ALLIANCES

BMS enters into collaboration arrangements with third parties for the development and commercialization of certain products. Although each of these arrangements is unique in nature, both parties are active participants in the operating activities of the collaboration and exposed to significant risks and rewards depending on the commercial success of the activities. BMS may either in-license intellectual property owned by the other party or out-license its intellectual property to the other party. These arrangements also typically include research, development, manufacturing, and/or commercial activities and can cover a single investigational compound or commercial product or multiple compounds and/or products in various life cycle stages. The rights and obligations of the parties can be global or limited to geographic regions. We refer to these collaborations as alliances and our partners as alliance partners.

The most common activities between BMS and its alliance partners are presented in results of operations as follows:

•

When BMS is the principal in the end customer sale, 100% of product sales are included in Net product sales. When BMS's alliance partner is the principal in the end customer sale, BMS's contractual share of the third-party sales and/or royalty income are included in Alliance revenues as the sale of commercial products are considered part of BMS's ongoing major or central operations. Refer to “—Note 2. Revenue” for information regarding recognition criteria.


•	Amounts payable to BMS by alliance partners (who are the principal in the end customer sale) for supply of commercial products are included in Alliance revenues as the sale of commercial products are considered part of BMS's ongoing major or central operations.


•	Profit sharing, royalties and other sales-based fees payable by BMS to alliance partners are included in Cost of products sold as incurred.


•	Cost reimbursements between the parties are recognized as incurred and included in Cost of products sold; Marketing, selling and administrative expenses; or Research and development expenses, based on the underlying nature of the related activities subject to reimbursement.

•

Upfront and contingent development and approval milestones payable to BMS by alliance partners for investigational compounds and commercial products are deferred and amortized over the expected period of BMS's development and co-promotion obligation through the market exclusivity period or the periods in which the related compounds or products are expected to contribute to future cash flows. The amortization is presented consistent with the nature of the payment under the arrangement. For example, amounts received for investigational compounds are presented in Other income (net) as the activities being performed at that time are not related to the sale of commercial products included in BMS’s ongoing major or central operations; amounts received for commercial products are presented in alliance revenue as the sale of commercial products are considered part of BMS’s ongoing major or central operations.


•	Upfront and contingent approval milestones payable by BMS to alliance partners for commercial products are capitalized and amortized over the shorter of the contractual term or the periods in which the related products are expected to contribute to future cash flows. The amortization is included in Cost of products sold.


•	Upfront and contingent milestones payable by BMS to alliance partners prior to regulatory approval are expensed as incurred and included in Research and development expense.


•	Royalties and other contingent consideration payable to BMS by alliance partners related to the divestiture of such businesses are included in Other income (net) when earned.


•	All payments between BMS and its alliance partners are presented in Cash Flows From Operating Activities, except as otherwise described below.

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. Certain prior period amounts included below were revised to exclude amounts for arrangements that no longer meet the criteria for collaboration arrangements.



	Year Ended December 31,
Dollars in Millions	2018			2017			2016
Revenues from alliances:
Net product sales	$	8,359		$	6,917		$	5,530
Alliance revenues	647			962			1,252
Total Revenues	$	9,006		$	7,879		$	6,782

Payments to/(from) alliance partners:
Cost of products sold	$	3,439		$	2,718		$	2,126
Marketing, selling and administrative	(104		)	(62		)	(30		)
Research and development	1,044			(28		)	(9		)
Other income (net)	(67		)	(46		)	(42		)



Selected Alliance Balance Sheet Information:	December 31,
Dollars in Millions	2018		2017
Receivables – from alliance partners	$	395	$	322
Accounts payable – to alliance partners	904		875
Deferred income from alliances^(a)	491		467


(a)	Includes unamortized upfront and milestone payments.

Specific information pertaining to each of our significant alliances is discussed below, including their nature and purpose; the significant rights and obligations of the parties; specific accounting policy elections; and the income statement classification of and amounts attributable to payments between the parties.

Pfizer

BMS and Pfizer jointly develop and commercialize Eliquis, an anticoagulant discovered by BMS. Pfizer funds between 50% and 60% of all development costs depending on the study. Profits and losses are shared equally on a global basis except in certain countries where Pfizer commercializes Eliquis and pays BMS a sales-based fee.

Co-exclusive license rights were granted to Pfizer in exchange for an upfront payment and potential milestone payments. Both parties assumed certain obligations to actively participate in a joint executive committee and various other operating committees and have joint responsibilities for the research, development, distribution, sales and marketing activities of the alliance using resources in their own infrastructures. BMS and Pfizer manufacture the product in the alliance and BMS is the principal in the end customer product sales in the U.S., significant countries in Europe, as well as Canada, Australia, China, Japan and South Korea. In 2015, BMS transferred full commercialization rights to Pfizer in certain smaller countries in order to simplify operations. In the transferred countries, BMS supplies the product to Pfizer at cost plus a percentage of the net sales price to end-customers which is recorded in full upon transfer of control of the product to Pfizer.

The Company did not allocate consideration to the rights transferred to Pfizer as such rights were not sold separately by BMS or any other party, nor could Pfizer receive any benefit for the delivered rights without the fulfillment of other ongoing obligations by BMS under the alliance agreement. As such, the global alliance was treated as a single unit of accounting and upfront proceeds and any subsequent contingent milestone proceeds are amortized over the expected period of BMS's co-promotion obligation through the market exclusivity period. BMS received $884 million in non-refundable upfront, milestone and other licensing payments related to Eliquis through December 31, 2018. Amortization of the Eliquis deferred income is included in Other income (net) as Eliquis was not a commercial product at the commencement of the alliance.

Summarized financial information related to this alliance was as follows:



	Year Ended December 31,
Dollars in Millions	2018			2017			2016
Revenues from Pfizer alliance:
Net product sales	$	6,329		$	4,808		$	3,306
Alliance revenues	109			64			37
Total Revenues	$	6,438		$	4,872		$	3,343

Payments to/(from) Pfizer:
Cost of products sold – Profit sharing	$	3,078		$	2,314		$	1,595
Other income (net) – Amortization of deferred income	(55		)	(55		)	(55		)



Selected Alliance Balance Sheet Information:	December 31,
Dollars in Millions	2018		2017
Receivables	$	220	$	193
Accounts payable	786		625
Deferred income	$	410	$	466

Otsuka

BMS and Otsuka co-promote Sprycel in the U.S. and the EU. Both parties actively participate in various governance committees, however, BMS has control over the decision making. BMS is responsible for the development and manufacture of the product and is also the principal in the end customer product sales. A fee is paid to Otsuka based on net sales levels in the Oncology Territory (U.S., Japan and the EU) that equates to $294 million on the first $1 billion of annual net sales plus 1% of net sales in excess of $1 billion.

Summarized financial information related to this alliance was as follows:



	Year Ended December 31,
Dollars in Millions	2018		2017		2016
Revenues from Otsuka alliances:
Net product sales – Oncology territory	$	1,705	$	1,699	$	1,544

Payments to Otsuka:
Cost of products sold – Oncology fee	$	297	$	299	$	304

BMS also had a worldwide commercialization agreement with Otsuka, to co-develop and co-promote Abilify*. The U.S. portion of the agreement expired in April 2015 and the EU portion expired in June 2014. In other countries where BMS had the exclusive right to sell Abilify*, expiration occurred on a country-by-country basis with the last expiration in Canada in January 2018.

Ono

BMS and Ono jointly develop and commercialize Opdivo, Yervoy and several BMS investigational compounds in Japan, South Korea and Taiwan. BMS is responsible for supply of the products. Profits, losses and development costs are shared equally for all combination therapies involving compounds of both parties. Otherwise, sharing is 80% and 20% for activities involving only one of the party’s compounds.

BMS and Ono also jointly develop and commercialize Orencia in Japan. BMS is responsible for the order fulfillment and distribution of the intravenous formulation and Ono is responsible for the subcutaneous formulation. Both formulations are jointly promoted by both parties with assigned customer accounts and BMS is responsible for the product supply. A co-promotion fee of 60% is paid when a sale is made to the other party’s assigned customer.

In 2017, Ono granted BMS an exclusive license for the development and commercialization of ONO-4578, Ono’s Prostaglandin E2 receptor 4 antagonist. BMS acquired worldwide rights except in Japan, South Korea, and Taiwan where it was added to the existing collaboration and in China and ASEAN countries where Ono retained exclusive rights. BMS paid $40 million to Ono, which was included in Research and development expense in 2017. Ono is eligible to receive subsequent clinical, regulatory and sales-based milestone payments of up to $480 million and royalties in countries where BMS has exclusive licensing rights.

In 2018, BMS provided Ono with a right to accept NKTR-214 into their alliance upon completion of a Phase I clinical study of Opdivo and NKTR-214 in the Ono Territory. If the right is exercised, Ono will partially reimburse BMS for development costs incurred with the study and share in certain future development costs, contingent milestone payments, profits and losses under the collaboration with Nektar.

Summarized financial information related to this alliance was as follows:



	Year Ended December 31,
Dollars in Millions	2018		2017		2016
Revenues from Ono alliances:
Net product sales	$	165	$	145	$	147
Alliance revenues	294		268		280
Total Revenues	$	459	$	413	$	427

BMS is the principal in the end customer product sales and has the exclusive right to develop, manufacture and commercialize Opdivo worldwide except in Japan, South Korea and Taiwan. Ono is entitled to receive royalties of 4% in North America and 15% in all territories excluding the three countries listed above, subject to customary adjustments.

Gilead

BMS and Gilead operate a joint venture in Europe to develop and commercialize a combination product named Atripla*, which combines BMS's Sustiva with Gilead's Truvada*. The joint venture is consolidated by Gilead, who is the principal in end customer product sales. BMS receives a percentage of end customer sales which is recorded in Alliance revenues. The joint venture will continue until either party terminates the arrangement or the last patent expires that allows market exclusivity to Atripla*.

Prior to 2018, BMS and Gilead operated a joint venture in the U.S. and Canada for Atripla*, which was terminated following the launch of a generic version of Sustiva by a third-party in the U.S. As a result, deferred income and alliance receivables attributed to Sustiva product held by the joint venture at December 31, 2017 was reduced by $438 million to reflect the post-termination selling price. BMS is entitled to a fee equal to 55% of Atripla* U.S. net sales multiplied by the ratio of the difference in the average net selling prices of Atripla* and Truvada* to the Atripla* average net selling price in 2018. The fee is reduced to 35% in 2019 and 15% in 2020, of Atripla* U.S. net sales multiplied by the ratio described above. BMS supplies Sustiva at cost plus a markup to Gilead during this three-year period but may terminate the supply agreement after a notice period.

Summarized financial information related to this alliance was as follows:



	Year Ended December 31,
Dollars in Millions	2018		2017		2016
Revenues from Gilead alliances:
Alliance revenues	$	253	$	623	$	934

Equity in net loss of affiliates	$	2	$	13	$	12

Nektar

In 2018, BMS and Nektar commenced a worldwide license and collaboration for the development and commercialization of NKTR-214, Nektar's investigational immuno-stimulatory therapy designed to selectively expand specific cancer-fighting T cells and natural killer cells directly in the tumor micro-environment. The Opdivo and NKTR-214 combination therapy is currently in Phase II clinical studies for multiple cancer indications and in Phase III clinical studies for melanoma and RCC. A joint development plan agreed by the parties contemplates development in various indications and tumor types with each party responsible for the supply of their own product. BMS's share of the development costs associated with therapies comprising a BMS medicine used in combination with NKTR-214 is 67.5%, subject to certain cost caps for Nektar. The parties will also jointly commercialize the therapies, subject to regulatory approval. BMS's share of global NKTR-214 profits and losses will be 35% subject to certain annual loss caps for Nektar.

BMS paid Nektar $1.85 billion for the rights discussed above and 8.3 million shares of Nektar common stock representing a 4.8% ownership interest. BMS's equity ownership is subject to certain lock-up, standstill and voting provisions for a five-year period. The amount of the up-front payment allocated to the equity investment was $800 million after considering Nektar's stock price on the date of closing and current limitations on trading the securities. The remaining $1.05 billion of the up-front payment was allocated to the rights discussed above and included in Research and development expense in the second quarter of 2018. BMS will also pay up to $1.8 billion upon the achievement of contingent development, regulatory and sales-based milestones over the life of the alliance period. Research and development expense payable under this agreement with Nektar was $59 million for the year ended December 31, 2018.

AbbVie

BMS and AbbVie jointly develop and commercialize Empliciti, a humanized monoclonal antibody for the treatment of multiple myeloma. Both parties participate in development and U.S. commercialization committees in which BMS has final decision making authority. AbbVie funds 20% of global development costs and BMS is solely responsible for supply, distribution and sales and marketing activities and is the principal in the end customer product sales. AbbVie shares 30% of all profits and losses in the U.S. and is paid tiered royalties outside of the U.S. AbbVie is also entitled to receive an additional $100 million if certain regulatory events occur and $200 million if certain sales thresholds are achieved. The agreement may be terminated immediately by BMS or by either party for material breaches (subsequent to a notice period).

Summarized financial information related to this alliance was as follows:



	Year Ended December 31,
Dollars in Millions	2018		2017		2016
Revenues from AbbVie alliance:
Net product sales	$	162	$	150	$	132

Payments to AbbVie:
Cost of products sold – Profit sharing	$	44	$	41	$	34