ALLIANCES

BMS enters into collaboration arrangements with third parties for the development and commercialization of certain products. Although each of these arrangements is unique in nature, both parties are active participants in the operating activities of the collaboration and are exposed to significant risks and rewards depending on the commercial success of the activities. BMS may either in-license intellectual property owned by the other party or out-license its intellectual property to the other party. These arrangements also typically include research, development, manufacturing, and/or commercial activities and can cover a single investigational compound or commercial product or multiple compounds and/or products in various life cycle stages. We refer to these collaborations as alliances and our partners as alliance partners. Several key products such as Abilify*, Sprycel, Sustiva (Atripla*), Erbitux*, Eliquis and Opdivo, as well as products comprising the diabetes alliance discussed in the 2014 Form 10-K and certain mature and other brands are included in alliance arrangements.

Selected financial information pertaining to our alliances was as follows, including net product sales when BMS is the principal in the third-party customer sale for products subject to the alliance. Expenses summarized below do not include all amounts attributed to the activities for the products in the alliance, but only the payments between the alliance partners or the related amortization if the payments were deferred or capitalized.



	Three Months Ended June 30,						Six Months Ended June 30,
Dollars in Millions	2015			2014			2015			2014
Revenues from alliances:
Net product sales	$	1,228		$	782		$	2,222		$	1,677
Alliance and other revenues	552			1,039			1,507			1,951
Total Revenues	$	1,780		$	1,821		$	3,729		$	3,628

Payments to/(from) alliance partners:
Cost of products sold	$	423		$	323		$	812		$	678
Marketing, selling and administrative	(13		)	6			(1		)	3
Advertising and product promotion	10			32			23			67
Research and development	66			(4		)	188			(20		)
Other (income)/expense	(148		)	(158		)	(449		)	(553		)

Noncontrolling interest, pre-tax	23			7			28			11



Selected Alliance Balance Sheet information:
Dollars in Millions	June 30, 2015		December 31, 2014
Receivables - from alliance partners	$	825	$	888
Accounts payable - to alliance partners	959		1,479
Deferred income from alliances	1,480		1,493

Specific information pertaining to each of our significant alliances is discussed in our 2014 Form 10-K, including their nature and purpose, the significant rights and obligations of the parties, and specific accounting policy elections. Significant developments and updates related to alliances during the six months ended June 30, 2015 are set forth below.

AstraZeneca

In February 2014, BMS and AstraZeneca terminated their alliance agreements and BMS sold to AstraZeneca substantially all of the diabetes business comprising the alliance. The divestiture included the shares of Amylin and the resulting transfer of its Ohio manufacturing facility; the intellectual property related to Onglyza*/Kombiglyze* and Farxiga*/Xigduo* (including BMS's interest in the out-licensing agreement for Onglyza* in Japan); and the future purchase of BMS’s manufacturing facility located in Mount Vernon, Indiana in 2015 (expected to close in the third quarter). Amylin's portfolio of products included Bydureon*, Byetta*, Symlin* and Myalept*. Substantially all employees dedicated to the diabetes business were transferred to AstraZeneca. The sale of the business has been completed in all jurisdictions.

The stock and asset purchase agreement contains multiple elements to be delivered subsequent to the closing of the transaction, including the China diabetes business that was part of the alliance (transferred during the third quarter of 2014), the Mount Vernon, Indiana manufacturing facility, and the activities under the development and supply agreements. Each of these elements was determined to have a standalone value. As a result, a portion of the consideration received at closing was allocated to the undelivered elements using the relative selling price method after determining the best estimated selling price for each element. The remaining amount of consideration was included in the calculation for the gain on sale of the diabetes business. Contingent milestone and royalty payments are similarly allocated among the underlying elements if and when the amounts are determined to be payable to BMS. Amounts allocated to the sale of the business are immediately recognized in the results of operations. Amounts allocated to the other elements are recognized in the results of operations only to the extent each element has been delivered.

Summarized financial information related to the AstraZeneca alliances was as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
Dollars in Millions	2015			2014			2015			2014
Revenues from AstraZeneca alliances:
Net product sales	$	10		$	1		$	10		$	161
Alliance and other revenues	54			26			108			45
Total Revenues	$	64		$	27		$	118		$	206

Payments to/(from) AstraZeneca:
Cost of products sold:
Profit sharing	$	—		$	1		$	—		$	77

Cost reimbursements to/(from) AstraZeneca recognized in:
Cost of products sold	—			—			—			(9		)
Marketing, selling and administrative	—			4			—			(7		)
Advertising and product promotion	—			(1		)	—			(4		)
Research and development	—			(2		)	—			(9		)

Other (income)/expense:
Amortization of deferred income	(25		)	(21		)	(49		)	(34		)
Provision for restructuring	—			—			—			(2		)
Royalties	(81		)	(90		)	(162		)	(138		)
Transitional services	(2		)	(34		)	(5		)	(65		)
Gain on sale of business	1			12			(4		)	(247		)

Selected Alliance Cash Flow information:
Deferred income	8			14			9			289
Divestitures and other proceeds	86			152			98			3,207



Selected Alliance Balance Sheet information:
Dollars in Millions	June 30, 2015		December 31, 2014
Deferred income attributed to:
Assets not yet transferred to AstraZeneca	$	185	$	176
Services not yet performed for AstraZeneca	187		226

Otsuka

As described in the 2014 Form 10-K, BMS receives a share of U.S. net sales of Abilify* based on a tiered structure and recognizes revenues based on the expected annual contractual share using a forecast of net sales for the year (50% in 2015 and 33% in 2014). BMS's U.S. rights to Abilify* expired on April 20, 2015. As a result, BMS no longer records Abilify* revenues in the U.S. In February 2015, BMS terminated the co-promotion agreement with Otsuka in Japan with respect to Sprycel. The termination is not expected to have a material impact on future results.

Lilly

BMS has an Epidermal Growth Factor Receptor (EGFR) commercialization agreement with Eli Lilly and Company (Lilly) through Lilly’s subsidiary ImClone for the co-development and promotion of Erbitux* in the U.S., Canada and Japan. Under the EGFR agreement, both parties actively participate in a joint executive committee and various other operating committees and share responsibilities for research and development using resources in their own infrastructures. With respect to Erbitux*, Lilly manufactures bulk requirements for cetuximab in its own facilities and filling and finishing is performed by a third party for which BMS has oversight responsibility. BMS has exclusive distribution rights in North America and is responsible for promotional efforts in North America although Lilly has the right to co-promote in the U.S. at their own expense. BMS is the principal in third-party customer sales in North America and pays Lilly a distribution fee for 39% of Erbitux* net sales in North America plus a share of certain royalties paid by Lilly. BMS’s rights and obligations with respect to the commercialization of Erbitux* in North America expire in September 2018.

In April 2015, BMS agreed to transfer its rights to Erbitux* in North America to Lilly in the fourth quarter of 2015 in exchange for future royalties as described below. Rights include, but are not limited to, full commercialization and manufacturing operational responsibilities. The transaction is expected to be accounted for as a business divestiture upon completion of the transition and will result in a non-cash charge of approximately $150 million to $200 million for intangible assets directly related to the business and an allocation of goodwill.

Upon completion of the transaction, BMS will begin to receive royalties through September 2018, which will be included in other income when earned. The royalty rates applicable to North America are 38% on Erbitux* net sales up to $165 million in 2015, $650 million in 2016, $650 million in 2017 and $480 million in 2018, plus 20% on net sales in excess of those amounts in each of the respective years.

BMS shared rights to Erbitux* in Japan under an agreement with Lilly and Merck KGaA and received 50% of the pre-tax profit from Merck KGaA’s net sales of Erbitux* in Japan which was further shared equally with Lilly. BMS transferred its co-commercialization rights in Japan to Merck KGaA in the second quarter of 2015 in exchange for future royalties through 2032 which will be included in other income when earned.

Pfizer

As described in the 2014 Form 10-K, BMS has an alliance with Pfizer to co-develop and co-promote Eliquis in most countries on a worldwide basis. In April 2015, BMS agreed to transfer full commercialization rights to Pfizer in certain smaller markets effective beginning in the third quarter of 2015 in order to simplify operations. BMS will supply the product to Pfizer at cost plus a percentage of the net sales to end-customers in these markets. This change in the alliance arrangement is not expected to impact our pre-tax income. BMS retained co-promotional rights in the U.S., significant markets in Europe, as well as Canada, Australia, China, Japan and Korea.

The Medicines Company

As described in the 2014 Form 10-K, BMS had an alliance with The Medicines Company for Recothrom on a global basis. The Medicines Company exercised its option to acquire the business for $132 million, resulting in a gain of $59 million (including $35 million fair value of the option) in February 2015.

Valeant

As described in the 2014 Form 10-K, BMS had an alliance with Valeant for certain mature brands in Europe. Valeant exercised its option to acquire the business for $61 million, resulting in a gain of $88 million (including $34 million fair value of the option) in January 2015.

Reckitt

As described in the 2014 Form 10-K, BMS has an alliance with Reckitt Benckiser Group plc (Reckitt) covering certain BMS over-the-counter products sold primarily in Mexico and Brazil. Reckitt also has an option to acquire all remaining rights in such products for those markets and related inventories at the end of the alliance period (May 2016). In April 2014, the alliance was modified to provide an option to Reckitt to purchase a BMS manufacturing facility located in Mexico primarily dedicated to the products included in the alliance. The options can only be exercised together. Substantially, all employees at the facility are expected to be transferred to Reckitt if the option is exercised. In the first quarter of 2015, a $36 million credit was included in other income to decrease the fair value of the option to $93 million due to the strengthening of the U.S. dollar against local currencies.