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March 2, 2012 HEALTH CARE (PHARMACEUTICALS)
Henry Fund Research
Bristol-Myers Squibb (BMY) Investment Recommendation BUY
Nick Johnson, [email protected]
Current Price $32.59
Target Price Range $48-53
Source: http://finance.yahoo.com
Key Stock Statistics152-Week Price Range $24.97-35.44
Market Capitalization (B) $55.1
Shares Outstanding (M) 1,688
Institutional Ownership 68.5%
INVESTMENT THESIS
(-) Bristol-Myers Squibbs patent on its largest volumedrug, Plavix with $7.1 billion annual sales, is set toexpire in 2012. This will cause total revenue to drop aprojected 15-16% in 2012 and a further 4-5% in 2013.Bristols pipeline is unprepared to compensate for thisloss immediately.
(+) While sales are expected to drop precipitously in
2012 and 2013, Bristols strong pipeline, includingYervoy and Eliquis, will help grow revenues starting in2014. Both of these drugs will be blockbusters (i.e.annual sales greater than $1 billion) for Bristol, drivinggrowth for years to come.
(+) Unlike some of its competitors, Bristol hascontinued to funnel funds back into research anddevelopment. R&D has remained over 18% of salessince 2007 and is projected to remain well above that.This will allow Bristol to remain a leader in delivering on
its late-stage pipeline.
(+) In addition to funding R&D, Bristol has madestrategic acquisitions when necessary by implementingtheir string of pearls strategy. These acquisitions
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Henry Fund ResearchTHE UNIVERSITY OF IOWA
Henry B. Tippie School of Management
EXECUTIVE SUMMARY
Bristol-Myers Squibb holds the premier drug pipeline in
the pharmaceutical industry. While the firm is expectedto have decreasing sales in 2012 due to the loss of itslargest product Plavix, Bristol has positioned itself wellto replace this lost revenue with a slew of new drugs,including Yervoy and Eliquis. While others in theindustry have cut R&D expenses, Bristol has remainedcommitted to investing in sustainable growth byincreasing R&D budgets. Bristol has also executed itsstring of pearls strategy by acquiring about one firm peryear to strategically fortify its pipeline. Bristolsshareholders have enjoyed increasing dividends and a$3 billion share repurchase program over the past threeyears. Due to Bristols strong pipeline that hascontinued to produce innovative drugs andmanagements commitment to returning cash back toinvestors, we place a buy recommendation on Bristolwith a price range of $48 to $53.
Several external factors support Bristols increase invalue. First, the aging baby boomer generation in theUS will drive growth in the industry over the long term.Increased spending on health care and overall higheconomic growth will lead emerging markets to be amain growth driver for Bristol. Finally, the improving USeconomy will give millions of Americans healthinsurance which will ensure they can afford Bristolsmedications when necessary.
COMPANY DESCRIPTION
Bristol-Myers Squibb is a global biopharmaceutical firmthat researches, discovers, designs, and develops newdrugs with a focus on cardiovascular diseases,oncology, virology, and immunology. After navigating
Source: Bristol-Myers Squibb 2011 10-K
Bristols 2011 sales are focused in the US with over65% of their sales, followed by Europe with 17%, andJapan with 9%. Revenue growth has largely come fromthe US, Japan and Canada, and emerging markets.
The five countries of Brazil, Russia, India, China, andTurkey make up the emerging markets group for Bristol.While these countries represent a key growthopportunity over the next decade, they share a group ofrisks including intellectual property protection, currencyfluctuations, and pricing volatility.
FDA Approval Process
65%
17%
9%
4%
4%
1%2011 Revenue by Region
United States
Europe
Japan and Canada
Latin America, Middle
East and Africa
Emerging Markets
Other
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Henry Fund ResearchTHE UNIVERSITY OF IOWA
Henry B. Tippie School of Management
or acquire promising clinical stage pharmaceuticals.Bristol is one of the few pharmaceutical companies thatsucceeded in each of these areas.
Source: Bristol-Myers Squibb 2011 10-K
In order to break down Bristols revenue, it is best toanalyze each blockbuster drug (i.e. drugs with annualrevenues of greater than $1 billion) individually becauseeach drug has its own growth profile, risks, and life
cycle.
Plavix (2012)
Plavix, a platelet aggregation inhibitor, is prescribed topatients with cardiovascular disease. It is Bristolslargest product encompassing over a third of totalrevenue at $6.6 billion
2. Plavix was co-developed and is
jointly marketed by a partnership agreement withSanofi-Aventis. When its patent expires in May of
2012, Bristols 2012 total revenue is forecasted todecrease 15-16%. Bristols management has providedguidance of $2.7 billion in 2012 Plavix sales, but in theshort term, Bristol will be unable to replace the revenuelost by their major blockbuster drug
4We have
must pick up the tab for 50% of US expenses duringthis period. Due to this cost-sharing agreement, Abilifyis currently one of Bristols highest margin products
7.
When Abilifys agreement/patent expires in 2015, therewill be pressure on Bristols margins unless theirpipeline drugs are able to increase prices and/ordecrease costs. The US patent and thecommercialization agreement with Otsuka expires in2015 at which time it is not expected to be renewed.
Abilifys estimated total US prescription demandincreased 5% in both 2010 and 2011 and garneredhigher average selling prices, but was partially offset bydecreases in Bristols contractual share from Otsuka
2.
We expect Abilify to continue to grow at 10% per yearuntil patent expiration.
Reyataz (2017)
Reyataz, a protease inhibitor, is prescribed to patientswith HIV. Launched in 2003, it was developed under alicensing agreement with Novartis which requires Bristolto pay a royalty based on a percentage of net sales
2.
Bristol also promotes Reyataz for use in combination
with Norvir, a pharmaceutical from competitor AbbottLaboratories, under the agreement that Bristol pay anadditional royalty to Abbott. The drug earned over $1.5billion in sales in 2011. Reyatazs patent expires in theUS, Canada, and most EU countries in 2017, but willreceive exclusivity in Japan until 2019. This product isone of the few blockbusters for Bristol that has fiveyears of exclusivity left and is forecasted to grow 5%per year until 2017, the end of the forecast period.
Sales have remained relatively flat in the US, butgrowth has come from higher demand in emergingmarkets, particularly Brazil
2. This trend is expected to
continue for the next five years.
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Henry Fund ResearchTHE UNIVERSITY OF IOWA
Henry B. Tippie School of Management
The revenue growth in Baraclude is due to double digitgrowth in demand both in the US and abroad. Thecomposition of matter patent expires in the US in 2015.
In the EU and Japan, the patent will expire in 2011-2016 and 2016, respectively. While double digit growthrates are projected to continue for the next three years,sales will fall precipitously in 2015 with the loss ofexclusivity in the US.
Pipeline
Source: Bristol-Myers Website
The biggest growth driver for Bristol has consistentlybeen its drug pipeline. Bristol had over 50 compoundsin FDA Phase II trials or later at the beginning of 2011
2.
commercialization expenses shared between the twocompanies. Eliquis started with a very difficult approvalprocess by failing two surgery trials and a Phase III
acute coronary syndrome trial. Since then, Eliquis hashad excellent results for patients with atrial fibrillation,the largest potential market for factor Xa inhibitors,estimated at over $10 billion per year7.
ARISTOTLE, a major clinical trial completed by Bristol,revealed that Eliquis was the only new anticoagulant todemonstrate significant decreases in mortality, bleedingand stroke
4. These results indicated that Eliquis is not
only more effective and less risky than the standard
anticoagulant Warfarin, but it was also better than twonew competitors already on the market, Pradaxa andXarelto.
In November of 2011, the FDA assigned Eliquis apriority review, shrinking the review period from thestandard 10 months to six12. However, earlier thismonth, the FDA announced that the decision would bepostponed three months to June 28 after receivingadditional information from Bristol and Pfizer. Neither
firm detailed what additional information they providedto the FDA, but only explained that it was informationfrom current studies. Eliquis is projected to earn nearly$400 million this year and a large delay wouldmaterially hurt Bristols already fragile 2012 earnings.While it is expected that Eliquis will be approved byJune 28, any deviation from this will have a largeimpact on Bristols stock price (5-10%) as Eliquis isprojected to be a blockbuster drug in the near future.
Eliquis composition of matter patent does not expireuntil 2023 and will help replace the lost revenue fromPlavix as soon as it is approved.
The most disappointing news of the year for Bristol was
Full Development (Stage III)
EGFR/IGFR Anti-CD40L Brivanib
VEGF R-2 LPA1 Elotuzumab
Anti-CD70 ADC LXR Modulators NecitumumabJAK2 Inhibitor PCSK9 Dapagliflozin
IGF-IR CCR2/5 Apixaban
SMO Antagonist IKACh Inhibitors Daclatasvir
IL-21 Ikur
Anti-KIR Peginterferon lambda
Urelumab NSE Inhibitor
Notch Inhibitors NS5B Inhibitor
Anti-PD1 HIV Attachment Inhibitor Oncology
Anti-CXCR4 Anti-PD-L1 Metabolics
Anti-LAG3 NRT Inhibitor Immunology
PEG-FGF21 HIV Maturat ion Inhibi tor Cardiovascular11BHDS NS5B Primer Grip Inhibitor Virology
TGR5 agonist NS5A Second Generation Neuroscience
FGF21-PKE NS5B Site 1 Inhibi tor
GPR119 a-7 Nicotinic
CCR1 Ab Modulator
Ant i-IP10 Triple Reuptake Inhibitors
Ant i-CD28 Microtubule Stabil izer
Anti-IL6 Avagacestat
IL-23 GABA/Nicotinic Modulator
Anti-IL31 CGRP Antagonist
Developmental Stage (Stage I & II)
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Henry Fund ResearchTHE UNIVERSITY OF IOWA
Henry B. Tippie School of Management
only earned $0.53 on revenue of $5.45 billion due tounderwhelming results from Plavix
11. This is after
Bristol had beaten earnings estimates the other three
quarters in 2011. Bristols management also providedlow guidance for 2012. In particular, they set 2012goals of $17.2-$18.2 billion in revenue (with $2.7 billioncoming from Plavix), gross margins consistent with2011 (74%), research and development to grow in thelow single digit range, and non-GAAP EPS in the rangeof $1.90-$2.00
4. The company also mentioned its
guidance of $1.95 non-GAAP EPS in 2013, but failed togive investors confidence that it was attainable7.Overall, the 2012 goals appear optimistic given theimpending loss of exclusivity to Plavix with little toreplace the revenue in the short term, but ultimatelyattainable. Based on our projections of 2013 EPS of$1.91, Bristol will fall short of their guidance by fourcents.
Bristol also announced its long term plans to havesustained EPS growth starting in 2014 with continuedsupport and development of its drug pipeline. These
broad goals are much more likely to be achieved for thefirm and based on their commitment to R&D, they willhave sustained long term growth. Our forecast hastotal revenue growing 4-6% in 2016 and 2017 with acontinuing growth rate of 2%.
Acquisitions
As part of its string of pearls strategy, Bristol hasacquired one firm per year in each of the last fouryears, including 2012. In September 2011, theyacquired Amira Pharmaceuticals, a biopharmaceuticalfirm focused on cardiovascular and fibrotic diseases, for$325 million in cash with three $50 million paymentscontingent upon the success of drug development and
create a pipeline of therapies for the disease10
. In fact,Bristol already has a drug in FDA Phase III trials for astrain common in Asia14. This acquisition fortifies their
position in the market and may lead to a combinationdrug that is more effective than either individually.Bristol announced that the acquisition would be dilutiveto earnings through 2016, but again shows their resolveto build the best pipeline in the industry.
In the past, Bristol has been very effective at its stringof pearls strategy. Most recently, Bristols acquisition ofMedarex has led to the oncology drug Yervoy whichgenerated over $100 million in the fourth quarter of
2011. Given their commitment to R&D and history, webelieve that Bristol will continue to be successfulpurchasing development stage companies andshepherding their drugs through the approval process.
Share Repurchases and Dividends
Bristol has been focused on returning shareholderwealth in the form of dividends and share repurchasesover the last three years. In May 2010, the firm
announced a $3 billion stock repurchase program withno expiration date. After purchasing $576 million in2010 and $1.2 billion in 2011, Bristol is expected torepurchase another $1.2 billion in shares in 2012 tocomplete the program. In addition, dividends per sharehave increased each of the last three years withdividends of $1.25, $1.29, and $1.33 in 2009, 2010, and2011, respectively. Management has announced thatannual dividends will continue to grow to $1.36 for2012, but our forecast projects that their streak will endin 2013. Due to the loss of Plavix in 2012 and the $2.5billion all-cash purchase of Inhibitex, Bristol is projectedto not repurchase any shares in 2013 or increase thedividend. However, as their drug pipeline reaches the
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Henry Fund ResearchTHE UNIVERSITY OF IOWA
Henry B. Tippie School of Management
INDUSTRY TRENDS
Patent Cliff
of the patent cliff for the entire pharmaceutical industry.However, with the average drug life cycle ranging fromeight to 12 years, this is a process that will continually
repeat itself.
Source: SEC EDGAR
In order to survive the patent cliff, pharmaceuticalshave tried multiple strategies including aggressivepricing (branded drug prices increased by 9.7% in
2010), mergers and acquisitions, and licensing andpartnership programs
5. In addition, significant cost-
reduction efforts have been implemented, including theelimination of over 100,000 jobs across the industry inthe past three years. Even R&D budgets, the life bloodof pharmaceuticals, have been cut recently, headlinedby Pfizers decision to reduce its estimate of 2012 R&Dby $2 billion. However, R&D across the industry isexpected to continue to grow at above 5% in the near
term and remain between 14%-18% of revenues5
.Firms that cut R&D budgets will be forced to findstrategic partnerships or acquisitions.
0.0% 10.0% 20.0% 30.0% 40.0%
JNJPFE
MRK
LLY
BMY
R&D as a % of 2011 sales
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Henry B. Tippie School of Management
composition of matter patent were to expire). In fact,nearly two-thirds of new chemical entities launchedhave focused on rare diseases affecting less than
200,000 individuals5
. Drug manufacturers can achievemonopolistic positions with orphan drugs which allowsfor premium pricing and a longer product life cycle. Forthis reason, the number of FDA approvals for orphandrugs has increased from 145 to 202 for the 14-yearperiod of 1997-2010 compared to 1983-1996. This isnot a strategy that Bristol has chosen to developbecause the additional risks involved. Many of Bristolscurrent pipeline are aimed at large patient populationsand can often times be prescribed for multipleapplications. With an orphan drug, pharmaceuticalfirms either hit a home run or strike out. Currently, onlySprycel, a multi-targeted tyrosine kinase inhibitor forpatients with leukemia, falls under this category forBristol.
Source: PhRMA
Emerging Markets
Global pharmaceutical sales growth is being driven bythe high growth in emerging markets, particularly China.Consensus estimates have countries in emerging
emerging markets, it has made the industry morecyclical than in the past and decreased margins. Toexacerbate the problem, countries that have been hit
significantly hard by the global recession, such asRussia and Mexico, require their citizens to bear thecost of prescription drugs
5. In addition, patent
enforcement in emerging markets has been aworldwide issue with China and India being the worstoffenders. However, both countries started to officiallyrecognize international patents in the last decade.Without patent protection, branded pharmaceuticalcompanies would not have any financial incentive todiscover new drugs.
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Henry B. Tippie School of Management
Health Care Reform
President Barack Obama signed the Patient Protectionand Affordable Care Act (PPACA) on March 23, 2010.The health care overhaul bill has remained underimmense political and judicial scrutiny since its signing.The Supreme Court will hear arguments in April withthe official verdict expected in June. While much of theoutcome of reform is still unknown due to manyprovisions being implemented in 2013-2020 anduncertainty whether the act will remain law, there hasalready been large consequences. Profit margins havebeen squeezed by discounts given by branded
prescription drug manufacturers to patients in theMedicare Part D plan doughnut hole
2. However, the
new law is projected to increase the number of insuredindividuals by an estimated 32 million and individualswith prescription drug coverage increase theirprescription drug utilization by 75%9.
Overall, it is widely expected that health carecompanies will be hurt in the short term, but will benefitfrom having more customers with health insurance in
the long term. With millions of additional Americansadded to health insurance and new health plans thatwill favor cost savings, strong growth is expected withinthe generic drug sector5.
MARKETS AND COMPETITION
Bristol competes in the highly competitive brandedpharmaceutical industry. Its main competitors are allmultinational corporations such as Johnson & Johnson,
Pfizer, Merck, and GlaxoSmithKline. Some companieslike Johnson & Johnson and GlaxoSmithKline arediversified and do not rely solely on biopharmaceuticalsfor income.
safety and effectiveness. Therefore, they can operatewith significantly less investment in R&D and ultimatelycan price their products at a substantial discount to the
drug innovator. When a drug loses its patent, the rateof sales loss is influenced by a variety of factorsincluding the type of country, patient population, andcomplexity to manufacture. Drugs with small patientpopulations, complex manufacturing processes, orlocated in developing countries all experience a slowerrate of decline in sales. With the large patent cliff, eachof these competitors will face stiff generic competition inthe next few years.
US Market Share by Revenue
Source: IBISWorld
Johnson & Johnson (JNJ)
The well-known company, Johnson & Johnson,operates in three core segments: medical devices anddiagnostics, consumer healthcare, andpharmaceuticals. Within its pharmaceutical segment,65% of its revenue stems from small molecule chemicalcompounds and the remaining 35% comes frombiologics
9. Johnson & Johnson shares the same
challenges as the rest of the industry, in particularexpiring patents of blockbuster drugs and difficulty inobtaining FDA approval. The company was able to
grow its US pharmaceutical and OTC medicinesegment in 2011 by 6.3%, including an 8.8% increasein operating income. This was after years of decline inboth measures. Johnson & Johnson has positioned
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Henry Fund ResearchTHE UNIVERSITY OF IOWA
Henry B. Tippie School of Management
patent reveal that Pfizer may have difficulties in 2012.In order to grow, Pfizer will be forced to pay premiumsto acquire clinical stage firms and is not in a beneficial
position to take advantage of market opportunities.Merck (MRK)
Merck, the second largest pharmaceutical company,operates in four core segments: pharmaceutical, animalhealth, consumer care, and alliances. Unlike Pfizer,Merck has increased its R&D spending by 10% in 2009and plans on continuing to improve its pipeline. Afterits merger with Schering-Plough in 2009, Merck hasattempted to reduce costs by laying off employees,including an announcement to eliminate another12,000-13,000 employees by the end of 20159.Revenue in their US segment fell 5.6% in 2011, butcost-saving measures were able to overcome theshortfall and operating income increased 8.0%.Overall, Merck is likely the best positioned for thepatent cliff with only one blockbuster drug, Singulair, setto expire in 2012. With a strong pipeline, reduced laborcosts, and a strong R&D investment, Mercks future
holds promise. They would be another firm worthinvestigating further for possible investment.
GlaxoSmithKline (GSK)
GlaxoSmithKline, headquartered in the UnitedKingdom, operates in two core segments:pharmaceuticals and consumer healthcare. Wellestablished as a branded pharmaceutical company,GlaxoSmithKline is also a major manufacturer of
vaccines. In order to increase growth, they havefocused their resources on biologics and vaccines. Likemany of its competitors, GlaxoSmithKline has alsoinstituted cost-reduction plans including cuts to R&Dand the reduction in 3 000 4 000 positions by the end of
Pharmaceutical firms also face an increasing risk fromgovernment entities facing budget shortfalls. Withextensive liabilities stemming from promised medical
care, particularly to the elderly, governments arelooking for solutions to cut costs in any way possible.For example, Bristol is required to provide a 50%discount of its branded products to patients who fall intothe Medicare Part D coverage gap, commonly referredto as the donut hole
2.
ECONOMIC OUTLOOK
The key macroeconomic factor affecting Bristol is the
unemployment rate. Nearly 60% of US workers receivehealth insurance from their employers, and as theunemployment rate drops, more individuals becomecovered
5. As the economy has improved, the
unemployment rate has continued to drop, reaching8.3% in January of 2012. Our view is that the economywill continue its slow recovery and that unemploymentwill continue to drop to 8.1% in six months and 7.4% intwo years. As the unemployment rate drops and thenumber of US workers and families with healthinsurance increases, the usage of prescription drugswill also increase.
Unemployment Rate
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Henry B. Tippie School of Management
Source: Trading Economics
Finally, the GDP growth rate provides a basic indicatorfor the overall health of the economy. This drivers
influence on the pharmaceutical market largely stemsfrom its influence on the previously mentioned drivers.A healthy GDP growth rate will positively influence theunemployment rate which will lead to more insuredindividuals with more spending. Our prediction is forreal GDP to remain between 2.5% and 3.5% for severalyears. This will likely not be a driving source of growthfor Bristol.
Source: Trading EconomicsExchange rates play a large role in the profitability ofmost multi-national corporations and pharmaceuticalsare no different. The main exchange rate driver for
S
just starting its upward climb in revenue. Positive newsregarding any of the drugs in Bristols pipeline would besignificant, but in particular, news on Eliquis is critical.
Source: Centers for Disease Control
Aging Demographics
The aging baby boomer generation in the USrepresents a large segment of current customers that isexpected to increase their consumption of
pharmaceuticals as they age. In fact, elderly patientsalready account for 33% of industry sales and with lifeexpectancy rates continuing to rise, the number ofelderly in this country is projected to increase to nearly80 million by 20405,15. This phenomenon is not uniqueto the United States. The percentage of worldpopulation over the age of 60 is projected to grow from11.0% in 2010 to 21.8% in 20501. In short, the marketfor pharmaceuticals marketed to the elderly has strong
long-term growth potential. For Bristol, treatmentsaimed at patients with diabetes, cardiovascular disease,or cancer will cater to a population that is aging aroundthe world.
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Henry Fund ResearchTHE UNIVERSITY OF IOWA
Henry B. Tippie School of Management
INVESTMENT POSITIVES
Bristol has the best drug pipeline in the industrywhich will help fill the vacuum from the loss of Plavixin 2012. Drugs such as Yervoy and Eliquisrepresent the future blockbusters for the firm withpatent expirations not coming until the early 2020s.
Executing its string of pearls strategy, Bristol hascontinued to reinvest in the firm by strategicacquisitions each year. Their acquisition of Medarex
in 2009 for $2.1 billion is already paying dividendswith the early success of Yervoy.
With a dividend yield of 4.2% and share repurchasesof $3 billion over the past three years, Bristolsmanagement remains focused on returning value toits shareholders. While dividends are expected toremain flat for over a year, Bristol generates enoughcash flow to comfortably continue its currentdividend. We expect a continuation of both dividend
increases and share repurchases starting in 2014. The growth in emerging markets will be a key for the
pharmaceutical industry as a whole, but Bristolstands to earn substantial returns as well. Withdouble digit growth in health care spending, thesecountries will make up the lions share of growthacross the industry and for Bristol.
The aging demographics across the world willbenefit pharmaceutical firms like Bristol that havetreatments for diseases that affect the elderly. Whilethis is a long term growth story, it may indicate thatthere is more value in Bristols drug pipeline thanoriginally thought.
Fiscal budget shortfalls across the global will likelylead to significant cuts in government spending onhealth care. In the US, health care reform already
required the pharmaceutical industry to accept over$80 billion in discounts to the Medicare Part Dpatients in the coverage gap, or doughnut hole,with more drastic cuts needed to balance the budgetlong term.
VALUATION
Bristol stands at a transitional period in its history, onlytwo months away from the loss of exclusivity of its
largest product, but it also stands to gain from thesignificant investments it has made to its drug pipelinefrom R&D and acquisitions. Our discounted cash flowmodel places the fair value of Bristol at over $50 pershare, representing a 60% premium over its currentprice of $32.59. This model forecasts revenues andearnings below 2011 levels until 2017. With a 3 yearweekly beta of 0.51, Bristol has a very low weightedaverage cost of capital of 5.36% which strongly valuesthe drugs in its pipeline that have yet to be approved orearn any revenue. Sensitivity analysis reveals thatBristols beta would have to jump to one (or the WACCwould equal 7.46%) for Bristol to be fairly priced in thecurrent market. The other major factor beyond WACCfactors are the Plavix sales decline rate, pipelinerevenue growth rate, and margins. While margins areexpected to decline with the loss of Plavix, a 100 basispoint increase in cost of goods sold (as a percentage ofsales), will result in a $2-$2.50 decrease in share price.
Likewise, a 4% decrease in 2017 pipeline sales growth,will result in a $2 decline in share price. However, themodel is most sensitive to changes in WACC or any ofthe factors that compose that calculation.
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Henry B. Tippie School of Management
litigation that could significantly affect one of Bristolscurrent blockbusters should be reviewed. In addition,the failure of a pipeline drug to receive FDA approval,
particularly Eliquis, could be devastating to futureearnings. If another pharmaceutical firm were toimprove upon a current Bristol blockbuster drug, areevaluation would be necessary. Finally, any changesin government health care spending must be closelyanalyzed to estimate its effect on Bristol.
REFERENCES1Yahoo! Finance, http://finance.yahoo.com
2Bristol-Myers Squibb 2011 10-K3US Food and Drug Administration, http://www.fda.gov/
44
thQuarter Earnings Call, Bristol-Myers Squibb.
Transcript access from http://www.thestreet.com/5Standard & Poors, Industry Survey; Healthcare:
Pharmaceuticals, December 1, 2011.
6Pharmaceutical Research and Manufacturers of
America (PhRMA), http://www.pharma.org/7MKM Partners, Bristol-Myers Squibb, October 11,2011.
8SEC Website, http://www.sec.gov/edgar/searchedgar/
9IBISWorld Industry Report 32541a, Brand Name
Pharmaceutical Manufacturing in the US, December2011
10
IMS Health, http://www.imshealth.com/11Earnings Scorecard: Bristol-Myers, Zachs InvestmentResearch, February, 6, 2012, http://www.zacks.com/
12Wall Street Journal Decision Delayed on Anticlot
IMPORTANT DISCLAIMERThis report was created by a student(s) enrolled in the AppliedSecurities Management (Henry Fund) program at the University of
Iowas Tippie School of Management. The intent of these reports isto provide potential employers and other interested parties anexample of the analytical skills, investment knowledge, andcommunication abilities of Henry Fund students. Henry Fundanalysts are not registered investment advisors, brokers or officiallylicensed financial professionals. The investment opinion contained inthis report does not represent an offer or solicitation to buy or sell anyof the aforementioned securities. Unless otherwise noted, facts andfigures included in this report are from publicly available sources. Thisreport is not a complete compilation of data, and its accuracy is notguaranteed. From time to time, the University of Iowa, its faculty,staff, students, or the Henry Fund may hold a financial interest in thecompanies mentioned in this report.
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Bristol-Myers Squibb Co
Revenue Decomposition
(in millions) Net Sales
Fiscal Years Ending Dec. 31 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E 2017E U.S. EU Japan Canada
Plavix 3,257 4,755 5,603 6,146 6,666 7,087 2,622 1,311 - - - - 2012 2008 2011
(Growth) 45.99% 17.83% 9.69% 8.46% 6.32% -63.00% -50.00% -100.00% 0.00% 0.00% 0.00%
Avapro/Avalide 1,097 1,204 1,290 1,283 1,176 952 476 238 - - - - 2012 2013 2011
(Growth) 9.7 5% 7 .14 % - 0.5 4% - 8.3 4% -19 .05 % -50.00% -50.00% -100.00% 0.00% 0.00% 0.00%
Abilify 1,282 1,660 2,153 2,592 2,565 2,758 3,034 3,337 2,670 1,335 - - 2015 2014 2017
(Growth) 2 9.4 9% 29 .70 % 2 0.3 9% - 1.0 4% 7 .52 % 10.00% 10.00% -20.00% -50.00% -100.00% 0.00%
Reyataz 931 1,124 1,292 1,401 1,479 1,569 1,647 1,730 1,816 1,907 2,002 1,001 2017 2019 2019 2017
(Growth) 20.73% 14.95% 8.44% 5.57% 6.09% 5.00% 5.00% 5.00% 5.00% 5.00% -50.00%
Sustiva 791 956 1,149 1,277 1,368 1,485 1,559 1,637 819 409 - - 2013 2013 2013
(Growth) 20.86% 20.19% 11.14% 7.13% 8.55% 5.00% 5.00% -50.00% -50.00% -100.00% 0.00%
Baraclude 83 275 541 734 931 1,196 1,316 1,447 1,592 796 398 - 2015 2016 2016 2011
(Growth) 2 31 .3 3% 9 6. 73 % 3 5. 67 % 2 6. 84 % 2 8 .4 6% 10.00% 10.00% 10.00% -50.00% -50.00% -100.00%
Erbitux 652 692 749 683 662 691 691 691 691 691 346 - 2016 2016 2016
(Growth) 6.13% 8.24% -8.81% -3.07% 4.38% 0.00% 0.00% 0.00% 0.00% -50.00% -100.00%
Sprycel 25 158 310 421 576 803 923 1,062 1,221 1,404 1,615 1,857 2020 2020 2021 2020
(Growth) 5 32 .0 0% 9 6. 20 % 3 5. 81 % 3 6. 82 % 3 9 .4 1% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00%
Ixempra 0 15 101 109 117 98 98 98 98 98 98 98 2018
(Growth) N/A 5 73 .33 % 7 .9 2% 7.3 4% - 16. 24 % 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Orencia 89 231 441 602 733 917 1,055 1,213 1,395 1,534 1,688 1,856 2019 2017 2018 2014
(Growth) 1 59 .5 5% 9 0. 91 % 3 6. 51 % 2 1. 76 % 2 5 .1 0% 15.00% 15.00% 15.00% 10.00% 10.00% 10.00%
Onglyza/Kombiglyze 0 0 0 24 158 473 946 1,088 1,251 1,439 1,655 1,903 2021 2021 2021
(Growth) 558.33% 199.37% 100.00% 15.00% 15.00% 15.00% 15.00% 15.00%
Pravachol 1197 443 -10 0 0 0 - - - - - - 2006 2008
(Growth) -62.99% -102.26% -100.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Taxol 563 422 385 0 0 0 - - - - - - 2000 2003 2006
(Growth) - 25 .0 4% - 8. 77 % - 10 0. 00 % 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Other 7947 7413 6593 3536 3053 3215 3,537 3,890 6,613 8,597 11,176 13,412
(Growth) - 6. 72 % - 11 .0 6% - 46 .3 7% - 13 .6 6% 5 .3 1% 10.00% 10.00% 70.00% 30.00% 30.00% 20.00%
Net sales 17,914 19, 348 20,597 18,808 19,484 21,244 17,904 17,742 18,164 18,210 18,975 20,125
(Growth) 8.00% 6.46% -8.69% 3.59% 9.03% -15.72% -0.91% 2.38% 0.25% 4.20% 6.06%
Estimated Year of Exclusivity Loss
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Bristol-Myers Squibb Co
Income Statement
(in millions except per-share data)
Fiscal Years Ending Dec. 31 2009 2010 2011 2012E 2013E 2014E 2015E 2016E 2017E
Net sales 18,808 19,484 21,244 17,904 17,742 18,164 18,210 18,975 20,125
Cost of products sold 5,140 5,277 5,598 4,834 4,790 4,904 4,917 5,123 5,434
Marketing, selling & administrative expenses 3,946 3,686 4,203 3,939 3,726 3,814 3,824 3,985 4,226
Advertising & product promotion expenses 1,136 977 957 895 887 908 910 949 1,006
Research & development expenses 3,647 3,566 3,839 3,954 4,073 4,195 4,321 4,450 4,584
Acquired in-process research & development - - - 0 0 0 0 0 0
Provision for restructuring, net 136 113 116 0 0 0 0 0 0
Litigation expense 132 (19) - 0 0 0 0 0 0
Gain on sale of product assets & businesses - - - 0 0 0 0 0 0
Equity in net income of affiliates 550 313 281 150 75 0 0 0 0
Total other income (expense), net 381 (126) 169 -20 0 0 0 0 0
Total expenses, net 13,206 13,413 14,263 13,492 13,401 13,822 13,972 14,507 15,250
Earnings (loss) before income taxes & minority interest 5,602 6,071 6,981 4,412 4,341 4,342 4,238 4,468 4,875
Provision for income taxes 1,182 1,558 1,721 1,132 1,114 1,114 1,088 1,147 1,251
Minority interest, net of taxes - - - 0 0 0 0 0 0
Net earnings from continuing operations 4,420 4,513 5,260 3,279 3,227 3,228 3,150 3,321 3,624
Net earnings from discontinued operations 7,442 - - 0 0 0 0 0 0
Net earnings (loss) 11,862 4,513 5,260 3,279 3,227 3,228 3,150 3,321 3,624
Net earning attributable to noncontrolling interest -1,250 -1,411 -1,551 -75 -38 0 0 0 0
Net earnings attributable to Bristol-Myers Squibb Company 10,612 3,102 3,709 3,204 3,189 3,228 3,150 3,321 3,624
Year end shares outstanding 1,974 1,713 1,700 1683 1673 1664 1631 1601 1574Net earnings per share-basic 5.35 1.8 2.18 1.90 1.91 1.94 1.93 2.07 2.30
Dividends declared per common share 1.25 1.29 1.33 1.36 1.36 1.40 1.44 1.48 1.52
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Bristol-Myers Squibb Co
Balance Sheet
(in millions)
Fiscal Years Ending Dec. 31 2009 2010 2011 2012E 2013E 2014E 2015E 2016E 2017E
Cash & cash equivalents 7,683 5,033 5,776 2,967 3,839 4,423 3,700 3,218 3,145
Marketable securities 831 2,268 2,957 3,016 3,076 3,138 3,201 3,265 3,330
Receivables, net 3,164 3,480 3,743 3,044 3,016 3,088 3,096 3,226 3,421
Inventories, net 1,413 1,204 1,384 1,164 1,153 1,181 1,184 1,233 1,308
Deferred income taxes 611 1,036 1,200 1,320 1,452 1,597 1,757 1,933 2,126Prepaid expenses 256 252 258 233 231 236 237 247 262
Total current assets 13,958 13,273 15,318 11,744 12,768 13,663 13,174 13,122 13,592
Property, plant & equipment, cost 8,895 8,260 8,381 8,881 9,381 9,881 10,381 10,881 11,381
Less accumulated depreciation 3,840 3,596 3,860 4,312 4,769 5,230 5,695 6,164 6,636
Property, plant & equipment, net 5,055 4,664 4,521 4,569 4,612 4,651 4,686 4,717 4,745
Goodwill 5,218 5,233 5,586 8,086 8,086 8,086 8,086 8,086 8,086
Other intangible assets, net 2,865 3,370 3,124 2,812 2,530 2,277 2,050 1,845 1,660
Deferred income taxes 1,636 850 688 450 250 50 - - -
Marketable securities 1,369 2,681 2,909 2,967 3,027 3,087 3,149 3,212 3,276
Other assets 907 1,005 824 912 912 912 912 912 912
Total assets 31,008 31,076 32,970 31,539 32,185 32,726 32,056 31,893 32,271
Short-term borrowings 231 117 115 144 146 153 157 166 178
Accounts payable 1,711 1,983 2,603 1,790 1,774 1,816 1,821 1,898 2,013
Accrued expenses 2,785 2,740 2,791 2,507 2,484 2,543 2,549 2,657 2,818
Deferred income 237 402 337 313 310 318 319 332 352
Accrued rebates & returns 622 857 1,170 806 798 817 819 854 906
U.S. & foreign income taxes payable 175 65 167 226 223 223 218 229 250
Dividends payable 552 575 597 578 572 585 599 604 608
Total current liabilities 6,313 6,739 7,780 6,365 6,308 6,455 6,482 6,739 7,124
Pension, postretirement, & other postemployment liabilities 1,658 1,297 2,017 2,017 2,017 2,017 2,017 2,017 2,017
Deferred income 949 895 866 716 710 727 728 759 805
U.S. & foreign income taxes payable 751 755 573 566 557 557 544 573 626
Other liabilities 422 424 491 485 485 485 485 485 485
Long-term debt 6,130 5,328 5,376 5,332 5,622 5,559 5,536 5,534 5,590
Total liabilities 16,223 15,438 17,103 15,481 15,699 15,800 15,792 16,107 16,647
Common equity 3,988 3,902 3,334 3,833 4,359 4,914 5,498 6,113 6,762
Accumulated other comprehensive income (loss) -2,541 -2,371 -3,045 -3,045 -3,045 -3,045 -3,045 -3,045 -3,045
Retained earn ings 30 ,760 31 ,636 33,069 33,961 34,862 35,748 36,502 37,409 38,599
Stockholders' equity before treasury stock 32,207 33,167 33,358 34,750 36,177 37,617 38,955 40,477 42,316
Less: Cost of treasury stock 17,364 17,454 17,402 18,602 19,602 20,602 22,602 24,602 26,602
Total Bristol-Myers Squibb Company stockholders' equity 14,843 15,713 15,956 16,148 16,575 17,015 16,353 15,875 15,714
Non-controlling interest -58 -75 -89 -89 -89 -89 -89 -89 -89
Total equity 14,785 15,638 15,867 16,059 16,486 16,926 16,264 15,786 15,625
Total Liabilities and Equity 31,008 31,076 32,970 31,539 32,185 32,726 32,056 31,893 32,271
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Bristol-Myers Squibb Co
Cash Flow Statement
(in millions)
Fiscal Years Ending Dec. 31 2012E 2013E 2014E 2015E 2016E 2017E
Net Income 3,204 3,189 3,228 3,150 3,321 3,624
Depreciation/Amortization 765 738 714 693 674 656Change in
Deferred taxes 118 68 55 -110 -176 -193
Receivables 699 28 -72 -8 -130 -196
Inventories 220 11 -27 -3 -50 -75
Prepaid expenses 25 2 -5 -1 -10 -15
Accounts payable -813 -16 42 5 77 115
Accrued expenses -284 -23 59 6 107 161
Deferred income -174 -9 24 3 44 66
Accrued rebates and returns -364 -7 19 2 34 52
Income taxes payable 53 -13 0 -19 41 73
Dividends payable -19 -6 13 14 5 5Net cash from operating activities 3,431 3,961 4,050 3,732 3,937 4,273
Increase in short term investments -59 -60 -62 -63 -64 -65
Increase in long term investments -58 -59 -61 -62 -63 -64
Capital Expenditures -500 -500 -500 -500 -500 -500
Business Acquisitions -2,500 0 0 0 0 0
Change in other assets -88 0 0 0 0 0
Net cash from investing activities -3,205 -620 -622 -625 -627 -630
Proceeds from short term borrowing 29 2 6 4 9 12
Change in other liabilities -7 0 0 0 0 0
Issuance/Repayment of long term debt -44 290 -63 -23 -2 56
Proceeds from issuance of common stock 499 526 554 584 615 648
Payment of dividends -2,312 -2,288 -2,342 -2,396 -2,414 -2,434
Repurchases of common stock -1,200 -1,000 -1,000 -2,000 -2,000 -2,000
Net cash from financing activities -3,034 -2,470 -2,844 -3,831 -3,792 -3,717
Net change in cash -2,809 872 584 -723 -482 -74
Cash at beginning of the year 5,776 2,967 3,839 4,423 3,700 3,218
Cash at the end of the year 2,967 3,839 4,423 3,700 3,218 3,145
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Bristol-Myers Squibb Co
Common Size Income Statement
Fiscal Years Ending Dec. 31 2009 2010 2011 2012E 2013E 2014E 2015E 2016E 2017E
Net sales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Cost of products sold 27.33% 27.08% 26.35% 27.00% 27.00% 27.00% 27.00% 27.00% 27.00%
Marketing, selling & administrative expenses 20.98% 18.92% 19.78% 22.00% 21.00% 21.00% 21.00% 21.00% 21.00%
Advertising & product promotion expenses 6.04% 5.01% 4.50% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
Research & development expenses 19.39% 18.30% 18.07% 22.09% 22.96% 23.10% 23.73% 23.45% 22.78%
Acquired in-process research & development 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Provision for restructuring, net 0.72% 0.58% 0.55% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Litigation expense 0.70% -0.10% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Gain on sale of product assets & businesses 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Equity in net income of affiliates 2.92% 1.61% 1.32% 0.84% 0.42% 0.00% 0.00% 0.00% 0.00%
Total other income (expense), net 2.03% -0.65% 0.80% -0.11% 0.00% 0.00% 0.00% 0.00% 0.00%
Total expenses, net 70.21% 68.84% 67.14% 75.36% 75.53% 76.10% 76.73% 76.45% 75.78%
Earnings (loss) before income taxes & minority interest 29.79% 31.16% 32.86% 24.64% 24.47% 23.90% 23.27% 23.55% 24.22%
Provision for income taxes 6.28% 8.00% 8.10% 6.32% 6.28% 6.14% 5.97% 6.04% 6.22%
Minority interest, net of taxes 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Net earnings from continuing operations 23.50% 23.16% 24.76% 18.32% 18.19% 17.77% 17.30% 17.50% 18.01%
Net earnings from discontinued operations 39.57% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Net earnings (loss) 63.07% 23.16% 24.76% 18.32% 18.19% 17.77% 17.30% 17.50% 18.01%
Net earning attributable to noncontrolling interest -6.65% -7.24% -7.30% -0.42% -0.21% 0.00% 0.00% 0.00% 0.00%
Net earnings attributable to Bristol-Myers Squibb Company 56.42% 15.92% 17.46% 17.90% 17.98% 17.77% 17.30% 17.50% 18.01%
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Bristol-Myers Squibb Co
Common Size Balance Sheet
Fiscal Years Ending Dec. 31 2009 2010 2011 2012E 2013E 2014E 2015E 2016E 2017E
Cash & cash equivalents 40.85% 25.83% 27.19% 16.57% 21.64% 24.35% 20.32% 16.96% 15.63%
Marketable securities 4.42% 11.64% 13.92% 16.85% 17.34% 17.28% 17.58% 17.21% 16.55%
Receivables, net 16.82% 17.86% 17.62% 17.00% 17.00% 17.00% 17.00% 17.00% 17.00%
Inventories, net 7.51% 6.18% 6.51% 6.50% 6.50% 6.50% 6.50% 6.50% 6.50%
Deferred income taxes 3.25% 5.32% 5.65% 7.37% 8.18% 8.79% 9.65% 10.19% 10.56%
Prepaid expenses 1.36% 1.29% 1.21% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30%
Assets held for sale 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Total current assets 74.21% 68.12% 72.11% 65.59% 71.96% 75.22% 72.35% 69.15% 67.54%
Property, plant & equipment, cost 47.29% 42.39% 39.45% 49.60% 52.87% 54.40% 57.01% 57.34% 56.55%
Less accumulated depreciation 20.42% 18.46% 18.17% 24.08% 26.88% 28.79% 31.28% 32.48% 32.97%
Property, plant & equipment, net 26.88% 23.94% 21.28% 25.52% 25.99% 25.60% 25.73% 24.86% 23.58%
Goodwill 27.74% 26.86% 26.29% 45.16% 45.58% 44.52% 44.40% 42.61% 40.18%
Other intangible assets, net 15.23% 17.30% 14.71% 15.70% 14.26% 12.54% 11.26% 9.72% 8.25%
Deferred income taxes 8.70% 4.36% 3.24% 2.51% 1.41% 0.28% 0.00% 0.00% 0.00%
Marketable securities 7.28% 13.76% 13.69% 16.57% 17.06% 17.00% 17.29% 16.93% 16.28%
Other assets 4.82% 5.16% 3.88% 5.09% 5.14% 5.02% 5.01% 4.81% 4.53%
Total assets 164.87% 159.49% 155.20% 176.16% 181.40% 180.17% 176.04% 168.08% 160.35%
Short-term borrowings 1.23% 0.60% 0.54% 0.80% 0.82% 0.84% 0.86% 0.87% 0.88%
Accounts payable 9.10% 10.18% 12.25% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00%
Accrued expenses 14.81% 14.06% 13.14% 14.00% 14.00% 14.00% 14.00% 14.00% 14.00%
Deferred income 1.26% 2.06% 1.59% 1.75% 1.75% 1.75% 1.75% 1.75% 1.75%
Accrued rebates & returns 3.31% 4.40% 5.51% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50%
U.S. & foreign income taxes payable 0.93% 0.33% 0.79% 1.26% 1.26% 1.23% 1.19% 1.21% 1.24%
Dividends payable 2.93% 2.95% 2.81% 3.23% 3.22% 3.22% 3.29% 3.18% 3.02%
Accrued litigation liabilities 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Liabilities related to assets held for sale 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Total current liabilities 33.57% 34.59% 36.62% 35.55% 35.55% 35.54% 35.60% 35.51% 35.40%
Pension, postretirement, & other postemployment liabilities 8.82% 6.66% 9.49% 11.27% 11.37% 11.10% 11.08% 10.63% 10.02%
Deferred income 5.05% 4.59% 4.08% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00%
U.S. & foreign income taxes payable 3.99% 3.87% 2.70% 3.16% 3.14% 3.07% 2.99% 3.02% 3.11%
Other liabilities 2.24% 2.18% 2.31% 2.71% 2.73% 2.67% 2.66% 2.55% 2.41%Long-term debt 32.59% 27.35% 25.31% 29.78% 31.69% 30.61% 30.40% 29.17% 27.78%
Total liabilities 86.26% 79.23% 80.51% 86.46% 88.48% 86.99% 86.72% 84.88% 82.72%
Common stock 21.20% 20.03% 15.69% 21.41% 24.57% 27.05% 30.19% 32.22% 33.60%
Capital in excess of par value of stock 20.03% 18.90% 14.66% 20.18% 23.33% 25.84% 28.98% 31.06% 32.51%
Accumulated other comprehensive income (loss) -13.51% -12.17% -14.33% -17.01% -17.16% -16.76% -16.72% -16.05% -15.13%
Retained earnings 163.55% 162.37% 155.66% 189.68% 196.50% 196.81% 200.45% 197.15% 191.79%
Stockholders' equity before treasury stock 171.24% 170.23% 157.02% 194.09% 203.91% 207.10% 213.92% 213.32% 210.26%
Less: Cost of treasury stock 92.32% 89.58% 81.91% 103.90% 110.48% 113.42% 124.12% 129.65% 132.18%
Total Bristol-Myers Squibb Company stockholders' equity 78.92% 80.65% 75.11% 90.19% 93.42% 93.68% 89.80% 83.66% 78.08%
Non-controlling interest -0.31% -0.38% -0.42% -0.50% -0.50% -0.49% -0.49% -0.47% -0.44%
Total equity 78.61% 80.26% 74.69% 89.69% 92.92% 93.19% 89.32% 83.20% 77.64%
Total Liabilities and Equity 164.87% 159.49% 155.20% 176.16% 181.40% 180.17% 176.04% 168.08% 160.35%
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Bristol-Myers Squibb Co
Value Driver Estimation
(in millions unless otherwise noted)
Fiscal Years Ending Dec. 31 2009 2010 2011 2012E 2013E 2014E 2015E 2016E 2017E
Net sales 18,808 19,484 21,244 17,904 17,742 18,164 18,210 18,975 20,125
Cost of products sold 5,140 5,277 5,598 4,834 4,790 4,904 4,917 5,123 5,434
Marketing, sel ling & administ rat ive expenses 3,946 3,686 4,203 3,939 3,726 3,814 3,824 3,985 4,226
Removal of Operating Leas e Interest Expense 23 24 27 42 42 42 42 42 42Advertising & product promotion expens es 1,136 977 957 895 887 908 910 949 1,006
Research & development expenses 3,647 3,566 3,839 3,954 4,073 4,195 4,321 4,450 4,584
Acquired in-process research & development - - - - - - - - -
EBITA 4,962 6,002 6,674 4,324 4,308 4,384 4,280 4,510 4,917
Income tax provision 1,182 1,558 1,721 1,132 1,114 1,114 1,088 1,147 1,251
(-) Tax on non-operating income 220 47 126 33 19 - - - -
(+) Tax on non-operating losses 63 24 32 - - - - - -
(+) Operating Lease Interest Expense 23 24 27 11 11 11 11 11 11
Adjusted Taxes 1,048 1,559 1,654 1,110 1,106 1,125 1,098 1,158 1,262
Change in deferred taxes 593 361 (2) 118 68 55 (110) (176) (193)
NOPLAT 4,506 4,805 5,018 3,332 3,270 3,314 3,072 3,177 3,462
Normal cash (10% of revenue or actual) 1,881 1,948 2,124 1,790 1,774 1,816 1,821 1,898 2,013
Accounts receivable 3,164 3,480 3,743 3,044 3,016 3,088 3,096 3,226 3,421
Inventory 1,413 1,204 1,384 1,164 1,153 1,181 1,184 1,233 1,308
Prepaid expenses 256 252 258 233 231 236 237 247 262
Total Operating Current Assets 6,714 6,884 7,509 6,231 6,174 6,321 6,337 6,603 7,004
Accounts payable 1,711 1,983 2,603 1,790 1,774 1,816 1,821 1,898 2,013
Accrued expenses 3,407 3,597 3,961 3,312 3,282 3,360 3,369 3,510 3,723
Deferred revenue 237 402 337 313 310 318 319 332 352
Income taxes payable 175 65 167 226 223 223 218 229 250
Dividends payable 552 575 597 578 572 585 599 604 608
Total Non-Interest Bearing Current Liabilities 6,082 6,622 7,665 6,221 6,162 6,303 6,325 6,573 6,947
Net operating working capital 632 262 (156) 10 12 18 12 30 57
Net PP&E 5,055 4,664 4,521 4,569 4,612 4,651 4,686 4,717 4,745
Capitalized operating leases 529 569 624 686 754 830 913 1,004 1,105
Other operating assets 3,772 4,375 3,948 3,724 3,442 3,189 2,962 2,757 2,572
Other operating liabilities 2,122 2,074 1,930 1,767 1,751 1,768 1,757 1,817 1,915
Total Invested Capital 7,866 7,797 7,007 7,222 7,070 6,920 6,816 6,692 6,564
NOPLAT 4,506 4,805 5,018 3,332 3,270 3,314 3,072 3,177 3,462
Beginning Invested Capital 7,971 7,866 7,797 7,007 7,222 7,070 6,920 6,816 6,692
Change in invested capital (105) (69) (790) 215 (152) (150) (105) (124) (127)
Return on Invested Capital (ROIC) 56.54% 61.08% 64.35% 47.55% 45.28% 46.87% 44.39% 46.61% 51.73%
Free Cash Flow 4,611 4,874 5,807 3,117 3,422 3,464 3,176 3,300 3,589
Economic Profit 4,079 4,383 4,599 2,956 2,883 2,934 2,700 2,811 3,103
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Bristol-Myers Squibb Co
Weighted Average Cost of Capital (WACC) Estimation
WACC
Risk Free Rate 3.16%
Equity Risk Premium 4.80%Beta 0.51
Cost of Equity 5.61%
Pre-Tax Cost of Debt 4.25%
Tax Rate 25.67%
After-Tax Cost of Debt 3.16%
Market Capitalization 55,403
Book Value of Debt 5,491Capitalized Operating Leases 624
Enterprise Value 61,518
% Equity in Capital Structure 90.1%
% Debt in Capital Structure 9.9%
WACC 5.36%
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Bristol-Myers Squibb Co
Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models
Key Inputs:
CV Growth of NOPLAT 2.00%
CV ROIC 51.73%
WACC 5.36%NOPLAT 2017 3,462
EP 2017 3,103
Fiscal Years Ending Dec. 31 2012E 2013E 2014E 2015E 2016E CV
DCF Model
Free Cash Flow 3,117 3,422 3,464 3,176 3,300 98,906
PV of FCF at 12/31/2011 2,959 3,082 2,961 2,577 2,542 76,164
PV of Operating Assets 90,284
(+)Excess Cash and Marketable Securities 9,518(-)Debt and Equivalents 7,421
(-)PV of Operating Leases 624
(-)Pension Liability 2,017
(-)PV of ESOP 513
12/31/2011 Intrinsic Equity Value 89,228
Intrinsic Value Today 90,038
DCF Share Value Today 52.96$
EP Model
Economic Profit 2,956 2,883 2,934 2,700 2,811 92,215
PV of EP at 12/31/2011 2,806 2,597 2,509 2,191 2,165 71,011
PV of Operating Assets 90,284
(+)Excess Cash and Marketable Securities 9,518
(-)Debt and Equivalents 7,421
(-)PV of Operating Leases 624
(-)Pension Liability 2,017
(-)PV of ESOP 513
12/31/2011 Intrinsic Equity Value 89,228
Intrinsic Value Today 90,038
EP Share Value Today 52.96$
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Bristol-Myers Squibb Co
Fundamental P/E Valuation Model
Fundamental P/E Model
CV growth of EPS 2.0%CV ROE 23.2%
CV Payout Ratio 66.0%
CV Retention Ratio 34.0%
Cost of Equity 5.61%
2012E 2013E 2014E 2015E 2016E CV
Earnings Per Share 1.90 1.91 1.94 1.93 2.07 2.30
P/E Multiple 25.33EPS(CV) 2.30
Future Stock Price 58.32
Dividends Per Share 1.36 1.36 1.40 1.44 1.48
Discounted Cash Flows 1.29 1.22 1.19 1.16 1.13 44.40
Intrinsic Value at 12/31/2011 50.38$
Intrinsic Value Today 50.80$
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Bristol-Myers Squibb Co
Relative Valuation Model
Ticker Company Price Sales 2011A Sales 2012E Sales 2013E P/S 2011 P/S 2012 P/S 2013
JNJ Johnson & Johnson 65.34$ 65.0 66.4 69.8 1.0 1.0 0.9NVS Novartis AG 55.84$ 51.6 58.2 58.7 1.1 1.0 1.0
GSK GlaxoSmithKline 45.02$ 45.8 45.1 46.9 1.0 1.0 1.0
ABT Abbott Laboratories 60.43$ 38.9 40.4 42.1 1.6 1.5 1.4
TEVA Teva Pharmaceuticals 45.06$ 18.3 21.9 22.7 2.5 2.1 2.0
Average 1.4 1.3 1.3
BMY Bristol-Myers Squibb 32.59$ 21.24 17.90 17.74 1.5 1.8 1.8
Implied Value:
P/E 2011 30.11$
P/E 2012 23.25$
P/E 2013 22.25$
Average 25.20$
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Bristol-Myers Squibb Co
Key Management Ratios
Fiscal Years Ending Dec. 31 2009 2010 2011 2012E 2013E 2014E 2015E 2016E 2017E
Liquidity Ratios
Current Ratio 2.21 1.97 1.97 1.85 2.02 2.12 2.03 1.95 1.91 Current Assets/Current Liabilities
Cash Ratio 1.35 1.08 1.12 0.94 1.10 1.17 1.06 0.96 0.91 (Cash + Equivalents)/Current Liabilities
Interest Coverage Ratio 21.56 23.36 26.86 16.98 16.70 16.71 16.31 17.19 18.76 EBIT/Interest Expense
Activity or Asset-Management Ratios
Assets to Sales 1.65 1.59 1.55 1.76 1.81 1.80 1.76 1.68 1.60 Total Assets/Sales
Inventory Turnover 3.23 4.03 4.33 3.79 4.13 4.20 4.16 4.24 4.28 Cost of Goods Sold/Avg. Inventory
Accounts Receivable Turnover 5.47 5.87 5.88 5.28 5.86 5.95 5.89 6.00 6.06 Net Receivable Sales/Average Receivables
Financial Leverage Ratios
Debt to Equity 0.43 0.35 0.35 0.34 0.35 0.34 0.35 0.36 0.37 BV Debt/BV Equity
Debt Ratio 0.52 0.50 0.52 0.49 0.49 0.48 0.49 0.51 0.52 Total Liabilities/Total Assets
Debt to Non-Cash Assets 0.72 0.65 0.71 0.61 0.62 0.63 0.63 0.63 0.65 Total Liabilities/(Total Assets - (Cash + Equivalents))
Profitability Ratios
Operating Margin 30% 31% 33% 25% 24% 24% 23% 24% 24% Operating Profit/Sales
Net Profit Margin 56% 16% 17% 18% 18% 18% 17% 18% 18% Net Income/Sales
Free Cash Margin 25% 25% 27% 17% 19% 19% 17% 17% 18% Free Cash Flow/Sales
Return on Assets 36% 10% 12% 10% 10% 10% 10% 10% 11% Net Income/Beg. Assets
Return on Equity 87% 21% 24% 20% 20% 20% 19% 20% 23% Net Income/Beg. BV Equity
Payout Policy Ratios
Dividend Payout 23% 72% 61% 71% 71% 72% 75% 71% 66% Dividend per Share/Earnings per Share
Total Payout including Repurchases 23% 90% 94% 109% 103% 103% 138% 132% 121%
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Bristol-Myers Squibb Co
Sensitivity Analysis
CV Growth Rate
52.96$ 1.50% 1.60% 1.70% 1.80% 1.90% 2.00% 2.10% 2.20% 2.30% 2.40% 2.50%
0.3 62.13$ 63.92$ 65.83$ 67.89$ 70.11$ 72.51$ 75.12$ 77.95$ 81.05$ 84.45$ 88.19$
0.4 54.19$ 55.51$ 56.90$ 58.39$ 59.98$ 61.67$ 63.49$ 65.44$ 67.54$ 69.82$ 72.28$
Beta 0.5 48.05$ 49.05$ 50.10$ 51.22$ 52.40$ 53.65$ 54.98$ 56.40$ 57.90$ 59.52$ 61.24$
0.6 43.15$ 43.94$ 44.76$ 45.62$ 46.52$ 47.48$ 48.49$ 49.55$ 50.68$ 51.87$ 53.14$
0.7 39.16$ 39.78$ 40.44$ 41.12$ 41.83$ 42.58$ 43.36$ 44.19$ 45.06$ 45.97$ 46.93$0.8 35.84$ 36.35$ 36.88$ 37.43$ 38.00$ 38.60$ 39.22$ 39.88$ 40.56$ 41.27$ 42.02$
0.9 33.04$ 33.46$ 33.89$ 34.34$ 34.81$ 35.30$ 35.80$ 36.33$ 36.88$ 37.45$ 38.05$
1 30.64$ 30.99$ 31.35$ 31.73$ 32.11$ 32.51$ 32.93$ 33.36$ 33.81$ 34.28$ 34.76$
Equity Risk Premium
52.96$ 4.00% 4.20% 4.40% 4.60% 4.80% 5.00% 5.20% 5.40% 5.60% 5.80% 6.00%
0.3 79.50$ 77.63$ 75.84$ 74.14$ 72.51$ 70.95$ 69.46$ 68.03$ 66.65$ 65.33$ 64.07$
0.4 68.50$ 66.65$ 64.91$ 63.25$ 61.67$ 60.17$ 58.74$ 57.38$ 56.08$ 54.84$ 53.65$
Beta 0.5 60.17$ 58.40$ 56.73$ 55.15$ 53.65$ 52.24$ 50.90$ 49.62$ 48.41$ 47.25$ 46.15$
0.6 53.65$ 51.96$ 50.38$ 48.89$ 47.48$ 46.15$ 44.90$ 43.71$ 42.58$ 41.51$ 40.49$
0.7 48.41$ 46.81$ 45.31$ 43.90$ 42.58$ 41.34$ 40.16$ 39.05$ 38.01$ 37.01$ 36.07$
0.8 44.10$ 42.58$ 41.16$ 39.84$ 38.60$ 37.43$ 36.33$ 35.30$ 34.32$ 33.39$ 32.51$
0.9 40.49$ 39.05$ 37.72$ 36.47$ 35.30$ 34.20$ 33.17$ 32.20$ 31.28$ 30.42$ 29.60$
1 37.43$ 36.07$ 34.80$ 33.62$ 32.51$ 31.48$ 30.51$ 29.60$ 28.74$ 27.93$ 27.16$
WACC
52.96$ 4.50% 4.70% 4.90% 5.10% 5.30% 5.50% 5.70% 5.90% 6.10% 6.30% 6.50%
1.50% 61.24$ 57.40$ 54.02$ 51.01$ 48.32$ 45.90$ 43.71$ 41.71$ 39.89$ 38.23$ 36.69$
1.60% 62.97$ 58.90$ 55.32$ 52.16$ 49.33$ 46.80$ 44.51$ 42.44$ 40.55$ 38.82$ 37.23$
1.70% 64.82$ 60.49$ 56.71$ 53.37$ 50.40$ 47.75$ 45.36$ 43.19$ 41.23$ 39.43$ 37.79$
1.80% 66.81$ 62.20$ 58.18$ 54.66$ 51.53$ 48.75$ 46.25$ 43.99$ 41.94$ 40.08$ 38.37$
CV Growth Rate 1.90% 68.95$ 64.02$ 59.76$ 56.02$ 52.73$ 49.80$ 47.18$ 44.82$ 42.69$ 40.75$ 38.98$
2.00% 71.26$ 65.99$ 61.44$ 57.48$ 54.00$ 50.92$ 48.17$ 45.70$ 43.47$ 41.45$ 39.61$
2.10% 73.76$ 68.10$ 63.24$ 59.03$ 55.35$ 52.10$ 49.21$ 46.62$ 44.30$ 42.19$ 40.27$
2.20% 76.49$ 70.38$ 65.18$ 60.69$ 56.78$ 53.35$ 50.31$ 47.60$ 45.16$ 42.96$ 40.97$
2.30% 79.46$ 72.85$ 67.26$ 62.47$ 58.32$ 54.68$ 51.47$ 48.62$ 46.07$ 43.77$ 41.70$
2.40% 82.71$ 75.54$ 69.51$ 64.38$ 59.95$ 56.10$ 52.71$ 49.71$ 47.03$ 44.63$ 42.46$
2.50% 86.29$ 78.47$ 71.95$ 66.44$ 61.71$ 57.61$ 54.02$ 50.86$ 48.04$ 45.53$ 43.26$
COGS %
52.96$ 25.50% 25.80% 26.10% 26.40% 26.70% 27.00% 27.30% 27.60% 27.90% 28.20% 28.50%
2.00% 59.46$ 58.73$ 58.01$ 57.29$ 56.57$ 55.85$ 55.13$ 54.41$ 53.69$ 52.96$ 52.24$
2.20% 58.89$ 58.17$ 57.45$ 56.73$ 56.00$ 55.28$ 54.56$ 53.84$ 53.12$ 52.40$ 51.68$
2.40% 58.32$ 57.60$ 56.88$ 56.15$ 55.43$ 54.71$ 53.99$ 53.27$ 52.55$ 51.83$ 51.11$
2.60% 57.74$ 57.02$ 56.30$ 55.58$ 54.86$ 54.13$ 53.41$ 52.69$ 51.97$ 51.25$ 50.53$
2.80% 57.16$ 56.44$ 55.72$ 54.99$ 54.27$ 53.55$ 52.83$ 52.11$ 51.39$ 50.67$ 49.95$
R&D Growth Rate 3.00% 56.57$ 55.85$ 55.13$ 54.41$ 53.69$ 52.96$ 52.24$ 51.52$ 50.80$ 50.08$ 49.36$
3.20% 55.98$ 55.26$ 54.53$ 53.81$ 53.09$ 52.37$ 51.65$ 50.93$ 50.21$ 49.49$ 48.76$
3.40% 55.38$ 54.66$ 53.94$ 53.21$ 52.49$ 51.77$ 51.05$ 50.33$ 49.61$ 48.89$ 48.16$
3.60% 54.77$ 54.05$ 53.33$ 52.61$ 51.89$ 51.17$ 50.45$ 49.72$ 49.00$ 48.28$ 47.56$
3.80% 54.16$ 53.44$ 52.72$ 52.00$ 51.28$ 50.56$ 49.83$ 49.11$ 48.39$ 47.67$ 46.95$
4.00% 53.55$ 52.83$ 52.10$ 51.38$ 50.66$ 49.94$ 49.22$ 48.50$ 47.78$ 47.06$ 46.33$
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Marketing, selling and admin expenses 2012-2013
52.96$ 19.00% 19.50% 20.00% 20.50% 21.00% 21.50% 22.00% 22.50% 23.00% 23.50% 24.00%
19.00% 57.85$ 57.81$ 57.77$ 57.73$ 57.70$ 57.66$ 57.62$ 57.58$ 57.54$ 57.51$ 57.47$
19.50% 56.68$ 56.65$ 56.61$ 56.57$ 56.53$ 56.49$ 56.46$ 56.42$ 56.38$ 56.34$ 56.30$
20.00% 55.52$ 55.48$ 55.44$ 55.41$ 55.37$ 55.33$ 55.29$ 55.25$ 55.22$ 55.18$ 55.14$
20.50% 54.36$ 54.32$ 54.28$ 54.24$ 54.20$ 54.17$ 54.13$ 54.09$ 54.05$ 54.01$ 53.98$
21.00% 53.19$ 53.15$ 53.12$ 53.08$ 53.04$ 53.00$ 52.96$ 52.93$ 52.89$ 52.85$ 52.81$
MS&A 2014-Continuing 21.50% 52.03$ 51.99$ 51.95$ 51.91$ 51.88$ 51.84$ 51.80$ 51.76$ 51.72$ 51.69$ 51.65$
22.00% 50.86$ 50.83$ 50.79$ 50.75$ 50.71$ 50.67$ 50.64$ 50.60$ 50.56$ 50.52$ 50.48$
22.50% 49.70$ 49.66$ 49.62$ 49.59$ 49.55$ 49.51$ 49.47$ 49.43$ 49.40$ 49.36$ 49.32$23.00% 48.53$ 48.50$ 48.46$ 48.42$ 48.38$ 48.34$ 48.31$ 48.27$ 48.23$ 48.19$ 48.16$
23.50% 47.37$ 47.33$ 47.29$ 47.26$ 47.22$ 47.18$ 47.14$ 47.10$ 47.07$ 47.03$ 46.99$
24.00% 46.21$ 46.17$ 46.13$ 46.09$ 46.05$ 46.02$ 45.98$ 45.94$ 45.90$ 45.86$ 45.83$
Plavix 2012 Decline
52.96$ -50% -55% -60% -65% -70% -75% -80% -85% -90% -95% -100%
50.0% 45.14$ 45.04$ 44.94$ 44.84$ 44.73$ 44.63$ 44.53$ 44.43$ 44.32$ 44.22$ 44.12$
52.5% 46.15$ 46.05$ 45.95$ 45.85$ 45.74$ 45.64$ 45.54$ 45.44$ 45.33$ 45.23$ 45.13$
55.0% 47.17$ 47.06$ 46.96$ 46.86$ 46.76$ 46.65$ 46.55$ 46.45$ 46.35$ 46.24$ 46.14$
57.5% 48.18$ 48.07$ 47.97$ 47.87$ 47.77$ 47.66$ 47.56$ 47.46$ 47.36$ 47.25$ 47.15$
60.0% 49.19$ 49.08$ 48.98$ 48.88$ 48.78$ 48.67$ 48.57$ 48.47$ 48.37$ 48.26$ 48.16$
62.5% 50.20$ 50.10$ 49.99$ 49.89$ 49.79$ 49.69$ 49.58$ 49.48$ 49.38$ 49.28$ 49.17$
65.0% 51.21$ 51.11$ 51.00$ 50.90$ 50.80$ 50.70$ 50.59$ 50.49$ 50.39$ 50.29$ 50.18$
O the r Sales Growth 2014 67. 5% 52.22$ 52.12$ 52.01$ 51.91$ 51.81$ 51.71$ 51.60$ 51.50$ 51.40$ 51.30$ 51.19$
70.0% 53.23$ 53.13$ 53.03$ 52.92$ 52.82$ 52.72$ 52.62$ 52.51$ 52.41$ 52.31$ 52.21$72.5% 54.24$ 54.14$ 54.04$ 53.93$ 53.83$ 53.73$ 53.63$ 53.52$ 53.42$ 53.32$ 53.22$
75.0% 55.25$ 55.15$ 55.05$ 54.94$ 54.84$ 54.74$ 54.64$ 54.53$ 54.43$ 54.33$ 54.23$
77.5% 56.26$ 56.16$ 56.06$ 55.96$ 55.85$ 55.75$ 55.65$ 55.54$ 55.44$ 55.34$ 55.24$
80.0% 57.27$ 57.17$ 57.07$ 56.97$ 56.86$ 56.76$ 56.66$ 56.56$ 56.45$ 56.35$ 56.25$
82.5% 58.28$ 58.18$ 58.08$ 57.98$ 57.87$ 57.77$ 57.67$ 57.57$ 57.46$ 57.36$ 57.26$
85.0% 59.30$ 59.19$ 59.09$ 58.99$ 58.88$ 58.78$ 58.68$ 58.58$ 58.47$ 58.37$ 58.27$
87.5% 60.31$ 60.20$ 60.10$ 60.00$ 59.90$ 59.79$ 59.69$ 59.59$ 59.49$ 59.38$ 59.28$
90.0% 61.32$ 61.21$ 61.11$ 61.01$ 60.91$ 60.80$ 60.70$ 60.60$ 60.50$ 60.39$ 60.29$
Other Sales Growth 2014
52.96$ 50.0% 52.5% 55.0% 57.5% 60.0% 62.5% 65.0% 67.5% 70.0% 72.5% 75.0% 77.5% 80.0% 82.5% 85.0%
10% 40.20$ 41.13$ 42.06$ 43.00$ 43.93$ 44.86$ 45.79$ 46.73$ 47.66$ 48.59$ 49.52$ 50.46$ 51.39$ 52.32$ 53.26$
12% 41.13$ 42.08$ 43.03$ 43.98$ 44.93$ 45.87$ 46.82$ 47.77$ 48.72$ 49.67$ 50.62$ 51.57$ 52.51$ 53.46$ 54.41$
14% 42.07$ 43.03$ 44.00$ 44.96$ 45.93$ 46.89$ 47.85$ 48.82$ 49.78$ 50.74$ 51.71$ 52.67$ 53.64$ 54.60$ 55.56$
16% 43.01$ 43.98$ 44.96$ 45.94$ 46.92$ 47.90$ 48.88$ 49.86$ 50.84$ 51.82$ 52.80$ 53.78$ 54.76$ 55.74$ 56.72$18% 43.94$ 44.94$ 45.93$ 46.93$ 47.92$ 48.92$ 49.91$ 50.91$ 51.90$ 52.90$ 53.89$ 54.89$ 55.88$ 56.88$ 57.87$
Other Sales Growth 2017 20% 44.88$ 45.89$ 46.90$ 47.91$ 48.92$ 49.93$ 50.94$ 51.95$ 52.96$ 53.97$ 54.99$ 56.00$ 57.01$ 58.02$ 59.03$
22% 45.81$ 46.84$ 47.87$ 48.89$ 49.92$ 50.95$ 51.97$ 53.00$ 54.02$ 55.05$ 56.08$ 57.10$ 58.13$ 59.16$ 60.18$
24% 46.75$ 47.79$ 48.83$ 49.88$ 50.92$ 51.96$ 53.00$ 54.04$ 55.09$ 56.13$ 57.17$ 58.21$ 59.25$ 60.30$ 61.34$
26% 47.69$ 48.74$ 49.80$ 50.86$ 51.92$ 52.97$ 54.03$ 55.09$ 56.15$ 57.20$ 58.26$ 59.32$ 60.38$ 61.43$ 62.49$
28% 48.62$ 49.70$ 50.77$ 51.84$ 52.91$ 53.99$ 55.06$ 56.13$ 57.21$ 58.28$ 59.35$ 60.43$ 61.50$ 62.57$ 63.65$
30% 49.56$ 50.65$ 51.74$ 52.82$ 53.91$ 55.00$ 56.09$ 57.18$ 58.27$ 59.36$ 60.45$ 61.53$ 62.62$ 63.71$ 64.80$