 million in 2024; $1.0 billion in 2025; and $244 million in 2026.
Business is conducted in various countries throughout the world and is subject to tax in numerous jurisdictions. A significant number of tax returns that are filed are subject to examination by various federal, state and local tax authorities. Tax examinations are often complex, as tax authorities may disagree with the treatment of items reported requiring several years to resolve. Liabilities are established for possible assessments by tax authorities resulting from known tax exposures including, but not limited to, transfer pricing matters, tax credit deductibility of certain expenses, and deemed repatriation transition tax. Such liabilities represent a reasonable provision for taxes ultimately expected to be paid and may need to be adjusted over time as more information becomes known. The effect of changes in estimates related to contingent tax liabilities is included in the effective tax rate reconciliation above.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (excluding interest and penalties):
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| Dollars in Millions | 2022 | | 2021 | | 2020 |
| Balance at beginning of year | $ | 2,042 | | | $ | 2,003 | | | $ | 1,905 | |
| Gross additions to tax positions related to current year | 53 | | | 66 | | | 76 | |
| Gross additions to tax positions related to prior years | 137 | | | 75 | | | 325 | |
| Gross additions to tax positions assumed in acquisitions | 15 | | | — | | | 51 | |
| Gross reductions to tax positions related to prior years | (381) | | | (22) | | | (352) | |
| Settlements | (8) | | | (70) | | | (7) | |
| Reductions to tax positions related to lapse of statute | (83) | | | (5) | | | (5) | |
| Cumulative translation adjustment | (9) | | | (5) | | | 10 | |
| Balance at end of year | $ | 1,766 | | | $ | 2,042 | | | $ | 2,003 | |
Additional information regarding unrecognized tax benefits is as follows:
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| Dollars in Millions | 2022 | | 2021 | | 2020 |
| Unrecognized tax benefits that if recognized would impact the effective tax rate | $ | 1,736 | | | $ | 1,957 | | | $ | 1,900 | |
| Accrued interest | 332 | | | 424 | | | 366 | |
| Accrued penalties | 25 | | | 26 | | | 20 | |
| | | | | |
| | | | | |
Accrued interest and penalties payable for unrecognized tax benefits are included in either current or non-current income taxes payable. Interest and penalties related to unrecognized tax benefits are included in income tax expense.
BMS is currently under examination by a number of tax authorities that proposed or are considering proposing material adjustments to tax positions for issues such as transfer pricing, certain tax credits and the deductibility of certain expenses. As previously disclosed, BMS received several notices of proposed adjustments from the IRS related to transfer pricing and other tax issues for the 2008 to 2012 tax years. BMS disagrees with the IRS’s positions and continues to work cooperatively with the IRS to resolve these issues. In December 2022, BMS entered the IRS administrative appeals process to resolve these matters. Timing of the final resolution of these complex matters is uncertain and could have a material impact on BMS’s financial statements. Tax positions for these years unrelated to matters that entered the administrative appeals process are considered effectively settled.
It is reasonably possible that new issues will be raised by tax authorities that may increase unrecognized tax benefits; however, an estimate of such increases cannot reasonably be made at this time. BMS believes that it has adequately provided for all open tax years by tax jurisdiction.
It is also reasonably possible that the total amount of unrecognized tax benefits at December 31, 2022 could decrease in the range of approximately $120 million to $170 million in the next twelve months as a result of the settlement of certain tax audits and other events. The expected change in unrecognized tax benefits may result in the payment of additional taxes, adjustment of certain deferred taxes and/or recognition of tax benefits. The following is a summary of major tax jurisdictions for which tax authorities may assert additional taxes based upon tax years currently under audit and subsequent years that will likely be audited:
| | | | | |
| U.S. | 2008 to 2012, 2016 to 2022 |
| Canada | 2012 to 2022 |
| France | 2020 to 2022 |
| Germany | 2015 to 2022 |
| Italy | 2019 to 2022 |
| Japan | 2018 to 2022 |
| UK | 2012 to 2022 |
Note 8. EARNINGS/(LOSS) PER SHARE
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| Amounts in Millions, Except Per Share Data | 2022 | | 2021 | | 2020 |
| Net Earnings/(Loss) Attributable to BMS Used for Basic and Diluted EPS Calculation | $ | 6,327 | | | $ | 6,994 | | | $ | (9,015) | |
| | | | | |
| Weighted-Average Common Shares Outstanding - Basic | 2,130 | | | 2,221 | | | 2,258 | |
| Incremental Shares Attributable to Share-Based Compensation Plans | 16 | | | 24 | | | — | |
| Weighted-Average Common Shares Outstanding - Diluted | 2,146 | | | 2,245 | | | 2,258 | |
| | | | | |
| Earnings/(Loss) per Common Share | | | | | |
| Basic | $ | 2.97 | | | $ | 3.15 | | | $ | (3.99) | |
| Diluted | 2.95 | | | 3.12 | | | (3.99) | |
The total number of potential shares of common stock excluded from the diluted earnings per share computation because of the antidilutive impact was not material in 2022 and 2021 and was 106 million in 2020.
Note 9. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Financial instruments include cash and cash equivalents, marketable debt securities, equity investments, accounts receivable and payable, debt instruments and derivatives.
Changes in exchange rates and interest rates create exposure to market risk. Certain derivative financial instruments are used when available on a cost-effective basis to hedge the underlying economic exposure. These instruments qualify as cash flow, net investment and fair value hedges upon meeting certain criteria, including effectiveness of offsetting hedged exposures. Changes in fair value of derivatives that do not qualify for hedge accounting are recognized in earnings as they occur. Derivative financial instruments are not used for trading purposes.
Financial instruments are subject to counterparty credit risk which is considered as part of the overall fair value measurement. Counterparty credit risk is monitored on an ongoing basis and mitigated by limiting amounts outstanding with any individual counterparty, utilizing conventional derivative financial instruments and only entering into agreements with counterparties that meet high credit quality standards. The consolidated financial statements would not be materially impacted if any counterparty failed to perform according to the terms of its agreement. Collateral is not required by any party whether derivatives are in an asset or liability position under the terms of the agreements.
Fair Value Measurements — The fair value of financial instruments are classified into one of the following categories:
Level 1 inputs utilize unadjusted quoted prices in active markets accessible at the measurement date for identical assets or liabilities. The fair value hierarchy provides the highest priority to Level 1 inputs.
Level 2 inputs utilize observable prices for similar instruments and quoted prices for identical or similar instruments in non-active markets. Additionally, certain corporate debt securities utilize a third-party matrix pricing model using significant inputs corroborated by market data for substantially the full term of the assets. Equity and fixed income funds are primarily invested in publicly traded securities valued at the respective NAV of the underlying investments. Level 2 derivative instruments are valued using LIBOR yield curves, less credit valuation adjustments, and observable forward foreign exchange rates at the reporting date. Valuations of derivative contracts may fluctuate considerably from volatility in underlying foreign currencies and underlying interest rates driven by market conditions and the duration of the contract.
Level 3 unobservable inputs are used when little or no market data is available. Level 3 financial liabilities consist of other acquisition related contingent consideration and success payments related to undeveloped product rights resulting from the Celgene acquisition.
There were no transfers between Levels 1, 2 and 3 during the year ended December 31, 2022.
Financial assets and liabilities measured at fair value on a recurring basis are summarized below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
| Dollars in Millions | Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 |
| Cash and cash equivalents - money market and other securities | $ | — | | | $ | 7,770 | | | $ | — | | | $ | — | | | $ | 12,225 | | | $ | — | |
| Marketable debt securities: | | | | | | | | | | | |
| Certificates of deposit | — | | | 32 | | | — | | | — | | | 2,264 | | | — | |
| | | | | | | | | | | |
| Commercial paper | — | | | 98 | | | — | | | — | | | 320 | | | — | |
| Corporate debt securities | — | | | — | | | — | | | — | | | 403 | | | — | |
| Derivative assets | — | | | 305 | | | — | | | — | | | 206 | | | — | |
| Equity investments | 424 | | | 680 | | | — | | | 1,910 | | | 109 | | | — | |
| Derivative liabilities | — | | | 213 | | | — | | | — | | | 25 | | | — | |
| Contingent consideration liability: | | | | | | | | | | | |
| Contingent value rights | 5 | | | — | | | — | | | 8 | | | — | | | — | |
| Other acquisition related contingent consideration | — | | | — | | | 24 | | | — | | | — | | | 35 | |
Marketable Debt Securities
The following table summarizes marketable debt securities:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
| Dollars in Millions | Amortized
Cost | | Gross Unrealized | | Fair Value | | Amortized
Cost | | Gross Unrealized | | Fair Value |
| Gains | | Losses | Gains | | Losses |
| Certificates of deposit | $ | 32 | | | $ | — | | | $ | — | | | $ | 32 | | | $ | 2,264 | | | $ | — | | | $ | — | | | $ | 2,264 | |
| Commercial paper | 98 | | | — | | | — | | | 98 | | | 320 | | | — | | | — | | | 320 | |
| Corporate debt securities | — | | | — | | | — | | | — | | | 401 | | | 2 | | | — | | | 403 | |
| Total marketable debt securities | $ | 130 | | | $ | — | | | $ | — | | | $ | 130 | | | $ | 2,985 | | | $ | 2 | | | $ | — | | | $ | 2,987 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Equity Investments
The following summarizes the carrying amount of equity investments at December 31, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| Dollars in Millions | | | | | 2022 | | 2021 |
| Equity investments with readily determinable fair values | | | | | $ | 1,104 | | | $ | 2,019 | |
| Equity investments without readily determinable fair values | | | | | 537 | | | 283 | |
| Limited partnerships and other equity method investments | | | | | 546 | | | 666 | |
| Total equity investments | | | | | $ | 2,187 | | | $ | 2,968 | |
The following summarizes the activity related to equity investments. Equity investment (gains)/loss are included in Other (income)/expense, net.
| | | | | | | | | | | | | | | | | |
| Dollars in Millions | 2022 | | 2021 | | 2020 |
| Equity investments with readily determined fair values | | | | | |
| Net loss/(gain) recognized | $ | 762 | | | $ | 403 | | | $ | (964) | |
| Net loss/(gain) recognized on investments sold | (17) | | | (357) | | | 12 | |
| Net unrealized loss/(gain) recognized on investments still held | 779 | | | 760 | | | (976) | |
| | | | | |
| Equity investments without readily determinable fair values | | | | | |
| Upward adjustments | (80) | | | (918) | | | (388) | |
| Impairments and downward adjustments | 11 | | | 1 | | | 204 | |
| | | | | |
| Equity in net (income)/loss of limited partnerships and other equity method investments | 108 | | | (231) | | | (72) | |
Cumulative upwards adjustments and cumulative impairments and downward adjustments based on observable price changes in equity investments without readily determinable fair values still held as of December 31, 2022 were $181 million and $61 million, respectively.
Qualifying Hedges and Non-Qualifying Derivatives
Cash Flow Hedges — Foreign currency forward and purchased local currency put option contracts are used to hedge certain forecasted intercompany inventory purchases and sales transactions and certain foreign currency transactions. The fair value for contracts designated as cash flow hedges is temporarily reported in Accumulated other comprehensive loss and included in earnings when the hedged item affects earnings. The net gain or loss on foreign exchange contracts is expected to be reclassified to net earnings (primarily included in Cost of products sold) within the next 24 months. The notional amount of outstanding foreign currency exchange contracts was primarily attributed to the euro of $5.3 billion and Japanese yen of $1.3 billion as of December 31, 2022.
In 2022, BMS entered into cross-currency interest rate swap contracts to hedge exposure to foreign currency exchange rate risk associated with its long-term debt denominated in euros. These contracts convert interest payments and principal repayment of the long-term debt to U.S. dollars from euros and are designated as cash flow hedges. The unrealized gains and losses on these contracts are reported in Accumulated other comprehensive loss and reclassified to Other (income)/expense, net, in the same periods during which the hedged debt affects earnings. The notional amount of cross-currency interest rate swap contracts associated with long-term debt denominated in euros was €575 million ($584 million) as of December 31, 2022.
In 2020, Treasury lock hedge contracts were entered into with a total notional value of $2.1 billion to hedge future interest rate risk associated with the anticipated issuance of long-term debt to fund the MyoKardia acquisition. The Treasury lock contracts were terminated upon the issuance of the 2020 unsecured senior notes and the $51 million proceeds were included in Other Comprehensive Income/(Loss).
Net Investment Hedges — Non-U.S. dollar borrowings of €375 million ($400 million) as of December 31, 2022 are designated as net investment hedges to hedge euro currency exposures of the net investment in certain foreign affiliates and are recognized in long-term debt. The effective portion of foreign exchange gain on the remeasurement of euro debt was included in the foreign currency translation component of Accumulated other comprehensive loss with the related offset in Long-term debt.
Cross-currency interest rate swap contracts of $1.2 billion as of December 31, 2022 are designated to hedge currency exposure of BMS’s net investment in its foreign subsidiaries. Contract fair value changes are recorded in the foreign currency translation component of Accumulated other comprehensive loss with a related offset in Other non-current assets or Other non-current liabilities. The notional amount of outstanding cross-currency interest rate swap contracts was primarily attributed to the Japanese yen of $509 million and euro of $584 million as of December 31, 2022.
Fair Value Hedges — Fixed to floating interest rate swap contracts are designated as fair value hedges and used as an interest rate risk management strategy to create an appropriate balance of fixed and floating rate debt. The contracts and underlying debt for the hedged benchmark risk are recorded at fair value. The effective interest rate for the contracts is one-month LIBOR (4.39% as of December 31, 2022) plus an interest rate spread of 4.6%. Gains or losses resulting from changes in fair value of the underlying debt attributable to the hedged benchmark interest rate risk are recorded in interest expense with an associated offset to the carrying value of debt. Since the specific terms and notional amount of the swap are intended to align with the debt being hedged, all changes in fair value of the swap are recorded in interest expense with an associated offset to the derivative asset or liability on the consolidated balance sheet. As a result, there was no net impact in earnings. If the underlying swap is terminated prior to maturity, then the fair value adjustment to the underlying debt is amortized as a reduction to interest expense over the remaining term of the debt.
The following summarizes the fair value of outstanding derivatives:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 | | December 31, 2021 |
| Asset(a) | | Liability(b) | | Asset(a) | | Liability(b) |
| Dollars in Millions | Notional | | Fair Value | | Notional | | Fair Value | | Notional | | Fair Value | | Notional | | Fair Value |
| Derivatives designated as hedging instruments: | | | | | | | | | | | | | | |
| Interest rate swap contracts | $ | — | | | $ | — | | | $ | 255 | | | $ | (18) | | | $ | 255 | | | $ | 10 | | | $ | — | | | $ | — | |
| Cross-currency interest rate swap contracts | 72 | | | 1 | | | 1,741 | | | (85) | | | 600 | | | 26 | | | — | | | — | |
| Foreign exchange contracts | 5,771 | | | 271 | | | 2,281 | | | (80) | | | 3,587 | | | 161 | | | 1,814 | | | (20) | |
| | | | | | | | | | | | | | | |
| Derivatives not designated as hedging instruments: | | | | | | | | | | | | | | |
| Foreign exchange contracts | 1,564 | | | 33 | | | 1,703 | | | (19) | | | 883 | | | 9 | | | 568 | | | (5) | |
| | | | | | | | | | | | | | | |
Total return swap contracts(c) | — | | | — | | | 322 | | | (11) | | | — | | | — | | | — | | | — | |
(a) Included in Other current assets and Other non-current assets.
(b) Included in Other current liabilities and Other non-current liabilities.
(c) Total return swap contracts were entered into to hedge changes in fair value of certain deferred compensation liabilities.
The following table summarizes the financial statement classification and amount of (gain)/loss recognized on hedging instruments:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Dollars in Millions | Cost of products sold | | Other (income)/expense, net | | Cost of products sold | | Other (income)/expense, net | | Cost of products sold | | Other (income)/expense, net |
| Interest rate swap contracts | $ | — | | | $ | (27) | | | $ | — | | | $ | (31) | | | $ | — | | | $ | (29) | |
| Cross-currency interest rate swap contracts | — | | | (52) | | | — | | | (11) | | | — | | | (10) | |
| Foreign exchange contracts | (492) | | | (96) | | | 96 | | | (21) | | | (18) | | | (23) | |
The following table summarizes the effect of derivative and non-derivative instruments designated as hedging instruments in Other Comprehensive Income/(Loss):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| Dollars in Millions | 2022 | | 2021 | | 2020 |
| Derivatives qualifying as cash flow hedges | | | | | |
| Foreign exchange contracts gain/(loss): | | | | | |
| Recognized in Other Comprehensive Income/(Loss) | $ | 592 | | | $ | 364 | | | $ | (267) | |
| Reclassified to Cost of products sold | (492) | | | 96 | | | (54) | |
| Cross-currency interest rate swap contracts gain/(loss): | | | | | |
| Recognized in Other Comprehensive Income | (7) | | | — | | | — | |
| Reclassified to Other (income)/expense, net | (29) | | | — | | | — | |
| Forward starting interest rate swap contract loss: | | | | | |
| Reclassified to Other (income)/expense, net | (3) | | | — | | | — | |
Treasury lock hedge contracts gain: | | | | | |
| Recognized in Other Comprehensive Income/(Loss) | — | | | — | | | 51 | |
| | | | | |
| Derivatives qualifying as net investment hedges | | | | | |
| Cross-currency interest rate swap contracts gain/(loss): | | | | | |
| Recognized in Other Comprehensive Income/(Loss) | 30 | | | 38 | | | (11) | |
| | | | | |
| Non-derivatives qualifying as net investment hedges | | | | | |
| Non U.S. dollar borrowings gain/(loss): | | | | | |
| Recognized in Other Comprehensive Income/(Loss) | 91 | | | 83 | | | (105) | |
Note 10. FINANCING ARRANGEMENTS
Short-term debt obligations include:
| | | | | | | | | | | |
| December 31, |
| Dollars in Millions | 2022 | | 2021 |
| | | |
| Non-U.S. short-term borrowings | $ | 176 | | | $ | 105 | |
| Current portion of long-term debt | 3,897 | | | 4,764 | |
| Other | 191 | | | 79 | |
| Total | $ | 4,264 | | | $ | 4,948 | |
Long-term debt and the current portion of long-term debt includes:
| | | | | | | | | | | |
| | December 31, |
| Dollars in Millions | 2022 | | 2021 |
| Principal Value: | | | |
| Floating Rate Notes due 2022 | $ | — | | | $ | 500 | |
2.000% Notes due 2022 | — | | | 750 | |
2.600% Notes due 2022 | — | | | 1,500 | |
3.250% Notes due 2022 | — | | | 1,000 | |
3.550% Notes due 2022 | — | | | 1,000 | |
0.537% Notes due 2023 | 1,500 | | | 1,500 | |
2.750% Notes due 2023 | 750 | | | 750 | |
3.250% Notes due 2023 | 500 | | | 500 | |
3.250% Notes due 2023 | 890 | | | 890 | |
| | | |
7.150% Notes due 2023 | 239 | | | 239 | |
2.900% Notes due 2024 | 2,478 | | | 2,478 | |
3.625% Notes due 2024 | 395 | | | 395 | |
0.750% Notes due 2025 | 1,000 | | | 1,000 | |
1.000% Euro Notes due 2025 | 613 | | | 651 | |
3.875% Notes due 2025 | 229 | | | 1,925 | |
3.200% Notes due 2026 | 1,750 | | | 2,250 | |
6.800% Notes due 2026 | 256 | | | 256 | |
1.125% Notes due 2027 | 1,000 | | | 1,000 | |
3.250% Notes due 2027 | 512 | | | 750 | |
3.450% Notes due 2027 | 534 | | | 1,000 | |
3.900% Notes due 2028 | 1,500 | | | 1,500 | |
3.400% Notes due 2029 | 2,400 | | | 4,000 | |
1.450% Notes due 2030 | 1,250 | | | 1,250 | |
2.950% Notes due 2032 | 1,750 | | | — | |
1.750% Euro Notes due 2035 | 613 | | | 651 | |
5.875% Notes due 2036 | 279 | | | 279 | |
6.125% Notes due 2038 | 219 | | | 219 | |
4.125% Notes due 2039 | 2,000 | | | 2,000 | |
2.350% Notes due 2040 | 750 | | | 750 | |
5.700% Notes due 2040 | 153 | | | 193 | |
3.550% Notes due 2042 | 1,250 | | | — | |
3.250% Notes due 2042 | 500 | | | 500 | |
5.250% Notes due 2043 | 226 | | | 280 | |
4.500% Notes due 2044 | 342 | | | 500 | |
4.625% Notes due 2044 | 748 | | | 748 | |
5.000% Notes due 2045 | 758 | | | 1,768 | |
4.350% Notes due 2047 | 1,250 | | | 1,250 | |
4.550% Notes due 2048 | 1,272 | | | 1,486 | |
4.250% Notes due 2049 | 3,750 | | | 3,750 | |
2.550% Notes due 2050 | 1,500 | | | 1,500 | |
3.700% Notes due 2052 | 2,000 | | | — | |
3.900% Notes due 2062 | 1,000 | | | — | |
6.875% Notes due 2097 | 63 | | | 86 | |
0.13% - maturing through 2023 | 15 | | | 51 | |
| Total | $ | 38,234 | | | $ | 43,095 | |
| | | | | | | | | | | |
| | December 31, |
| Dollars in Millions | 2022 | | 2021 |
| Principal Value | $ | 38,234 | | | $ | 43,095 | |
| | | |
| Adjustments to Principal Value: | | | |
| Fair value of interest rate swap contracts | (18) | | | 10 | |
| Unamortized basis adjustment from swap terminations | 97 | | | 119 | |
| Unamortized bond discounts and issuance costs | (284) | | | (263) | |
| Unamortized purchase price adjustments of Celgene debt | 924 | | | 1,408 | |
| Total | $ | 38,953 | | | $ | 44,369 | |
| | | |
| Current portion of long-term debt | $ | 3,897 | | | $ | 4,764 | |
| Long-term debt | 35,056 | | | 39,605 | |
| Total | $ | 38,953 | | | $ | 44,369 | |
The fair value of long-term debt was $34.9 billion and $49.1 billion at December 31, 2022 and 2021, respectively, valued using Level 2 inputs which are based upon the quoted market prices for the same or similar debt instruments. The fair value of short-term borrowings approximates the carrying value due to the short maturities of the debt instruments.
In 2022, BMS issued an aggregate principal amount of $6.0 billion of fixed rate unsecured senior notes with net proceeds of $5.9 billion. In 2020, BMS issued an aggregate principal amount of $7.0 billion of fixed rate unsecured senior notes with proceeds, net of discount and deferred loan issuance costs, of $6.9 billion. The notes rank equally in right of payment with all of BMS’s existing and future senior unsecured indebtedness and are redeemable at any time, in whole, or in part, at varying specified redemption prices plus accrued and unpaid interest.
In 2022, BMS purchased aggregate principal amount of $6.0 billion of certain of its debt securities for $6.6 billion of cash in a series of tender offers and “make whole” redemptions. In connection with these transactions, a $266 million loss on debt redemption was recognized based on the carrying value of the debt and included in Other (income)/expense, net.
In 2021, BMS purchased aggregate principal amount of $3.5 billion of certain of its debt securities for approximately $4.0 billion of cash in a series of tender offers and “make whole” redemptions. In connection with these transactions, a $281 million loss on debt redemption was recognized based on the carrying value of the debt and included in Other (income)/expense, net.
Repayment of notes at maturity aggregated $4.8 billion in 2022, $2.0 billion in 2021 and $2.8 billion in 2020. Interest payments were $1.4 billion in 2022, $1.5 billion in 2021 and $1.6 billion in 2020.
The aggregate maturities of long-term debt for each of the next five years are as follows: $3.9 billion in 2023; $2.9 billion in 2024; $1.8 billion in 2025; $2.0 billion in 2026; $2.0 billion in 2027. Interest payments related to long-term debt for each of the next five years are as follows: $1.2 billion in 2023; $1.1 billion in 2024; $1.1 billion in 2025; $1.0 billion in 2026; $977 million in 2027.
Credit Facilities
As of December 31, 2022, BMS had a five-year $5.0 billion facility expiring in January 2027 and extendable annually by one year with the consent of the lenders. This facility provides for customary terms and conditions with no financial covenants and may be used to provide backup liquidity for BMS’ commercial paper borrowings. No borrowings were outstanding under any revolving credit facility as of December 31, 2022 or 2021.
Available financial guarantees provided in the form of bank overdraft facilities, stand-by letters of credit and performance bonds were $1.4 billion as of December 31, 2022. Stand-by letters of credit and guarantees are issued through financial institutions in support of various obligations, including sale of products to hospitals and foreign ministries of health, bonds for customs, and duties and value added tax.
Note 11. RECEIVABLES
| | | | | | | | | | | |
| | December 31, |
| Dollars in Millions | 2022 | | 2021 |
| Trade receivables | $ | 8,848 | | | $ | 8,723 | |
| Less charge-backs and cash discounts | (675) | | | (723) | |
| Less allowance for expected credit loss | (22) | | | (21) | |
| Net trade receivables | 8,151 | | | 7,979 | |
| | | |
| Alliance, royalties, VAT and other | 1,735 | | | 1,390 | |
| Receivables | $ | 9,886 | | | $ | 9,369 | |
Non-U.S. receivables sold on a nonrecourse basis were $1.0 billion in 2022, $1.5 billion in 2021 and $1.2 billion in 2020. In the aggregate, receivables from three pharmaceutical wholesalers in the U.S. represented approximately 66% and 59% of total trade receivables at December 31, 2022 and 2021, respectively.
Changes to the allowances for expected credit loss, charge-backs and cash discounts were as follows:
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| Dollars in Millions | 2022 | | 2021 | | 2020 |
| Balance at beginning of year | $ | 744 | | | $ | 663 | | | $ | 412 | |
Provision(a) | 7,476 | | | 7,257 | | | 5,839 | |
| Utilization | (7,521) | | | (7,170) | | | (5,601) | |
| Other | (2) | | | (6) | | | 13 | |
| Balance at end of year | $ | 697 | | | $ | 744 | | | $ | 663 | |
(a) Includes provision for expected credit loss of $7 million in 2022, $4 million in 2021 and $12 million in 2020.
Note 12. INVENTORIES
| | | | | | | | | | | |
| December 31, |
| Dollars in Millions | 2022 | | 2021 |
| Finished goods | $ | 509 | | | $ | 543 | |
| Work in process | 1,850 | | | 2,111 | |
| Raw and packaging materials | 464 | | | 350 | |
| Total Inventories | $ | 2,823 | | | $ | 3,004 | |
| | | |
| Inventories | $ | 2,339 | | | $ | 2,095 | |
| Other non-current assets | 484 | | | 909 | |
Total inventories include fair value adjustments resulting from the Celgene acquisition of approximately $84 million as of December 31, 2022 and $508 million as of December 31, 2021.
Note 13. PROPERTY, PLANT AND EQUIPMENT
| | | | | | | | | | | |
| | December 31, |
| Dollars in Millions | 2022 | | 2021 |
| Land | $ | 162 | | | $ | 169 | |
| Buildings | 5,920 | | | 5,897 | |
| Machinery, equipment and fixtures | 3,284 | | | 3,252 | |
| Construction in progress | 1,053 | | | 764 | |
| Gross property, plant and equipment | 10,419 | | | 10,082 | |
| Less accumulated depreciation | (4,164) | | | (4,033) | |
| Property, plant and equipment | $ | 6,255 | | | $ | 6,049 | |
| | | |
| United States | $ | 4,833 | | | $ | 4,710 | |
| International | 1,422 | | | 1,339 | |
| Total | $ | 6,255 | | | $ | 6,049 | |
Depreciation expense was $587 million in 2022, $559 million in 2021 and $586 million in 2020.
Note 14. LEASES
Leased facilities for office, research and development, storage and distribution purposes comprise approximately 95% of the total lease obligation. Lease terms vary based on the nature of operations and the market dynamics in each country; however, all leased facilities are classified as operating leases with remaining lease terms between one year and 15 years. Most leases contain specific renewal options for periods ranging between one year and 10 years where notice to renew must be provided in advance of lease expiration or automatic renewals where no advance notice is required. Periods covered by an option to extend the lease were included in the non-cancellable lease term when exercise of the option was determined to be reasonably certain. Certain leases also contain termination options that provide the flexibility to terminate the lease ahead of its expiration with sufficient advance notice. Periods covered by an option to terminate the lease were included in the non-cancellable lease term when exercise of the option was determined not to be reasonably certain. Judgment is required in assessing whether renewal and termination options are reasonably certain to be exercised. Factors are considered such as contractual terms compared to current market rates, leasehold improvements expected to have significant value, costs to terminate a lease and the importance of the facility to operations. Costs determined to be variable and not based on an index or rate were not included in the measurement of real estate lease liabilities. These variable costs include real estate taxes, insurance, utilities, common area maintenance and other operating costs. As the implicit rate on most leases is not readily determinable, an incremental borrowing rate was applied on a portfolio approach to discount its real estate lease liabilities.
The remaining 5% of lease obligations are comprised of vehicles and a research and development facility operated by a third party under management’s direction. Vehicle lease terms vary by country with terms generally between one year and four years.
The following table summarizes the components of lease expense:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| Dollars in Millions | 2022 | | 2021 | | 2020 |
| Operating lease cost | $ | 224 | | | $ | 220 | | | $ | 194 | |
| Variable lease cost | 55 | | | 44 | | | 50 | |
| Short-term lease cost | 20 | | | 17 | | | 19 | |
| Sublease income | (6) | | | (7) | | | (4) | |
| Total operating lease expense | $ | 293 | | | $ | 274 | | | $ | 259 | |
Operating lease right-of-use assets and liabilities were as follows:
| | | | | | | | | | | |
| December 31, |
| Dollars in Millions | 2022 | | 2021 |
| Other non-current assets | $ | 1,220 | | | $ | 919 | |
| | | |
| Other current liabilities | $ | 136 | | | $ | 169 | |
| Other non-current liabilities | 1,261 | | | 874 | |
| Total liabilities | $ | 1,397 | | | $ | 1,043 | |
Future lease payments for non-cancellable operating leases as of December 31, 2022 were as follows:
| | | | | |
| Dollars in Millions | |
2023 | $ | 187 | |
2024 | 191 | |
2025 | 169 | |
2026 | 149 | |
2027 | 145 | |
| Thereafter | 933 | |
| Total future lease payments | 1,774 | |
| |
| Less imputed interest | (377) | |
| Total lease liability | $ | 1,397 | |
Right-of-use assets obtained in exchange for new operating lease obligations were $492 million in 2022. Cash paid for amounts included in the measurement of operating lease liabilities was $203 million in 2022, $189 million in 2021 and $164 million in 2020.
Undiscounted lease obligations for operating leases not yet commenced were $754 million as of December 31, 2022. The obligation primarily relates to a research and development facility that is being constructed by the lessor and is expected to be ready for use in 2025.
A right-of-use asset impairment charge of $31 million was incurred during 2020 due to a site vacancy and partial sublease. The fair value of the right-of-use asset was determined using an income approach incorporating potential future cash flows associated with the sublease of the building.
Supplemental balance sheet information related to leases was as follows:
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| Weighted average remaining lease term | 11 years | | 10 years |
| Weighted average discount rate | 4 | % | | 3 | % |
Note 15. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The changes in the carrying amounts in Goodwill were as follows:
| | | | | | | | | | | |
| December 31, |
| Dollars in Millions | 2022 | | 2021 |
| Beginning balance | $ | 20,502 | | | $ | 20,547 | |
| Turning Point acquisition | 695 | | | — | |
| Currency translation and other adjustments | (48) | | | (45) | |
| Ending balance | $ | 21,149 | | | $ | 20,502 | |
Other Intangible Assets
Other intangible assets consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, |
| Dollars in Millions | Estimated
Useful Lives | | 2022 | | 2021 |
| | Gross carrying amounts | | Accumulated amortization | | Other intangible assets, net | | Gross carrying amounts | | Accumulated amortization | | Other intangible assets, net |
Other intangible assets(a): | | | | | | | | | | | | | |
| Licenses | 5 – 15 years | | $ | 400 | | | $ | (128) | | | $ | 272 | | | $ | 307 | | | $ | (102) | | | $ | 205 | |
| Acquired marketed product rights | 3 – 15 years | | 60,477 | | | (31,949) | | | 28,528 | | | 60,454 | | | (22,380) | | | 38,074 | |
| Capitalized software | 3 – 10 years | | 1,555 | | | (1,056) | | | 499 | | | 1,499 | | | (1,001) | | | 498 | |
IPRD (a) | | | 6,560 | | | — | | | 6,560 | | | 3,750 | | | — | | | 3,750 | |
| Total Other intangible assets | | | $ | 68,992 | | | $ | (33,133) | | | $ | 35,859 | | | $ | 66,010 | | | $ | (23,483) | | | $ | 42,527 | |
(a) Includes other intangible assets recognized as part of the Turning Point acquisition in 2022. Refer to “—Note 4. Acquisitions, Divestitures, Licensing and Other Arrangements” for further information related to the Turning Point acquisition.
Amortization expense of Other intangible assets was $9.7 billion in 2022, $10.2 billion in 2021 and $9.9 billion in 2020. Future annual amortization expense of Other intangible assets is expected to be approximately $9.2 billion in 2023, $8.4 billion in 2024, $2.9 billion in 2025, $1.4 billion in 2026 and $1.3 billion in 2027.
Other intangible asset impairment charges were $101 million in 2022, $1.2 billion in 2021 and $1.1 billion in 2020.
In 2022, $98 million IPRD impairment charges were recorded in Research and development expense resulting from decisions to discontinue development of investigational compounds in connection with the prioritization of current pipeline opportunities. The charges represented full write-downs.
In 2021, a $610 million IPRD impairment charge for an investigational compound was recorded in Research and development expense primarily resulting from changes in clinical timelines, expected launch dates and competitive landscape. The compound is being studied as a potential treatment for hematologic diseases and was acquired in the acquisition of Celgene. The charge represented a partial write-down of its carrying value based on the estimated fair value determined using discounted cash flow projections. Additionally, a $230 million IPRD impairment charge was recorded in Research and development expense following a decision to discontinue development of an investigational compound in connection with the prioritization of current pipeline opportunities. The compound was being studied as a potential treatment for fibrotic diseases and was acquired in the acquisition of Celgene. The charge represented a full write-down based on the estimated fair value determined using discounted cash flow projections.
In 2021, Inrebic EU regulatory approval milestones of $300 million were achieved resulting in a $385 million increase to the acquired marketed product rights intangible asset, after establishing the applicable deferred tax liability. An impairment charge of $315 million was recognized in Cost of products sold as the carrying value of this asset exceeded the projected undiscounted cash flows of the asset. The charge was equal to the excess of the asset's carrying value over its estimated fair value using discounted cash flow projections.
In 2020, a $575 million impairment charge was recorded in Cost of products sold resulting from the lower cash flow projections reflecting revised commercial forecasts for Inrebic, resulting in the full impairment of the asset. Additionally, a $470 million impairment charge was recorded in Research and development expense following a decision to discontinue the orva-cel program development. Inrebic and orva-cel were obtained in connection with the acquisition of Celgene.
Note 16. SUPPLEMENTAL FINANCIAL INFORMATION
| | | | | | | | | | | |
| | December 31, |
| Dollars in Millions | 2022 | | 2021 |
| Income taxes | $ | 3,547 | | | $ | 2,786 | |
| | | |
| Research and development | 579 | | | 514 | |
| Contract assets | 504 | | | 361 | |
| Equity investments | — | | | 255 | |
Restricted cash(a) | 148 | | | 140 | |
| Other | 1,017 | | | 776 | |
| Other current assets | $ | 5,795 | | | $ | 4,832 | |
| | | | | | | | | | | |
| | December 31, |
| Dollars in Millions | 2022 | | 2021 |
| Equity investments | $ | 2,187 | | | $ | 2,713 | |
| Inventories | 484 | | | 909 | |
| Operating leases | 1,220 | | | 919 | |
| Pension and postretirement | 285 | | | 317 | |
| Research and development | 496 | | | 248 | |
| | | |
Restricted cash(a) | 54 | | | 197 | |
| Other | 214 | | | 232 | |
| Other non-current assets | $ | 4,940 | | | $ | 5,535 | |
(a) Restricted cash consists of funds restricted for annual Company contributions to the defined contribution plan in the U.S. and escrow for litigation settlements. Cash is restricted when withdrawal or general use is contractually or legally restricted.
| | | | | | | | | | | |
| | December 31, |
| Dollars in Millions | 2022 | | 2021 |
| Rebates and discounts | $ | 6,702 | | | $ | 6,399 | |
| Income taxes | 942 | | | 754 | |
| Employee compensation and benefits | 1,425 | | | 1,375 | |
| Research and development | 1,359 | | | 1,373 | |
| Dividends | 1,196 | | | 1,186 | |
| Interest | 321 | | | 378 | |
| Royalties | 431 | | | 410 | |
| Operating leases | 136 | | | 169 | |
| | | |
| Other | 2,074 | | | 1,927 | |
| Other current liabilities | $ | 14,586 | | | $ | 13,971 | |
| | | | | | | | | | | |
| | December 31, |
| Dollars in Millions | 2022 | | 2021 |
| Income taxes | $ | 3,992 | | | $ | 4,835 | |
| Pension and postretirement | 402 | | | 654 | |
| Operating leases | 1,261 | | | 874 | |
| Deferred income | 283 | | | 326 | |
| Deferred compensation | 349 | | | 427 | |
| | | |
| Other | 303 | | | 218 | |
| Other non-current liabilities | $ | 6,590 | | | $ | 7,334 | |
Note 17. EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Capital in Excess
of Par Value
of Stock | | Accumulated Other Comprehensive Loss | | Retained
Earnings | | Treasury Stock | | Noncontrolling
Interest |
| Dollars and Shares in Millions | Shares | | Par Value | | | Shares | | Cost | |
| Balance at January 1, 2020 | 2,923 | | | $ | 292 | | | $ | 43,709 | | | $ | (1,520) | | | $ | 34,474 | | | 672 | | | $ | (25,357) | | | $ | 100 | |
| Net loss | — | | | — | | | — | | | — | | | (9,015) | | | — | | | — | | | 20 | |
| Other Comprehensive Income/(Loss) | — | | | — | | | — | | | (319) | | | — | | | — | | | — | | | — | |
Cash dividends declared(a) | — | | | — | | | — | | | — | | | (4,178) | | | — | | | — | | | — | |
| Share repurchase program | — | | | — | | | 1,400 | | | — | | | — | | | 43 | | | (2,993) | | | — | |
| Stock compensation | — | | | — | | | (784) | | | — | | | — | | | (36) | | | 2,113 | | | — | |
| Distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (60) | |
| Balance at December 31, 2020 | 2,923 | | | 292 | | | 44,325 | | | (1,839) | | | 21,281 | | | 679 | | | (26,237) | | | 60 | |
| Net earnings | — | | | — | | | — | | | — | | | 6,994 | | | — | | | — | | | 20 | |
| Other Comprehensive Income/(Loss) | — | | | — | | | — | | | 571 | | | — | | | — | | | — | | | — | |
Cash dividends declared(a) | — | | | — | | | — | | | — | | | (4,455) | | | — | | | — | | | — | |
| Share repurchase program | — | | | — | | | — | | | — | | | — | | | 102 | | | (6,240) | | | — | |
| Stock compensation | — | | | — | | | 36 | | | — | | | — | | | (34) | | | 1,218 | | | — | |
| Distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (20) | |
| Balance at December 31, 2021 | 2,923 | | | 292 | | | 44,361 | | | (1,268) | | | 23,820 | | | 747 | | | (31,259) | | | 60 | |
| Net earnings | — | | | — | | | — | | | — | | | 6,327 | | | — | | | — | | | 18 | |
| Other Comprehensive Income/(Loss) | — | | | — | | | — | | | (13) | | | — | | | — | | | — | | | — | |
Cash dividends declared(a) | — | | | — | | | — | | | — | | | (4,644) | | | — | | | — | | | — | |
| Share repurchase program | — | | | — | | | — | | | — | | | — | | | 109 | | | (8,001) | | | — | |
| Stock compensation | — | | | — | | | 804 | | | — | | | — | | | (31) | | | 642 | | | — | |
| Distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (21) | |
| Balance at December 31, 2022 | 2,923 | | | $ | 292 | | | $ | 45,165 | | | $ | (1,281) | | | $ | 25,503 | | | 825 | | | $ | (38,618) | | | $ | 57 | |
(a) Cash dividends declared per common share were $2.19 in 2022, $2.01 in 2021 and $1.84 in 2020.
BMS has a share repurchase program, authorized by its Board of Directors, allowing for repurchases of its shares, effected in the open market or through privately negotiated transactions in compliance with Rule 10b-18 under the Exchange Act, including through Rule 10b5-1 trading plans. The share repurchase program does not obligate us to repurchase any specific number of shares, does not have a specific expiration date and may be suspended or discontinued at any time. Treasury stock is recognized at the cost to reacquire the shares. Shares issued from treasury are recognized utilizing the first-in first-out method. The outstanding share repurchase authorization under the program was $15.2 billion as of December 31, 2021.
In 2022, BMS entered into accelerated share repurchase ("ASR") agreements to repurchase an aggregate amount of $5.0 billion of the Company's common stock. The ASR agreements were funded with cash on-hand. The Company received approximately 69 million shares of common stock during the year which were included in treasury stock. The total number of shares repurchased under the ASR agreements was based on volume-weighted average prices of BMS's common stock during the terms of the ASR transactions less a discount and subject to adjustments pursuant to the terms and conditions of the ASR agreements. In addition, as part of its share repurchase program, BMS repurchased approximately 40 million shares of its common stock for $3.0 billion during the year ended December 31, 2022.
The remaining share repurchase capacity under the share repurchase program was $7.2 billion as of December 31, 2022.
The components of Other Comprehensive Income/(Loss) were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Dollars in Millions | Pretax | | Tax | | After Tax | | Pretax | | Tax | | After Tax | | Pretax | | Tax | | After Tax |
| Derivatives qualifying as cash flow hedges: | | | | | | | | | | | | | | | | | |
| Unrealized gains/(losses) | $ | 585 | | | $ | (79) | | | $ | 506 | | | $ | 364 | | | $ | (34) | | | $ | 330 | | | $ | (216) | | | $ | 7 | | | $ | (209) | |
Reclassified to net earnings(a) | (524) | | | 72 | | | (452) | | | 95 | | | (10) | | | 85 | | | (54) | | | 7 | | | (47) | |
| Derivatives qualifying as cash flow hedges | 61 | | | (7) | | | 54 | | | 459 | | | (44) | | | 415 | | | (270) | | | 14 | | | (256) | |
| | | | | | | | | | | | | | | | | |
| Pension and postretirement benefits: | | | | | | | | | | | | | | | | | |
| Actuarial gains/(losses) | 146 | | | (25) | | | 121 | | | 220 | | | (40) | | | 180 | | | (134) | | | 25 | | | (109) | |
Amortization(b) | 21 | | | (6) | | | 15 | | | 41 | | | (10) | | | 31 | | | 33 | | | (6) | | | 27 | |
Settlements(b) | 11 | | | (2) | | | 9 | | | (6) | | | 1 | | | (5) | | | 10 | | | (3) | | | 7 | |
| Pension and postretirement benefits | 178 | | | (33) | | | 145 | | | 255 | | | (49) | | | 206 | | | (91) | | | 16 | | | (75) | |
| | | | | | | | | | | | | | | | | |
| Marketable debt securities: | | | | | | | | | | | | | | | | | |
| Unrealized (losses)gains | (2) | | | — | | | (2) | | | (11) | | | 2 | | | (9) | | | 7 | | | (1) | | | 6 | |
Realized (gains)/losses(b) | — | | | — | | | — | | | — | | | — | | | — | | | (1) | | | — | | | (1) | |
| Marketable debt securities | (2) | | | — | | | (2) | | | (11) | | | 2 | | | (9) | | | 6 | | | (1) | | | 5 | |
| | | | | | | | | | | | | | | | | |
| Foreign currency translation | (183) | | | (27) | | | (210) | | | (14) | | | (27) | | | (41) | | | (19) | | | 26 | | | 7 | |
| | | | | | | | | | | | | | | | | |
| Other Comprehensive Income/(Loss) | $ | 54 | | | $ | (67) | | | $ | (13) | | | $ | 689 | | | $ | (118) | | | $ | 571 | | | $ | (374) | | | $ | 55 | | | $ | (319) | |
(a) Included in Cost of products sold and Other (income)/expense, net. Refer to “—Note 9.Financial Instruments and Fair Value Measurements“ for further information.
(b) Included in Other (income)/expense, net.
The accumulated balances related to each component of Other Comprehensive Income/(Loss), net of taxes, were as follows:
| | | | | | | | | | | |
| | December 31, |
| Dollars in Millions | 2022 | | 2021 |
| Derivatives qualifying as cash flow hedges | $ | 232 | | | $ | 178 | |
| Pension and postretirement benefits | (623) | | | (768) | |
| Marketable debt securities | — | | | 2 | |
Foreign currency translation(a) | (890) | | | (680) | |
| Accumulated other comprehensive loss | $ | (1,281) | | | $ | (1,268) | |
(a) Included in foreign currency are net investment hedges gains of $125 million and $30 million as of December 31, 2022 and December 31, 2021.
Note 18. RETIREMENT BENEFITS
BMS sponsors defined benefit pension plans, defined contribution plans and termination indemnity plans for certain employees.
Defined Benefit Pension Plans
The net periodic benefit cost of defined benefit pension plans was $27 million, $28 million, and $42 million during the years ended December 31, 2022, 2021 and 2020, respectively.
Changes in defined benefit pension plan obligations, assets, funded status and amounts recognized in the consolidated balance sheets were as follows:
| | | | | | | | | | | |
| Year Ended December 31, |
| Dollars in Millions | 2022 | | 2021 |
| Benefit obligations at beginning of year | $ | 2,935 | | | $ | 3,242 | |
| Service cost—benefits earned during the year | 36 | | | 51 | |
| Interest cost | 42 | | | 35 | |
| Settlements and curtailments | (58) | | | (101) | |
| Actuarial (gains)/losses | (760) | | | (153) | |
| Benefits paid | (68) | | | (46) | |
| Foreign currency and other | (151) | | | (93) | |
| Benefit obligations at end of year | $ | 1,976 | | | $ | 2,935 | |
| | | |
| Fair value of plan assets at beginning of year | $ | 2,815 | | | $ | 2,807 | |
| Actual return on plan assets | (570) | | | 125 | |
| Employer contributions | 76 | | | 87 | |
| Settlements | (53) | | | (83) | |
| Benefits paid | (68) | | | (46) | |
| Foreign currency and other | (173) | | | (75) | |
| Fair value of plan assets at end of year | $ | 2,027 | | | $ | 2,815 | |
| | | |
| Funded status | $ | 51 | | | $ | (120) | |
| | | |
| Assets/(Liabilities) recognized: | | | |
| Other non-current assets | $ | 285 | | | $ | 317 | |
| Other current liabilities | (21) | | | (24) | |
| Other non-current liabilities | (213) | | | (413) | |
| Funded status | $ | 51 | | | $ | (120) | |
| | | |
| Recognized in Accumulated other comprehensive loss: | | | |
| Net actuarial losses | $ | 869 | | | $ | 1,015 | |
| Prior service credit | (25) | | | (29) | |
| Total | $ | 844 | | | $ | 986 | |
The accumulated benefit obligation for defined benefit pension plans was $2.0 billion and $2.9 billion at December 31, 2022 and 2021, respectively.
Additional information related to pension plans was as follows:
| | | | | | | | | | | |
| December 31, |
| Dollars in Millions | 2022 | | 2021 |
| Pension plans with projected benefit obligations in excess of plan assets: | | | |
| Projected benefit obligation | $ | 728 | | | $ | 1,274 | |
| Fair value of plan assets | 495 | | | 836 | |
Pension plans with accumulated benefit obligations in excess of plan assets: | | | |
| Accumulated benefit obligation | 728 | | | 1,245 | |
| Fair value of plan assets | 495 | | | 832 | |
Actuarial Assumptions
Weighted-average assumptions used to determine defined benefit pension plan obligations were as follows:
| | | | | | | | | | | |
| December 31, |
| | 2022 | | 2021 |
| Discount rate | 4.0 | % | | 1.6 | % |
| Rate of compensation increase | 1.2 | % | | 1.0 | % |
| Interest crediting rate | 2.5 | % | | 2.1 | % |
Weighted-average actuarial assumptions used to determine defined benefit pension plan net periodic benefit cost were as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Discount rate | 1.6 | % | | 1.2 | % | | 1.6 | % |
| Expected long-term return on plan assets | 3.6 | % | | 3.6 | % | | 4.1 | % |
| Rate of compensation increase | 1.0 | % | | 1.3 | % | | 1.3 | % |
| Interest crediting rate | 2.1 | % | | 2.2 | % | | 2.2 | % |
The yield on high quality corporate bonds matching the duration of the benefit obligations is used in determining the discount rate. The FTSE Pension Discount Curve is used in developing the discount rate for the U.S. plans.
The expected return on plan assets assumption for each plan is based on management’s expectations of long-term average rates of return to be achieved by the underlying investment portfolio. Several factors are considered in developing the expected return on plan assets, including long-term historical returns and input from external advisors. Individual asset class return forecasts were developed based upon market conditions, for example, price-earnings levels and yields and long-term growth expectations. The expected long-term rate of return is the weighted-average of the target asset allocation of each individual asset class.
Actuarial gains and losses resulted from changes in actuarial assumptions (such as changes in the discount rate and revised mortality rates) and from differences between assumed and actual experience (such as differences between actual and expected return on plan assets). Actuarial gains and losses related to plan benefit obligations primarily resulted from changes in discount rates.
Postretirement Benefit Plans
Comprehensive medical and group life benefits are provided for substantially all BMS U.S. retirees electing to participate in comprehensive medical and group life plans and to a lesser extent certain benefits for non-U.S. employees. The medical plan is contributory. Contributions are adjusted periodically and vary by date of retirement. The life insurance plan is noncontributory. Postretirement benefit plan obligations were $187 million and $237 million at December 31, 2022 and 2021, respectively. The weighted-average discount rate used to determine benefit obligations was 5.0% and 2.5% at December 31, 2022 and 2021, respectively. The net periodic benefit credits were not material.
As a result of the Bristol Myers Squibb Retirement Income Plan's termination in 2019, $381 million of assets held in a separate account within the Pension Trust used to fund retiree medical plan payments was reverted back to the Company in 2020, resulting in an excise tax of $76 million.
Plan Assets
The fair value of pension plan assets by asset category at December 31, 2022 and 2021 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 | | December 31, 2021 |
| Dollars in Millions | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| Plan Assets | | | | | | | | | | | | | | | |
| Equity securities | $ | 1 | | | $ | — | | | $ | — | | | $ | 1 | | | $ | 44 | | | $ | — | | | $ | — | | | $ | 44 | |
| Equity funds | — | | | 368 | | | — | | | 368 | | | — | | | 625 | | | — | | | 625 | |
| Fixed income funds | — | | | 697 | | | — | | | 697 | | | — | | | 815 | | | — | | | 815 | |
| Corporate debt securities | — | | | 376 | | | — | | | 376 | | | — | | | 485 | | | — | | | 485 | |
| U.S. Treasury and agency securities | — | | | 75 | | | — | | | 75 | | | — | | | 67 | | | — | | | 67 | |
| Insurance contracts | — | | | — | | | 123 | | | 123 | | | — | | | — | | | 130 | | | 130 | |
| Cash and cash equivalents | 43 | | | — | | | — | | | 43 | | | 47 | | | — | | | — | | | 47 | |
| Other | — | | | 15 | | | 35 | | | 50 | | | — | | | 224 | | | 42 | | | 266 | |
| Plan assets subject to leveling | $ | 44 | | | $ | 1,531 | | | $ | 158 | | | $ | 1,733 | | | $ | 91 | | | $ | 2,216 | | | $ | 172 | | | $ | 2,479 | |
| | | | | | | | | | | | | | | |
| Plan assets measured at NAV as a practical expedient | | | | | | 294 | | | | | | | | | 336 | |
| Net plan assets | | | | | | | $ | 2,027 | | | | | | | | | $ | 2,815 | |
The investment valuation policies per investment class are as follows:
Level 1 inputs utilize unadjusted quoted prices in active markets accessible at the measurement date for identical assets or liabilities. The fair value hierarchy provides the highest priority to Level 1 inputs. These instruments include equity securities, equity funds and fixed income funds publicly traded on a national securities exchange, and cash and cash equivalents. Cash and cash equivalents are highly liquid investments with original maturities of three months or less at the time of purchase and are recognized at cost, which approximates fair value. Pending trade sales and purchases are included in cash and cash equivalents until final settlement.
Level 2 inputs utilize observable prices for similar instruments, quoted prices for identical or similar instruments in non-active markets, and other observable inputs that can be corroborated by market data for substantially the full term of the assets or liabilities. Equity funds and fixed income funds classified as Level 2 within the fair value hierarchy are valued at the NAV of their shares held at year end, which represents fair value. Corporate debt securities and U.S. Treasury and agency securities classified as Level 2 within the fair value hierarchy are valued utilizing observable prices for similar instruments and quoted prices for identical or similar instruments in markets that are not active.
Level 3 unobservable inputs are used when little or no market data is available. Insurance contracts are held by certain foreign pension plans and are carried at contract value, which approximates the estimated fair value and is based on the fair value of the underlying investment of the insurance company.
There were no transfers between Levels 1, 2 and 3 during the year ended December 31, 2022. Investments using the practical expedient consist primarily of multi-asset funds which are redeemable on either a daily, weekly, or monthly basis.
The investment strategy is to maximize return while maintaining an appropriate level of risk to provide sufficient liquidity for benefit obligations and plan expenses. Individual plan investment allocations are determined by local fiduciary committees and the composition of total assets for all pension plans at December 31, 2022 was broadly characterized as an allocation between equity securities (23%), debt securities (66%) and other investments (11%).
Contributions and Estimated Future Benefit Payments
The Company's estimated annual contributions and future benefits payments are not expected to be material.
Savings Plans
The principal defined contribution plan is the Bristol-Myers Squibb Savings and Investment Program. The contributions are based on employee contributions and the level of Company match. The U.S. defined contribution plan expense was approximately $360 million in 2022, $350 million in 2021 and $290 million in 2020.
Note 19. EMPLOYEE STOCK BENEFIT PLANS
On May 4, 2021, the shareholders approved the 2021 Stock Award and Incentive Plan (the “2021 Plan”) replacing our previous equity plans. The 2021 Plan authorizes awards in the form of incentive stock options, nonqualified stock options, stock appreciation rights ("SARs"), restricted stock, restricted stock units ("RSUs"), dividend equivalents, performance share units ("PSUs"), market share units ("MSUs") and other stock-based awards. As of December 31, 2022, the 2021 Plan was the only plan under which we were authorized to grant equity awards.
The 2021 Plan provides for 85 million shares to be authorized for grants plus shares recaptured upon forfeitures or other terminations of awards under our previous equity awards plans, subject to adjustments in accordance with the terms of the 2021 Plan. As of December 31, 2022, 81 million shares were available for award and 44 million equity awards were outstanding (stock options, RSUs, MSUs and PSUs). Shares generally are issued from treasury stock to satisfy BMS’s obligations under the 2021 Plan and our prior equity award plans.
Under the 2021 Plan, executive officers and other employees may be granted options to purchase common stock at no less than the market price on the date the option is granted. Options generally become exercisable ratably over four years and have a maximum term of 10 years. The 2021 Plan provides for the granting of SARs whereby the grantee may surrender exercisable rights and receive common stock and/or cash measured by the excess of the market price of the common stock over the award's exercise price. BMS did not grant stock options or SARs during the years ended December 31, 2022, 2021 and 2020. Options that were outstanding during those years generally vested ratably over four years (some options granted as replacements for options held by Celgene option holders upon the acquisition of Celgene in 2019 provided for cliff vesting and/or longer or shorter vesting periods).
RSUs are granted to executive officers and other employees, subject to restrictions as to continuous employment. Generally, vesting occurs ratably over a three- to four-year period from grant date, subject to accelerated vesting in specified circumstances. A stock unit is a right to receive stock at the end of the specified vesting and/or deferral period; stock units have no voting rights. BMS grants non-forfeitable stock units to its non-employee directors.
MSUs are granted to executive officers. Vesting is conditioned upon continuous employment and occurs ratably over four years, subject to accelerated vesting in specified circumstances. The number of shares issued upon vesting of MSUs is determined based on a specified payout factor requiring that the market price per share at a specified measurement date be at least 80% of the grant-date share price (market condition) for awards granted in 2022 (60% prior to 2022). Attainment of a higher payout factor, calculated as the share price on measurement date divided by share price on award date, results in a higher percentage payout of MSUs, up to a maximum of 225% of the target number of MSUs for awards granted in 2022 (200% prior to 2022). The share price used in the payout factor is calculated using an average of the closing prices on the grant date or measurement date, and the nine trading days immediately preceding the grant date or measurement date.
PSUs are granted to executive officers, have a three-year performance cycle and are granted as a target number of stock units subject to adjustment. The number of shares issued when PSUs vest is determined based on the achievement of specified performance goals (a performance condition) and based on BMS’s three-year total shareholder return relative to a peer group of companies (a market condition) and can range from 0% to a maximum of 200% of the target number of PSUs. Vesting is conditioned upon continuous employment and occurs on the third anniversary of the grant date, subject to accelerated vesting in specified circumstances.
Stock-based compensation expense for awards ultimately expected to vest is recognized over the vesting period. Forfeitures are estimated based on historical experience at the time of grant and revised in subsequent periods if actual forfeitures differ from those estimates. Stock-based compensation expense was as follows:
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| Dollars in Millions | 2022 | | 2021 | | 2020 |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Cost of products sold | $ | 41 | | | $ | 57 | | | $ | 37 | |
| Marketing, selling and administrative | 195 | | | 241 | | | 332 | |
| Research and development | 221 | | | 272 | | | 339 | |
| Other (income)/expense, net | — | | | 13 | | | 71 | |
| Total stock-based compensation expense | $ | 457 | | | $ | 583 | | | $ | 779 | |
| | | | | |
Income tax benefit(a) | $ | 91 | | | $ | 120 | | | $ | 158 | |
(a) Income tax benefit excludes excess tax benefits from share-based compensation awards that were vested or exercised of $74 million in 2022, $38 million in 2021 and $35 million in 2020.
The total stock-based compensation expense for the years ended December 31, 2022, 2021 and 2020 includes $96 million, $192 million and $382 million, respectively, related to Celgene post-combination service period. The expense for the accelerated vesting of awards related to the Celgene acquisition was not material in 2022 and was $13 million and $71 million in 2021 and 2020, respectively.
The following table summarizes the stock compensation activity for the year ended December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Stock Options | | RSUs | | MSUs | | PSUs |
| Shares in Millions | Number of Options | | Weighted-Average Exercise Price of Shares | | Number of Nonvested RSUs | | Weighted-Average Grant-Date Fair Value | | Number of Nonvested MSUs | | Weighted-Average Grant-Date Fair Value | | Number of Nonvested PSUs | | Weighted-Average Grant-Date Fair Value |
| Balance at January 1, 2022 | 47.0 | | | $ | 53.00 | | | 19.1 | | | $ | 54.92 | | | 1.8 | | | $ | 56.51 | | | 3.4 | | | $ | 55.38 | |
| Granted | — | | | — | | | 8.7 | | | 64.12 | | | 1.0 | | | 60.74 | | | 1.4 | | | 66.76 | |
| Released/Exercised | (24.3) | | | 50.79 | | | (8.2) | | | 55.12 | | | (0.8) | | | 56.95 | | | (1.3) | | | 49.99 | |
| Adjustments for actual payout | — | | | — | | | — | | | — | | | 0.1 | | | 54.26 | | | 0.4 | | | 49.99 | |
| Forfeited/Canceled | (0.8) | | | 58.70 | | | (2.7) | | | 57.43 | | | (0.3) | | | 57.63 | | | (0.4) | | | 60.26 | |
| Balance at December 31, 2022 | 21.9 | | | 55.25 | | | 16.9 | | | 59.17 | | | 1.8 | | | 58.25 | | | 3.5 | | | 60.88 | |
| | | | | | | | | | | | | | | |
| Expected to vest | | | | | 14.9 | | | 58.97 | | | 1.6 | | | 58.12 | | | 3.2 | | | 60.45 | |
| | | | | | | | | | | | | | | | | |
| Dollars in Millions | Restricted Stock Units | | Market Share Units | | Performance Share Units |
| Unrecognized compensation cost | $ | 734 | | | $ | 49 | | | $ | 89 | |
| Expected weighted-average period in years of compensation cost to be recognized | 2.5 | | 2.8 | | 1.7 |
| | | | | | | | | | | | | | | | | |
| Amounts in Millions, except per share data | 2022 | | 2021 | | 2020 |
| Weighted-average grant date fair value (per share): | | | | | |
| | | | | |
| | | | | |
| RSUs | $ | 64.12 | | | $ | 56.58 | | | $ | 53.65 | |
| MSUs | 60.74 | | | 58.04 | | | 53.92 | |
| PSUs | 66.76 | | | 59.04 | | | 55.61 | |
| | | | | |
| Fair value of awards that vested: | | | | | |
| | | | | |
| RSUs - replacement awards | $ | 152 | | | $ | 519 | | | $ | 777 | |
| RSUs | 300 | | | 246 | | | 122 | |
| MSUs | 44 | | | 37 | | | 37 | |
| PSUs | 68 | | | 61 | | | 59 | |
| | | | | |
| Total intrinsic value of stock options exercised | 526 | | | 512 | | | 556 | |
The fair value of RSUs approximates the closing market price of BMS’s common stock on the grant date after adjusting for the units not eligible for accrual of dividend equivalents. The fair value of MSUs is estimated as of the grant date using a Monte Carlo simulation. The fair value of PSUs is estimated as of the grant date for the portion related to the relative total shareholder return measure, using a Monte Carlo simulation and, for the remaining portion, based on the closing market price of BMS’s common stock on the grant date after adjusting for the units not eligible for accrual of dividend equivalents, and taking into account the probability of satisfying the performance condition as of the grant date.
The following table summarizes significant outstanding and exercisable options at December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| Range of Exercise Prices | Number of Options (in millions) | | Weighted-Average Remaining Contractual Life (in years) | | Weighted-Average Exercise Price Per Share | | Aggregate Intrinsic Value (in millions) |
$10 - $40 | 2.2 | | | 1.0 | | $ | 35.02 | | | $ | 80 | |
$40 - $55 | 7.7 | | | 3.3 | | 48.92 | | | 177 | |
$55 - $65 | 8.0 | | | 2.7 | | 59.45 | | | 100 | |
$65 + | 4.0 | | | 3.2 | | 70.02 | | | 9 | |
| Outstanding | 21.9 | | | 2.8 | | 55.25 | | | $ | 366 | |
| Exercisable | 21.9 | | | 2.8 | | 55.25 | | | $ | 366 | |
The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the closing stock price of $71.95 on December 30, 2022, which was the last trading day of 2022.
Note 20. LEGAL PROCEEDINGS AND CONTINGENCIES
BMS and certain of its subsidiaries are involved in various lawsuits, claims, government investigations and other legal proceedings that arise in the ordinary course of business. These claims or proceedings can involve various types of parties, including governments, competitors, customers, suppliers, service providers, licensees, employees, or shareholders, among others. These matters may involve patent infringement, antitrust, securities, pricing, sales and marketing practices, environmental, commercial, contractual rights, licensing obligations, health and safety matters, consumer fraud, employment matters, product liability and insurance coverage, among others. The resolution of these matters often develops over a long period of time and expectations can change as a result of new findings, rulings, appeals or settlement arrangements. Legal proceedings that are significant or that BMS believes could become significant or material are described below.
While BMS does not believe that any of these matters, except as otherwise specifically noted below, will have a material adverse effect on its financial position or liquidity as BMS believes it has substantial defenses in the matters, the outcomes of BMS’s legal proceedings and other contingencies are inherently unpredictable and subject to significant uncertainties. There can be no assurance that there will not be an increase in the scope of one or more of these pending matters or any other or future lawsuits, claims, government investigations or other legal proceedings will not be material to BMS’s financial position, results of operations or cash flows for a particular period. Furthermore, failure to successfully enforce BMS’s patent rights would likely result in substantial decreases in the respective product revenues from generic competition.
Unless otherwise noted, BMS is unable to assess the outcome of the respective matters nor is it able to estimate the possible loss or range of losses that could potentially result for such matters. Contingency accruals are recognized when it is probable that a liability will be incurred and the amount of the related loss can be reasonably estimated. Developments in legal proceedings and other matters that could cause changes in the amounts previously accrued are evaluated each reporting period. For a discussion of BMS’s tax contingencies, see “—Note 7. Income Taxes.”
INTELLECTUAL PROPERTY
Anti-PD-1 and Anti-PD-L1 — U.S.
In September 2015, Dana-Farber Cancer Institute (“Dana-Farber”) filed a complaint in the U.S. District Court for the District of Massachusetts seeking to correct the inventorship on up to six related U.S. patents directed to methods of treating cancer using PD-1 and PD-L1 antibodies. Specifically, Dana-Farber sought to add two scientists as inventors to these patents. In October 2017, Pfizer was allowed to intervene in the case alleging that one of the scientists identified by Dana-Farber was employed by a company eventually acquired by Pfizer during the relevant period. In May 2019, the District Court issued a decision ruling that the two scientists should be added as inventors to the patents, which decision was affirmed on appeal. In June 2019, Dana-Farber filed a new lawsuit in the District of Massachusetts against BMS seeking damages as a result of the decision adding the scientists as inventors. In February 2021, BMS filed a motion to dismiss that complaint. In August 2021, the Court denied the motion to dismiss, but ruled that Dana-Farber’s claims for damages before May 17, 2019—the date of the District Court’s ruling that Dana-Farber was a co-inventor of the patents—are preempted by federal patent law. On January 25, 2023, the Court held a hearing on a motion filed by BMS requesting that the Court enter summary judgment in BMS' favor. A trial has been scheduled for May 2023.
On March 17, 2022, BMS filed a lawsuit in U.S. District Court for the District of Delaware against AstraZeneca Pharmaceuticals LP and AstraZeneca UK Ltd (collectively, “AZ”) alleging that AZ's marketing of the PD-L1 antibody Imfinzi infringes certain claims of U.S. Patent Nos. 9,580,505, 9,580,507, 10,138,299, 10,308,714, 10,266,594, 10,266,595, 10,266,596 and 10,323,092. A trial has been scheduled to begin on April 22, 2024.
CAR-T — U.S.
In October 2017, Juno and Sloan Kettering Institute for Cancer Research (“SKI”) filed a complaint for patent infringement against Kite Pharma, Inc. (“Kite”) in the U.S. District Court for the Central District of California. The complaint alleged that Kite’s Yescarta* product infringes certain claims of U.S. Patent No. 7,446,190 (the “’190 Patent”) concerning CAR-T cell technologies. Kite filed an answer and counterclaims asserting non-infringement and invalidity of the ’190 Patent. In December 2019, following an eight-day trial, the jury rejected Kite’s defenses, finding that Kite willfully infringed the ’190 Patent and awarding to Juno and SKI a reasonable royalty consisting of a $585 million upfront payment and a 27.6% running royalty on Kite’s sales of Yescarta* through the expiration of the ’190 Patent in August 2024. In January 2020, Kite renewed its previous motion for judgment as a matter of law and also moved for a new trial, and Juno filed a motion seeking enhanced damages, supplemental damages, ongoing royalties, and prejudgment interest. In March 2020, the Court denied both of Kite’s motions in their entirety. In April 2020, the Court granted in part Juno’s motion and entered a final judgment awarding to Juno and SKI approximately $1.2 billion in royalties, interest and enhanced damages and a 27.6% running royalty on Kite’s sales of Yescarta* from December 13, 2019 through the expiration of the ’190 Patent in August 2024. In April 2020, Kite appealed the final judgment to the U.S. Court of Appeals for the Federal Circuit and the Court held an oral hearing on July 6, 2021. In August 2021, a Federal Circuit panel reversed the jury verdict and district court decision and found the ’190 Patent to be invalid. In October 2021, Juno and SKI filed a petition with the Federal Circuit for panel and en banc rehearing, which the Federal Circuit denied on January 14, 2022. On June 13, 2022, Juno and SKI filed a petition for a writ of certiorari with the U.S. Supreme Court, which the Court denied on November 7, 2022. On November 23, 2022, Juno and SKI filed a petition for rehearing with the Court, which the Court denied on January 9, 2023.
CTLA-4 — U.S.
On January 23, 2023, BMS filed a lawsuit in U.S. District Court for the District of Delaware against AstraZeneca Pharmaceuticals LP and AstraZeneca AB (collectively, "AZ AB") alleging that AZ AB's marketing of the CTLA-4 antibody Imjudo infringes certain claims of U.S. Patent Nos. 9,320,811 and 9,273, 135. No trial date has been scheduled.
Eliquis - Europe
In November 2020 and January 2021, Sandoz Limited (“Sandoz”) and Teva Pharmaceutical Industries Ltd. (“Teva Limited”), respectively, filed lawsuits in the United Kingdom seeking revocation of the UK apixaban composition of matter patent and related Supplementary Protection Certificate (“SPC”). BMS subsequently filed counterclaims for infringement in both actions. A trial took place in February 2022 and in a judgment issued on April 7, 2022, the judge found the UK apixaban composition of matter patent and related SPC invalid. On November 2, 2022, BMS was granted permission from the Court of Appeal to appeal the judgment and a hearing is scheduled to take place on April 18-19, 2023.
Similar lawsuits have been filed in various other countries in Europe seeking revocation of our composition of matter patents and SPCs relating to Eliquis, and trials have been scheduled in certain of those cases, including in Norway and France in early 2023. In May 2022, a Dutch court issued a decision denying a request by BMS for a preliminary injunction that would have prevented an at-risk generic launch in the Netherlands by Sandoz prior to a full trial on the validity of the Dutch composition of matter patent and SPC.
Following the above decisions in the UK and the Netherlands, generic manufacturers have begun marketing generic versions of Eliquis in the UK and the Netherlands, and may seek to market generic versions of Eliquis in additional countries in Europe, prior to the expiration of our patents, which may lead to additional infringement and invalidity actions involving Eliquis patents being filed in various countries in Europe.
In September 2022, a trial was held in Sweden regarding Teva's challenge to the validity of the Swedish apixaban composition of matter patent and related SPC, and a decision was issued on November 2, 2022, confirming their validity and rejecting Teva's claims. In September 2022, BMS filed a request for a preliminary injunction against Teva in Denmark, but the request was denied in December 2022, based on the finding that there is no imminent threat of a launch by Teva in Denmark. In December 2022, BMS filed a request for a preliminary injunction in Finland against Teva, which request was granted in January 2023, prohibiting Teva from offering, storing or selling generic Eliquis products in Finland that have obtained price and reimbursement. BMS has also requested that a preliminary injunction be entered against Teva in Ireland, for which a hearing occurred in February 2023.
Onureg – U.S.
In November 2021, BMS received a Notice Letter from Accord notifying BMS that Accord had filed an ANDA containing a paragraph IV certification seeking approval of a generic version of Onureg in the U.S. and challenging the one FDA Orange Book-listed formulation patent expiring in 2030. In response, BMS filed a patent infringement action against Accord in the U.S. District Court for the District of Delaware. A trial has been scheduled to begin on March 18, 2024.
Plavix* - Australia
Sanofi was notified that, in August 2007, GenRx Proprietary Limited (“GenRx”) obtained regulatory approval of an application for clopidogrel bisulfate 75mg tablets in Australia. GenRx, formerly a subsidiary of Apotex Inc., subsequently changed its name to Apotex (“GenRx-Apotex”). In August 2007, GenRx-Apotex filed an application in the Federal Court of Australia seeking revocation of Sanofi’s Australian Patent No. 597784 (Case No. NSD 1639 of 2007). Sanofi filed counterclaims of infringement and sought an injunction. On September 21, 2007, the Federal Court of Australia granted Sanofi’s injunction. A subsidiary of BMS was subsequently added as a party to the proceedings. In February 2008, a second company, Spirit Pharmaceuticals Pty. Ltd., also filed a revocation suit against the same patent. This case was consolidated with the GenRx-Apotex case. On August 12, 2008, the Federal Court of Australia held that claims of Patent No. 597784 covering clopidogrel bisulfate, hydrochloride, hydrobromide, and taurocholate salts were valid. The Federal Court also held that the process claims, pharmaceutical composition claims, and claim directed to clopidogrel and its pharmaceutically acceptable salts were invalid. BMS and Sanofi filed notices of appeal in the Full Court of the Federal Court of Australia (“Full Court”) appealing the holding of invalidity of the claim covering clopidogrel and its pharmaceutically acceptable salts, process claims, and pharmaceutical composition claims. GenRx-Apotex appealed. On September 29, 2009, the Full Court held all of the claims of Patent No. 597784 invalid. In March 2010, the High Court of Australia denied a request by BMS and Sanofi to hear an appeal of the Full Court decision. The case was remanded to the Federal Court for further proceedings related to damages sought by GenRx-Apotex. BMS and GenRx-Apotex settled, and the GenRx-Apotex case was dismissed. The Australian government intervened in this matter seeking maximum damages up to 449 million AUD ($304 million), plus interest, which would be split between BMS and Sanofi, for alleged losses experienced for paying a higher price for branded Plavix* during the period when the injunction was in place. BMS and Sanofi dispute that the Australian government is entitled to any damages. A trial was concluded in September 2017. In April 2020, the Federal Court issued a decision dismissing the Australian government’s claim for damages. In May 2020, the Australian government appealed the Federal Court’s decision and an appeal hearing concluded in February 2021.
Sprycel - U.S.
In January 2022, BMS received a Notice Letter from Xspray Pharma AB (“Xspray”), Nanocopoeia, LLC ("Nanocopoeia") and Handa Oncology, LLC ("Handa"), respectively, notifying BMS that each had filed a 505(b)(2) NDA application containing paragraph IV certifications seeking approval of a dasatinib product in the U.S. and challenging two FDA Orange Book-listed monohydrate form patents expiring in 2025 and 2026. In February 2022, BMS filed a patent infringement action against Xspray in the U.S. District Court for the District of New Jersey. In May 2022, BMS filed a patent infringement action against Nanocopoeia in the U.S. District Court for the District of Minnesota. In November 2022, BMS filed a patent infringement action against Handa in the U.S. District Court for the Northern District of California. No trial dates have been scheduled in any of these actions. Both Xspray and Nanocopoeia have filed motions for a judgment based on the pleadings, and a hearing on Nanocopoeia's motion took place on January 5, 2023.
Zeposia - U.S.
On October 15, 2021, Actelion Pharmaceuticals LTD and Actelion Pharmaceuticals US, INC (“Actelion”) filed a complaint for patent infringement in the United States District Court for the District of New Jersey against BMS and Celgene for alleged infringement of U.S. Patent No. 10,251,867 (the “’867 Patent”). The Complaint alleges that the sale of Zeposia infringes certain claims of the ’867 Patent and Actelion is seeking damages and injunctive relief. No trial date has been scheduled.
PRICING, SALES AND PROMOTIONAL PRACTICES LITIGATION
Plavix* State Attorneys General Lawsuits
BMS and certain Sanofi entities are defendants in consumer protection actions brought by the attorneys general of Hawaii and New Mexico relating to the labeling, sales and/or promotion of Plavix*. A trial in the Hawaii matter occurred in 2020. In February 2021, the Court issued a decision against Sanofi and BMS, imposing penalties in the total amount of $834 million, with $417 million attributed to BMS. Sanofi and BMS disagree with the decision and are appealing it. An oral argument before the Hawaii Supreme Court occurred in December 2022. BMS remains confident in the merits of its case and its likelihood of success on appeal and does not believe establishing a reserve is warranted for this matter. In September 2022, the parties settled the New Mexico matter.
PRODUCT LIABILITY LITIGATION
BMS is a party to various product liability lawsuits. Plaintiffs in these cases seek damages and other relief on various grounds for alleged personal injury and economic loss. As previously disclosed, in addition to lawsuits, BMS also faces unfiled claims involving its products.
Abilify*
BMS and Otsuka are co-defendants in product liability litigation related to Abilify*. Plaintiffs allege Abilify* caused them to engage in compulsive gambling and other impulse control disorders. Cases have been filed in state and federal courts and additional cases are pending in Canada. The Judicial Panel on Multidistrict Litigation consolidated the federal court cases for pretrial purposes in the U.S. District Court for the Northern District of Florida. In February 2019, BMS and Otsuka entered into a master settlement agreement establishing a proposed settlement program to resolve all Abilify* compulsivity claims filed as of January 28, 2019 in the MDL as well as various state courts, including California and New Jersey. To date, approximately 2,700 cases, comprising approximately 3,900 plaintiffs, have been dismissed based on participation in the settlement program or failure to comply with settlement related court orders and all remaining cases in the U.S. MDL litigation have since been resolved. Three inactive cases remain in New Jersey State court. There are eleven cases pending in Canada (four class actions, seven individual injury claims). Out of the eleven cases, only two are active (the class actions in Quebec and Ontario), both of which class actions have now been certified.
Byetta*
Amylin, a former subsidiary of BMS, and Lilly are co-defendants in product liability litigation related to Byetta*. This litigation involved lawsuits on behalf of plaintiffs, which include injury plaintiffs as well as claims by spouses and/or other beneficiaries, in various courts in the U.S. The majority of these cases have been brought by individuals who allege personal injury sustained after using Byetta*, primarily pancreatic cancer and in some cases claiming alleged wrongful death. The majority of cases were pending in Federal Court in San Diego in an MDL or in a coordinated proceeding in California Superior Court in Los Angeles (“JCCP”). In April 2020 the defendants filed a motion for summary judgment based on federal preemption and a motion for summary judgment based on the absence of general causation evidence in the MDL and JCCP. Both motions were granted in March 2021 and April 2021, respectively. The MDL and JCCP decisions are both final and all claims in the MDL and JCCP have since been dismissed. All thyroid cancer claims that were pending in these courts have been dismissed as well.
Onglyza*
BMS and AstraZeneca are co-defendants in product liability litigation related to Onglyza*. Plaintiffs assert claims, including claims for wrongful death, as a result of heart failure or other cardiovascular injuries they allege were caused by their use of Onglyza*. In February 2018, the Judicial Panel on Multidistrict Litigation ordered all the federal Onglyza* cases to be transferred to an MDL in the U.S. District Court for the Eastern District of Kentucky. A significant majority of the claims are pending in the MDL, with others pending in a coordinated proceeding in California Superior Court in San Francisco (“JCCP”). On September 24, 2021, the JCCP court granted defendants’ motion to exclude plaintiffs’ only general causation expert and on January 5, 2022, the MDL court likewise granted defendants’ motion to exclude plaintiffs’ expert. On March 30, 2022, the JCCP court granted summary judgment to defendants, thus effectively dismissing the 18 claims previously pending in California state court. Plaintiffs have filed an appeal. Defendants filed a summary judgment motion in the MDL as well, which the MDL court granted on August 2, 2022. Plaintiffs in the MDL then moved to alter or amend the MDL court’s order, and defendants opposed. On November 3, 2022, the MDL court denied plaintiffs motion to alter or amend its summary judgment order. Plaintiffs filed their Notice of Appeal on December 2, 2022. As part of BMS’s global diabetes business divestiture, BMS sold Onglyza* to AstraZeneca in February 2014 and any potential liability with respect to Onglyza* is expected to be shared with AstraZeneca.
SECURITIES LITIGATION
Celgene Securities Litigations
Beginning in March 2018, two putative class actions were filed against Celgene and certain of its officers in the U.S. District Court for the District of New Jersey (the “Celgene Securities Class Action”). The complaints allege that the defendants violated federal securities laws by making misstatements and/or omissions concerning (1) trials of GED-0301, (2) Celgene’s 2020 outlook and projected sales of Otezla*, and (3) the new drug application for Zeposia. The Court consolidated the two actions and appointed a lead plaintiff, lead counsel, and co-liaison counsel for the putative class. In February 2019, the defendants filed a motion to dismiss plaintiff’s amended complaint in full. In December 2019, the Court denied the motion to dismiss in part and granted the motion to dismiss in part (including all claims arising from alleged misstatements regarding GED-0301). Although the Court gave the plaintiff leave to re-plead the dismissed claims, it elected not to do so, and the dismissed claims are now dismissed with prejudice. In November 2020, the Court granted class certification with respect to the remaining claims.
In April 2020, certain Schwab management investment companies on behalf of certain Schwab funds filed an individual action in the U.S. District Court for the District of New Jersey asserting largely the same allegations as the Celgene Securities Class Action against the same remaining defendants in that action (the “Schwab Action”). In July 2020, the defendants filed a motion to dismiss the plaintiffs’ complaint in full. In March 2021, the Court granted in part and denied in part defendants’ motion to dismiss consistent with its decision in the Celgene Securities Class Action.
The California Public Employees’ Retirement System in April 2021 (the “CalPERS Action”); DFA Investment Dimensions Group Inc., on behalf of certain of its funds; and American Century Mutual Funds, Inc., on behalf of certain of its funds, in July 2021 (respectively the “DFA Action” and the “American Century Action”), and GIC Private Limited in September 2021 (the “GIC Action”), filed separate individual actions in the U.S. District Court for the District of New Jersey asserting largely the same allegations as the Celgene Securities Class Action and the Schwab individual action against the same remaining defendants in those actions. In October 2021, these actions were consolidated for pre-trial proceedings with the Schwab Action. The court also consolidated any future direct actions raising common questions of law and fact with the Schwab Action.
No trial dates have been scheduled in any of the above Celgene Securities Litigations.
Contingent Value Rights Litigations
In June 2021, an action was filed against BMS in the U.S. District Court for the Southern District of New York asserting claims of alleged breaches of a Contingent Value Rights Agreement (“CVR Agreement”) entered into in connection with the closing of BMS’s acquisition of Celgene Corporation in November 2019. The successor trustee under the CVR Agreement alleges that BMS breached the CVR Agreement by allegedly failing to use “diligent efforts” to obtain FDA approval of liso-cel (Breyanzi) before a contractual milestone date, thereby avoiding a $6.4 billion potential obligation to holders of the contingent value rights governed by the CVR Agreement and by allegedly failing to permit inspection of records in response to a request by the successor trustee. The successor trustee seeks damages in an amount to be determined at trial and other relief, including interest and attorneys’ fees. BMS disputes the successor trustee’s allegations and filed a motion to dismiss on July 23, 2021. On June 24, 2022, the court denied BMS’s motion to dismiss.
In October 2021, alleged former Celgene stockholders filed a complaint in the U.S. District Court for the Southern District of New York asserting claims on behalf of a putative class of Celgene stockholders who received CVRs in the BMS merger with Celgene for violations of sections 14(a) and 20(a) of the Securities Exchange Act of 1934 relating to the joint proxy statement. That action later was consolidated with another action filed in the same court, and a consolidated complaint thereafter was filed asserting claims on behalf of a class of CVR acquirers, whether in the BMS merger with Celgene or otherwise, for violations of sections 11, 12(a)(2), and 15 of the Securities Act of 1933 and sections 10(b), 14(a) and 20(2) of the Securities Exchange Act of 1934. The complaint alleges that the February 22, 2019 joint proxy statement was materially false or misleading because it failed to disclose that BMS allegedly had no intention to obtain FDA approval for liso-cel (Breyanzi) by the applicable milestone date in the CVR Agreement and that certain statements made by BMS or certain BMS officers in periodic SEC filings, earnings calls, press releases, and investor presentations between December 2019 and November 2020 were materially false or misleading for the same reason. Defendants have moved to dismiss the complaint.
In November 2021, an alleged purchaser of CVRs filed a complaint in the Supreme Court of the State of New York for New York County asserting claims on behalf of a putative class of CVR acquirers for violations of sections 11(a) and 12(a)(2) of the Securities Act of 1933. The complaint alleges that the registration statement filed in connection with the proposed merger transaction between Celgene and BMS was materially false or misleading because it failed to disclose that allegedly BMS had no intention at the time to obtain FDA approval for liso-cel (Breyanzi) by the contractual milestone date. The complaint asserts claims against BMS, the members of its board of directors at the time of the joint proxy statement, and certain BMS officers who signed the registration statement. BMS removed the action to the U.S. District Court for the Southern District of New York. The plaintiff filed a motion to remand the action to the state court, which the court granted on September 19, 2022. Defendants have moved to stay the action pending resolution of the federal action and, in the alternative, to dismiss the complaint.
In November 2021, an alleged Celgene stockholder filed a complaint in the Superior Court of New Jersey, Union County asserting claims on behalf of two separate putative classes, one of acquirers of CVRs and one of acquirers of BMS common stock, for violations of sections 11(a), 12(a)(2), and 15 of the Securities Act of 1933. The complaint alleges that the registration statement filed in connection with the proposed merger transaction between Celgene and BMS was materially false or misleading because it failed to disclose that allegedly BMS had no intention at the time to obtain FDA approval for liso-cel (Breyanzi) by the contractual milestone date. The complaint asserts claims against BMS, the members of its board of directors at the time of the joint proxy statement, certain BMS officers who signed the registration statement and Celgene’s former chairman and chief executive officer. BMS removed the action to the U.S. District Court for the District of New Jersey and filed a motion to transfer the action to the U.S. District Court for the Southern District of New York. The plaintiff filed a motion to remand the action to the state court, which the court granted on September 22, 2022. Defendants have moved to stay the action pending resolution of the federal action and, in the alternative, to dismiss the complaint.
No trial dates have been scheduled in any of the above CVR Litigations.
OTHER LITIGATION
HIV Medication Antitrust Litigations
BMS was sued with three other manufacturers of HIV medications in related lawsuits in the Northern District of California. The initial lawsuits, filed on behalf of indirect purchasers, alleged that the defendants’ agreements to develop and sell fixed-dose combination products for the treatment of HIV, including Atripla* and Evotaz, violate antitrust laws. In July 2020, the Court granted in part defendants’ motion to dismiss, including dismissing with prejudice plaintiffs’ claims as to an overarching conspiracy and plaintiffs’ theories based on the alleged payment of royalties after patent expiration. Other claims, however, remained. In October 2021, BMS entered a settlement agreement with the indirect purchasers. On May 6, 2022, the Court granted final approval of that settlement.
In September and October 2020, two purported class actions were also filed asserting similar claims on behalf of direct purchasers. In March 2021, the Court dismissed one of the direct purchaser cases and limited the claims of the remaining direct purchaser case to those arising in 2016 or later. However, the Court gave plaintiffs leave to amend their complaints, and one plaintiff filed an amended complaint on March 16, 2021. In March 2022, BMS entered into a settlement agreement with the direct purchasers (excluding the retailers discussed below). On November 18, 2022, the Court granted final approval of that settlement.
On September 22, 2021, two additional non-class action direct purchaser complaints were filed by a number of retail pharmacy and grocery store chains against BMS and two other manufacturers of HIV medications. Those complaints made allegations similar to those raised in the other federal court cases and the New Mexico state court case described below. In January 2022, BMS entered into an agreement to settle the cases filed against it by the retail pharmacy and grocery store chains, and those cases were dismissed.
In February 2021, BMS and two other manufacturers of HIV medications were sued in State Court in New Mexico by the Attorney General of the State of New Mexico in a case alleging that the defendants’ agreements to develop and sell various fixed-dose combination products for the treatment of HIV, including Atripla*, and agreements to settle certain patent litigation violate the antitrust laws of the State of New Mexico. On October 26, 2022, BMS and the State of New Mexico entered into an agreement to settle New Mexico’s case against BMS. The case against BMS was dismissed by stipulation on November 7, 2022.
In December 2021, five additional non-class-action indirect purchaser cases were filed in the Northern District of California, and one additional non-class-action indirect purchaser case was filed in California state court naming BMS and two other manufacturers as defendants. Those complaints made allegations similar to those in the other federal court cases. In February 2022, BMS reached a settlement agreement with one of the non-class-action indirect purchaser plaintiffs and that case was dismissed. In April 2022, two additional indirect purchaser plaintiffs filed non-class suits against BMS and other defendants. In July 2022, BMS entered into a settlement agreement resolving these seven remaining indirect purchaser cases.
Accordingly, all of the HIV Medication Antitrust Litigations that were pending against BMS have been resolved.
Thalomid and Revlimid Litigations
Beginning in November 2014, certain putative class action lawsuits were filed against Celgene in the U.S. District Court for the District of New Jersey alleging that Celgene violated various antitrust, consumer protection, and unfair competition laws by (a) allegedly securing an exclusive supply contract for the alleged purpose of preventing a generic manufacturer from securing its own supply of thalidomide active pharmaceutical ingredient, (b) allegedly refusing to sell samples of Thalomid and Revlimid brand drugs to various generic manufacturers for the alleged purpose of bioequivalence testing necessary for ANDAs to be submitted to the FDA for approval to market generic versions of these products, (c) allegedly bringing unjustified patent infringement lawsuits in order to allegedly delay approval for proposed generic versions of Thalomid and Revlimid, and/or (d) allegedly entering into settlements of patent infringement lawsuits with certain generic manufacturers that allegedly have had anticompetitive effects. The plaintiffs, on behalf of themselves and putative classes of third-party payers, sought injunctive relief and damages. The various lawsuits were consolidated into a master action for all purposes. In March 2020, Celgene reached a settlement with the class plaintiffs. In October 2020, the Court entered a final order approving the settlement and dismissed the matter. That settlement did not resolve the claims of certain entities that opted out of the settlement.
In March 2019, Humana Inc. (“Humana”), which opted out of the above settlement, filed a lawsuit against Celgene in the U.S. District Court for the District of New Jersey. Humana’s complaint makes largely the same claims and allegations as were made in the now settled Thalomid and Revlimid antitrust class action litigation. The complaint purports to assert claims on behalf of Humana and its subsidiaries in several capacities, including as a direct purchaser and as an indirect purchaser, and seeks, among other things, treble and punitive damages, injunctive relief and attorneys’ fees and costs. In May 2019, Celgene filed a motion to dismiss Humana’s complaint. In April 2022, the Court issued an order denying Celgene’s motion to dismiss. That order addressed only Celgene’s argument that certain of Humana’s claims were barred by the statute of limitations. The Court’s order did not address Celgene’s other grounds for dismissal and instead directed Celgene to present those arguments in a renewed motion to dismiss following the filing of amended complaints. In May 2022, Humana filed an amended complaint against Celgene and BMS asserting the same claims based on additional factual allegations. Celgene and BMS have filed a motion to dismiss Humana’s amended complaint, which was fully briefed in November 2022. No trial date has been scheduled.
United HealthCare Services, Inc. (“UHS”), Blue Cross Blue Shield Association (“BCBSA”), BCBSM Inc., Health Care Service Corporation (“HCSC”), Blue Cross and Blue Shield of Florida Inc., Cigna Corporation (“Cigna”), Molina Healthcare, Inc. (“Molina”) and several MSP related entities (MSP Recovery Claims, Series LLC; MSPA Claims 1, LLC; MAO-MSO Recovery II, LLC, Series PMPI, a segregated series of MAO-MSO Recovery II, LLC; MSP Recovery Claims Series 44, LLC; MSP Recovery Claims PROV, Series LLC; and MSP Recovery Claims CAID, Series LLC (together, “MSP”)) filed lawsuits making largely the same claims and allegations as were made in the now settled class action litigation and in the Humana opt-out action. Certain of the matters have made additional claims related to copay assistance for Thalomid and Revlimid. These cases are now pending in the U.S. District Court for the District of New Jersey. Celgene and BMS’s motion to dismiss the Humana amended complaint applies to these other opt‑out actions as well, and these other opt‑out actions will proceed as described above with respect to that Humana opt-out action. No trial dates have been scheduled.
In May 2021, Molina sued Celgene and BMS in San Francisco Superior Court. Molina’s complaint makes largely the same claims and allegations as were made in the now settled class action litigation. In June 2022, the San Francisco Superior Court dismissed 63 of Molina’s claims, which Molina later reasserted in the District of New Jersey as described above, and stayed the remaining 4 claims. No activity is expected in this case until disposition of the New Jersey actions.
Certain other entities that opted out of the now‑settled class action have also filed summonses related to two actions in the Philadelphia County Court of Common Pleas in connection with the allegations made by Humana and other opt‑out entities. Those actions have been placed in deferred status pending further developments in the above opt‑out cases.
In November 2022, certain direct purchasers filed an action against Celgene, BMS, and certain generic manufacturers in the U.S. District Court for the District of New Jersey. The action makes largely the same claims and allegations against Celgene and BMS as were made with respect to Revlimid in the now settled class action litigation, and seek injunctive relief and damages under the Sherman Antitrust Act. No trial date has been scheduled.
In November 2022, certain indirect purchasers filed a putative class action lawsuit against Celgene, BMS and various generic manufacturers in the U.S. District Court for the District of New Jersey. The action alleges anticompetitive conduct and seeks injunctive relief and damages in connection with settlements of Revlimid-related patent infringement lawsuits. No trial date has been scheduled.
In May 2018, Humana filed a lawsuit against Celgene in the Pike County Circuit Court of the Commonwealth of Kentucky. Humana’s complaint alleges Celgene engaged in unlawful off-label marketing in connection with sales of Thalomid and Revlimid and asserts claims against Celgene for fraud, breach of contract, negligent misrepresentation, unjust enrichment and violations of New Jersey’s Racketeer Influenced and Corrupt Organizations Act. Humana subsequently dismissed its claims for breach of contract voluntarily. The complaint seeks, among other things, treble and punitive damages, injunctive relief and attorneys’ fees and costs. A trial for this matter began on January 31, 2023.
In May 2020, Celgene filed suit against Humana Pharmacy, Inc. (“HPI”), a Humana subsidiary, in Delaware Superior Court. Celgene’s complaint alleges that HPI breached its contractual obligations to Celgene by assigning claims to Humana that Humana is now asserting. The complaint seeks damages for HPI’s breach as well as a declaratory judgment. A trial has been scheduled for March 2023.
BeiGene Arbitration Matter
On July 5, 2017, Celgene Logistics Sàrl (“Celgene Logistics”) and BeiGene, Ltd. (together with its assignees, “BeiGene”), entered into a License and Supply Agreement (the “LSA”) pursuant to which BeiGene was granted, among other things, an exclusive license to distribute and commercialize Revlimid, Vidaza and Abraxane in China.
BeiGene initiated an arbitration proceeding against Celgene Logistics and BMS at the International Chamber of Commerce in June 2020, asserting various claims, including breach of contract under the LSA. In October 2021, Celgene Logistics delivered notice to BeiGene terminating the LSA with respect to Abraxane. A final hearing on the merits was held in June 2022, and the parties have completed post-hearing briefing and closing arguments.
MSK Contract Litigation
On April 1, 2022, Memorial Sloan Kettering Cancer Center and Eureka Therapeutics, Inc. (collectively, “Plaintiffs”) filed a complaint against BMS, Celgene and Juno (collectively, “Defendants”). In June 2022, Plaintiffs filed an amended complaint. Plaintiffs allege that Defendants breached a license agreement by allegedly failing to use commercially reasonable efforts to develop, manufacture, and commercialize a certain chimeric antigen receptor product and by failing to pay Plaintiffs a running royalty of at least 1.5% of worldwide sales of Abecma allegedly owed to Plaintiffs under the license agreement. Defendants disagree with plaintiffs’ claims and filed a motion to dismiss the amended complaint in July 2022. No trial date has been scheduled.
GOVERNMENT INVESTIGATIONS
Like other pharmaceutical companies, BMS and certain of its subsidiaries are subject to extensive regulation by national, state and local authorities in the U.S. and other countries in which BMS operates. As a result, BMS, from time to time, is subject to various governmental and regulatory inquiries and investigations as well as threatened legal actions and proceedings. It is possible that criminal charges, substantial fines and/or civil penalties, could result from government or regulatory investigations.
ENVIRONMENTAL PROCEEDINGS
As previously reported, BMS is a party to several environmental proceedings and other matters, and is responsible under various state, federal and foreign laws, including CERCLA, for certain costs of investigating and/or remediating contamination resulting from past industrial activity at BMS’s current or former sites or at waste disposal or reprocessing facilities operated by third parties.
CERCLA and Other Remediation Matters
With respect to CERCLA and other remediation matters for which BMS is responsible under various state, federal and international laws, BMS typically estimates potential costs based on information obtained from the U.S. Environmental Protection Agency, or counterpart state or foreign agency and/or studies prepared by independent consultants, including the total estimated costs for the site and the expected cost-sharing, if any, with other “potentially responsible parties,” and BMS accrues liabilities when they are probable and reasonably estimable. BMS estimated its share of future costs for these sites to be $91 million as of December 31, 2022, which represents the sum of best estimates or, where no best estimate can reasonably be made, estimates of the minimal probable amount among a range of such costs (without taking into account any potential recoveries from other parties). The amount includes the estimated costs for any additional probable loss associated with the previously disclosed North Brunswick Township High School Remediation Site.