SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999MARCH 31, 2000
Commission File Number 1-1136
BRISTOL-MYERS SQUIBB COMPANY
(Exact name of registrant as specified in its charter)
Delaware 22-079-0350
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
345 Park Avenue, New York, N.Y. 10154
(Address of principal executive offices)
Telephone: (212) 546-4000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [ X ] No [ ]
At SeptemberApril 30, 1999,2000, there were 1,983,692,2841,972,590,510 shares outstanding of the
Registrant's $.10 par value Common Stock.
BRISTOL-MYERS SQUIBB COMPANY
INDEX TO FORM 10-Q
September 30, 1999March 31, 2000
Part I - Financial Information: Page
Item 1.
Financial Statements (Unaudited):
Consolidated Balance Sheet - September 30, 1999March 31, 2000 and December 31, 2 - 3
31, 19981999
Consolidated Statement of Earnings and Comprehensive Income
for the three and nine months ended September 30,March 31, 2000 and 1999 and 4
1998
Consolidated Statement of Cash Flows for the ninethree months
ended September 30,March 31, 2000 and 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6 - 7
Report of Independent Accountants 8
Item 2.
Management's Discussion and Analysis of Financial 9 - 1712
Condition and Results of Operations
Part II - Other Information
Item 1.
Legal Proceedings 1813 - 1915
Item 4.
Submission of Matters to a Vote of Security Holders 16
Item 6.
Exhibits and Reports on Form 8-K 2017
Signatures 2118
PART I FINANCIAL INFORMATION
- -----------------------------------------------------------
Item 1. Financial Statements
- -----------------------------
BRISTOL-MYERS SQUIBB COMPANY
CONSOLIDATED BALANCE SHEET - ASSETS
(Unaudited, dollars in millions except share amounts)
Septembermillions)
March 31, December
30,2000 31, 1999
31, 1998
------------------ ----------
Current Assets:
Cash and cash equivalents $2,455 $2,244$2,468 $2,720
Time deposits and marketable securities 235 285212 237
Receivables, net of allowances 3,306 3,1903,349 3,272
Finished goods 1,340 1,472
Work in process 439 302
Raw and packaging materials 267 352
------ ------
Inventories 2,052 1,8732,046 2,126
Prepaid expenses 909 1,190
--------- ---------971 912
------ ------
Total Current Assets 8,957 8,782
--------- ---------9,046 9,267
------ ------
Property, Plant and Equipment net 4,489 4,4297,833 7,841
Less: Accumulated depreciation 3,283 3,220
------ ------
4,550 4,621
------ ------
Insurance Recoverable 466 523450 468
Excess of cost over net tangible assets arising
fromreceived
in business acquisitions 1,550 1,5871,483 1,502
Other Assets 1,150 951
--------- ---------1,507 1,256
------ ------
Total Assets $16,612 $16,272
========= =========
-2-$17,036 $17,114
====== ======
The accompanying notes are an integral part of these financial statements.
2
BRISTOL-MYERS SQUIBB COMPANY
CONSOLIDATED BALANCE SHEET -
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited, dollars in millions except share amounts)
Septembermillions)
March 31, December
30,2000 31, 1999 31, 1998
--------- ---------
Current Liabilities:
Short-term borrowings $ 512 $ 482$365 $432
Accounts payable 1,506 1,3801,514 1,657
Accrued expenses 2,309 2,3022,321 2,367
Product liability 378 877235 287
U.S. and foreign income taxes payable 696 750882 794
------ --------------
Total Current Liabilities 5,401 5,7915,317 5,537
Other Liabilities 1,439 1,5411,577 1,590
Long-Term Debt 1,331 1,3641,333 1,342
------ --------------
Total Liabilities 8,171 8,6968,227 8,469
------ --------------
Stockholders' Equity:
Preferred stock, $2 convertible series:
Authorized 10 million shares; issued and
outstanding 11,15310,782 in 19992000 and 11,68410,977 in - -
1998,1999, liquidation value of $50 per share
Common stock, par value of $.10 per share:
Authorized 4.5 billion shares; issued
2,190,910,9852,193,990,890 in 19992000 and 2,188,316,8082,192,970,504 in 219 219
19981999
Capital in excess of par value of stock 1,394 1,0751,612 1,533
Other Comprehensive Income (796) (622)comprehensive income (870) (816)
Retained earnings 14,374 12,54015,736 15,000
------ --------
15,191 13,212------
16,697 15,936
Less cost of treasury stock - 207,218,701220,713,423
common shares in 2000 and 212,164,851 in 1999 and 199,550,532 in 1998 6,750 5,6367,888 7,291
------ --------------
Total Stockholders' Equity 8,441 7,5768,809 8,645
------ --------------
Total Liabilities and Stockholders' Equity $16,612 $16,272
======= =======
-3-$17,036 $17,114
====== ======
The accompanying notes are an integral part of these financial statements.
3
BRISTOL-MYERS SQUIBB COMPANY
CONSOLIDATED STATEMENT OF EARNINGS
AND COMPREHENSIVE INCOME
(Unaudited, dollars in millions except per share amounts)
Three Months
Nine Months
Ended Ended
September 30, September 30,
----------------- ----------------March 31,
-------------
EARNINGS 2000 1999 1998 1999 1998
- -------- ------- ------- ------- ------------- ------
Net Sales $5,040 $4,523 $14,814 $13,399$5,260 $4,854
------ ------ ------- -------
Expenses:
Cost of products sold 1,402 1,191 4,068 3,5491,379 1,305
Marketing,selling,
administrative 1,095 1,034 3,338 3,116
and other 1,165 1,121
Advertising and product promotion 573 554 1,768 1,767570 529
Research and development 452 398 1,328 1,165
Provision for restructuring - - - 201
Gain on sale of businesses - - - (201)468 423
------ ------
------- -------
3,522 3,177 10,502 9,5973,582 3,378
------ ------ ------- -------
Earnings Before Income Taxes 1,518 1,346 4,312 3,8021,678 1,476
Provision for income taxes 421 380 1,197 1,074457 410
------ ------
------- -------
Net Earnings $1,097 $966 $3,115 $2,728
====== ======$1,221 $1,066
====== ======
Earnings Per Common Share
Basic $.55 $.49 $1.57 $1.37$.62 $.54
Diluted $.54 $.47 $1.54 $1.34$.61 $.53
Average Common Shares
OustandingOutstanding
Basic 1,984 1,9881,976 1,985
1,987
Diluted 2,028 2,030 2,027 2,0322,009 2,029
Dividends Per Common Share $.245 $.215 $.195 $.645 $.585
COMPREHENSIVE INCOME
- --------------------
Net Earnings $1,097 $966 $3,115 $2,728$1,221 $1,066
Other Comprehensive Income:
Foreign currency translation (18) (68) (187) (155)(51) (104)
Tax effect (3) 5 6 13 11
------ ------
------- -------
Total Other(54) (99)
------ ------
Comprehensive Income (13) (62) (174) (144)
------- ------- ------- -------
Comprehensive Income $1,084 $904 $2,941 $2,584$1,167 $967
====== ======
====== ======
-4-The accompanying notes are an integral part of these financial statements.
4
BRISTOL-MYERS SQUIBB COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, dollars in millions)
NineThree Months
Ended September 30,
-----------------March 31,
--------------
2000 1999 1998
------ ------
Cash Flows From Operating Activities:
Net earnings $3,115 $2,728$1,221 $1,066
Depreciation and amortization 489 457187 167
Provision for restructuring (See Note 3) 120 -
201
Gain on sale of businessesfrom product divestitures (See Note 4) (120) - (201)
Other operating items (59) 27(3) (34)
Receivables (208) (262)(114) (14)
Inventories (245) (81)47 (113)
Accounts payable (21) 89
Accruedand accrued expenses (53) (242)(302) (237)
Income taxes 96 258
Product liability (622) (493)(56) (318)
Insurance recoverable 57 89
Income taxes 478 46818 14
Pension contribution (See Note 5) (230) -
Other assets and liabilities (79) (103)
--------- ---------(126) (68)
------- ------
Net Cash Provided by Operating Activities 2,852 2,677
--------- ---------738 721
------- ------
Cash Flows From Investing Activities:
Proceeds from sales of time deposits and
51 225
marketable securities 39 13
Purchases of time deposits and marketable
(1) (195)
securities (13) (9)
Additions to fixed assets (455) (537)(91) (122)
Proceeds from sale of businessproduct divestitures 180 - 413
Acquisition of businesses - (67)
Other, net (9) 10
--------- ---------(10) (28)
------- ------
Net Cash Used inProvided by (Used in) Investing 105 (146)
Activities (414) (151)
--------- ---------------- ------
Cash Flows From Financing Activities:
Short-term borrowings 27 (30)(58) 59
Long-term debt (12) 69(1) (4)
Issuances of common stock under stock plans (7) 12926 (24)
Purchases of treasury stock (915) (1,448)(563) (410)
Dividends paid (1,281) (1,163)
--------- ---------(485) (427)
------- ------
Net Cash Used in Financing Activities (2,188) (2,443)
--------- ---------(1,081) (806)
------- ------
Effect of Exchange Rates on Cash (39) (8)
--------- ---------
Increase(14) (10)
------ ------
Decrease in Cash and Cash Equivalents 211 75(252) (241)
Cash and Cash Equivalents at Beginning of Period 2,720 2,244
1,456
Period --------- ---------------- ------
Cash and Cash Equivalents at End of Period $2,455 $1,531
========= =========
-5-$2,468 $2,003
====== ======
The accompanying notes are an integral part of these financial statements.
5
BRISTOL-MYERS SQUIBB COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in millions except per share amounts)
Note 1: Basis of Presentation
- -------------------------------
In the opinion of management, the accompanying unaudited
consolidated financial statements include all adjustments
(consisting only of normal adjustments) necessary for a fair
presentation of the financial position of Bristol-Myers Squibb
Company (the "Company") at September 30, 1999March 31, 2000 and December 31, 1998,1999,
the results of operations for the three and nine months ended September 30,March 31,
2000 and 1999, and 1998, and cash flows for the ninethree months ended September 30, 1999March
31, 2000 and 1998.1999. These consolidated financial statements
should be read in conjunction with the consolidated financial
statements and the related notes included in the Company's 19981999
Annual Report on Form 10-K. PricewaterhouseCoopers LLP, the
Company's independent auditors,accountants, have performed a review of the
unaudited consolidated financial statements included herein, and
their review report thereon accompanies this filing.
Note 2: Accounting Policies
- -----------------------------
Basis of Consolidation - The consolidated financial statements
include the accounts of Bristol-Myers Squibb Company and all of
its subsidiaries.
Cash and Cash Equivalents - Cash and cash equivalents primarily
include securities with a maturity of three months or less at
the time of purchase, recorded at cost, which approximates
market.
Time Deposits and Marketable Securities - Time deposits and
marketable securities are available for sale and are recorded at
fair value, which approximates cost.
Inventory Valuation - Inventories are generally stated at
average cost, not in excess of market. As of September 30, 1999,
the amounts of finished goods, work in process, and raw and
packaging materials were $1,362, $340 and $350, respectively.
These amounts as of December 31, 1998 were $1,209, $236 and
$428, respectively.
Capital Assets and Depreciation - Expenditures for additions,
renewals and betterments are capitalized at cost. Depreciation
is generally computed by the straight-line method based on the
estimated useful lives of the related assets. The estimated
useful lives of the major classes of depreciable assets are 50
years for buildings and 3 to 40 years for machinery, equipment
and fixtures. Accumulated depreciation as of September 30, 1999
and December 31, 1998 amounted to $3,234 and $3,079,
respectively.
Excess of Cost over Net Tangible Assets - The excess of cost
over net tangible assets arising from business acquisitions is
amortized on a straight-line basis over periods ranging from 15
to 40 years. The excess of cost over net tangible assets is
periodically reviewed for impairment based on an assessment of
future operations (including cash flows) to ensure the excess of
cost over net tangible assets is appropriately valued.
-6-
Product Liability - Accruals for product liability are
recorded, on an undiscounted basis, when it is probable that a
liability has been incurred and the amount of the liability can
be reasonably estimated, based on existing information. These
accruals are adjusted periodically as assessment efforts
progress or as additional information becomes available.
Receivables for related insurance or other third party
recoveries for product liabilities are recorded, on an
undiscounted basis, when it is probable that a recovery will be
realized. Insurance recoverable recorded on the balance sheet
has, in general, payment terms of three years or less.
Revenue Recognition - Revenue from product sales is recognized
upon shipment to customers.
Note 3: Earnings Per Share
- --------------------------
Basic earnings per common share are computed using the weighted
average number of shares outstanding during the year. Diluted
earnings per common share are computed using the weighted average
number of shares outstanding during the year, plus the
incremental shares outstanding assuming the exercise of dilutive
stock options.
The computations for basic earnings per common share and diluted
earnings per common share are as follows:
Three Months Ended
Nine Months Ended
September 30, September 30,
-------------------- ------------------March 31,
2000 1999
1998 1999 1998
------- ------- ------- ------------ -----
Earnings per Common Share -
Basic:
Net Earnings $1,097 $ 966 $3,115 $2,728$1,221 $1,066
Average Common Shares
1,984 1,988Outstanding 1,976 1,985 1,987
Outstanding
Earnings Per Common Share - Basic $ 0.55 $ 0.49 $ 1.57 $ 1.37$.62 $.54
6
Three Months Ended
Nine Months Ended
September 30, September 30,
-------------------- ------------------March 31,
2000 1999
1998 1999 1998
------- ------- ------- ------------ -----
Earnings per Common Share -
Diluted:
Net Earnings $1,097 $ 966 $3,115 $2,728$1,221 $1,066
Average Common Shares
1,984 1,988Outstanding 1,976 1,985 1,987
Outstanding
Incremental Shares Outstanding
Assuming the Exercise of
44 42 42 45
Dilutive Stock Options 33 44
Average Common Shares
2,028 2,030 2,027 2,032
Outstanding 2,009 2,029
Earnings Per Common Share - $.61 $.53
Diluted
$ 0.54 $ 0.47 $ 1.54 $ 1.34
-7-Note 3: Restructuring
- ---------------------
During the first quarter of 2000, the Company recorded a pretax
charge of $120 million in marketing, selling, administrative and
other expenses for restructuring activities. The charge related
to work-force reductions, downsizing and streamlining of
operations in certain international markets and the ConvaTec
business, and the reorganization of the Company's Global Business
Services.
Of the total restructuring charge, $77 million relates to
employee termination benefits for approximately 1,400 employees.
The remaining $43 million represents the closure of facilities,
primarily in the ConvaTec business and certain international
markets. At March 31, 2000, $77 million was included in accrued
expenses related to these activities. The Company expects to
substantially complete these restructuring activities by the end
of 2000.
Note 4: Divestitures
- --------------------
In February 2000, the Company completed the sale of three
pharmaceutical products - Estrace Cream, Ovcon 35 and Ovcon 50,
resulting in a pre-tax gain of $120 million.
Note 5: Pension Contribution
- ----------------------------
In January 2000, the Company made a contribution of $230 million
to fund its U.S. Retirement Income Plan.
7
Report of Independent Accountants
To the Board of Directors
and Stockholders of
Bristol-Myers Squibb Company
We have reviewed the accompanying consolidated balance sheet
of Bristol-Myers Squibb Company and its subsidiaries as of
September 30, 1999,March 31, 2000, and the related consolidated statement of
earnings and comprehensive income for each of the three-month
and nine-month periods ended September 30, 1999 and 1998 and the
consolidated statement of cash flows for the
nine-monththree-month periods ended September 30, 1999March 31, 2000 and 1998.1999. These
financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards
established by the American Institute of Certified Public
Accountants. A review of interim financial information
consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially
less in scope than an audit conducted in accordance with
generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the accompanying
consolidated interim financial statements for them to be in
conformity with accounting principles generally accepted accounting principles.in
the United States.
We previously audited in accordance with auditing standards
generally accepted auditing standards,in the United States, the consolidated
balance sheet as of December 31, 1998,1999, and the related
consolidated statements of earnings, comprehensive income
and retained earnings and of cash flows for the year then
ended (not presented herein), and in our report dated
January 20, 199924, 2000 we expressed an unqualified opinion on
those consolidated financial statements. In our opinion, the
information set forth in the accompanying consolidated
balance sheet as of December 31, 19981999, is fairly stated in
all material respects in relation to the consolidated
balance sheet from which it has been derived.
PricewaterhouseCoopers LLP
New York, New York
November 9, 1999
-8-April 20, 2000
8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
ThirdFirst Quarter Results of Operations
- -----------------------------------
Worldwide sales for the thirdfirst quarter of 19992000 increased 11%8% over
the prior year to $5,040$5,260 million. The consolidated sales growth
resulted from a 10%8% increase due to volume, a 2%3% increase due to
changes in selling prices and a 1%3% decrease due to foreign
exchange rate fluctuations. U.S. sales increased 15%14% and
international sales increased 5% (7%decreased 2% (a 4% increase excluding the
effect of foreign exchange).
Sales in the medicines products segment (pharmaceuticals and
consumer medicines), which is the largest segment at 70%72% of
total Company sales, increased 14%10% over the thirdfirst quarter of
19981999 to $3,548$3,783 million. Sales growth resulted from a 13%10%
increase in volume, a 3% increase in selling prices and a 2%3%
decrease due to foreign exchange rate fluctuations. Worldwide
pharmaceutical sales increased 15%12% with U.S. pharmaceutical
sales up 22%20% over the prior year. Sales of cardiovascular drugsConsumer medicines sales
increased 12% to $871 million (14%2% (9% excluding foreign exchange).
GLUCOPHAGE (metformin), the leading branded oral medication for
treatment of non-insulin dependent (type 2) diabetes, continued
its strong growth rate with sales increasing 51% to $426
million. In March 2000, the U.S. marketing exclusivity of
GLUCOPHAGE was extended through September 3, 2000 based on the
Company's completion of pediatric studies which qualify for
benefits under U.S. research incentive legislation.
Sales of PRAVACHOL*TAXOL* (paclitaxel), the Company's largest selling product, decreased 1%leading anti-cancer
agent, increased 17% to $386$385 million.
Sales of
the anti-hypertensive MONOPRIL*, a second generation angiotensin
converting enzyme (ACE) inhibitor, increased 9% to $94 million.
PLAVIX(R),PLAVIX, a platelet aggregation inhibitor for the reduction of
stroke, heart attack and vascular death in atherosclerotic
patients with recent stroke, recent heart attack or peripheral
arterial disease, had sales of $148 million comparedincreased 128% to $45$201 million for the
same quarter last year. AVAPRO(r),quarter. AVAPRO, an angiotensin II receptor blocker for the
treatment of hypertension, increased 55%74% to $62$87 million. AVAPRO(r)AVAPRO
and PLAVIX(r)PLAVIX are cardiovascular products that were launched from
the Bristol-Myers Squibb and Sanofi S.A. joint venture.
Sales growthof BUSPAR*, an anti-anxiety agent, increased 24% to $163
million following a direct-to-consumer campaign launched in
December 1999. The exclusivity period for these cardiovascular products
was partially offset by a 23% declineBUSPAR expires in CAPOTEN* sales due to
the loss of patent exclusivity in international markets.May
2000. Sales of anti-cancer drugs, the largest product group in the
segment,SERZONE*, a novel anti-depressant, increased 16%38%
to $898$87 million.
Sales of TAXOL*
(paclitaxel), the Company's leading anti-cancer agent PARAPLATIN* increased 23%7% to $375$160
million as the product continues to benefit from increasedits use in
ovarian, breast and non-small cell lung cancer.
Sales from Oncology Therapeutics Network (OTN), a specialty
distributor of anti-cancer medicines and related products,
increased 38% to $236 million.
Anti-infective drug sales of $602 million increased 3% over the
prior year.combination with other chemotherapy agents.
Sales of ZERIT* and VIDEX*, the Company's two anti-
retroviralantiretroviral
agents, increased 17% to $155remained at prior year levels of $151 million and 14%
to $49 million, respectively. International sales of MAXIPIME*,
a fourth generation injectable cephalosporin, increased 35% to
$31 million in the quarter.
Central nervous system drug sales of $314 million increased 16%
with sales of BUSPAR*, an anti-anxiety agent, and SERZONE*, a
novel anti-depressant, increasing 12% to $155 million, and 41%
to $86$45
million, respectively.
* Indicates brand names of products which are registered
trademarks ofowned by the Company.
-9-9
GLUCOPHAGE(r)Sales of TEQUIN*, a broad-spectrum fluoroquinolone antibiotic,
launched in December 1999, were $15 million. In just three
months on the market, TEQUIN has been prescribed to more than
200,000 people. In March 2000, the Company entered into an
agreement to have Schering-Plough co-promote TEQUIN in the
United States.
Sales of Oncology Therapeutics Network, a specialty distributor
of anti-cancer medicines and related products, reached $244
million, an increase of 21% over the prior year.
Worldwide sales of PRAVACHOL*, the leading branded oral medicationCompany's largest selling
product, decreased 5% to $461 million for the treatmentquarter.
Sales of non-insulin dependent (type 2) diabetes, continued
its strong growth rate with sales increasing 57% to $349
million.
Analgesic sales increased 11% to $180 million. EXCEDRIN* sales increased 5% to $61 million, BUFFERIN* sales increased 19% to
$32$62 million and sales of
EFFERALGAN*, an effervescent analgesic
sold primarily in France,BUFFERIN* increased 3%14% (7% excluding foreign exchange) to $33
million. In
October 1999, the U.S. Food and Drug Administration expanded the
EXCEDRIN* migraine indication from just the treatment of mild
to moderate migraine pain to encompass even the severe pain
and associated symptoms of the full migraine syndrome. Also
in October, the Company introduced THERAGRAN HEART RIGHT*, a
complete multivitamin with a formula specially created to help
support a healthy heart.
Earnings before taxes for the medicines products segment
increased 20%17% to $1,049$1,169 million in 1999.2000. As a percentage of
sales, earnings before taxes for this segment improved to 29.6%30.9%
in 2000 from 29.2% in 1999 from 28.2% in 1998. Advertising and promotion, sales
force and general administrative expenses improved,primarily due to improvements, as a
percentage of sales, partially offset by increases in cost of goods sold, as a percentage of sales.products sold.
Sales in the beauty care products segment increased 5% (4%
excluding the effect of foreign exchange)decreased 4% to $624$549
million. Sales growthThe decline in sales resulted from a 2% increase5% decrease in
volume, a 2%1% increase in selling prices and a 1% increaseno effect due to
foreign exchange rate fluctuations.exchange. Haircolor sales increased 3% with increases in
NICE 'N EASY* of 4% to $48 million and HYDRIENCE* of 9% to $24
million. AUSSIE* products added $32 million to Beauty Care
sales, an increase of 10% over the prior year. HERBAL ESSENCES*,
a complete line of shampoos, conditioners, styling aids, body
wash and facial care, decreased 5% to $151 million. Clairol
continues to be the number one hair products company in the U.S.
The introduction of a
demand management manufacturing system slowed shipments during
the quarter. HERBAL ESSENCES*, the number two brand in the U.S.
shampoo/conditioner category and number three in the body wash
category, continued its strong growth, increasing 6% to $163
million. AUSSIE* products contributed $32 million to third
quarter sales, an increase of 7%. Sales of DAILY DEFENSE*
increased 12% to $29 million, following its launch into
international markets. Haircolor sales increased 12% due to
increases in NICE 'N EASY* of 24% to $56 million and NATURAL
INSTINCTS* of 24% to $26 million. Earnings before taxes for the beauty care products segment decreasedincreased 17%
to $92$76 million in 2000 from $65 million in 1999 from $96 million in 1998, primarily due to
a decrease, as a percentage of sales, in advertising expenses.
In April, the introductionCompany reached an agreement to sell Matrix
Essentials to Cosmair, Inc., a wholly-owned U.S. subsidiary of
a
demand management manufacturing system.L'Oreal S.A. The transaction is expected to close sometime
during the second quarter.
Sales in the nutritional products segment increased 6%13% to $466$506
million. Sales growth resulted from an 8%a 12% increase in volume, a
2% decrease1% increase in selling prices and no effect due to foreign
exchange rate fluctuations. The Company's Mead Johnson
subsidiary continues to build on its U.S. and worldwide
leadership position in the infant formula market. ENFAMIL*, the
Company's largest-selling infant formula, recorded sales of $176$204
million, an increase of 1% over9% from the prior year. BOOST*, an adultAdult consumer
nutritional supplement, also contributedsales increased 41% as a result of a 39% increase in
sales of BOOST* to sales growth,
increasing 38% to $33$32 million and $15 million in sales of
VIACTIV* Soft Calcium Chews reached $10 million.Chews. Earnings before taxes for the
nutritional segment increased to $96$120 million in 19992000 from $91$101
million in 1998,1999, and as a percentage of sales, remained at prior
year levels of approximately 20.6%. Sales force and general
administrative expenses improvedincreased to
23.7% from 22.5% in 1999 primarily due to a decrease, as a
percentage of sales, offset by increases in cost of goodsproducts sold and advertising and
promotion expenses, as a percentage of sales.
-10-
sales force
expenses.
Medical device segment sales increased 4%5% to $402$422 million, due
to volume increases of 3%7% and increasesa 2% decrease due to changes in
selling prices of 1%. Fluctuations in foreign
exchange had no
effect on medical devices sales.exchange. Zimmer sales increased 8%9% to $226$260 million (5%(8%
excluding foreign exchange). Knee joint replacement sales
increased 13%9% to $88$102 million, and hip replacement sales increased
14%13% to $67$80 million and fracture management sales increased 23%
to $37 million. ConvaTec sales remained at prior year levels at $176decreased 1% to $162 million (a
1%4% increase excluding foreign exchange). Sales of modern wound
care products increased 5%2% to $62$57 million (7% excluding foreign
10
exchange) while sales of ostomy products decreased 11%4% to $100$98
million. Earnings before taxes for the medical device segment
increased 15%11% to $91$80 million in 19992000 from $79$72 million in 19981999
and, as a percentage of sales, increased to 22.6%19.0% in 2000 from
17.9% in 1999, resulting from 20.5%decreases, as a percentage of
sales, in 1998, primarily due to
improved manufacturing processes.research and development expenses.
Operating Expenses
- ------------------
Total expenses, as a percentage of sales, decreased to 69.9%68.1%
from 70.2%69.6% in 1998.1999. Cost of products sold, as a percentage of
sales, increaseddecreased to 27.8%26.2% from 26.3%26.9% in 19981999 primarily due to
revenue
growth of Oncology Therapeutics Network (OTN) which carries
significantly lower margins. Excluding OTN, cost of products
sold,product mix.
Marketing, selling, administrative and other expenses, as a
percentage of sales, increaseddecreased to 24.5%22.1% in 1999the first quarter of
2000 from 23.6%23.1% in 1998 due primarily to decreased sales1999. Also included in marketing, selling,
administrative and other expenses were a pre-tax gain of CAPOTEN*$120
million from the divestiture of three pharmaceutical products -
Estrace Cream, Ovcon 35 and Ovcon 50, and a product mix shift$120 million
provision for restructuring. The restructuring charge related to
lower margin pharmaceutical products.work-force reductions in certain of the international medicines
markets, ConvaTec and the reorganization of the Company's Global
Business Services. (See also Note 3 to the financial statements)
Expenditures for advertising and promotion in support of new and
existing products increased 3%8% to $573$570 million from $554
million.
Marketing, selling administrative and other expenses, as a
percentage of sales, decreased to 21.7%$529 million
in the third quarter of
1999 from 22.9% in the third quarter of 1998, primarily due to
sales force effectiveness and reductions in general
administrative expenses as a percentage of sales.1999. Research and development expenditures increased 14%11% to
$452$468 million from $398$423 million in 1998.1999. Pharmaceutical research
and development spending increased 13% over the prior year, and
as a percentage of pharmaceutical sales, was 12.5%12.3% in the thirdfirst
quarter of 19992000 and 12.6%12.2% in the thirdfirst quarter of 1998.1999. In
research and development highlights this quarter,April, the Company and Otsuka Pharmaceutical Co., Ltd., announced a development,
commercialization and collaboration agreementvoluntarily withdrew its current New Drug
Application (NDA) for aripiprazole,
a novel drug under study in Phase III trials as a treatment for
schizophrenia. This new compound has a unique mechanism of
action and has the potential to expand the options for safely
and effectively treating schizophrenia and, possibly, other
forms of mental illness. In October,VANLEV* (omapatrilat) from the U.S. Food
and Drug Administration (FDA) approved. The Company now expects to
resubmit its application early next year. Also, in April 2000,
the use of TAXOL* injection for
adjuvant treatment of node-positive breast cancer. In
September, the Oncologic Drugs Advisory Committee recommended
thatCompany resubmitted its NDA to the FDA approve UFT(r)for UFT(R) capsules in combinationfor
use with leucovorin calcium tablets forin the first-line treatment
of metastaticadvanced colorectal cancer. Also in September, ZERIT* and VIDEX* were
both approved by the FDA for use as a first-line component of a
combination antiretroviral therapy regimen for HIV-infected
patients.
The Company also submitted a regulatory application to the FDA
in September to gain marketing approval for a new oral
antidiabetic combination drug. The new drug, which is the first
fixed combination product of its kind to be developed in the
United States, leverages the benefits of two widely prescribed
oral antidiabetic medications, GLUCOPHAGE(r) (metformin) and
glyburide, a well established sulfonylurea antidiabetic. A
regulatory application was filed with the FDA in September to
gain marketing approval for VANIQA*, a topical treatment for
excessive facial hair in women.
-11-
The Company is awaiting marketing approval from the FDA for
TEQUIN* (gatifloxacin), a broad-spectrum quinolone antibiotic
for the treatment of multiple common infections, including those
of the respiratory tract. The Company also plans to file for
regulatory approval with the FDA for a new hypertension drug,
VANLEV*, by the end of the year with worldwide regulatory
filings to follow. A research agreement between the Company and
Exelixis Pharmaceuticals was recently announced to identify
novel, validated targets for new medicines using the genetics of
yeast, worms and fruit flies.
Earnings
- --------
Earnings before income taxes increased 13%14% to $1,518$1,678 million
from $1,346$1,476 million in 1998.1999. The effective tax rate on earnings
before income taxes decreased to 27.7%27.2% in 19992000 from 28.2%27.8% in
1998.1999. The decrease in the effective tax rate is dueattributable to
increasedhigher operating earnings from lower tax rate jurisdictions. Net
earnings increased 14%15% to $1,097$1,221 million from $966$1,066 million in
1998.1999. Basic earnings per share increased 12%15% to $.55$.62 from $.49$.54
in 19981999 and diluted earnings per share increased 15% to $.54$.61
from $.47$.53 in 1998.
Nine Months Results of Operations
- ---------------------------------
Worldwide sales for the first nine months of 1999 increased 11%
over the prior year to $14,814 million. The consolidated sales
growth resulted from a 9% increase due to volume and a 2%
increase due to changes in selling prices. Foreign exchange had
no effect on sales for the nine months. U.S. sales increased
16% and international sales increased 3% (4% excluding the
effect of foreign exchange).
Sales in the medicines products segment increased 14% over the
prior year to $10,413 million. Sales growth for the nine months
resulted from a 13% increase in volume, a 2% increase in selling
prices and a 1% decrease due to foreign exchange rate
fluctuations. Worldwide pharmaceutical sales increased 15% with
U.S. pharmaceutical sales up 23% over the prior year.
Cardiovascular drug sales of $2,673 million increased 15% from
the prior year. PRAVACHOL* increased 5% to $1,252 million and
MONOPRIL* increased 10% to $316 million. PLAVIX(r) had sales of
$364 million for the nine months and AVAPRO(r) had sales of $176
million. Sales growth for these products was partially offset
by a 22% decline in CAPOTEN* sales, due to the loss of patent
exclusivity in international markets. Sales of anti-cancer
drugs increased 21% to $2,585 million due to strong sales of
TAXOL* and OTN which increased 24% to $1,067 million and 41% to
$656 million, respectively. Anti-infective drug sales increased
4% to $1,819 million as ZERIT* and VIDEX* recorded gains of 17%
to $458 million and 26% to $148 million, respectively.
International sales of MAXIPIME* increased 26% to $92 million
for the nine months and sales of CEFZIL* increased 11% to $329
million. Sales of central nervous system drugs increased 13% to
$888 million as BUSPAR* and SERZONE* increased 14% to $418
million and 19% to $233 million, respectively. GLUCOPHAGE(r)
continued its strong growth and increased 53% to $980 million.
Analgesic sales of $540 million increased 6% primarily due to
increases in EFFERALGAN* of 9% to $118 million and BUFFERIN* of
14% to $97 million. Sales of EXCEDRIN* decreased 1% to $173
million, coming off significant increases in 1998 due to the
launch of EXCEDRIN MIGRAINE*.
-12-
Earnings before taxes for the medicines products segment
increased 17% to $2,943 million in 1999. As a percentage of
sales, earnings before taxes for this segment improved to 28.3%
in 1999 from 27.5% in 1998. Advertising and promotion, sales
force and general administrative expenses improved, as a
percentage of sales, partially offset by an increase in cost of
goods sold, as a percentage of sales.
Sales in the beauty care products segment increased 5% (6%
excluding the effect of foreign exchange) to $1,822 million.
Sales growth resulted from a 4% increase in volume, a 2%
increase in selling prices and a 1% decrease due to foreign
exchange rate fluctuations. HERBAL ESSENCES* continued its
strong growth, increasing 16% to $486 million. HERBAL ESSENCES
FACIAL CARE* contributed $15 million in nine month sales.
AUSSIE* products contributed $93 million, an increase of 15%,
and sales of DAILY DEFENSE* increased 60% to $93 million for the
nine months. Earnings before taxes for the beauty care segment
decreased to $202 million in 1999 from $257 million in 1998,
primarily due to the introduction of a demand management
manufacturing system.
Sales in the nutritional products segment increased 3% to $1,354
million (4% excluding the effect of foreign exchange). Sales
growth for the nine months resulted from a 4% increase in
volume, and a 1% decrease due to foreign exchange rate
fluctuations. Changes in selling prices had no effect on sales
for the nine months. Total infant formula sales of $896 million
were at prior year levels. ENFAMIL* recorded sales of $525
million, a 4% increase over the prior year. BOOST*, an adult
nutritional supplement, increased 29% to $84 million. Nine
month sales of VIACTIV* were $19 million. Earnings before taxes
for the nutritional products segment were $268 million in 1999
compared to $260 million in 1998 and, as a percentage of sales,
earnings before taxes were 19.8% in both 1999 and 1998.
Increases, as a percentage of sales, in cost of products sold
and advertising and promotion expenses were offset by decreases,
as a percentage of sales, in sales force and general and
administrative expenses.
Medical device segment sales increased 4% to $1,225 million,
excluding sales from a 1998 distribution agreement with the
acquirer of Zimmer's divested arthroscopy and powered surgical
instrument business. On this basis, medical device sales
increased 3% due to volume and 1% due to foreign exchange with
no effect from price changes. Zimmer sales on the same basis
increased 7% to $704 million. Knee joint replacement sales
increased 11% to $277 million and hip replacement sales
increased 9% to $209 million. ConvaTec remained at prior year
levels of $521 million as sales of ostomy products decreased 2%
to $324 million and wound care products increased 1% to $173
million. Earnings before taxes for the medical devices segment
increased 11% to $253 million in 1999 from $227 million in 1998
and, as a percentage of sales, improved to 20.7% in 1999 from
18.8% in 1998, resulting from a decrease, as a percentage of
sales, in cost of products sold.
-13-
Operating Expenses
- ------------------
Total expenses for the nine months ended September 30, 1999, as
a percentage of sales, decreased to 70.9% from 71.6% in 1998.
Cost of products sold increased to 27.5% of sales from 26.5% in
1998 primarily due to revenue growth of OTN which carries
significantly lower margins. Excluding OTN, cost of products
sold, as a percentage of sales, increased to 24.3% in 1999 from
24.0% in 1998 due to decreased sales of CAPOTEN*. Expenditures
for advertising and promotion in support of new and existing
products remained at prior year levels of $1,768 million.
Marketing, selling, administrative and other expenses increased
7% to $3,338 million from $3,116 million in 1998. Research and
development expenditures increased 14% to $1,328 million from
$1,165 million in 1998. Pharmaceutical research and development
spending increased 14% over the prior year, and as a percentage
of pharmaceutical sales, was 12.4% compared to 12.6% in the same
period of 1998.
Earnings
- --------
Earnings before income taxes for the nine months increased 13%
to $4,312 million from $3,802 million in 1998. The effective tax
rate on earnings before income taxes decreased to 27.8% in 1999
from 28.2% in 1998. Net earnings increased 14% to $3,115 million
from $2,728 million in 1998. Basic earnings per share increased
15% to $1.57 from $1.37 in 1998 and diluted earnings per share
increased 15% to $1.54 from $1.34 in 1998.
Financial Position
- ------------------
The balance sheet at September 30, 1999March 31, 2000 and the statement of cash
flows for the ninethree months then ended reflect the Company's
strong financial position. The Company continues to maintain a
high level of working capital, increasing to $3.6$3.7 billion at September 30, 1999, from $3.0 billionMarch 31, 2000,
at approximately the same level as December 31, 1998.1999.
11
Long-Term Debt decreased slightly to $1,331$1,333 million from $1,364$1,342
million at December 1998.1999.
Internally generated funds continue to be the Company's primary
source for financing expenditures for new plant and equipment.
Net Cash Provided by Operating Activities increased 7% to $2,852$738
million in 1999.2000. Additions to fixed assets for the ninethree months
ended September 30, 1999March 31, 2000 were $455$91 million compared to $537$122 million
during the same period of 1998.1999.
In January 2000, the Company made a contribution of $230
million to fund its U.S. Retirement Income Plan.
During the ninethree months ended September 30, 1999,March 31, 2000, the Company
purchased 15.29.9 million shares of its common stock.
The Company is exposed to market risk, including changes in
currency exchange rates. To reduce these risks, the Company
enters into certain derivative financial instruments where
available onstock at a cost-effective basis to hedge its underlying
economic exposure. These instruments also are managed on a
consolidated basis to efficiently net exposures and thus take
advantagecost
of any natural offsets.
-14-
It is the Company's policy to hedge certain underlying economic
exposures to reduce foreign exchange risk. Derivative financial
instruments are not used for trading purposes. Gains and losses
on hedging transactions are offset by gains and losses on the
underlying exposures being hedged. Foreign exchange option
contracts and, to a lesser extent, forward contracts are used to
hedge anticipated transactions.
During the first quarter of 1998, the Company divested its BANr
brand of anti-perspirants and deodorants for $165 million,
resulting in a gain of $125 million before taxes. During the
second quarter, the Company divested A/S GEA, a Denmark-based
generic drug business, and Hexachimie, a fine chemical
manufacturer based in France, resulting in a combined gain of
$76 million before taxes. The Company recorded provisions for
restructuring of $201 million before taxes in the first nine
months of 1998.$563 million.
Business Segments
- -----------------
Three Months Ended September 30,
------------------------------------------March 31,
----------------------------
Net Earnings
Net
Sales Before Taxes
-------------------- ---------------------------------- ------------------
2000 1999 19982000 1999
1998
--------- --------- --------- --------------- ------ ------ ------
(in millions)
Medicines Products $3,548 $3,101 $1,049 $ 873$3,783 $3,431 $1,169 $1,001
Beauty Care Products 624 597 92 96549 572 76 65
Nutritional Products 466 440 96 91506 449 120 101
Medical Devices 422 402 385 91 7980 72
Other - - 190 207
--------- --------- --------- ---------233 237
------ ------ ------ ------
Total Company $5,040 $4,523 $1,518 $1,346
========= ========= ========= =========
Nine Months Ended September 30,
------------------------------------------
Earnings
Net Sales Before Taxes
-------------------- -------------------
1999 1998 1999 1998
--------- --------- --------- ---------
(in millions)
Medicines Products $10,413 $ 9,145 $2,943 $2,519
Beauty Care Products 1,822 1,733 202 257
Nutritional Products 1,354 1,311 268 260
Medical Devices 1,225 1,210 253 227
Other - - 646 539
-------- --------- --------- ---------
Total Company $14,814 $13,399 $4,312 $3,802
======== ========= ========= =========
-15-
$5,260 $4,854 $1,678 $1,476
===== ===== ===== =====
Included in earnings before taxes of each segment is a cost
of capital charge. The offset to the cost of capital charge
is included in Other. In addition, Other principally
consists of interest income, interest expense, certain
administrative expenses and allocations to the industry
segments for certain corporate programs. For the first ninethree
months of 1998,2000, Other also includes the gain on sale of businesses of $201 million and a provision for
restructuring of $201 million. In addition, the
segment information reflects certain internal organizational
changes made in 1999. Prior year data have been restated
accordingly.
Year 2000
- ---------
The Company has reviewed its information, manufacturing, and
research and development systems for Year 2000 compliance. The
Year 2000 problem arises because many computer systems use only
two digits to represent the year. These programs may not
process dates beyond 1999, which may cause miscalculations or
system failures.
The Company has completed a comprehensive compliance program
used to assess the Year 2000 problem in the processing of data
in the Company's information technology (IT) and non-IT systems,
including manufacturing, and research and development systems.
This program was executed in five phases which included:
Assessment, Planning, Execution, Testing and Certification, and
Implementation.
In connection with this compliance program, the Company also has
asked critically important vendors, customers, suppliers,
governmental regulatory authorities and financial institutions,
whose incomplete or untimely resolution of the Year 2000 problem
could potentially have a significant impact on the Company's
operations, to assess their Year 2000 readiness. This assessment
has been completed. The follow-up phase of this work (which
includes ongoing monitoring of Year 2000 readiness of the third
parties and developing contingency plans relating to those third
parties whose responses raise issues or who did not respond) is
being undertaken by the business continuity and contingency
planning committees referred to below.
Contingency plans are in place to minimize any significant
exposures from the failures of third parties to be Year 2000
compliant. The contingency plans include backup procedures,
identification of alternate suppliers, and increases in
inventory levels where appropriate. The contingency plans are
complete and will continue to be tested during the rest of the
year. In addition, the Company has formed business steering
committees to monitor contingency planning activities at various
business-unit and corporate levels. These committees proactively
monitor critical internal systems as well as the external
environment. The Company has set up procedures to receive
relevant information regarding any Year 2000 related events from
all of the markets during the year-end change. This information
will be collected by these committees, who will initiate the
implementation of contingency plans in a timely manner, as
necessary.
-16-
As a result of the comprehensive compliance program, information
received from critically important third parties regarding their
Year 2000 readiness,$120 million and the contingency plans in place,gain on product
divestitures of $120 million. (See also Note 3 and Note 4 to
the Company does not expect the Year 2000 problem, as well as the
cost of the compliance program, to have a material impact on the
Company's results of operations, financial condition or cash
flows. However, there can be no assurance that third parties
will convert their systems in a timely manner and in a way that
is compatible with the Company's systems.statements)
Reference is made to Part II, Item 1 - Legal Proceedings in
which developments are described for various lawsuits,
claims and proceedings in which the Company is involved.
-17-Forward Looking Information
- ---------------------------
Certain statements in this Form 10-Q may constitute forward
looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements
involve a number of risks, uncertainties and other factors
that could cause actual results to differ materially from
expected and historical results. Certain factors that may
affect the Company's operations and prospects are discussed in
Exhibit 99 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1999.
12
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
- --------------------------
Various lawsuits, claims and proceedings of a nature considered
normal to its business are pending against the Company and certain
of its subsidiaries. The most significant of these are reported in
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 19981999 and any subsequent material developments in such
matters are described below.
Breast Implant Litigation
- -------------------------
As previously reported in the Company's Annual Report on Form 10-
K10-K
for the fiscal year ended December 31, 1998,1999, the Company, together
with its subsidiary, Medical Engineering Corporation (MEC), and
certain other companies, has been named as a defendant in a number
of claims and lawsuits alleging damages for personal injuries of
various types resulting from breast implants formerly manufactured
by MEC or a related company.
Of the more than 90,000 claims or potential claims against the
Company in direct lawsuits or through registration in the national
class action Revised Settlement Program, most have been dealt with
through the Revised Settlement, other settlements, or trial. Since December 31, 1998, the Company has settled, reached
agreements to settle, or otherwise disposed of large numbers of
claims of persons with breast implants made by MEC. As of
NovemberMay 1, 1999,2000, the Company's contingent liability in respect of
breast implant claims was limited to residual unpaid Revised
Settlement Program obligations and to roughly 2,2001,550 remaining opt-
outs who have pursued or may pursue their claims in court.
As of NovemberMay 1, 1999,2000, approximately 7,4005,800 United States and 200
foreign breast implant recipients were plaintiffs in lawsuits
pending in federal and state courts in the United States and in
certain courts in Canada and Australia. These figures include the
claims of plaintiffs that are in the process of being settled
and/or dismissed. In these lawsuits, about 4,2003,000 U.S. plaintiffs
and 5046 foreign plaintiffs opted out of the Revised Settlement.
The lawsuits of approximately 3,2002,800 U.S. plaintiffs who did not
opt out are expected to be dismissed as these plaintiffs are among
the estimated 74,000 women with MEC implants who chose to
participate in the nationwide settlement. Of the 4,2003,000 opt-out
plaintiffs, an estimated 2,0001,450 plaintiffs have claims based upon
products that were not manufactured and sold by MEC or that have
been or are in the process of being settled and/or dismissed.
Accordingly, the number of remaining plaintiffs who have pursued
or may pursue their claims in court against the Company is roughly
2,2001,550 as stated in the preceding paragraph.
Under the terms of the Revised Settlement Program, additional opt-
outs are expected to be minimal since the deadline for U.S. classclaim
members to opt out has passed. In addition, the Company's
remaining obligations under the Revised Settlement Program are
limited because most payments to "Current Claimants" have already
been made, no additional "Current Claims" may be filed without
court approval, and because payments of claims to so-called "Other
Registrants" and "Late Registrants" are limited by the terms of
the Revised Settlement Program. The Company believes it will be
able to address remaining opt-out claims as well as remaining
obligations under the Revised Settlement Program within its
reserves as described in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998.
-18-1999.
13
On March 31, 2000, the federal government filed a civil suit in
federal district court in Birmingham, Alabama, against several
parties in the breast implant litigation, including the Company.
The government claims it is entitled to reimbursement for certain
costs incurred in connection with medical treatment provided to
women with breast implants. The Company believes it will be able
to address the government lawsuit within its reserves as described
in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999.
Prescription Drug Litigation
- ----------------------------
The Company remains a defendant in several actions challenging
pricing on brand name prescription drugs. These actions includeinclude:
several currently consolidated antitrust actions brought against
the Company and more than thirty other pharmaceutical
manufacturers, drug wholesalers and pharmacy benefit managers by
certain chain drugstores, supermarket chains and independent
drugstores; state pharmaceutical actions; and purported class
actions on behalf of consumers. The Company will continue to
defend vigorously its position in this ongoing litigation and
believes it will be able to address all remaining claims within its
reserves as described in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998.1999.
Infant Formula Matters
- ----------------------
As previously reported in the Company's Annual Report on Form 10-
K10-K
for the fiscal year ended December 31, 1998,1999, the Company, one of
its subsidiaries, and others have been defendants in a number of
antitrust actions in various states filed on behalf of purported
statewide classes of indirect purchasers of infant formula products
and by the Attorneys General of Louisiana, Minnesota and
Mississippi, alleging a price fixing conspiracy and other
violations of state antitrust or deceptive trade practice laws and
seeking penalties and other relief. The Company has resolved all
of these actions except foractions. On April 3, 2000, the U.S. Supreme Court decided
to let stand the lower court's decision dismissing a purported statewide
class action of indirect purchaserscase pending
in Louisiana, which had been the only open case remaining.
TAXOL* Litigation
- -----------------
As previously reported in which the plaintiffsCompany's Annual Report on Form 10-K
for the fiscal year ended December 31, 1999, in 1997 and 1998, the
Company filed several lawsuits alleging that a petitionnumber of generic
drug companies infringed its patents covering certain methods of
administering paclitaxel when they filed abbreviated new drug
applications seeking regulatory approval to sell paclitaxel. The
generic drug company defendants are Boehringer Ingelheim Corp.; Ben
Venue Laboratories, Inc.; Bedford Laboratories; Immunex
Corporation; Zenith Goldline Pharmaceuticals, Inc.; Ivax
Corporation; Mylan Pharmaceuticals, Inc.; Marsam Pharmaceuticals,
Inc.; and Schein Pharmaceuticals, Inc. These actions were
consolidated for certioraridiscovery in the United States SupremeDistrict Court for
the District of New Jersey. The Company does not assert a monetary
claim against any of the defendants, but seeks to prevent the
defendants from marketing paclitaxel in a manner that violates the
Company's patents. The defendants have asserted that they do not
infringe the Company's patents and that these patents are invalid
and unenforceable. Some defendants also asserted counterclaims
seeking damages for alleged antitrust and unfair competition
violations.
On January 4, 2000, the District Court granted the Company's motion
to dismiss certain of the antitrust and unfair competition
counterclaims. The Company's motion for summary judgment on jurisdictional grounds following the
United
States14
remaining antitrust and unfair competition counterclaims was denied
on March 17, 2000.
On February 29, 2000, the District Court granted in part the
generic companies' summary judgment motions for invalidity by
finding all claims of the Company's patents invalid, except for
claims limited to the treatment of ovarian cancer. As a result of
this ruling, the generic companies may obtain U.S. Food and Drug
Administration approval to market paclitaxel for treatment of
metastatic breast cancer after failure of combination chemotherapy.
The District Court's opinion left for determination at trial the
validity of the claims of the Company's patents directed to the low
dose, three-hour administration of paclitaxel for ovarian cancer
and denied the generic companies' summary judgment motion arguing
non-infringement of the Company's patents.
In order to pursue an immediate appellate review of the District
Court's invalidity findings, the Company voluntarily relinquished
all rights in the remaining ovarian tumor specific claims of its
patents. On April 7, 2000, the District Court granted the
Company's request for an entry of judgment. The Company
subsequently filed a notice of appeal with the Federal Circuit
Court of Appeals' affirmationAppeals. If the Company is successful on appeal and the
trial that would follow a successful appeal, the Company believes
its remaining patent rights would apply to all tumor types.
It is not possible at this time to make a reasonable assessment of
the district court's
dismissaloutcome of such action.
-19-the appeal and the remaining claims in these actions
nor to reasonably estimate the impact on TAXOL* sales or the amount
of damages were the Company not to prevail.
VANLEV* Litigation
- ------------------
The Company, its Chairman of the Board and Chief Executive Officer,
Charles A. Heimbold, Jr. and its Chief Scientific Officer and
President - Pharmaceutical Research Institute, Peter S. Ringrose,
Ph.D., are defendants in a number of purported class actions filed
in April and May in the U.S. District Court for the District of New
Jersey alleging violations of federal securities laws and
regulations. Plaintiffs claim that the defendants disseminated
materially false and misleading statements and failed to disclose
information concerning the safety and expected availability of its
product VANLEV* during the period November 8, 1999 through April
19, 2000. Plaintiffs seek compensatory damages and costs and
expenses.
15
PART II - OTHER INFORMATION
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
The following matters were voted upon at the Annual Meeting of
Stockholders held on May 2, 2000, and received the votes set forth
below:
All of the following persons nominated were elected to serve as
directors and received the number of votes set opposite their
respective names:
For Withheld
Robert E. Allen 1,385,704,476 250,629,475
Lewis B. Campbell 1,389,533,562 246,800,389
Laurie H. Glimcher, M.D. 1,388,315,582 248,018,369
James D. Robinson 1,384,091,216 252,242,735
The appointment of PricewaterhouseCoopers LLP was ratified by a
vote of 1,622,096,652 shares in favor of the appointment, with
7,535,257 shares voting against, 6,702,042 shares abstaining and
there were no broker non-votes.
The proposal to approve the Company's 2000 Non-Employee
Directors' Stock Option Plan was approved by a vote of
1,463,265,181 shares in favor, with 156,828,923 shares voting
against, 16,239,847 shares abstaining and there were no broker
non-votes.
The stockholder-proposed resolution to recommend that the Board
of Directors take the necessary steps to reinstate the annual
election of directors received a vote of 754,765,598 shares in
favor, with 581,773,904 shares voting against, 22,762,538 shares
abstaining and 277,031,911 broker non-votes.
The stockholder-proposed resolution requesting the Board of
Directors adopt a policy of pharmaceutical price restraint
received a vote of 66,100,719 shares in favor, with
1,255,878,413 shares voting against, 37,412,433 shares
abstaining and 276,942,386 broker non-votes.
16
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
a) Exhibits (listed by number corresponding to the Exhibit Table
of Item 601 in Regulation S-K).
Exhibit Number and Description Page
- ------------------------------- --------
10q. Form of Agreement, effective June 1, 1999,
entered into between the Registrant and each E-10q-1
of the following officers on the following
dates: Hamed M. Abdou, Ph.D., August 9, 1999;
Peter R. Dolan, July 29, 1999; Donald J. Hayden,
Jr., July 30, 1999; Richard J. Lane, August 6,
1999; John L. McGoldrick, August 10, 1999;
Michael F. Mee, July 28, 1999; Christine A.
Poon, July 29, 1999; Peter S. Ringrose, Ph.D.,
August 5, 1999; Stephen I. Sadove, July 29, 1999;
Frederick S. Schiff, July 29, 1999; John L. Skule,
August 5, 1999; Charles G. Tharp, Ph.D., July 28,
1999; and Kenneth E. Weg, July 29, 1999.------------------------------
10m. Bristol-Myers Squibb Company 2000
Non-Employee Directors' Stock E-10-1
Option Plan.
15. Independent Accountants' Awareness LetterLetter. E-15-1
27. Bristol-Myers Squibb Company Financial
Data ScheduleSchedule. E-27-1
b) Reports on Form 8-K.
The Registrant did not file any reportsOn April 19, 2000, the Company filed a current report on Form 8-K
duringunder Item 5 concerning the quarter ended September 30, 1999.
-20-withdrawal of its New Drug
Application (NDA) for VANLEV*.
17
SIGNATURES
--------------------------
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
BRISTOL-MYERS SQUIBB COMPANY
(Registrant)
Date: November 12, 1999May 15, 2000 By: /s/ Harrison M. Bains, Jr.
---------------------------------------------------
Harrison M. Bains, Jr.
Vice President and Treasurer
Date: November 12, 1999May 15, 2000 By: /s/ Frederick S. Schiff
------------------------------------------------
Frederick S. Schiff
Senior Vice President - Financial
Operations and Controller
-21-