Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

120K characters. Original on sec.gov · Markdown

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Management’s discussion and analysis of financial condition and results of operations is provided as a supplement to and should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this 2019 Form 10-K to enhance the understanding of our results of operations, financial condition and cash flows.

The comparison of fiscal 2018 to 2017 has been omitted from this Form 10-K, but can be referenced in our Form 10-K for the fiscal year ended December 31, 2018—“Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” filed on February 25, 2019.

EXECUTIVE SUMMARY

Bristol-Myers Squibb Company is a global biopharmaceutical company whose mission is to discover, develop and deliver innovative medicines that help patients prevail over serious diseases. Refer to the Summary of Abbreviated Terms at the end of this 2019 Form 10-K for terms used throughout the document.

We completed the Celgene transaction on November 20, 2019. We expect that the acquisition will enable us to create a leading focused biopharmaceutical company that is well positioned to address the needs of patients with cancer, inflammatory, immunologic, cardiovascular or fibrotic diseases through high-value innovative medicines and leading scientific capabilities. Commencing from the acquisition date, BMS's financial statements include the assets, liabilities, operating results and cash flows of Celgene. Refer to “Item 8. Financial Statements—Note 4. Acquisition, Divestitures, Licensing and Other Arrangements” for further discussion on the Celgene transaction.

In 2019, we received several approvals for new medicines and additional indications and formulations of currently marketed medicines in major markets (the U.S., EU and Japan), including multiple regulatory milestone achievements for Opdivo and Opdivo+Yervoy combinations. We are investigating Opdivo alone and in combination with Yervoy and other anti-cancer agents for a wide array of tumor types, and have 24 other IO compounds in clinical development. We continue to expand in the field of hematology, where we have the leading presence, through in-line assets Revlimid and Pomalyst. In 2019, we received regulatory approvals for Reblozyl and Inrebic and submitted a regulatory application for liso-cel targeting Diffuse Large B-Cell Lymphoma. Additionally, our pipeline shows significant added promise in hematology malignancies through our CELMoD agents, multiple modalities targeting B-Cell Maturation Antigen (“BCMA”) and the next generation of cell therapy agents. We are expanding our portfolio in immunology with two near term launch opportunities in TYK-2 inhibitor and ozanimod. Additionally in the cardiovascular space, Eliquis is now the global leading oral anti-coagulant drug, and we continue to experience growth in both the Eliquis brand and market while also advancing our Factor XIa inhibitor program.

In 2019, our revenues increased 16% as a result of higher demand for our prioritized brands including Eliquis and Opdivo and the Celgene acquisition, which contributed $1.9 billion of revenues, representing approximately one half of the growth. The $1.00 decrease in GAAP EPS was primarily due to taxes resulting from the Otezla* divestiture, amortization of acquired intangible assets, the unwinding of inventory fair value adjustments and other costs and expenses resulting from the Celgene acquisition, partially offset by higher revenues. After adjusting for specified items, non-GAAP EPS increased $0.71, primarily as a result of higher revenues.

Highlights

The following table summarizes our financial information:

Year Ended December 31,
Dollars in Millions, except per share data20192018
Total Revenues$26,145$22,561
Diluted Earnings Per Share
GAAP$2.01$3.01
Non-GAAP4.693.98

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

Significant Product and Pipeline Approvals

The following is a summary of the significant approvals received in 2019:

ProductDateApproval
RevlimidDecember 2019EC approval in combination with rituximab for the treatment of adult patients with previously treated FL (Grade 1-3a). Revlimid and rituximab (R2) is the first chemotherapy-free combination regimen approved for the patients with FL by the EC.
Opdivo+YervoyMarch 2019Conversion of accelerated FDA approval to full FDA approval for Opdivo+Yervoy for first line metastatic melanoma treatment based on longer follow-up data from CheckMate-067.
January 2019EC approval of Opdivo plus low-dose Yervoy for previously untreated patients with intermediate and poor-risk advanced RCC.
OrenciaApril 2019EC approval of two new strengths (50 mg and 87.5 mg) for subcutaneous administration, and a new indication for Orencia injection for the treatment of moderate to severe active polyarticular juvenile idiopathic arthritis in pediatric patients 2 years of age and older.
SprycelFebruary 2019EC approval in both tablet and powder for oral suspension formulations, in combination with chemotherapy for the treatment of pediatric patients with newly diagnosed Philadelphia chromosome-positive ALL.
EmplicitiNovember 2019Approved in Japan in combination with pomalidomide and dexamethasone for multiple myeloma following at least two prior therapies, including lenalidomide and proteasome inhibitor.
August 2019EC approval in combination with pomalidomide and dexamethasone for adult patients with RRMM who have received at least two prior therapies, including lenalidomide and a proteasome inhibitor, and have demonstrated disease progression on the last therapy.
Inrebic**(a)**August 2019FDA approval for the treatment of adult patients with intermediate-2 or high-risk primary or secondary (post-polycythemia vera or post-essential thrombocythemia) myelofibrosis.
Reblozyl**(a)**November 2019FDA approval for the treatment of anemia in adult patients with beta thalassemia who require regular red blood cell transfusions.
(a)The regulatory approval was obtained by Celgene prior to the completion of the Celgene transaction.

Refer to “—Product and Pipeline Developments” for all of the developments in our marketed products and late-stage pipeline in 2019 and in early 2020.

Strategy

Our principal strategy is to combine the resources, scale and capability of a pharmaceutical company with the speed and focus on innovation of the biotech industry. Our focus as a biopharmaceutical company is on discovering, developing and delivering transformational medicines for patients facing serious diseases in areas where we believe that we have an opportunity to make a meaningful difference: oncology (both solid tumors and hematology), immunology, cardiovascular and fibrosis. Our four strategic priorities as a combined company are to drive enterprise performance, maximize the value of our commercial portfolio, ensure the long-term sustainability of our pipeline through combined internal and external innovation and establish our new culture and embed our people strategy.

We are developing new medicines in the following core therapeutic areas: (1) oncology with a priority in certain tumor types; (2) hematology with opportunities to broaden our franchise and potentially sustain a leadership position in multiple myeloma; (3) immunology with priorities in relapsing multiple sclerosis, psoriasis, lupus, RA and inflammatory bowel disease; (4) cardiovascular disease and; (5) fibrotic disease with priorities in lung and liver. We continue to advance the next wave of innovative medicines by investing significantly in our pipeline both internally and through business development activities. We expect that our acquisition of Celgene will further position us as a leading biopharmaceutical company, expanding our oncology, hematology and immunology portfolios with several near-term assets and additional external partnerships. We continue to invest in our oncology portfolio by pursuing both monotherapy and combination approaches and advancing our next wave of early assets and to explore new collaboration opportunities across our therapeutic areas of focus. We remain focused and well-resourced in our cancer development programs and seek to broaden the use of Opdivo in earlier lines of therapy, expand into new tumors, accelerate next wave oncology mechanisms and develop treatment options for refractory oncology patients. For hematology, we have opportunities to launch several new medicines in the near-term with additional pipeline opportunities in the longer term. There is a broad effort to continue to address the unmet medical need in multiple myeloma and we are working across multiple modalities and mechanisms of action such as cereblon modulator (“CELMoD”), T-cell Engager and CAR T-cell therapy. Beyond cancer, we continue to advance our early stage portfolio in immunology, cardiovascular and fibrotic diseases and strengthen our partnerships with a diverse group of companies and academic institutions in new and expanded research activities. We believe our differentiated internal and external focus contributes to the advancing of our pipeline of potentially transformational medicines.

Our commercial model has been successful with revenues from our prioritized brands continuing to grow, which demonstrates strong execution of our strategy. We continue to drive adoption of Opdivo by expanding into additional indications and tumor types both as a monotherapy and in combination with Yervoy and other anti-cancer agents. Eliquis continues to grow, leveraging its best in class clinical profile and extensive real world data and is now the number one novel oral anticoagulant in total prescriptions globally. Revlimid and Pomalyst have transformed the treatment of multiple myeloma, where we have a leading presence, and we continue to seek opportunities to leverage the significant medical and commercial expertise to address areas of high unmet medical need. We are building on the continued success of our other prioritized brands and remain strongly committed to Orencia and Sprycel. We are also optimistic on the future growth and near-term opportunities of Reblozyl, a first-in-class medicine, and Inrebic. Through our operating model transformation, our commercial infrastructure is uniquely leveraged for potential growth.

Our operating model continues to evolve and we have been successful in focusing commercial, R&D and manufacturing resources on prioritized brands and markets, strengthening our R&D capabilities in tumor biology, patient selection and new biomarkers, delivering leaner administrative functions and streamlining our manufacturing network to reflect the importance of biologics in our current and future portfolio. The evolution in our operating model, which focuses on maintaining a disciplined approach in marketing, selling and administrative expenses, will enable us to deliver the necessary strategic, financial and operational flexibility to invest in the highest priority opportunities within our portfolio. We will continue to make progress towards integrating the companies on the commercial and research and development area. We expect to realize $2.5 billion of synergies resulting from cost savings and avoidance through 2022 and our integration efforts across general and administrative, manufacturing, R&D, procurement and streamlining the Company's pricing and information technology infrastructure.

Looking ahead, we will continue to implement our biopharma strategy by driving the growth of prioritized brands, executing product launches, investing in our diverse and innovative pipeline, aided by strategic business development, focusing on prioritized markets, increasing investments in our biologics manufacturing capabilities and maintaining a culture of continuous improvement.

Acquisitions, Divestitures, Licensing and Collaboration Arrangements

Significant acquisitions, divestitures, licensing and collaboration arrangements during 2019 are summarized below. Refer to “Item 8. Financial Statements and Supplementary Data —Note 3. Alliances” and “—Note 4. Acquisitions, Divestitures, Licensing and Other Arrangements” for further information.

Celgene: BMS acquired Celgene, an integrated global biopharmaceutical company engaged primarily in the discovery, development and commercialization of innovative therapies for the treatment of cancer and inflammatory diseases through next-generation solutions in protein homeostasis, immuno-oncology, epigenetics, immunology and neuro-inflammation. Its primary commercial stage products include Revlimid, Pomalyst/Imnovid, Abraxane, Reblozyl and Inrebic.

Otezla*: BMS divested Otezla* to Amgen as part of the regulatory approval process for the Celgene transaction.

UPSA: BMS divested its UPSA consumer health business to Taisho Pharmaceutical Co., Ltd. to simplify and realign its business portfolio.

RESULTS OF OPERATIONS

Regional Revenues

The composition of the changes in revenues was as follows:

Year Ended December 31,2019 vs. 2018
Dollars in Millions20192018% ChangeForeign Exchange**(b)**
United States$15,342$12,58622%—
Europe6,2665,65811%(6)%
Rest of the World4,0133,7338%(5)%
Other(a)524584(10)%N/A
Total$26,145$22,56116%(2)%
(a)Other revenues include royalties and alliance-related revenues for products not sold by our regional commercial organizations.
(b)Foreign exchange impacts were derived by applying the prior period average currency rates to the current period revenues.

U.S. revenues in 2019 were impacted by $1.3 billion from Revlimid and other Celgene products, representing 10% of the change in revenues, and higher demand for Eliquis. Average net selling prices for legacy BMS products did not increase after charge-backs, rebates, and discounts in 2019.

Europe revenues in 2019 were impacted by $397 million from Celgene products, representing 7% of the change in revenues, and higher demand for Eliquis and Opdivo, partially offset by foreign exchange and lower demand for established brands. Average net selling prices for legacy BMS products were lower after charge-backs, rebates, and discounts in 2019.

Rest of World revenues in 2019 were impacted by $210 million from Celgene products, representing 6% of the change in revenues, and higher demand for Opdivo and Eliquis, partially offset by foreign exchange and lower demand for established brands. Average net selling prices for legacy BMS products did not increase after charge-backs, rebates, and discounts in 2019.

No single country outside the U.S. contributed more than 10% of total revenues in 2019 and 2018.

GTN Adjustments

We recognize revenue net of GTN adjustments that are further described in “—Critical Accounting Policies.”

The activities and ending reserve balances for each significant category of GTN adjustments were as follows:

Year Ended December 31, 2019
Dollars in MillionsCharge-Backs and Cash DiscountsMedicaid and Medicare RebatesOther Rebates, Returns, Discounts and AdjustmentsTotal
Balance at January 1, 2019$245$1,061$1,356$2,662
Celgene acquisition1164268461,388
Provision related to sales made in:
Current period3,6795,0033,48212,164
Prior period(4)(62)(66)(132)
Payments and returns(3,643)(4,569)(3,196)(11,408)
Foreign currency translation and other(2)—(6)(8)
Balance at December 31, 2019$391$1,859$2,416$4,666

The reconciliation of gross product sales to net product sales by each significant category of GTN adjustments was as follows:

Year Ended December 31,% Change
Dollars in Millions201920182019 vs. 2018
Gross product sales$37,206$30,17423%
GTN Adjustments
Charge-backs and cash discounts(3,675)(2,735)34%
Medicaid and Medicare rebates(4,941)(3,225)53%
Other rebates, returns, discounts and adjustments(3,416)(2,633)30%
Total GTN Adjustments(12,032)(8,593)40%
Net product sales$25,174$21,58117%
GTN adjustments percentage32%28%4%
U.S.40%36%4%
Non-U.S.15%13%2%

GTN adjustments are primarily a function of product sales volume, regional and payer channel mix, contractual or legislative discounts and rebates. GTN adjustments are increasing at a higher rate than gross product sales due to higher U.S. Eliquis gross product sales, which has a relatively high GTN adjustment percentage as a result of higher Medicare Part D coverage gap cost share and competitive pressures to maintain its position on healthcare payer formularies allowing patients continued access through their medical plans.

Product Revenues

Year Ended December 31,% Change
Dollars in Millions201920182019 vs. 2018
Prioritized Brands
Revlimid$1,299$—N/A
U.S.899—N/A
Non-U.S.400—N/A
Eliquis7,9296,43823%
U.S.4,7553,76026%
Non-U.S.3,1742,67819%
Opdivo7,2046,7357%
U.S.4,3444,2392%
Non-U.S.2,8602,49615%
Orencia2,9772,71010%
U.S.2,1461,87514%
Non-U.S.831835—
Pomalyst/Imnovid322—N/A
U.S.226—N/A
Non-U.S.96—N/A
Sprycel2,1102,0006%
U.S.1,1911,0919%
Non-U.S.9199091%
Yervoy1,4891,33012%
U.S.1,0049417%
Non-U.S.48538925%
Abraxane166—N/A
U.S.122—N/A
Non-U.S.44—N/A
Empliciti35724745%
U.S.24616450%
Non-U.S.1118334%
Inrebic5—N/A
U.S.5—N/A
Non-U.S.——N/A
Year Ended December 31,% Change
Dollars in Millions201920182019 vs. 2018
Established Brands
Baraclude$555$744(25)%
U.S.2032(38)%
Non-U.S.535712(25)%
Vidaza58—N/A
U.S.1—N/A
Non-U.S.57—N/A
Other Brands*(a)*1,6742,357(29)%
U.S.383484(21)%
Non-U.S.1,2911,873(31)%
Total Revenues26,14522,56116%
U.S.15,34212,58622%
Non-U.S.10,8039,9758%
(a)Includes BMS and Celgene products in 2019.

Revlimid (lenalidomide) — an oral immunomodulatory drug that in combination with dexamethasone is indicated for the treatment of patients with multiple myeloma. Revlimid as a single agent is also indicated as a maintenance therapy in patients with multiple myeloma following autologous hematopoietic stem cell transplant.

Eliquis (apixaban) — an oral Factor Xa inhibitor, targeted at stroke prevention in adult patients with NVAF and the prevention and treatment of VTE disorders.

•U.S. revenues increased due to higher demand, partially offset by higher Medicare Part D coverage gap cost share (from 50% in 2018 to 70% in 2019).
•International revenues increased due to higher demand. Excluding foreign exchange impacts, revenues increased by 24% in 2019.

Opdivo (nivolumab) — a fully human monoclonal antibody that binds to the PD-1 on T and NKT cells that has been approved for several anti-cancer indications including bladder, blood, colon, head and neck, kidney, liver, lung, melanoma and stomach and continues to be investigated across other tumor types and disease areas.

•U.S. revenues increased due to higher average net selling price. The decline in growth rate from 37% in 2018 to 2% in 2019 was primarily due to a smaller previously-treated advanced lung cancer market and increased competition for the Opdivo+Yervoy combination in kidney cancer. We expect this trend to continue until the market stabilizes or new indications are approved and launched.
•International revenues increased due to higher demand as a result of approvals for additional indications in 2018 and launches in Europe and Asia. Excluding foreign exchange impacts, revenues increased by 22% in 2019.

Orencia (abatacept) — a fusion protein indicated for adult patients with moderate to severe active RA and PsA and is also indicated for reducing signs and symptoms in certain pediatric patients with moderately to severely active polyarticular JIA.

•U.S. revenues increased due to higher demand and higher average net selling price.
•Excluding foreign exchange impacts, international revenues increased by 5% in 2019.

Pomalyst/Imnovid (pomalidomide) — a proprietary, distinct, small molecule that is administered orally and modulates the immune system and other biologically important targets. Pomalyst/Imnovid is indicated for patients with multiple myeloma who have received at least two prior therapies including lenalidomide and a proteasome inhibitor and have demonstrated disease progression on or within 60 days of completion of the last therapy.

Sprycel (dasatinib) — an oral inhibitor of multiple tyrosine kinase indicated for the first-line treatment of adults with Philadelphia chromosome-positive CML in chronic phase and the treatment of adults with chronic, accelerated, or myeloid or lymphoid blast phase CML with resistance or intolerance to prior therapy, including Gleevec* (imatinib mesylate).

•U.S. revenues increased due to higher average net selling price and higher demand.
•International revenues were unchanged in 2019, but may decline due to generic European competition.

Yervoy (ipilimumab) — a monoclonal antibody for the treatment of patients with unresectable or metastatic melanoma.

•U.S. revenues increased due to higher demand and higher average net selling price.
•International revenues increased due to higher demand as a result of approvals for additional indications and launches primarily in Europe and Japan in 2018. Excluding foreign exchange impacts, revenue increased by 31% in 2019.

Abraxane (paclitaxel albumin-bound particles for injectable suspension) — a solvent-free protein-bound chemotherapy product that combines paclitaxel with albumin using our proprietary nab® technology platform, and is used to treat breast cancer, NSCLC and pancreatic cancer, among others.

Inrebic (fedratinib) — an oral kinase inhibitor with activity against wild type and mutationally activated JAK2 and FLT3. In August 2019, the FDA approved Inrebic for the treatment of adult patients with intermediate-2 or high-risk primary or secondary (post-polycythemia vera or post-essential thrombocythemia) myelofibrosis.

Reblozyl (luspatercept-aamt) — an erythroid maturation agent indicated for the treatment of anemia in adult patients with beta thalassemia who require regular red blood cell transfusions. In November 2019, the FDA approved Reblozyl for the treatment of anemia in adult patients with beta thalassemia who require RBC transfusions.

Baraclude (entecavir) — an oral antiviral agent for the treatment of chronic hepatitis B.

•International revenues decreased due to lower demand resulting from increased generic competition.

Vidaza (azacitidine for injection) — is a pyrimidine nucleoside analog that has been shown to reverse the effects of deoxyribonucleic acid hypermethylation and promote subsequent gene re-expression and is indicated for treatment of patients with the following myelodysplastic syndrome subtypes: refractory anemia or refractory anemia with ringed sideroblasts (if accompanied by neutropenia or thrombocytopenia or requiring transfusions), refractory anemia with excess blasts, refractory anemia with excess blasts in transformation, and CML.

Other Brands — includes all other brands, including those which have lost exclusivity in major markets, OTC brands and royalty revenue.

•International revenues decreased primarily due to divestiture of the UPSA business and certain other brands and continued generic erosion.

Estimated End-User Demand

Pursuant to the SEC Consent Order described under “—SEC Consent Order”, we monitor the level of inventory on hand in the U.S. wholesaler distribution channel and outside of the U.S. in the direct customer distribution channel. We are obligated to disclose products with levels of inventory in excess of one month on hand or expected demand, subject to a de minimis exception. Estimated levels of inventory in the distribution channel in excess of one month on hand for the following products were not material to our results of operations as of the dates indicated. Below are international products that had estimated levels of inventory in the distribution channel in excess of one month on hand at September 30, 2019.

Perfalgan, an analgesic product, had 2.6 months of inventory on hand internationally at direct customers compared to 2.5 months of inventory on hand at June 30, 2019. The level of inventory on hand was primarily in the Gulf Countries due to inventory build to mitigate the risk of product supply disruption in these markets as a result of the sale of the Anagni manufacturing plant to Catalent Inc. in December 2019.

In the U.S., we generally determine our months on hand estimates using inventory levels of product on hand and the amount of out-movement provided by our three largest wholesalers, which account for approximately 93% of total gross sales of U.S. products. Factors that may influence our estimates include generic competition, seasonality of products, wholesaler purchases in light of increases in wholesaler list prices, new product launches, new warehouse openings by wholesalers and new customer stockings by wholesalers. In addition, these estimates are calculated using third-party data, which may be impacted by their recordkeeping processes.

Revlimid and Pomalyst are distributed in the U.S. primarily through contracted pharmacies under the Revlimid REMS and Pomalyst REMS programs, respectively. These are proprietary risk-management distribution programs tailored specifically to provide for the safe and appropriate distribution and use of Revlimid and Pomalyst. Internationally, Revlimid and Imnovid are distributed under mandatory risk-management distribution programs tailored to meet local authorities’ specifications to provide for the products’ safe and appropriate distribution and use. These programs may vary by country and, depending upon the country and the design of the risk-management program, the product may be sold through hospitals or retail pharmacies. Abraxane, Inrebic and Vidaza are distributed through wholesaler channel in the U.S. and direct customer distribution channel outside of the U.S.

Our non-U.S. businesses have significantly more direct customers. Information on available direct customer product level inventory and corresponding out-movement information and the reliability of third-party demand information varies widely. We limit our direct customer sales channel inventory reporting to where we can influence demand. When this information does not exist or is otherwise not available, we have developed a variety of methodologies to estimate such data, including using historical sales made to direct customers and third-party market research data related to prescription trends and end-user demand. Given the difficulties inherent in estimating third-party demand information, we evaluate our methodologies to estimate direct customer product level inventory and to calculate months on hand on an ongoing basis and make changes as necessary. Factors that may affect our estimates include generic competition, seasonality of products, price increases, new product launches, new warehouse openings by direct customers, new customer stockings by direct customers and expected direct customer purchases for governmental bidding situations. As such, all of the information required to estimate months on hand in the direct customer distribution channel for non-U.S. business for the year ended December 31, 2019 is not available prior to the filing of this 2019 Form 10-K. We will disclose any product with levels of inventory in excess of one month on hand or expected demand, subject to a de minimis exception, in the next quarterly report on Form 10-Q.

Expenses

Year Ended December 31,% Change
Dollar in Millions201920182019 vs 2018
Cost of products sold(a)$8,078$6,46725%
Marketing, selling and administrative4,8714,5517%
Research and development6,1486,332(3)%
Amortization of acquired intangible assets1,13597**
Other (income)/expense, net938(854)**
Total Expenses$21,170$16,59328%
**In excess of +/- 100%.
(a)Excludes amortization of acquired intangible assets.

Cost of products sold

Cost of products sold include material, internal labor and overhead costs from our owned manufacturing sites, third-party product supply costs and other supply chain costs managed by our global manufacturing and supply organization. Cost of products sold also includes royalties and profit sharing, certain excise taxes and foreign currency hedge settlement gains and losses. Cost of products sold typically vary between periods as a result of product mix and volume (particularly royalties and profit sharing), and to a lesser extent changes in foreign currency, price, inflation and costs attributed to manufacturing site exits. Cost of products sold excludes amortization from acquired intangible assets.

•Cost of products sold increased by $1.6 billion due to higher royalties and profit sharing of $702 million primarily from higher Eliquis sales, unwinding of inventory fair value adjustments of $660 million, an impairment charge of $126 million for a manufacturing and packaging facility and higher product sales.

Marketing, selling and administrative

Marketing, selling and administrative expenses primarily include salary and benefit costs, third-party professional and marketing fees, outsourcing fees, shipping and handling costs, advertising and product promotion costs. Expenses are managed through regional commercialization organizations or global enabling functions such as finance, legal, information technology and human resources. Certain expenses are shared with alliance partners based upon contractual agreements.

•Marketing, selling and administrative expenses increased by $320 million in 2019 primarily due to Celgene expenses of approximately $400 million, partially offset by foreign exchange impact of 2%.

Research and development

Research and development activities include discovery research, preclinical and clinical development, drug formulation and medical support of marketed products. Expenses include salary and benefit costs, third-party grants and fees paid to clinical research organizations, supplies, upfront and contingent milestone payments for licensing and asset acquisitions of investigational compounds, IPRD impairment charges and proportionate allocations of enterprise-wide costs. The allocations include facilities, information technology, employee stock compensation costs and other appropriate costs. Certain expenses are shared with alliance partners based upon contractual agreements. Expenses typically vary between periods for a number of reasons, including the timing of license and asset acquisition charges and IPRD impairment charges.

•Research and development expense decreased by $184 million in 2019 due to $1.1 billion of Nektar related charges in 2018, partially offset by Celgene expenses of approximately $500 million and higher investment in IO and other immunology development programs.

Significant charges included in R&D expense were as follows:

Year Ended December 31,
Dollars in Millions20192018
License and asset acquisition charges$25$1,135
IPRD impairments32—
Employee compensation charges33—
Site exit and other costs16779
Research and development significant charges$257$1,214
•License and asset acquisition charges resulted from strategic transactions to acquire or license certain investigational compounds (or options to acquire or license) as disclosed in “—Acquisitions, Divestitures, Licensing and Collaboration Arrangements.” Significant charges include an up-front charge of $1.1 billion related to Nektar in 2018; a $60 million milestone for Cormorant Pharmaceuticals in 2018 and $25 million milestones in 2019 and 2018 for IFM Therapeutics, Inc.
•IPRD impairment charges includes the discontinued development of an investigational compound previously acquired with Medarex.
•Employee compensation charges resulted from the impact of retention and sign-on arrangements in connection with the Celgene transaction.
•Site exit and other costs include $79 million in 2019 and 2018 resulting from the expected exit of R&D sites in the U.S. and an $85 million charge in 2019 resulting from the purchase of priority review voucher expected to be used with an on-going development program.

Amortization of Acquired Intangible Assets

Amortization of intangible assets acquired as a result of business combinations.

•Amortization of acquired intangible assets increased by $1.0 billion in 2019 as a result of the marketed product rights acquired with the Celgene transaction.

Other (income)/expense, net

•Other (income)/expense, net changed by $1.8 billion in 2019 primarily due to $2.0 billion of costs and expenses resulting from the Celgene transaction and a $1.6 billion pension settlement charge, partially offset by a $1.2 billion gain on the sale of the UPSA business and equity investments fair value adjustments.

Components of Other (income)/expense, net were as follows:

Year Ended December 31,
Dollars in Millions20192018
Interest expense$656$183
Pension and postretirement1,599(27)
Royalties and licensing income(1,360)(1,353)
Divestiture gains(1,168)(178)
Acquisition expenses657—
Contingent value rights523—
Investment income(464)(173)
Integration expenses415—
Provision for restructuring301131
Equity investment (gains)/losses(279)512
Litigation and other settlements7776
Transition and other service fees(37)(12)
Intangible asset impairment1564
Equity in net loss/(income) of affiliates4(93)
Other(1)16
Other (income)/expense, net$938$(854)
•Interest expense includes interest incurred on the approximately $19.0 billion of notes issued in May 2019 (including $340 million incurred prior to the Celgene acquisition date) and approximately $19.9 billion of Celgene debt acquired in the 2019 exchange offer. Interest expense was reduced by $18 million of amortization of the purchase price adjustment attributed to Celgene's debt.
•Pension and postretirement includes pension settlement charges, including $1.6 billion primarily relating to the termination of the Bristol-Myers Squibb Retirement Income Plan in 2019.
•Royalties and licensing income primarily includes diabetes royalties of $650 million in 2019 and $661 million in 2018, and Keytruda* royalties of $545 million in 2019 and $343 million in 2018. In addition, Erbitux* royalties of $145 million, a $50 million fee for amending a royalty rate and a $25 million sales-based milestone were included in 2018.
•Divestiture gains resulted from the divestiture of the UPSA business in 2019 and multiple mature global product lines in 2018.
•Acquisition expenses include the following items related to the Celgene transaction: (1) upfront bridge facility commitment, term loan and debt exchange fees of $135 million, (2) acquisition financing hedge losses of $278 million and (3) financial advisory, legal, proxy filing and other transaction costs of $244 million.
•Contingent value rights include fair value adjustments resulting from changes in the traded price of the securities.
•Investment income includes $197 million of interest income earned on the net proceeds of the new notes issued prior to the Celgene transaction. The net proceeds were used to fund a portion of the Celgene acquisition cash consideration and to pay related fees and expenses.
•Integration expenses include consulting fees incurred in connection with Celgene integration activities.
•Restructuring charges include exit costs primarily related to employee termination benefits and contract terminations. Restructuring charges related to the prior company transformation initiatives were $45 million in 2019 and $131 million in 2018. Restructuring charges related to the Celgene transaction were $256 million in 2019, including $145 million of accelerated vesting of Celgene equity awards. Refer to “Item 8. Financial Statements and Supplementary Data—Note 6. Restructuring” for further information.
•Equity investment (gains)/losses includes fair value adjustments related to equity investments in uniQure N.V., Nektar and other equity investments obtained in the Celgene transaction. In addition, $80 million related to the termination of our Europe and Asia partnership with Sanofi in 2019.
•Litigation and other settlements include $75 million related to a government pricing matter in 2019 and $70 million related to intellectual property and product liability settlements in 2018.
•Intangible asset impairment includes $64 million in 2018 for an out-licensed asset obtained in the acquisition of ZymoGenetics, Inc., which did not meet its primary endpoint in a Phase II clinical study.
•Equity in net loss/(income) of affiliates is primarily related to our partnership with Sanofi in Europe and Asia, which was terminated in 2019 and other investments in limited partnerships.

Income Taxes

Year Ended December 31,
Dollars in Millions20192018
Earnings Before Income Taxes$4,975$5,968
Provision for Income Taxes1,5151,021
Effective Tax Rate30.5%17.1%
Impact of Specified Items15.7%—
Effective Tax Rate Excluding Specified Items14.8%17.1%

The tax impact attributed to specified items, including the Otezla* divestiture, certain non-deductible expenses and purchase price adjustments, increased the effective tax rate by 15.7% in 2019. Taxes attributed to internal cash repatriations in 2018, lower state taxes in 2019, Swiss tax reform and other adjustments upon finalization of the 2018 tax returns accounted for a 2.3% reduction in the effective income tax rates compared to the prior period. Tax reserve releases due to lapse of statutes were $81 million in 2019 and $119 million in 2018. Refer to “Item 8. Financial Statements and Supplementary Data—Note 7. Income Taxes” for further information.

Non-GAAP Financial Measures

Our non-GAAP financial measures, including non-GAAP earnings and related EPS information, are adjusted to exclude certain costs, expenses, gains and losses and other specified items that are evaluated on an individual basis. These items are adjusted after considering their quantitative and qualitative aspects and typically have one or more of the following characteristics, such as being highly variable, difficult to project, unusual in nature, significant to the results of a particular period or not indicative of future operating results. Similar charges or gains were recognized in prior periods and will likely reoccur in future periods including (1) amortization of acquired intangible assets beginning in the fourth quarter of 2019, including product rights that generate a significant portion of our ongoing revenue and will recur until the intangible assets are fully amortized, (2) unwind of inventory fair value adjustments, (3) acquisition and integration expenses, (4) restructuring costs, (5) accelerated depreciation and impairment of property, plant and equipment and intangible assets, (6) R&D charges or other income resulting from upfront or contingent milestone payments in connection with the acquisition or licensing of third-party intellectual property rights, (7) costs of acquiring a priority review voucher, (8) divestiture gains or losses, (9) stock compensation resulting from accelerated vesting of Celgene awards and certain retention-related compensation charges related to the Celgene transaction, (10) pension, legal and other contractual settlement charges, (11) interest expense on the notes issued in May 2019 prior to our Celgene transaction and interest income earned on the net proceeds of those notes and (12) amortization of fair value adjustments of debt acquired from Celgene in our 2019 exchange offer, among other items. Deferred and current income taxes attributed to these items are also adjusted for considering their individual impact to the overall tax expense, deductibility and jurisdictional tax rates. Certain other significant tax items are also excluded such as the impact of the U.S. tax reform. We also provide international revenues for our priority products excluding the impact of foreign exchange. Reconciliations of these non-GAAP measures to the most comparable GAAP measures are included in Exhibit 99.2 to our Form 8-K filed on February 6, 2020 and are incorporated herein by reference.

Non-GAAP information is intended to portray the results of our baseline performance, supplement or enhance management, analysts and investors' overall understanding of our underlying financial performance and facilitate comparisons among current, past and future periods. For example, non-GAAP earnings and EPS information is an indication of our baseline performance before items that are considered by us to not be reflective of our ongoing results. In addition, this information is among the primary indicators that we use as a basis for evaluating performance, allocating resources, setting incentive compensation targets and planning and forecasting for future periods. This information is not intended to be considered in isolation or as a substitute for net earnings or diluted EPS prepared in accordance with GAAP and may not be the same as or comparable to similarly titled measures presented by other companies due to possible differences in method and in the items being adjusted. We encourage investors to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.

Amortization of acquired intangible assets were previously included in non-GAAP earnings and EPS information. These amounts have become significant to the financial results subsequent to the Celgene acquisition and as a result, have been excluded in the non-GAAP results to better reflect our core operating performance. Comparable prior period non-GAAP results have not been revised to include this adjustment as the related amounts were insignificant ($97 million in 2018).

Specified items were as follows:

Year Ended December 31,
Dollars in Millions20192018
Inventory purchase price accounting adjustments$660$—
Employee compensation charges1—
Site exit and other costs19758
Cost of products sold85858
Employee compensation charges27—
Site exit and other costs92
Marketing, selling and administrative362
License and asset acquisition charges251,135
IPRD impairments32—
Employee compensation charges33—
Site exit and other costs16779
Research and development2571,214
Amortization of acquired intangible assets1,062—
Interest expense322—
Pension and postretirement1,635121
Royalties and licensing income(24)(75)
Divestiture gains(1,168)(177)
Acquisition expenses657—
Contingent value rights523—
Investment income(197)—
Integration expenses415—
Provision for restructuring301131
Equity investment (gains)/losses(279)512
Litigation and other settlements7570
Intangible asset impairment—64
Other2—
Other (income)/expense, net2,262646
Increase to pretax income4,4751,920
Income taxes on items above(687)(268)
Income taxes attributed to Otezla* divestiture808—
Income taxes attributed to U.S. tax reform—(56)
Income taxes121(324)
Increase to net earnings$4,596$1,596

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

Year Ended December 31,
Dollars in Millions, except per share data20192018
Net Earnings Attributable to BMS used for Diluted EPS Calculation — GAAP$3,439$4,920
Specified Items4,5961,596
Net Earnings Attributable to BMS used for Diluted EPS Calculation — Non-GAAP$8,035$6,516
Weighted Average Common Shares Outstanding — Diluted1,7121,637
Diluted EPS Attributable to BMS — GAAP$2.01$3.01
Diluted EPS Attributable to Specified Items2.680.97
Diluted EPS Attributable to BMS — Non-GAAP$4.69$3.98

Financial Position, Liquidity and Capital Resources

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

December 31,
Dollars in Millions20192018
Cash and cash equivalents$12,346$6,911
Marketable debt securities — current3,0471,848
Marketable debt securities — non-current7671,775
Total cash, cash equivalents and marketable debt securities16,16010,534
Short-term debt obligations(3,346)(1,703)
Long-term debt(43,387)(5,646)
Net (debt)/cash position(a)$(30,573)$3,185

(a) Prior period amounts were conformed to current period presentation.

Cash, cash equivalents and marketable securities held in the U.S. were approximately $13.6 billion at December 31, 2019. We expect flexibility in accessing cash and future cash that may be generated in foreign subsidiaries. We believe that our existing cash, cash equivalents and marketable securities together with cash generated from operations and if required, the issuance of commercial paper supported by our credit facilities will be sufficient to satisfy our anticipated cash needs for at least the next few years, including dividends, capital expenditures, milestone payments, contingent value rights, working capital, restructuring initiations, business development, deemed repatriation transition tax and $2.8 billion of debt maturing in 2020.

Management continuously evaluates the capital structure to ensure the Company is financed efficiently, which may result in the repurchase of common stock and debt securities, termination of interest rate swap contracts prior to maturity and issuance of debt securities. We may purchase CVRs issued in connection with the Celgene transaction. We repurchased 105 million shares of our common stock for $5.9 billion in 2019, including 99 million shares for $5.6 billion under our accelerated share repurchase program announced on November 20, 2019. Our Board of Directors approved an increase of $5 billion to the share repurchase authorization for the Company's common stock in February 2020, increasing the total outstanding share repurchase authorization, after giving effect to the $5.9 billion share repurchase in 2019, to approximately $6.0 billion.

Dividend payments were $2.7 billion in 2019 and $2.6 billion in both 2018 and 2017. Dividend decisions are made on a quarterly basis by our Board of Directors. Annual capital expenditures were approximately $800 million in 2019, $1.0 billion in 2018 and $1.1 billion in 2017 and are expected to be approximately $900 million in 2020 and $1.3 billion in 2021. We continue to expand our biologics manufacturing capabilities and other facility-related activities. For example, we constructed a new large-scale biologics manufacturing facility in Ireland that was approved by the FDA in December 2019 and by the EU in January 2020. The facility is expected to produce multiple therapies for our growing biologics portfolio.

Our investment portfolio includes non-current marketable securities, which are subject to changes in fair value as a result of interest rate fluctuations and other market factors. Our investment policy establishes limits on the amount and time to maturity of investments with any institution. The policy also requires that investments are only entered into with corporate and financial institutions that meet high credit quality standards. Refer to “Item 8. Financial Statements and Supplementary Data—Note 9. Financial Instruments and Fair Value Measurements” for further information.

Under our commercial paper program, we may issue a maximum of $5 billion unsecured notes that have maturities of not more than 366 days from the date of issuance. There were no commercial paper borrowings outstanding as of December 31, 2019.

As of December 31, 2019, we had four revolving credit facilities totaling $6.0 billion, which consisted of a 364-day $2.0 billion facility expiring in January 2021, a $1.0 billion facility expiring in January 2022 and two five-year $1.5 billion facilities that were extended to September 2023 and July 2024, respectively. The facilities provide for customary terms and conditions with no financial covenants and may be used to provide backup liquidity for our commercial paper borrowings. Our $1.0 billion facility and our two $1.5 billion revolving facilities are extendable annually by one year on the anniversary date with the consent of the lenders. Our 364-day $2.0 billion facility can be renewed for one year on each anniversary date, subject to certain terms and conditions. No borrowings were outstanding under any revolving credit facility at December 31, 2019 and 2018.

In May 2019, we issued an aggregate principal amount of approximately $19.0 billion of floating rate and fixed rate unsecured senior notes at maturities ranging from 18 months to 30 years. In connection with the Celgene transaction, we also acquired approximately $19.9 billion of Celgene debt in our 2019 exchange offer.

Economic and Market Factors

Additional regulations in the U.S. could be passed in the future including additional healthcare reform initiatives, further changes to tax laws, additional pricing laws and potential importation restrictions which may reduce our results of operations, operating cash flow, liquidity and financial flexibility. We continue to monitor the potential impact of the economic conditions in certain European and other countries and the related impact on prescription trends, pricing discounts and creditworthiness of our customers. We believe these economic conditions will not have a material impact on our liquidity, cash flow or financial flexibility.

The UK departed from the EU on January 31, 2020. The departure began a transition period that is set to end on December 31, 2020, during which the UK and the EU will negotiate their future relationship. Similar to other companies in our industry, certain regulatory, trade, labor and other aspects of our business will likely be affected during the transition period and over time. However, we currently do not believe that these matters and other related financial effects will have a material impact on our consolidated results of operations, financial position or liquidity. Our sales in the UK represent less than 3% of our total revenues.

The global health emergency concerning the spread of the 2019 Novel Coronavirus is currently unknown. Although we are not aware of any material impact on our operations, we continue to monitor the situation very closely including the supply of our commercial and clinical medicines in the region.

Credit Ratings

In November 2019, Moody's and S&P completed their ratings review of our acquisition of Celgene and concluded that the Company's credit rating would remain unchanged. BMS's current long-term and short-term credit ratings assigned by Moody's Investors Service were confirmed at A2 and Prime-1, respectively, with a negative long-term credit outlook. BMS's current long-term and short-term credit ratings assigned by Standard & Poor's were confirmed at A+ and A-1+, respectively. The long-term ratings reflect the agencies' opinion that we have a low default risk but are somewhat susceptible to adverse effects of changes in circumstances and economic conditions. The short-term ratings reflect the agencies' opinion that we have good to extremely strong capacity for timely repayment. Any credit rating downgrade may affect the interest rate of any debt we may incur, the fair market value of existing debt and our ability to access the capital markets generally.

Cash Flows

The following is a discussion of cash flow activities:

Year Ended December 31,
Dollars in Millions20192018
Cash flow provided by/(used in):
Operating activities$8,067$5,940
Investing activities(9,770)(874)
Financing activities7,621(3,535)

Operating Activities

Cash flow from operating activities represents the cash receipts and disbursements from all of our activities other than investing and financing activities. Operating cash flow is derived by adjusting net earnings for noncontrolling interest, non-cash operating items, gains and losses attributed to investing and financing activities and changes in operating assets and liabilities resulting from timing differences between the receipts and payments of cash and when the transactions are recognized in our results of operations. As a result, changes in cash from operating activities reflect the timing of cash collections from customers and alliance partners; payments to suppliers, alliance partners and employees; customer discounts and rebates; and tax payments in the ordinary course of business. For example, annual employee bonuses are typically paid in the first quarter of the subsequent year. In addition, cash collections continue to be impacted by longer payment terms for certain biologic products in the U.S., primarily our newer oncology products including Opdivo, Yervoy and Empliciti (90 days in 2019 and 90 to 120 days in 2018). The longer payment terms are used to more closely align with the insurance reimbursement timing for physicians and cancer centers following administration to the patients.

The $2.1 billion change in cash flow from operating activities compared to 2018 was primarily attributable to:

•Higher cash collections and timing of payments in the ordinary course of business of approximately $3.0 billion, including approximately $1.0 billion relating to Celgene; and
•Lower R&D licensing and collaboration payments of approximately $1.0 billion primarily due to the Nektar transaction in 2018.

Partially offset by:

•Higher income tax payments of approximately $750 million; and
•Celgene acquisition and integration related payments of approximately $1.1 billion.

Investing Activities

Cash requirements from investing activities include cash used for acquisitions, manufacturing and facility-related capital expenditures and purchases of marketable securities with original maturities greater than 90 days at the time of purchase reduced by proceeds from business divestitures (including royalties) and the sale and maturity of marketable securities.

The $8.9 billion change in cash flow from investing activities compared to 2018 was primarily attributable to higher net acquisition and other payments of approximately $23.4 billion primarily due to the acquisition of Celgene, partially offset by higher business divestiture proceeds of approximately $14.6 billion primarily due to the divestitures of Otezla* and UPSA consumer health business.

Financing Activities

Cash requirements from financing activities include cash used to pay dividends, repurchase common stock and repay long-term debt and other borrowings reduced by proceeds from the exercise of stock options and issuance of long-term debt and other borrowings.

The $11.2 billion change in cash flow from financing activities compared to 2018 was primarily attributable to higher net borrowing activity of approximately $18.2 billion primarily resulting from the issuance of new notes in connection with the acquisition of Celgene, partially offset by accelerated stock repurchase cash payment of $7.0 billion.

Contractual Obligations and Off-Balance Sheet Arrangements

Payments due by period for our contractual obligations at December 31, 2019 were as follows:

Obligations Expiring by Period
Dollars in MillionsTotal20202021202220232024Later Years
Short-term borrowings$583$583$—$—$—$—$—
Long-term debt44,3352,7502,0004,7503,2674,28627,282
Interest on long-term debt(a)21,6591,6271,4831,4281,2921,19114,638
Operating leases96616514513010468354
Purchase obligations3,3531,143717526384262321
Uncertain tax positions(b)8585—————
Deemed repatriation transition tax3,4161193393395677981,254
Total(c)$74,397$6,472$4,684$7,173$5,614$6,605$43,849
(a)Includes estimated future interest payments and periodic cash settlements of derivatives.
(b)Includes only short-term uncertain tax benefits because of uncertainties regarding the timing of resolution.
(c)Excludes other non-current liabilities because of uncertainties regarding the timing of resolution.

We are committed to an aggregate $20.7 billion of potential future research and development milestone payments to third parties for in-licensing, asset acquisitions and development programs including early-stage milestones of $6.9 billion (milestones achieved through Phase III clinical studies) and late-stage milestones of $13.8 billion (milestones achieved post Phase III clinical studies). Payments generally are due and payable only upon achievement of certain developmental and regulatory milestones for which the specific timing cannot be predicted. Certain agreements also provide for sales-based milestones aggregating to $14.7 billion that we would be obligated to pay to alliance partners upon achievement of certain sales levels in addition to royalties. We also have certain manufacturing, development and commercialization obligations in connection with alliance arrangements. It is not practicable to estimate the amount of these obligations. Refer to “Item 8. Financial Statements and Supplementary Data—Note 3. Alliances” for further information regarding our alliances.

Contingent value rights were issued in connection with the Celgene acquisition. These rights are measured at fair value and payments are contingent upon the achievement of future regulatory milestones. Each CVR right will entitle the shareholder to receive a one-time potential payment of $9.00 in cash only upon FDA approval of all three of the following milestones: (1) ozanimod by December 31, 2020, (2) liso-cel (JCAR017) by December 31, 2020, and (3) ide-cel (bb2121) by March 31, 2021. No payment will be made if any of the milestones are not achieved and the CVRs will expire. The maximum potential payment under the CVRs is approximately $6.8 billion, payable no later than 20 business days after the date on which the last milestone is achieved.

We do not have any off-balance sheet arrangements that are material or reasonably likely to become material to our financial condition or results of operations.

SEC Consent Order / FCPA Settlement

As previously disclosed, on August 4, 2004, we entered into a final settlement with the SEC, concluding an investigation concerning certain wholesaler inventory and accounting matters. The settlement was reached through a Consent, a copy of which was attached as Exhibit 10 to our quarterly report on Form 10-Q for the period ended September 30, 2004.

Under the terms of the Consent, we agreed, subject to certain defined exceptions, to limit sales of all products sold to our direct customers (including wholesalers, distributors, hospitals, retail outlets, pharmacies and government purchasers) based on expected demand or on amounts that do not exceed approximately one month of inventory on hand, without making a timely public disclosure of any change in practice. We also agreed in the Consent to certain measures that we have implemented including: (a) establishing a formal review and certification process of our annual and quarterly reports filed with the SEC; (b) establishing a business risk and disclosure group; (c) retaining an outside consultant to comprehensively study and help re-engineer our accounting and financial reporting processes; (d) publicly disclosing any sales incentives offered to direct customers for the purpose of inducing them to purchase products in excess of expected demand; and (e) ensuring that our budget process gives appropriate weight to inputs that come from the bottom to the top, and not just from the top to the bottom, and adequately documenting that process.

We have established a company-wide policy concerning our sales to direct customers for the purpose of complying with the Consent, which includes the adoption of various procedures to monitor and limit sales to direct customers in accordance with the terms of the Consent. These procedures include a governance process to escalate to appropriate management levels potential questions or concerns regarding compliance with the policy and timely resolution of such questions or concerns. In addition, compliance with the policy is monitored on a regular basis.

We maintain DSAs with our U.S. pharmaceutical wholesalers, which account for nearly 100% of our gross U.S. revenues. Under the current terms of the DSAs, our wholesaler customers provide us with weekly information with respect to months on hand product-level inventories and the amount of out-movement of products. The three largest wholesalers currently account for approximately 93% of our gross U.S. revenues. The inventory information received from our wholesalers, together with our internal information, is used to estimate months on hand product level inventories at these wholesalers. We estimate months on hand product inventory levels for our U.S. business’s wholesaler customers other than the three largest wholesalers by extrapolating from the months on hand calculated for the three largest wholesalers. In contrast, our non-U.S. business has significantly more direct customers, limited information on direct customer product level inventory and corresponding out-movement information and the reliability of third-party demand information, where available, varies widely. Accordingly, we rely on a variety of methods to estimate months on hand product level inventories for these business units.

We believe the above-described procedures provide a reasonable basis to ensure compliance with the Consent.

Recently Issued Accounting Standards

For recently issued accounting standards, refer to “Item 8. Financial Statements and Supplementary Data—Note 1. Accounting Policies and Recently Issued Accounting Standards.”

Critical Accounting Policies

The preparation of financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenue and expenses. Our critical accounting policies are those that significantly affect our financial condition and results of operations and require the most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain. Because of this uncertainty, actual results may vary from these estimates.

Revenue Recognition

Our accounting policy for revenue recognition has a substantial impact on reported results and relies on certain estimates. Revenue is recognized following a five-step model: (1) identify the customer contract; (2) identify the contract's performance obligation; (3) determine the transaction price; (4) allocate the transaction price to the performance obligation; and (5) recognize revenue when or as a performance obligation is satisfied. Revenue is also reduced for GTN sales adjustments discussed below, all of which involve significant estimates and judgment after considering legal interpretations of applicable laws and regulations, historical experience, payer channel mix (e.g. Medicare or Medicaid), current contract prices under applicable programs, unbilled claims and processing time lags and inventory levels in the distribution channel. Estimates are assessed each period and adjusted as required to revise information or actual experience.

The following categories of GTN adjustments involve significant estimates, judgments and information obtained from external sources. Refer to “Item 8. Financial Statements and Supplementary Data—Note 2. Revenue.” for further discussion and analysis of each significant category of GTN sales adjustments.

Charge-backs and cash discounts

Our U.S. business participates in programs with government entities, the most significant of which are the U.S. Department of Defense and the U.S. Department of Veterans Affairs, and other parties, including covered entities under the 340B Drug Pricing Program, whereby pricing on products is extended below wholesaler list price to participating entities. These entities purchase products through wholesalers at the lower program price and the wholesalers then charge us the difference between their acquisition cost and the lower program price. Accounts receivable is reduced for the estimated amount of unprocessed charge-back claims attributable to a sale (typically within a two to four week time lag).

In the U.S. and certain other countries, cash discounts are offered as an incentive for prompt payment, generally approximating 2% of the sales price. Accounts receivable is reduced for the estimated amount of unprocessed cash discounts (typically within a one month time lag).

Medicaid and Medicare rebates

Our U.S. business participates in state government Medicaid programs and other qualifying Federal and state government programs requiring discounts and rebates to participating state and local government entities. All discounts and rebates provided through these programs are included in our Medicaid rebate accrual. Medicaid rebates have also been extended to drugs used in managed Medicaid plans. The estimated amount of unpaid or unbilled rebates is presented as a liability.

Rebates and discounts are offered to managed healthcare organizations in the U.S. managing prescription drug programs and Medicare Advantage prescription drug plans covering the Medicare Part D drug benefit. We also pay a 70% point of service discount to the CMS when the Medicare Part D beneficiaries are in the coverage gap (“donut hole”). The estimated amount of unpaid or unbilled rebates and discounts is presented as a liability.

Other rebates, returns, discounts and adjustments

Other GTN sales adjustments include sales returns and all other programs based on applicable laws and regulations for individual non-U.S. countries as well as rebates offered to managed healthcare organizations in the U.S. to a lesser extent. The non-U.S. programs include several different pricing schemes such as cost caps, volume discounts, outcome-based pricing schemes and pricing claw-backs that are based on sales of individual companies or an aggregation of all companies participating in a specific market. The estimated amount of unpaid or unbilled rebates and discounts is presented as a liability.

Estimated returns for established products are determined after considering historical experience and other factors including levels of inventory in the distribution channel, estimated shelf life, product recalls, product discontinuances, price changes of competitive products, introductions of generic products, introductions of competitive new products and lower demand following the LOE. Estimated returns for new products are determined after considering historical sales return experience of similar products, such as those within the same product line, similar therapeutic area and/or similar distribution model and estimated levels of inventory in the distribution channel and projected demand. The estimated amount for product returns is presented as a liability.

Use of information from external sources

Information from external sources is used to estimate GTN adjustments. Our estimate of inventory at the wholesalers is based on the projected prescription demand-based sales for our products and historical inventory experience, as well as our analysis of third-party information, including written and oral information obtained from certain wholesalers with respect to their inventory levels and sell-through to customers and third-party market research data, and our internal information. The inventory information received from wholesalers is a product of their recordkeeping process and excludes inventory held by intermediaries to whom they sell, such as retailers and hospitals.

We have also continued the practice of combining retail and mail prescription volume on a retail-equivalent basis. We use this methodology for internal demand forecasts. We also use information from external sources to identify prescription trends, patient demand and average selling prices. Our estimates are subject to inherent limitations of estimates that rely on third-party information, as certain third-party information was itself in the form of estimates, and reflect other limitations including lags between the date as of which third-party information is generated and the date on which we receive third-party information.

Long-lived Assets

Intangible Assets Valuations

A significant amount of the purchase price for the Celgene acquisition was allocated to intangible assets, including commercially marketed products and IPRD assets. Our intangible assets were $64.0 billion as of December 31, 2019 and $1.1 billion as of December 31, 2018.

Identifiable intangible assets are measured at their respective fair values as of the acquisition date. We engaged an independent third-party valuation firm to assist in determining the fair values of these assets as of the acquisition date. The fair value of these assets were estimated using discounted cash flow models. These models required the use of the following significant estimates and assumptions among others:

•Identification of product candidates with sufficient substance requiring separate recognition;
•Estimates of revenues and operating profits related to commercial products or product candidates;
•Eligible patients, pricing and market share used in estimating future revenues;
•Probability of success for unapproved product candidates and additional indications for commercial products;
•Resources required to complete the development and approval of product candidates;
•Timing of regulatory approvals and exclusivity;
•Appropriate discount rate by products;
•Market participant income tax rates; and
•Allocation of expected synergies to products.

We believe the estimated and preliminary fair value assigned to intangible assets acquired used reasonable estimates and assumptions considering the facts and circumstances as of the acquisition date.

Impairment and Amortization of Long-lived Assets, including Intangible Assets

Long-lived assets include intangible assets and property, plant and equipment and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable or at least annually for IPRD. Intangible assets are highly vulnerable to impairment charges, particularly newly acquired assets for recently launched products or IPRD. These assets are initially measured at fair value and therefore any reduction in expectations used in the valuations could potentially lead to impairment. Some of the more common potential risks leading to impairment include competition, earlier than expected LOE, pricing reductions, adverse regulatory changes or clinical study results, delay or failure to obtain regulatory approval for initial or follow on indications and unanticipated development costs, inability to achieve expected synergies resulting from cost savings and avoidance, higher operating costs, changes in tax laws and other macro-economic changes. The complexity in estimating the fair value of intangible assets in connection with an impairment test is similar to the initial valuation. If the carrying value of long-lived assets exceeds its fair value, then the asset is written-down to its fair value. Expectations of future cash flows are subject to change based upon the near and long-term production volumes and margins generated by the asset as well as any potential alternative future use. The estimated useful lives of long-lived assets is subjective and requires significant judgment regarding patent lives, future plans and external market factors. Long-lived assets are also periodically reviewed for changes in facts or circumstances resulting in a reduction to the estimated useful life of the asset, requiring the acceleration of depreciation.

Goodwill

Goodwill represents the excess of the consideration transferred over the estimated fair values of net assets acquired in a business combination. Goodwill was $22.5 billion and $6.5 billion as of December 31, 2019 and 2018, respectively.

We assess the goodwill balance within our single reporting unit annually and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable to determine whether any impairment in this asset may exist and, if so, the extent of such impairment. Goodwill is reviewed for impairment by assessing qualitative factors, including comparing our market capitalization to the carrying value of our assets. Events or circumstances that might require an interim evaluation include unexpected adverse business conditions, economic factors, unanticipated technological changes or competitive activities and acts by governments and courts.

Assets Held-for-Sale

The following criteria is considered before concluding assets are classified as held-for-sale: (1) management’s commitment to a plan to sell, (2) availability for immediate sale in its present condition, (3) initiation of an active program to identify a buyer, (4) probability of a completed sale within one year, (5) actively marketed for sale at a reasonable price in relation to its current fair value, and (6) likelihood of significant changes to the plan will be made or that the plan will be withdrawn. If all of the criteria are met as of the balance sheet date, the assets and liabilities are presented separately in the balance sheet as held-for-sale at the lower of their carrying amount or fair value less costs to sell and are no longer depreciated or amortized while classified as held-for-sale.

Income Taxes

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 long-range forecasts of future taxable income and evaluation of tax planning initiatives. Adjustments to the deferred tax valuation allowances are made to earnings in the period when such assessments are made. Our deferred tax assets were $2.1 billion at December 31, 2019 (net of valuation allowances of $2.8 billion) and $1.6 billion at December 31, 2018 (net of valuation allowances of $3.2 billion).

The U.S. federal net operating loss carryforwards were $216 million at December 31, 2019. 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 2022. The foreign and state net operating loss carryforwards expire in varying amounts beginning in 2019 (certain amounts have unlimited lives).

As discussed more fully in “Item 8. Financial Statements and Supplementary Data—Note 7. Income Taxes”, a provisional tax charge of $2.6 billion attributable to the one-time deemed repatriation transition tax on certain foreign earnings was recognized in the fourth quarter of 2017. The accounting for the reduction of deferred tax assets to the 21% tax rate was complete as of December 31, 2017, and the tax charge for the deemed repatriation transition tax was completed as of December 31, 2018. The provisional tax charge for the deemed repatriation transition tax was reduced by $56 million in 2018.

Prior to the Mead Johnson split-off in 2009, the following transactions occurred: (i) an internal spin-off of Mead Johnson shares while still owned by us; (ii) conversion of Mead Johnson Class B shares to Class A shares; and (iii) conversion of Mead Johnson & Company to a limited liability company. These transactions as well as the split-off of Mead Johnson through the exchange offer should qualify as tax-exempt transactions under the Internal Revenue Code based upon a private letter ruling received from the Internal Revenue Service related to the conversion of Mead Johnson Class B shares to Class A shares, and outside legal opinions.

Certain assumptions, representations and covenants by Mead Johnson were relied upon regarding the future conduct of its business and other matters which could affect the tax treatment of the exchange. For example, the current tax law generally creates a presumption that the exchange would be taxable to us, if Mead Johnson or its shareholders were to engage in transactions that result in a 50% or greater change in its stock ownership during a four year period beginning two years before the exchange offer, unless it is established that the exchange offer were not part of a plan or series of related transactions to effect such a change in ownership. If the internal spin-off or exchange offer were determined not to qualify as a tax exempt transaction, the transaction could be subject to tax as if the exchange was a taxable sale by us at market value.

In addition, a negative basis or excess loss account (“ELA”) existed in our investment in stock of Mead Johnson prior to these transactions. We received an opinion from outside legal counsel to the effect that it is more likely than not that we eliminated the ELA as part of these transactions and do not have taxable income with respect to the ELA. The tax law in this area is complex and it is possible that even if the internal spin-off and the exchange offer is tax exempt under the Internal Revenue Code, the Internal Revenue Service could assert that we have additional taxable income for the period with respect to the ELA. We could be exposed to additional taxes if this were to occur. Based upon our understanding of the Internal Revenue Code and opinion from outside legal counsel, a tax reserve of $244 million was established reducing the gain on disposal of Mead Johnson included in discontinued operations in 2009.

We agreed to certain tax related indemnities with Mead Johnson as set forth in the tax sharing agreement, including certain taxes related to its business prior to the completion of the initial public offering and created as part of the restructuring to facilitate the IPO. Mead Johnson has also agreed to indemnify us for potential tax effects resulting from the breach of certain representations discussed above as well as certain transactions related to the acquisition of Mead Johnson’s stock or assets.

Liabilities are established for possible assessments by tax authorities resulting from known tax exposures including, but not limited to, transfer pricing matters, tax credits and deductibility of certain expenses. 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.

For discussions on income taxes, refer to “Item 8. Financial Statements and Supplementary Data—Note 1. Accounting Policies and Recently Issued Accounting Standards—Income Taxes” and “—Note 7. Income Taxes.”

Contingencies

In the normal course of business, we are subject to contingencies, such as legal proceedings and claims arising out of our business, that cover a wide range of matters, including, among others, government investigations, shareholder lawsuits, product and environmental liability, contractual claims and tax matters. We recognize accruals for such contingencies when it is probable that a liability will be incurred and the amount of the loss can be reasonably estimated. These estimates are subject to uncertainties that are difficult to predict and, as such, actual results could vary from these estimates.

For discussions on contingencies, refer to “Item 8. Financial Statements and Supplementary Data—Note 1. Accounting Policies and Recently Issued Accounting Standards—Contingencies,” “—Note 7. Income Taxes” and “—Note 19. Legal Proceedings and Contingencies.”

Product and Pipeline Developments

Our R&D programs are managed on a portfolio basis from early discovery through late-stage development and include a balance of early-stage and late-stage programs to support future growth. Our late stage R&D programs in Phase III development include both investigational compounds for initial indications and additional indications or formulations for marketed products. Spending on these programs represent approximately 40-50% of our annual R&D expenses in the last three years. Opdivo was the only investigational compound or marketed product that represented greater than 10% of our R&D expenses in the last three years. Our late-stage development programs could potentially have an impact on our revenue and earnings within the next few years if regulatory approvals are obtained and products are successfully commercialized. The following are the developments in our marketed products and our late-stage pipeline:

ProductIndicationDateDevelopments
RevlimidFLDecember 2019Announced the EC approval of a new indication for Revlimid, in combination with rituximab (anti-CD20 antibody), for the treatment of adult patients with previously treated FL (Grade 1-3a). This combination of Revlimid and rituximab (R2) is the first chemotherapy-free combination regimen approved for the patients with FL by the EC.
EliquisNVAF/ACSSeptember 2019Announced findings from NAXOS (EvaluatioN of ApiXaban in strOke and Systemic embolism prevention in patients with nonvalvular atrial fibrillation in the real-life setting in France), the largest real-world data analysis on OAC effectiveness and safety in Europe among patients with NVAF. In this analysis, Eliquis use was associated with a lower rate of major bleeding compared to a vitamin K antagonist, rivaroxaban and dabigatran. These data were featured as a late-breaking oral presentation at the European Society of Cardiology Congress 2019 in Paris, France.
March 2019Announced results from the Phase IV AUGUSTUS trial evaluating Eliquis versus vitamin K antagonists (“VKAs”) in patients with NVAF and ACS and/or undergoing PCI. Results show that in patients receiving a P2Y12 inhibitor with or without aspirin (antiplatelet therapies), the proportion of patients with major or clinically relevant non-major bleeding at six months was significantly lower for those treated with Eliquis compared to those treated with a VKA.
VTEDecember 2019Announced results from retrospective real-world data analyses reporting outcomes on the safety and effectiveness of Eliquis compared to low molecular weight heparin (“LMWH”) or warfarin for the treatment of VTE in patients with active cancer. The real-world data analyses were highlighted during oral presentations at the American Society of Hematology Annual Meeting in Orlando, Florida. Results from the primary analysis showed that Eliquis use was associated with lower rates of major bleeding, clinically-relevant non-major (“CRNM”) bleeding and recurrent VTE compared to LMWH. Eliquis was also associated with a lower rate of recurrent VTE and similar rates of major bleeding and CRNM bleeding compared to warfarin. Outcomes were defined based on diagnosis codes and setting of care.
Atrial FibrillationNovember 2019The BMS-Pfizer alliance announced the initiation of a new randomized controlled study, GUARD-AF, to determine if earlier detection of atrial fibrillation through screening in previously undiagnosed men and women at least 70 years of age in the U.S. ultimately impacts the rate of stroke, compared to usual standard medical care. This study will also assess potential bleeding leading to hospitalization, and therefore provide an evaluation of net clinical benefit or harm.
ProductIndicationDateDevelopments
OpdivoCRCMarch 2019Ono, our alliance partner for Opdivo in Japan, announced the submission of a supplemental application of Opdivo in Japan for additional indication of MSI-H unresectable advanced or recurrent CRC that has progressed following chemotherapy for a partial change in the approved items of the manufacturing and marketing approval. This is mainly based on the result from Phase II CheckMate-142 study evaluating Opdivo in patients with MSI-H or dMMR recurrent or metastatic CRC that has progressed on or after, or been intolerant of, at least one previous line of treatment with chemotherapy including fluoropyrimidine anticancer drugs.
ESCCSeptember 2019Announced results from the Phase III ATTRACTION-3 trial evaluating Opdivo versus chemotherapy for the treatment of patients with unresectable advanced or recurrent ESCC refractory or intolerant to combination therapy with fluoropyrimidine and platinum-based drugs. For the primary endpoint of overall survival, Opdivo demonstrated a statistically significant improvement over chemotherapy, with a 23% reduction in risk of death and a 2.5-month improvement in median overall survival compared to patients treated with chemotherapy. The safety profile for Opdivo in this trial was consistent with previously reported studies in ESCC and other solid tumors.
May 2019Ono, our alliance partner for Opdivo in Japan, announced the submission of a supplemental application of Opdivo for indication of unresectable advanced or recurrent esophageal cancer in Japan for a partial change in approved items of manufacturing and marketing approval.
GBMSeptember 2019Announced Phase III CheckMate-548 trial evaluating the addition of Opdivo to the current standard of care (temozolomide and radiation therapy) versus the standard of care alone did not meet one of its primary endpoints, progression-free survival, in patients with newly diagnosed GBM that is MGMT-methylated. The data monitoring committee recommended that the trial continue as planned to allow the other primary endpoint, overall survival, to mature. The Company remains blinded to all study data.
May 2019Announced Phase III CheckMate-498 trial evaluating Opdivo plus radiation versus temozolomide plus radiation in patients with newly diagnosed MGMT-unmethylated GBM did not meet its primary endpoint of overall survival at final analysis.
HCCJune 2019Announced topline results from CheckMate-459, a randomized Phase III study evaluating Opdivo versus sorafenib as a first-line treatment in patients with unresectable HCC. The trial did not achieve statistical significance for its primary endpoint of overall survival per the pre-specified analysis.
MelanomaOctober 2019Announced the EC approval of Opdivo flat dosing schedule of 240 mg infused over 30 minutes every two weeks or 480 mg infused over 60 minutes every four weeks for the adjuvant treatment of adult patients with melanoma with involvement of lymph nodes or metastatic disease who have undergone complete resection.
September 2019Announced results of a three-year analysis of efficacy data from the Phase III CheckMate-238 study evaluating adjuvant use of Opdivo 3 mg/kg versus Yervoy 10 mg/kg in patients with Stage III or Stage IV melanoma who were at high risk of recurrence following complete surgical resection. At three years of follow-up, Opdivo continues to demonstrate superior recurrence-free survival compared to Yervoy, the active control, with recurrence-free survival rates of 58% and 45%, respectively.
August 2019Announced, with our alliance partner Nektar, that the FDA has granted Breakthrough Therapy Designation for investigational agent bempegaldesleukin (NKTR-214) in combination with Opdivo for the treatment of patients with previously untreated unresectable or metastatic melanoma. The Breakthrough Therapy Designation is based on clinical data which were recently reported in the 2019 American Society of Clinical Oncology Annual Meeting from the cohort of patients with metastatic melanoma that were treated with the doublet therapy in the ongoing PIVOT-02 Phase I/II clinical study.
NSCLCSeptember 2019Announced long-term pooled efficacy and safety results from the Phase III CheckMate-017 and CheckMate-057 studies in patients with previously treated advanced NSCLC. At five years, patients treated with Opdivo continued to experience long-term overall survival (“OS”) benefit versus docetaxel. OS rate at five years were 13.4% for Opdivo and 2.6% for docetaxel. The OS benefit for Opdivo-treated patients was observed across all subgroups.
April 2019Announced results from pooled analyses of survival data from four studies (CheckMate-017, -057, -063 and -003) in patients with previously-treated advanced NSCLC who were treated with Opdivo. In the pooled analysis of the four studies, 14% of all Opdivo-treated patients were alive at four years. Notably, in patients with PD-L1 greater than or equal to 1% and less than 1%, four-year overall survival rate were 19% and 11%, respectively.
SCCHNSeptember 2019Received approval in China for Opdivo, as a monotherapy in treatment of patients with SCCHN with disease progression on or after platinum-based therapy, and whose tumors have PD-L1 positive expression (defined as ≥1% of tumor cells expressing PD-L1)
January 2019Acceptance in China of sBLA filing for patients who had previously been treated for metastatic or recurrent SCCHN.
ProductIndicationDateDevelopments
Opdivo+YervoyHCCNovember 2019Announced that the FDA accepted our sBLA and granted Breakthrough Therapy Designation for Opdivo in combination with Yervoy for the treatment of patients with advanced HCC previously treated with sorafenib. The FDA granted the application Priority Review with a PDUFA goal date of March 10, 2020.
June 2019Announced first results from Opdivo+Yervoy cohort of the Phase I/II CheckMate-040 study, evaluating the IO combination in patients with advanced HCC previously treated with sorafenib. With a minimum follow-up of 28 months, the blinded independent central review objective response rate was 31% per Response Evaluation Criteria in Solid Tumors version 1.1. At the time of data cutoff the median duration of response was 17.5 months.
mCRPCFebruary 2019Announced results from an interim analysis of the Phase II CheckMate-650 trial evaluating Opdivo+Yervoy in patients with mCRPC showed that among 32 asymptomatic or minimally symptomatic patients whose disease had progressed after second-generation hormone therapy and who had not received chemotherapy (cohort 1), with a median follow-up of 11.9 months, the objective response rate was 25%. Additionally, among 30 patients whose disease progressed after taxane-based chemotherapy (cohort 2), with a median follow-up of 13.5 months, the objective response rate was 10%.
MelanomaNovember 2019Announced results for one of the co-primary endpoints from CheckMate-915, a randomized Phase III study evaluating Opdivo+Yervoy versus Opdivo alone for the adjuvant treatment of patients who have had a complete surgical removal of stage IIIb/c/d or stage IV (no evidence of disease) melanoma. A statistically significant benefit was not reached for the co-primary endpoint of recurrence-free survival (“RFS”) in patients whose tumors expressed PD-L1 <1%. The Data Monitoring Committee recommended that the study continue unchanged. The study remains double-blinded and will continue to assess the other co-primary endpoint of RFS in the all-comer (intent-to-treat) population.
September 2019Announced five-year results from the Phase III CheckMate-067 clinical trial, which continues to demonstrate improved overall survival with the first-line combination of Opdivo+Yervoy, versus Yervoy alone, in patients with advanced metastatic melanoma. With a minimum follow-up of 60 months (five years), five-year overall survival rates were 52% for the Opdivo+Yervoy combination, 44% for Opdivo alone, and 26% for Yervoy alone.
June 2019Announced five-year analysis of the Phase I CA209-004 study, the longest follow-up for the Opdivo+Yervoy combination in patients with previously treated or untreated advanced melanoma to date. The analysis showed that with a median follow-up of 43.1 months (range: 0.9-76.7) in all patients, at four years or longer, overall survival rates were stable at 57%.
June 2019Announced that an analysis exploring long-term quality of life (“QoL”) and symptom burden in the Phase III CheckMate-067 study found that QoL was maintained during the treatment-free interval, the period where a patient is off study treatment and free of subsequent therapy, in patients with previously untreated unresectable or metastatic melanoma following discontinuation of therapy with Opdivo or Opdivo+Yervoy.
March 2019Received FDA full approval for Opdivo in combination with Yervoy for the treatment of patients with unresectable or metastatic melanoma based on additional longer term efficacy data from CheckMate-067 (4-year overall survival) without restrictions in patient population. This approval fulfills two Post Marketing Requirements to verify and describe clinical benefit, thereby converting prior accelerated approval to full approval for nivolumab in combination with ipilimumab for patients with unresectable or metastatic melanoma and nivolumab monotherapy for BRAF Mutant subjects with unresectable or metastatic melanoma. Importantly, based on FDA review of the CheckMate-067 4-year overall survival data, the results of exploratory analyses by PD-L1 tumor expression have been removed entirely from the label.
NSCLCJanuary 2020Announced voluntary withdrawal of the Company's application in the EU for the combination of Opdivo and Yervoy for the treatment of advanced NSCLC based on data from CheckMate-227. The application was originally filed in 2018 for patients with first-line NSCLC who have tumor mutational burden ≥10 mutations/megabase, based on the final analysis of progression-free survival, a co-primary endpoint in the trial. The application was subsequently amended to include the statistically significant result of overall survival, a co-primary endpoint, from CheckMate-227 Part 1a evaluating Opdivo+Yervoy versus chemotherapy in patients whose tumors expressed PD-L1 ≥1%. Though the Committee for Medicinal Products for Human Use (“CHMP”) acknowledged the integrity of the patient level data, the CHMP determined a full assessment of the application was not possible following multiple protocol changes the company made in response to rapidly evolving science and data. The company has no plans to refile this application in the EU.
January 2020Announced that the FDA accepted our sBLA for Opdivo in combination with Yervoy for the first-line treatment of patients with metastatic or recurrent NSCLC with no EGFR or ALK genomic tumor aberrations. This application is based on data from Part 1 of the Phase 3 CheckMate -227 trial evaluating Opdivo plus Yervoy versus chemotherapy in patients with previously untreated NSCLC, in which the dual immunotherapy combination demonstrated significant improvement in overall survival versus chemotherapy alone. The FDA granted the application Priority Review with a PDUFA goal date of May 15, 2020.
ProductIndicationDateDevelopments
Opdivo+YervoyNSCLCOctober 2019Announced results from Phase III CheckMate-9LA trial evaluating Opdivo plus low-dose Yervoy given concomitantly with two cycles of chemotherapy as first-line treatment for patients with advanced NSCLC, met its primary endpoint of superior overall survival at a pre-specified interim analysis. The comparator in this study was chemotherapy alone for up to four cycles followed by optional maintenance therapy. The safety profile of Opdivo plus low-dose Yervoy and two cycles of chemotherapy in CheckMate-9LA was reflective of the known safety profiles of the immunotherapy and chemotherapy components in first-line NSCLC.
September 2019Announced results from Part 1 of the Phase III CheckMate-227 trial evaluating Opdivo plus low-dose Yervoy as first-line treatment for patients with advanced NSCLC. Opdivo plus low-dose Yervoy met the independent co-primary endpoint of overall survival, demonstrating superior benefit compared to chemotherapy in patients whose tumors expressed PD-L1 ≥1%. Additionally, in an exploratory analysis, results showed improved overall survival for patients treated with the combination of Opdivo plus low-dose Yervoy with PD-L1 <1%. The two-year survival rate for patients treated with the combination regimen was 40% for both patients whose tumors expressed PD-L1 ≥1% and patients whose tumors expressed PD-L1 <1%. In the chemotherapy control arm, two-year survival rates were 33% and 23%, respectively.
July 2019Announced Part 2 of the Phase III CheckMate-227 study evaluating Opdivo plus chemotherapy versus chemotherapy did not meet its primary endpoint of overall survival in first-line non-squamous NSCLC patients regardless of PD-L1 status.
January 2019Announced voluntary withdrawal of the Company's sBLA for the Opdivo plus low-dose Yervoy for treatment of first-line advanced NSCLC in patients with TMB greater than or equal to 10 mutations per megabase as data from CheckMate-227, Part 1a. After discussions with FDA, the Company believes further evidence on the relationship between TMB and PD-L1 is required to fully evaluate the impact of Opdivo plus Yervoy on overall survival in first-line NSCLC patients. This analysis will require availability of the final data from CheckMate-227, Part 1a, which could not be provided on time within the review cycle of the current application.
RCCFebruary 2019Announced new results from the Phase III CheckMate-214 study, showing that therapy with Opdivo plus low-dose Yervoy continued to demonstrate long-term survival benefits in patients with previously untreated advanced or metastatic RCC.
January 2019Announced the EC approval of Opdivo plus low-dose Yervoy for previously untreated patients with intermediate and poor-risk advanced RCC.
SCCHNApril 2019Announced topline results from the Phase II CheckMate-714 trial evaluating Opdivo versus Opdivo+Yervoy in patients with recurrent or metastatic SCCHN. The study did not meet its primary endpoints.
OrenciaGvHDDecember 2019Announced that the FDA has granted Breakthrough Therapy Designation for Orencia for the prevention of moderate to severe acute GvHD in hematopoietic stem cell transplants from unrelated donors. There are no approved therapies for the prevention of acute GvHD, a potentially life-threatening medical complication that can impact patients receiving such transplants for the treatment of certain genetic diseases and hematologic cancers.
JIAApril 2019Received the EC notification on the adoption of the approval on our Orencia solution for subcutaneous injection in pre-filled syringe extension application (50 mg & 87.5 mg strength) and extension of indication for the treatment of polyarticular JIA in pediatric patients two years of age and older.
RAJune 2019Announced data from a Phase IV mechanistic study exploring differences in the cellular and molecular mechanisms by which Orencia and another treatment, adalimumab, interfere with disease progression in moderate-to-severe early RA patients seropositive for certain autoantibodies. Among 80 adult patients with early moderate-to-severe RA who had never been treated with a biologic medication and tested positive for autoantibodies called anti-citrullinated protein antibody and rheumatoid factor, numerically higher efficacy responses were seen with Orencia at week 24. These results, which are from a prospective analysis of the Early AMPLE head-to-head trial, are featured in a late-breaking oral presentation at the Annual European Congress of Rheumatology.
March 2019Announced the submission of supplemental applications of “Orencia for Intravenous Infusion 250mg,” “Orencia 125mg Syringe for Subcutaneous Injection 1mL” and “Orencia 125mg Autoinjector for Subcutaneous Injection 1mL” to include the description of “inhibition of the structural damage of the joints” in the currently approved indication of RA for a partial change in approved items of the manufacturing and marketing approval in Japan.
SprycelALLFebruary 2019Announced the EC approval of Sprycel, in both tablet and powder for oral suspension formulations, in combination with chemotherapy for the treatment of pediatric patients with newly diagnosed Philadelphia chromosome-positive ALL.
ProductIndicationDateDevelopments
EmplicitiMultiple MyelomaNovember 2019Announced the sJNDA for Empliciti in combination with pomalidomide and dexamethasone (EPd) was approved by the Japan Ministry of Health, Labour and Welfare. Approval was based on a global Phase II trial (ELOQUENT-3) in EPd for the treatment of patients with MM who have received at least two prior therapies, including lenalidomide and proteasome inhibitor.
August 2019Announced that the EC has approved Empliciti plus pomalidomide and low-dose dexamethasone (EPd) for the treatment of adult patients with RRMM who have received at least two prior therapies, including lenalidomide and a proteasome inhibitor, and have demonstrated disease progression on the last therapy.
June 2019Announced updated data from ELOQUENT-3, the international randomized Phase II study evaluating Empliciti plus pomalidomide and dexamethasone (EPd) versus pomalidomide and dexamethasone (Pd) alone in patients with RRMM. In a non-prespecified analysis conducted to provide a descriptive assessment of overall survival after extended follow-up of at least 18.3 months, patients treated with EPd continued to experience sustained and clinically relevant overall survival and progression-free survival benefits compared with patients treated with Pd. These data were presented at the 24th Congress of the European Hematology Association in a poster display.
February 2019Completed filing of a supplemental Japanese New Drug Application (sJNDA) for Empliciti in combination with pomalidomide and dexamethasone for the treatment of patients with multiple myeloma who have received at least two prior therapies, including Revlimid and proteasome inhibitor. The sJNDA filing was submitted based on the results of a global phase II study. The orphan designation was already granted for the indication of RRMM at the initial JNDA. This sJNDA will also be reviewed under “priority review.”
ReblozylMDSDecember 2019Announced that following the late-cycle review meeting on December 4, 2019, BMS and Acceleron Pharma Inc. were notified by the FDA that Reblozyl will not be reviewed at the Oncology Drugs Advisory Committee (“ODAC”) meeting scheduled for December 18, 2019. The agency has informed BMS that the original Prescription Drug User Fee Act, or target action, date of April 4, 2020 for its sBLA for Reblozyl will remain, without the requirement for an ODAC review. BMS is seeking approval of Rebloyzl, an erythroid maturation agent representing a new class of therapy, for the treatment of adult patients with very low- to intermediate-risk MDS-associated anemia who have ring sideroblasts and require red blood cell transfusions.
liso-celLymphomaFebruary 2020Announced that the FDA has accepted for Priority Review its BLA for lisocabtagene maraleucel (liso-cel), the company's autologous anti-CD19 CAR T-cell immunotherapy with a defined composition of purified CD8+ and CD4+ CAR T cells for the treatment of adult patients with relapsed or refractory large B-cell lymphoma after at least two prior therapies. The FDA has set a Prescription Drug User Fee Act goal date of August 17, 2020. Liso-cel has been granted Breakthrough Therapy and Regenerative Medicine Advanced Therapy designations by the FDA for relapsed/refractory aggressive large B-cell non-Hodgkin lymphoma, including diffuse large B-cell lymphoma (“DLBCL”), not otherwise specified (de novo or transformed from indolent lymphoma), primary mediastinal B-cell lymphoma or Grade 3B follicular lymphoma and Priority Medicines scheme by the EMA for relapsed/refractory DLBC.

Special Note Regarding Forward-Looking Statements

This 2019 Form 10-K (including documents incorporated by reference) and other written and oral statements we make from time to time contain certain “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. You can identify these forward-looking statements by the fact they use words such as “should,” “could,” “expect,” “anticipate,” “estimate,” “target,” “may,” “project,” “guidance,” “intend,” “plan,” “believe,” “will” and other words and terms of similar meaning and expression in connection with any discussion of future operating or financial performance. One can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. Such forward-looking statements are based on historical performance and current expectations and projections about our future financial results, goals, plans and objectives and involve inherent risks, assumptions and uncertainties, including internal or external factors that could delay, divert or change any of them in the next several years, and could cause our future financial results, goals, plans and objectives to differ materially from those expressed in, or implied by, the statements. These statements are likely to relate to, among other things, our goals, plans and objectives regarding our financial position, results of operations, cash flows, market position, product development, product approvals, sales efforts, expenses, performance or results of current and anticipated products, our ability to realize the projected benefits of the acquisition of Celgene and to successfully integrate Celgene's operations and the outcome of contingencies such as legal proceedings and financial results. No forward-looking statement can be guaranteed. We have included important factors in the cautionary statements included in this 2019 Form 10-K, particularly under “Item 1A. Risk Factors,” that we believe could cause actual results to differ materially from any forward-looking statement.

Although we believe we have been prudent in our plans and assumptions, no assurance can be given that any goal or plan set forth in forward-looking statements can be achieved and readers are cautioned not to place undue reliance on such statements, which speak only as of the date made. Additional risks that we may currently deem immaterial or that are not presently known to us could also cause the forward-looking events discussed in this 2019 Form 10-K not to occur. Except as otherwise required by federal securities law, we undertake no obligation to release publicly any updates or revisions to any forward-looking statements as a result of new information, future events, changed circumstances or otherwise after the date of this 2019 Form 10-K.

Previous: Item 6. SELECTED FINANCIAL DATA. · Next: Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.