Note 3. ALLIANCES
BMS enters into collaboration arrangements with third parties for the development and commercialization of certain products. Although each of these arrangements is unique in nature, both parties are active participants in the operating activities of the collaboration and exposed to significant risks and rewards depending on the commercial success of the activities. BMS may either in-license intellectual property owned by the other party or out-license its intellectual property to the other party. These arrangements also typically include research, development, manufacturing, and/or commercial activities and can cover a single investigational compound or commercial product or multiple compounds and/or products in various life cycle stages. We refer to these collaborations as alliances and our partners as alliance partners.
Payments between alliance partners are accounted for and presented in the results of operations after considering the specific nature of the payment and the underlying activities to which the payments relate. Multiple alliance activities, including the transfer of rights, are only separated into individual units of accounting if they have standalone value from other activities that occur over the life of the arrangements. In these situations, the arrangement consideration is allocated to the activities or rights on a relative selling price basis. If multiple alliance activities or rights do not have standalone value, they are combined into a single unit of accounting.
The most common activities between BMS and its alliance partners are presented in results of operations as follows:
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• | When BMS is the principal in the end customer sale, 100% of third-party product sales are included in net product sales. When BMS's alliance partner is the principal in the end customer sale, BMS's contractual share of the third-party sales and/or royalty income are included in alliance and other revenue as the sale of commercial products are considered part of BMS's ongoing major or central operations. Refer to "Revenue Recognition" included in "—Note 1. Accounting Policies" for information regarding recognition criteria. |
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• | Amounts payable to BMS by alliance partners (who are the principal in the end customer sale) for supply of commercial products are included in alliance and other revenue as the sale of commercial products are considered part of BMS's ongoing major or central operations. |
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• | Amounts payable by BMS to alliance partners for profit sharing, royalties and other sales-based fees are included in cost of products sold as incurred. |
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• | Cost reimbursements between the parties are recognized as incurred and included in cost of products sold; marketing, selling and administrative expenses; advertising and product promotion expenses; or research and development expenses, based on the underlying nature of the related activities subject to reimbursement. |
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• | Upfront and contingent development and approval milestones payable to BMS by alliance partners for investigational compounds and commercial products are deferred and amortized over the shorter of the contractual term or the periods in which the related compounds or products are expected to contribute to future cash flows. The amortization is presented consistent with the nature of the payment under the arrangement. For example, amounts received for investigational compounds are presented in other (income)/expense as the activities being performed at that time are not related to the sale of commercial products that are part of BMS’s ongoing major or central operations; amounts received for commercial products are presented in alliance and other revenue as the sale of commercial products are considered part of BMS’s ongoing major or central operations (except for the AstraZeneca PLC (AstraZeneca) alliance pertaining to the Amylin products – see further discussion under the specific AstraZeneca alliance disclosure herein). |
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• | Upfront and contingent approval milestones payable by BMS to alliance partners for commercial products are capitalized and amortized over the shorter of the contractual term or the periods in which the related products are expected to contribute to future cash flows. The amortization is included in cost of products sold. |
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• | Upfront and contingent milestones payable by BMS to alliance partners prior to regulatory approval are expensed as incurred and included in research and development expenses. |
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• | Equity in net income of affiliates is included in other (income)/expense. |
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• | All payments between BMS and its alliance partners are presented in cash flows from operating activities. |
Selected financial information pertaining to our alliances was as follows, including net product sales when BMS is the principal in the third-party customer sale for products subject to the alliance. Expenses summarized below do not include all amounts attributed to the activities for the products in the alliance, but only the payments between the alliance partners or the related amortization if the payments were deferred or capitalized.
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| | | | | | | | | | | |
| Year Ended December 31, |
Dollars in Millions | 2013 | | 2012 | | 2011 |
Revenues from alliances: | | | | | |
Net product sales | $ | 4,417 |
| | $ | 6,124 |
| | $ | 10,460 |
|
Alliance and other revenues | 3,804 |
| | 3,748 |
| | 3,548 |
|
Total Revenues | 8,221 |
| | 9,872 |
| | 14,008 |
|
| | | | | |
Payments to/(from) alliance partners: | | | | | |
Cost of products sold | $ | 1,356 |
| | $ | 1,706 |
| | $ | 2,823 |
|
Marketing, selling and administrative | (125 | ) | | (80 | ) | | (9 | ) |
Advertising and product promotion | (58 | ) | | (97 | ) | | (86 | ) |
Research and development | (140 | ) | | 4 |
| | 89 |
|
Other (income)/expense | (313 | ) | | (489 | ) | | (317 | ) |
| | | | | |
Net earnings attributable to noncontrolling interest, pre-tax | 36 |
| | 844 |
| | 2,323 |
|
|
| | | | | | | | |
Selected Alliance Balance Sheet Information: | | December 31, |
Dollars in Millions | | 2013 | | 2012 |
Receivables – from alliance partners | | $ | 1,122 |
| | $ | 857 |
|
Accounts payable – to alliance partners | | 1,396 |
| | 1,052 |
|
Deferred income from alliances(a) | | 5,089 |
| | 4,647 |
|
| |
(a) | Includes deferred income classified as liabilities related to assets held-for-sale of $3,671 million at December 31, 2013. |
Specific information pertaining to each of our significant alliances is discussed below, including their nature and purpose; the significant rights and obligations of the parties; specific accounting policy elections; and the income statement classification of and amounts attributable to payments between the parties.
Otsuka
BMS has a worldwide commercialization agreement with Otsuka Pharmaceutical Co., Ltd. (Otsuka), to codevelop and copromote Abilify*, excluding certain Asian countries. The U.S. portion of the agreement was amended in 2009 and 2012 and expires upon the expected loss of product exclusivity in April 2015. The agreement expires in all European Union (EU) countries in June 2014 and in each other non-U.S. country where we have the exclusive right to sell Abilify*, the agreement expires on the later of April 2015 or loss of exclusivity in any such country.
Both parties actively participate in joint executive governance and operating committees. Although Otsuka assumed responsibility for providing and funding all sales force efforts effective January 2013 (under the 2012 U.S. amendment), BMS is responsible for funding certain operating expenses up to various annual limits in 2013 through 2015. BMS purchases the active pharmaceutical ingredient (API) from Otsuka and completes the manufacture of the product for subsequent sale to third-party customers in the U.S. and certain other countries. Otsuka assumed responsibility for providing and funding sales force efforts in the EU effective April 2013. BMS also provides certain other services including distribution, customer management and pharmacovigilence. Otsuka is the principal for third-party product sales in the U.S., United Kingdom (UK), Germany, France, Spain and Italy (beginning March 1, 2013) and BMS is the principal for third-party product sales when it is the exclusive distributor for or has an exclusive right to sell Abilify* which is in the remaining territories.
Alliance and other revenue is recognized for only BMS’s share of total net sales to third-party customers in these territories. In the U.S., BMS’s contractual share was 51.5% in 2012 and 53.5% in 2011. Beginning January 1, 2013, BMS’s contractual share changed to the percentages of total U.S. net sales set forth in the table below. An assessment of BMS's expected annual contractual share is completed each quarterly reporting period and adjusted based upon reported U.S. Abilify* net sales at December 31, 2013. BMS's annual contractual share was 34.0% in 2013. The alliance and other revenue recognized in any interim period or quarter does not exceed the amounts that are due under the contract.
|
| |
Annual U.S. Net Sales | BMS Share as a % of U.S. Net Sales |
$0 to $2.7 billion | 50% |
$2.7 billion to $3.2 billion | 20% |
$3.2 billion to $3.7 billion | 7% |
$3.7 billion to $4.0 billion | 2% |
$4.0 billion to $4.2 billion | 1% |
In excess of $4.2 billion | 20% |
In the United Kingdom, Germany, France, Spain, and Italy (beginning on March 1, 2013), BMS’s contractual share of third-party net sales is 65%. In these countries and the U.S., alliance and other revenue is recognized when Abilify* is shipped and all risks and rewards of ownership have been transferred to third-party customers.
Under the terms of the 2009 U.S. amendment, BMS paid Otsuka $400 million in 2009, which is amortized as a reduction of alliance and other revenue through the expected loss of U.S. exclusivity in April 2015. The unamortized balance is included in other assets. Otsuka receives a royalty based on 1.5% of total U.S. net sales, which is included in cost of products sold. Otsuka was responsible for 30% of the U.S. expenses related to the commercialization of Abilify* from 2010 through 2012.
BMS and Otsuka also have an alliance for Sprycel and Ixempra (ixabepilone) in the U.S., Japan and the EU. While both parties actively participate in various governance committees, BMS has control over the decision making. Both parties co-promote the product. BMS is responsible for the development and manufacture of the product. BMS is also the principal in the end-customer product sales.
A fee is paid to Otsuka based on the following percentages of annual net sales of Sprycel and Ixempra:
|
| | | |
| % of Net Sales |
| 2010 - 2012 | | 2013 - 2020 |
$0 to $400 million | 30% | | 65% |
$400 million to $600 million | 5% | | 12% |
$600 million to $800 million | 3% | | 3% |
$800 million to $1.0 billion | 2% | | 2% |
In excess of $1.0 billion | 1% | | 1% |
During these annual periods, Otsuka contributes 20% of the first $175 million of certain commercial operational expenses relating to the Oncology Products in the Oncology Territory and 1% of such costs in excess of $175 million.
The U.S. extension and the oncology alliance include a change-of-control provision in the case of an acquisition of BMS. If the acquiring company does not have a competing product to Abilify*, then the new company will assume the Abilify* agreement (as amended) and the oncology alliance as it exists today. If the acquiring company has a product that competes with Abilify*, Otsuka can elect to request the acquiring company to choose whether to divest Abilify* or the competing product. In the scenario where Abilify* is divested, Otsuka would be obligated to acquire the rights of BMS under the Abilify* agreement (as amended). The agreements also provide that in the event of a generic competitor to Abilify* after January 1, 2010, BMS has the option of terminating the Abilify* April 2009 amendment (with the agreement as previously amended remaining in force). If BMS were to exercise such option then either (i) BMS would receive a payment from Otsuka according to a pre-determined schedule and the oncology alliance would terminate at the same time or (ii) the oncology alliance would continue for a truncated period according to a pre-determined schedule.
Summarized financial information related to this alliance was as follows:
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| | | | | | | | | | | | |
| | Year Ended December 31, |
Dollars in Millions | | 2013 | | 2012 | | 2011 |
Revenues from Otsuka alliances: | | | | | | |
Net product sales | | $ | 1,543 |
| | $ | 1,386 |
| | $ | 1,181 |
|
Alliance and other revenues(a) | | 1,840 |
| | 2,340 |
| | 2,303 |
|
Total Revenues | | 3,383 |
| | 3,726 |
| | 3,484 |
|
| | | | | | |
Payments to/(from) Otsuka: | | | | | | |
Cost of products sold: | | | | | | |
Oncology fee | | 295 |
| | 138 |
| | 134 |
|
Royalties | | 86 |
| | 78 |
| | 72 |
|
Amortization of intangible assets | | — |
| | 5 |
| | 6 |
|
Cost of product supply | | 135 |
| | 153 |
| | 145 |
|
| | | | | | |
Cost reimbursements to/(from) Otsuka | | (10 | ) | | (47 | ) | | (45 | ) |
|
| | | | | | | | |
Selected Alliance Balance Sheet information: | | December 31, |
Dollars in Millions | | 2013 | | 2012 |
Other assets – extension payment | | $ | 87 |
| | $ | 153 |
|
| |
(a) | Includes the amortization of the extension payment as a reduction to alliance and other revenue of $66 million in 2013, 2012 and 2011. |
AstraZeneca
BMS and AstraZeneca had a diabetes alliance consisting of three worldwide codevelopment and commercialization agreements. The first agreement covered Onglyza and related combination products sold under various names. The second agreement covered Forxiga (will be commercialized as Farxiga in the U.S.) and related combination products. The third agreement covered Amylin's portfolio of products (Bydureon*, Byetta*, Symlin* (pramlintide acetate) and metreleptin, which is currently in development) as well as certain assets owned by Amylin, included a manufacturing facility. The Onglyza agreement excluded Japan.
Upon entering into each of the separate agreements, co-exclusive license rights for the product or products underlying each agreement were granted to AstraZeneca in exchange for an upfront payment and potential milestone payments, and both parties assumed certain obligations to actively participate in the alliance. Both parties actively participated in a joint executive committee and various other operating committees and had joint responsibilities for the research, development, distribution, sales and marketing activities of the alliance using resources in their own infrastructures. BMS manufactured the products in all three alliances and was the principal in the end-customer product sales in substantially all countries.
For each alliance agreement, we have determined that the rights transferred to AstraZeneca did not have standalone value as such rights were not sold separately by BMS or any other party, nor could AstraZeneca have received any benefit for the delivered rights without the fulfillment of other ongoing obligations by BMS under the alliance agreements, including the exclusive supply arrangement. As such, each global alliance was treated as a single unit of accounting. As a result, up-front proceeds and any subsequent contingent milestone proceeds were amortized over the life of the related products.
In 2012, BMS received a $3.6 billion non-refundable, upfront payment from AstraZeneca in consideration for entering into the Amylin alliance. In 2013, AstraZeneca exercised its option for equal governance rights over certain key strategic and financial decisions regarding the Amylin alliance and paid BMS $135 million as consideration. These payments were accounted for as deferred income and amortized based on the relative fair value of the predominant elements included in the alliance over their estimated useful lives (intangible assets related to Bydureon* with an estimated useful life of 13 years, Byetta* with an estimated useful life of 7 years, Symlin* with an estimated life of 9 years, metreleptin with an estimated useful life of 12 years, and the Amylin manufacturing plant with an estimated useful life of 15 years). The amortization was presented as a reduction to cost of products sold because the alliance assets were acquired shortly before the commencement of the alliance and AstraZeneca was entitled to share in the proceeds from the sale of any of the assets. The amortization of the acquired Amylin intangible assets and manufacturing plant was also presented in cost of products sold. BMS was entitled to reimbursements for 50% of capital expenditures related to the acquired Amylin manufacturing facility. BMS and AstraZeneca also shared in certain tax attributes related to the Amylin alliance.
BMS received $300 million in non-refundable upfront, milestone and other licensing payments related to Onglyza to date. BMS also received $250 million in non-refundable upfront, milestone and other licensing payments related to Forxiga to date. Amortization of the Onglyza and Forxiga deferred income was included in other income as Onglyza and Forxiga were not commercial products at the commencement of the alliance.
Both parties equally shared most commercialization and development expenses, as well as profits and losses.
Summarized financial information related to the AstraZeneca alliances was as follows:
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| | | | | | | | | | | | |
| | Year Ended December 31, |
Dollars in Millions | | 2013 | | 2012 | | 2011 |
Revenues from AstraZeneca alliances: | | | | | | |
Net product sales | | $ | 1,658 |
| | $ | 962 |
| | $ | 472 |
|
Alliance and other revenues | | 16 |
| | 10 |
| | 1 |
|
Total Revenues | | $ | 1,674 |
| | $ | 972 |
| | $ | 473 |
|
| | | | | | |
Payments to/(from) AstraZeneca: | | | | | | |
Cost of products sold: | | | | | | |
Profit sharing | | 673 |
| | 425 |
| | 207 |
|
Amortization of deferred income | | (307 | ) | | (126 | ) | | — |
|
| | | | | | |
Cost reimbursements to/(from) AstraZeneca recognized in: | | | | | | |
Cost of products sold | | (25 | ) | | (4 | ) | | — |
|
Marketing, selling and administrative | | (127 | ) | | (66 | ) | | (14 | ) |
Advertising and product promotion | | (45 | ) | | (43 | ) | | (21 | ) |
Research and development | | (86 | ) | | (25 | ) | | 35 |
|
| | | | | | |
Other (income)/expense: | | | | | | |
Amortization of deferred income | | (31 | ) | | (38 | ) | | (38 | ) |
Provision for restructuring | | (25 | ) | | (21 | ) | | — |
|
| | | | | | |
Selected Alliance Cash Flow information: | | | | | | |
Non-refundable upfront, milestone and other licensing payments received: | | | | | | |
Amylin-related products | | 135 |
| | 3,547 |
| | — |
|
Forxiga | | 80 |
| | — |
| | 120 |
|
|
| | | | | | | | |
Selected Alliance Balance Sheet information: | | December 31, |
Dollars in Millions | | 2013 | | 2012 |
Deferred income – Non-refundable upfront, milestone and other licensing receipts(a) | | | | |
Amylin-related products | | $ | 3,288 |
| | $ | 3,423 |
|
Onglyza | | 191 |
| | 208 |
|
Forxiga | | 192 |
| | 206 |
|
| |
(a) | Included in liabilities related to assets held-for-sale at December 31, 2013. |
In February 2014, BMS sold to AstraZeneca the diabetes business of BMS which comprised our global alliance with them, including all rights and ownership to Onglyza, Forxiga, Bydureon*, Byetta*, Symlin* (pramlintide acetate) and metreleptin. The transaction included the shares of Amylin, and the resulting transfer of its manufacturing plant; the intellectual property related to Onglyza and Forxiga and the future purchase of BMS’s manufacturing facility located in Mount Vernon, Indiana no earlier than 18 months following the closing of the transaction. The parties terminated their existing alliance agreements in connection with the sale and entered into several new agreements, including a transitional services agreement, a supply agreement and a development agreement. See “—Note 5. Assets Held-For-Sale” for further information.
Gilead
BMS and Gilead Sciences, Inc. (Gilead) have joint ventures in the U.S. (for the U.S. and Canada) and in Europe to develop and commercialize Atripla* (efavirenz 600 mg/ emtricitabine 200 mg/ tenofovir disoproxil fumarate 300 mg), combining Sustiva, a product of BMS, and Truvada* (emtricitabine and tenofovir disoproxil fumarate), a product of Gilead. The joint ventures are consolidated by Gilead.
Both parties actively participate in a joint executive committee and various other operating committees with direct oversight over the activities of the joint ventures. The joint ventures purchase Sustiva and Truvada* API in bulk form from the parties and complete the finishing of Atripla*. In the U.S. and Canada, the joint venture sells and distributes Atripla* and is the principal in third-party customer sales. In Europe, Gilead and its affiliates sell and distribute Atripla* and are the principal in third-party customer sales. The parties no longer coordinate joint promotional activities.
Alliance and other revenue recognized for Atripla* include only the bulk efavirenz component of Atripla* which is based on the relative ratio of the average respective net selling prices of Truvada* and Sustiva. Alliance and other revenue is deferred and the related alliance receivable is not recognized until the combined product is sold to third-party customers.
In Europe, following the 2013 loss of exclusivity of Sustiva and effective January 1, 2014, the percentage of Atripla* net sales that BMS will recognize will be based on the ratio of the difference in the average net selling prices of Atripla* and Truvada* to the Atripla* average net selling price. This alliance will continue until either party terminates the arrangement or the last patent expiration occurs for Atripla*, Truvada*, or Sustiva.
In the U.S., the agreement may be terminated by Gilead upon the launch of a generic version of Sustiva or by BMS upon the launch of a generic version of Truvada*. In the event Gilead terminates the agreement upon the loss of exclusivity for Sustiva, BMS will receive a quarterly royalty payment for 36 months following termination. Such payment in the first 12 months following termination is equal to 55% of Atripla* net sales multiplied by the ratio of the difference in the average net selling prices of Atripla* and Truvada* to the Atripla* average net selling price. In the second and third years following termination, the payment to BMS is reduced to 35% and 15%, respectively, of Atripla* net sales multiplied by the price ratio described above. BMS will continue to supply Sustiva at cost plus a markup to the joint ventures during this three-year period, unless either party elects to terminate the supply arrangement.
Summarized financial information related to this alliance was as follows:
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| | | | | | | | | | | | |
| | Year Ended December 31, |
Dollars in Millions | | 2013 | | 2012 | | 2011 |
Revenues from Gilead alliances: | | | | | | |
Net product sales | | $ | — |
| | $ | — |
| | $ | 1 |
|
Alliance and other revenues | | 1,366 |
| | 1,267 |
| | 1,203 |
|
Total Revenues | | 1,366 |
| | 1,267 |
| | 1,204 |
|
| | | | | | |
Equity in net loss of affiliates | | 17 |
| | 18 |
| | 16 |
|
|
| | | | | | | | |
Selected Alliance Balance Sheet information: | | December 31, |
Dollars in Millions | | 2013 | | 2012 |
Deferred revenue | | $ | 468 |
| | $ | 339 |
|
Lilly
BMS has a commercialization agreement with Eli Lilly and Company (Lilly) through Lilly’s November 2008 acquisition of ImClone Systems Incorporated (ImClone) for the codevelopment and promotion of Erbitux* in the U.S. which expires in September 2018. Both parties actively participate in a joint executive committee and various other operating committees and have shared responsibilities for the research and development of the alliance using resources in their own infrastructures. Lilly is responsible for supplying the product to BMS for distribution and sale. BMS is responsible for promotional efforts for the product in North America although Lilly has the right to copromote at their own expense. BMS also has codevelopment and copromotion rights in Canada and Japan. BMS is the principal in third-party customer sales in North America. Under the commercialization agreement, BMS pays Lilly a distribution fee based on a flat rate of 39% of net sales of Erbitux* in North America plus a share of certain royalties paid by Lilly.
In Japan, BMS shares rights to Erbitux* under an agreement with Lilly and Merck KGaA and receives 50% of the pre-tax profit from Merck KGaA’s net sales of Erbitux* in Japan which is further shared equally with Lilly.
In March 2013,BMS and Lilly terminated its arrangement for necitumumab (IMC-11F8), with all rights returning to Lilly. Discovered by ImClone, necitumumab is a fully human monoclonal antibody that was part of the alliance between BMS and Lilly.
BMS is amortizing $500 million of license acquisition costs associated with the Erbitux* alliance agreement through 2018.
Summarized financial information related to this alliance was as follows:
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| | | | | | | | | | | | |
| | Year Ended December 31, |
Dollars in Millions | | 2013 | | 2012 | | 2011 |
Revenues from Lilly alliance: | | | | | | |
Net product sales | | $ | 696 |
| | $ | 702 |
| | $ | 691 |
|
| | | | | | |
Payments to/(from) Lilly: | | | | | | |
Cost of products sold: | | | | | | |
Distribution fees and royalties | | 289 |
| | 291 |
| | 287 |
|
Amortization of intangible asset | | 37 |
| | 38 |
| | 37 |
|
Cost of product supply | | 65 |
| | 81 |
| | 73 |
|
| | | | | | |
Cost reimbursements to/(from) Lilly | | (13 | ) | | 23 |
| | 5 |
|
Other (income)/expense – Japan commercialization fee | | (30 | ) | | (37 | ) | | (34 | ) |
|
| | | | | | | | |
Selected Alliance Balance Sheet information | | December 31, |
Dollars in Millions | | 2013 | | 2012 |
Other intangible assets – Non-refundable upfront, milestone and other licensing payments | | $ | 174 |
| | $ | 211 |
|
BMS acquired Amylin Pharmaceuticals, Inc. (Amylin) on August 8, 2012 (see “—Note 4. Acquisitions” for further information). Amylin had previously entered into a settlement and termination agreement with Lilly regarding their alliance for the global development and commercialization of Byetta* and Bydureon* (exenatide products) under which the parties agreed to transition full responsibility of these products to Amylin. The transition of the U.S. operations was completed by the time of the acquisition. The transition of non-U.S. operations of the exenatide products in a majority of markets was completed on April 1, 2013 terminating Lilly's exclusive right to non-U.S. commercialization of the exenatide products. Promissory notes assumed in the acquisition of Amylin aggregating $1.4 billion were repaid to Lilly during 2012.
Sanofi
In September 2012, BMS and Sanofi restructured the terms of the codevelopment and cocommercialization agreements for Plavix* and Avapro*/Avalide*. Effective January 1, 2013, Sanofi assumed essentially all of the worldwide operations of the alliance with the exception of Plavix* in the U.S. and Puerto Rico. The alliance for Plavix* in these markets will continue unchanged through December 2019 under the same terms as in the original alliance arrangements described below. In exchange for the rights being assumed by Sanofi, BMS will receive quarterly royalties from January 1, 2013 until December 31, 2018 and a terminal payment from Sanofi of $200 million at the end of 2018. All ongoing disputes between the companies were resolved including an $80 million payment by BMS to Sanofi related to the Avalide* supply disruption in the U.S. in 2011 (accrued for in 2011).
Beginning in 2013, all royalties received from Sanofi in the territory covering the Americas and Australia, opt-out markets, and former development royalties are presented in alliance and other revenues ($220 million). Development and opt-out royalty income of $143 million in 2012 and $126 million in 2011 were included in other (income)/expense. Development royalty expense of $67 million in 2012 and $182 million in 2011 was included in other (income)/expense. Royalties attributed to the territory covering Europe and Asia continue to be earned by the territory partnership and are included in equity in net income of affiliates. Additionally, equity in net income of affiliates in 2013 included $22 million of profit that was deferred prior to the restructuring of the agreement. Alliance and other revenues attributed to the supply of irbesartan API to Sanofi were $116 million in 2013, $117 million in 2012 and $33 million in 2011. The supply arrangement for irbesartan expires in 2015.
Prior to the restructuring, BMS’s worldwide alliance with Sanofi for the codevelopment and cocommercialization of Avapro*/Avalide* and Plavix* operated under the framework of two geographic territories: one in the Americas (principally the U.S., Canada, Puerto Rico and Latin American countries) and Australia, and the other in Europe and Asia. These two territory partnerships managed central expenses, such as marketing, research and development and royalties, and supply of finished product to individual countries. BMS acted as the operating partner and owned a 50.1% majority controlling interest in the territory covering the Americas and Australia and consolidates all country partnership results for this territory with Sanofi’s 49.9% share of the results reflected as a noncontrolling interest. BMS also recognized net product sales in comarketing countries outside this territory (e.g. Italy for irbesartan only, Germany, Greece and Spain). Sanofi acted as the operating partner and owned a 50.1% majority controlling interest in the territory covering Europe and Asia and BMS has a 49.9% ownership interest in this territory.
Summarized financial information related to this alliance was as follows:
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
Dollars in Millions | | 2013 | | 2012 | | 2011 |
Revenues from Sanofi alliances: | | | | | | |
Net product sales | | $ | 153 |
| | $ | 2,930 |
| | $ | 8,003 |
|
Alliance and other revenues | | 336 |
| | 120 |
| | 37 |
|
Total Revenues | | 489 |
| | 3,050 |
| | 8,040 |
|
| | | | | | |
Payments to/(from) Sanofi: | | | | | | |
Cost of product supply | | 4 |
| | 81 |
| | 245 |
|
Cost of products sold – Royalties | | 4 |
| | 530 |
| | 1,583 |
|
Equity in net income of affiliates | | (183 | ) | | (201 | ) | | (298 | ) |
Other (income)/expense | | (18 | ) | | (171 | ) | | 72 |
|
Noncontrolling interest – pre-tax | | 36 |
| | 844 |
| | 2,323 |
|
| | | | | | |
Selected Alliance Cash Flow information: | | | | | | |
Distributions (to)/from Sanofi - Noncontrolling interest | | 43 |
| | (742 | ) | | (2,335 | ) |
Distributions from Sanofi - Investment in affiliates | | 149 |
| | 229 |
| | 283 |
|
| | | | | | |
Selected Alliance Balance Sheet information: | | | | December 31, |
Dollars in Millions | | | | 2013 | | 2012 |
Investment in affiliates – territory covering Europe and Asia(a) | | | | 43 |
| | 9 |
|
Noncontrolling interest | | | | 49 |
| | (30 | ) |
| |
(a) | Included in alliance receivables. |
The following is summarized financial information for interests in the partnerships with Sanofi for the territory covering Europe and Asia, which are not consolidated but are accounted for using the equity method:
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
Dollars in Millions | | 2013 | | 2012 | | 2011 |
Net sales | | $ | 395 |
| | $ | 1,077 |
| | $ | 1,469 |
|
Gross profit | | 319 |
| | 453 |
| | 658 |
|
Net income | | $ | 313 |
| | $ | 394 |
| | $ | 562 |
|
Cost of products sold for the territory covering Europe and Asia includes discovery royalties of $38 million in 2013, $133 million in 2012 and $184 million in 2011, which are paid directly to Sanofi. All other expenses are shared based on the applicable ownership percentages. Current assets and current liabilities include approximately $108 million in 2013, $293 million in 2012 and $400 million in 2011 related to receivables/payables attributed to cash distributions to BMS and Sanofi as well as intercompany balances between partnerships within the territory. The remaining current assets and current liabilities consist of third-party trade receivables, inventories and amounts due to BMS and Sanofi for the purchase of inventories, royalties and expense reimbursements.
Pfizer
BMS and Pfizer Inc. (Pfizer) maintain a worldwide codevelopment and cocommercialization agreement for Eliquis, an anticoagulant discovered by BMS. Pfizer funds between 50% and 60% of all development costs depending on the study. The companies share commercialization expenses and profits and losses equally on a global basis. In certain countries not in the BMS global commercialization network, Pfizer will commercialize Eliquis alone and will pay BMS compensation based on a percentage of net sales.
Upon entering into the agreement, co-exclusive license rights for the product was granted to Pfizer in exchange for an upfront payment and potential milestone payments, and both parties assumed certain obligations to actively participate in the alliance. Both parties actively participate in a joint executive committee and various other operating committees and have joint responsibilities for the research, development, distribution, sales and marketing activities of the alliance using resources in their own infrastructures. BMS manufactures the product in the alliance and is the principal in the end-customer product sales in substantially all countries.
We have determined that the rights transferred to Pfizer did not have standalone value as such rights were not sold separately by BMS or any other party, nor could Pfizer have received any benefit for the delivered rights without the fulfillment of other ongoing obligations by BMS under the alliance agreement, including the exclusive supply arrangement. As such, the global alliance was treated as a single unit of accounting. As a result, up-front proceeds and any subsequent contingent milestone proceeds were amortized over the life of the related product.
BMS received $784 million in non-refundable upfront, milestone and other licensing payments related to Eliquis to date, including $20 million received in January 2014, and could receive up to an additional $100 million for development and regulatory milestones. Amortization of the Eliquis deferred income is included in other income as Eliquis was not a commercial product at the commencement of the alliance.
Summarized financial information related to this alliance was as follows:
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
Dollars in Millions | | 2013 | | 2012 | | 2011 |
Revenues from Pfizer alliance: | | | | | | |
Net product sales | | $ | 144 |
| | $ | 2 |
| | $ | — |
|
Alliance and other revenues | | 2 |
| | — |
| | — |
|
Total Revenues | | 146 |
| | 2 |
| | — |
|
| | | | | | |
Payments to/(from) Pfizer: | | | | | | |
Cost of products sold – Profit sharing | | 69 |
| | 1 |
| | — |
|
Cost reimbursements to/(from) Pfizer | | 4 |
| | (11 | ) | | (75 | ) |
Other (income)/expense – Amortization of deferred income | | (41 | ) | | (37 | ) | | (33 | ) |
| | | | | | |
Selected Alliance Cash Flow information: | | | | | | |
Non-refundable upfront, milestone and other licensing payments receipts | | 205 |
| | 20 |
| | 65 |
|
| | | | | | |
Selected Alliance Balance Sheet information: | | | | December 31, |
Dollars in Millions | | | | 2013 | | 2012 |
Deferred income | | | | $ | 581 |
| | $ | 397 |
|
Reckitt Benckiser Group
In May 2013, BMS and Reckitt Benckiser Group plc (Reckitt) entered into a three-year alliance for several over-the-counter-products sold primarily in Mexico and Brazil. Net sales of these products were approximately $100 million in 2012. Reckitt received the right to sell, distribute and market the products through May 2016 and will have certain responsibilities related to regulatory matters in the covered territory. BMS will receive royalties on net sales of the products and will also exclusively supply certain of the products to Reckitt pursuant to a supply agreement at cost plus a markup. Certain limited assets, including the market authorizations and certain employees directly attributed to the business, were transferred to Reckitt at the start of the alliance period. BMS retained ownership of all other assets related to the business including the trademarks covering the products.
BMS also granted Reckitt an option to acquire the trademarks, inventory and certain other assets exclusively related to the products at the end of the alliance period at a price determined based on a multiple of sales (plus the cost of any remaining inventory held by BMS at the time). If the option is not exercised, all assets previously transferred to Reckitt will revert back to BMS. The option may be exercised by Reckitt between May and November 2015, in which case closing would be expected to occur in May 2016.
Non-refundable upfront proceeds of $485 million received by BMS were allocated to two units of accounting, including the rights transferred to Reckitt ($376 million) and the fair value of the option to purchase the remaining assets ($109 million) using the best estimate of the selling price for these elements after considering various market factors. These market factors included an analysis of any estimated excess of the fair value of the business over the potential purchase price if the option is exercised. The fair value of the option was determined using Level 3 inputs and included in other liabilities. Changes in the estimated fair value of the option liability were not significant in 2013. The amount allocated to the rights transferred to Reckitt is amortized as alliance and other revenue over the contractual term. Alliance and other revenue was $116 million in 2013, including product supply and royalties.
The Medicines Company
In February 2013, BMS and The Medicines Company entered into a two-year alliance for Recothrom, a recombinant thrombin for use as a topical hemostat to control non-arterial bleeding during surgical procedures (previously acquired by BMS in connection with its acquisition of ZymoGenetics, Inc in 2010). Net product sales of Recothrom were $67 million in 2012. The Medicines Company received the right to sell, distribute and market Recothrom on a global basis for two years, and will have certain responsibilities related to regulatory matters in the covered territory. BMS will exclusively supply Recothrom to The Medicines Company pursuant to a supply agreement at cost plus a markup and will also receive royalties on net sales of Recothrom. Certain employees directly attributed to the business and certain assets were transferred to The Medicines Company at the start of the alliance period, including the Recothrom Biologics License Application and related regulatory assets. BMS retained all other assets related to Recothrom including the patents, trademarks and inventory.
BMS also granted The Medicines Company an option to acquire the patents, trademarks, inventory and certain other assets exclusively related to Recothrom at a price determined based on a multiple of sales (plus the cost of any remaining inventory held by BMS at that time). If the option is not exercised, all assets previously transferred to The Medicines Company will revert back to BMS. The option may be exercised by The Medicines Company between February and August 2014, in which case closing would be expected to occur in February 2015.
Non-refundable upfront proceeds of $115 million received by BMS were allocated to two units of accounting, including the rights transferred to The Medicines Company ($80 million) and the fair value of the option to purchase the remaining assets ($35 million) using the best estimate of the selling price for these elements after considering various market factors. These market factors included an analysis of any estimated excess of the fair value of the business over the potential purchase price if the option is exercised. The fair value of the option was determined using Level 3 inputs and included in other liabilities. Changes in the estimated fair value of the option liability were not significant in 2013. The amount allocated to the rights transferred to The Medicines Company is amortized as alliance and other revenue over the contractual term. Alliance and other revenue was $74 million in 2013, including product supply and royalties.
Valeant
In October 2012, BMS and PharmaSwiss SA, a wholly-owned subsidiary of Valeant Pharmaceuticals International Inc. (Valeant) entered into a alliance for certain mature brand products in Europe. Valeant received the right to sell, distribute, and market the products in Europe through December 31, 2014 and will have certain responsibilities related to regulatory matters in the covered territory. During the alliance term, BMS will also exclusively supply the products to Valeant pursuant to a supply agreement at cost plus a markup.
BMS also granted Valeant an option to acquire the trademarks and intellectual property exclusively related to the products at a price determined based on a multiple of sales. If the option is not exercised, all rights transferred to Valeant will revert back to BMS. The option may be exercised by Valeant between January and June 2014, in which case closing would be expected to occur in December 2014.
Non-refundable upfront proceeds of $79 million received by BMS were allocated to two units of accounting, including the rights transferred to Valeant ($61 million) and the fair value of the option to purchase the remaining assets ($18 million) using the best estimate of the selling price for these elements after considering various market factors. These market factors included an analysis of any estimated excess of the fair value of the business over the potential purchase price if the option is exercised. The fair value of the option was determined using Level 3 inputs and included in accrued expenses. Changes in the estimated fair value of the option liability were not significant in 2013 and 2012. The amount allocated to the rights transferred to Valeant is amortized as alliance and other revenue over the contractual term. Alliance and other revenue was $49 million in 2013 and $5 million in 2012, including product supply. Net product sales recognized during a transitional period were $4 million in 2013 and $5 million in 2012.
