Bristol-Myers Squibb (BMY) 2025 Earnings Quality Report

Grade: D — LOE Cliff Meets Leveraged Balance Sheet

Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles

Data: SEC EDGAR 10-K (Filed 2026-02-11, fiscal year ended December 31, 2025) + Yahoo Finance

Auditor: Deloitte & Touche LLP — Clean opinion (2 Critical Audit Matters)

One-line verdict: BMY's story in 2025 is divergence between the Legacy Portfolio (led by Revlimid, down 49% to $2.95B) and the Growth Portfolio (led by Opdivo $10.05B +8%, Eliquis $14.44B +8%, Reblozyl $2.33B +31%). Total revenue was essentially flat at $48.19B versus $48.30B, but the mix shift is dramatic — Legacy Portfolio revenue fell 15% to $21.79B while Growth Portfolio grew 17% to $26.41B. Cash flow remains exceptional: CFFO of $14.16B covers net income of $7.05B at 2.01x, and free cash flow of $12.85B funds the $5.05B dividend with $7.8B to spare. The balance sheet tells the cost of the aggressive $21.8B in 2024 acquisitions (Karuna for $12.1B non-tax-deductible charge, plus RayzeBio): cash of $10.2B covers only 23% of $47.1B in debt (C4 fail), and goodwill plus intangibles of $41.1B equal 223% of stockholders' equity of $18.5B (D1 fail). The Altman Z-Score of 2.16 sits in the grey zone. Deloitte has flagged two CAMs — the standard $1B+ Medicaid/Medicare rebate accrual estimation and, unusually, U.S. transfer pricing unrecognized tax benefits. The underlying cash flow machine is intact. The capital structure and the upcoming IRA negotiation of Eliquis are the risks.

Business: The Legacy vs Growth Portfolio Split

Per the MD&A, BMY classifies its portfolio into two buckets:

Growth Portfolio (2025 Revenue: $26,409M, +17% YoY)

Per the product table in the 10-K:

The 10-K states: "Eliquis (apixaban) is an oral Factor Xa inhibitor indicated for the reduction in risk of stroke/systemic embolism in NVAF and for the treatment of DVT/PE and reduction in risk of recurrence following initial therapy."

Cobenfy — the product BMY paid $14B for Karuna Therapeutics to acquire in March 2024 — generated just $155M in its first full year. The 10-K discloses the Karuna deal produced "a $12.1 billion one-time, non-tax deductible charge for the acquisition of Karuna" that drove the 2024 net loss.

Legacy Portfolio (2025 Revenue: $21,785M, -15% YoY)

Per the 10-K product table:

Revlimid (lenalidomide), once BMY's largest product, has collapsed from its pre-LOE peak of $12B+ to $2.95B as generic competition intensifies. Sprycel (dasatinib) is essentially post-generic. Pomalyst continues to decline.

Total Revenue: $48,194M (2025) vs $48,300M (2024), essentially flat (-0.2%).

The math: Growth Portfolio +$3,846M offset Legacy Portfolio -$3,952M. One more year of Legacy decline at this pace and total revenue will start to shrink materially unless the Growth Portfolio accelerates.

Profitability: Margin Stable, Absolute Dollars Volatile

Per the consolidated statements of operations:

The 2024 net loss of -$8,948M is essentially entirely driven by the $12.1B non-tax-deductible Karuna charge (acquired IPR&D expensed immediately). Adjusted for that, 2024 was similar in magnitude to 2023 and 2025.

Gross margin dropped from 76.2% in 2023 to 71.1% in 2024-2025 — a 510 bp structural step-down reflecting the Revlimid LOE mix shift (legacy products had higher gross margin). B4 passes because the 2025-vs-2024 change is flat, but the underlying trend is negative.

SG&A / gross profit of 21.2% is "excellent" per the engine's B3 classification. BMY runs one of the leanest commercial operations in large pharma.

Interest expense has grown from $1.17B (2023) to $1.89B (2025) — a 62% increase tied to the debt raised for the Karuna and RayzeBio acquisitions.

Cash Flow: The Operating Engine Is Intact

Per the consolidated statements of cash flows:

Key observation: CFFO has been $13-15B in every year, completely unaffected by the -$8.9B 2024 net loss. That is because the 2024 Karuna charge was non-cash — IPR&D expensed but paid from prior-period cash reserves. The CFFO of $14.16B in 2025 is strong, 2.01x coverage of net income, passes C1 comfortably.

Free cash flow of $12.85B funds the $5.05B dividend with over $7.8B of remaining firepower. BMY is a cash flow machine. The concern is not the generation — it is the deployment.

The 2024 acquisition outflow of -$21.82B (Karuna $13.1B + RayzeBio $4.1B + other) is the largest M&A year in BMY history. Another $3.94B was spent in 2025 on acquisitions. The cumulative impact: goodwill and intangibles have ballooned.

Balance Sheet: The Cost of the Spending Spree

Per the balance sheet:

The Karuna charge in 2024 wiped out approximately $13B of stockholders' equity, pushing the G+I / equity ratio to 278%. The ratio has recovered to 223% in 2025 as intangibles amortize and retained earnings build back.

C4 FAIL: Cash of $10.2B covers only 23% of debt of $47.1B.

D1 FAIL: Goodwill + intangibles of $41.1B = 223% of equity.

D2 PASS: Debt/EBITDA of 3.1x (using 2025 adjusted EBITDA) is within the healthy range. But interest coverage of EBIT/Interest = $13B/$1.9B = 6.8x, which is reasonable but down from 16x three years ago.

The 18-Point Screening

Note on A2: mechanically the check passes, but AR grew 6.4% while revenue fell 0.2%. This is directionally concerning — DSO went up 5 days. Worth a footnote check.

Beneish M-Score components: DSRI 1.067, GMI 1.000, AQI 0.973, SGI 0.998 (flat), DEPI 1.751 (very elevated), SGAI 0.866, TATA -0.0789, LVGI 0.955.

The DEPI of 1.751 is unusually high — it suggests depreciation as a percentage of assets dropped materially. This can happen when a company extends useful lives or acquires intangibles that push the denominator up faster than depreciation rises. For BMY post-Karuna, this is mechanical — the large one-time Karuna charge created non-depreciating intangibles, and the denominator reshape pushes DEPI high. Not a red flag in context, but it does push the M-Score toward the grey zone (currently at -2.68, safely below -2.22).

Altman Z-Score 2.16: grey zone. Components: X1 working capital/assets 0.12, X2 retained earnings/assets 0.38, X3 EBIT/assets 0.15, X4 equity/liabilities 0.26. The low X4 (equity/liabilities) is the primary drag — $18.5B equity against $72B liabilities produces 0.26.

Key Risks from the 10-K (Item 1A)

1. Inflation Reduction Act Medicare Price Negotiation

The 10-K discusses the IRA extensively: "The IRA directs (i) the federal government to negotiate prices for select high-cost Medicare Part D (beginning in 2026) and Part B (beginning in 2028) drugs that are more than nine years (for small-molecule drugs) or 13 years (for biologics) from their initial FDA approval, (ii) manufacturers to pay a rebate for Medicare Part B and Part D drugs when prices increase faster than inflation and (iii) the formation of the Part D Manufacturer Program which replaced the Part D CGDP and established a $2,000 cap for out-of-pocket costs."

Eliquis is one of the first ten drugs subject to IRA Medicare price negotiation starting January 1, 2026. This is the single largest near-term pricing headwind for BMY. Eliquis generates $14.4B in annual revenue, $10.2B of which is U.S.

2. Revlimid Loss of Exclusivity

Revlimid is the textbook LOE cliff. From peak revenue of ~$13B, it has fallen to $2.95B in 2025 and continues to decline at -49% annually. The 10-K cites "lower prices, lower reimbursement rates and smaller populations for whom payers will reimburse, which have negatively impacted, and may continue to, negatively impact our results of operations (including intangible asset impairment charges)."

3. Karuna / Cobenfy Commercial Execution

BMY paid $14B for Karuna to acquire Cobenfy (xanomeline/trospium), the first new-mechanism schizophrenia treatment in decades. First-year revenue of $155M is materially below the implied bull case. The 2024 $12.1B "non-tax-deductible charge" was the upfront accounting recognition of the IPR&D portion. The remaining goodwill and intangibles tied to Karuna remain on the balance sheet at substantial value.

4. Transfer Pricing Litigation

Deloitte's second Critical Audit Matter focuses on transfer pricing. Per the audit report: "the Company recognizes certain income tax benefits associated with transactions between its U.S. operating companies and related foreign affiliates. These income tax benefits are estimated based on transfer pricing agreements, third-party transfer pricing studies, and the Company's judgment as to whether it is more-likely-than-not the benefits will be realized."

The MD&A discloses ongoing IRS scrutiny: "the release of approximately $300 million of income tax reserves related to the lapse of statute for the U.S. federal years 2019-2020, offset by (ii) the addition of income tax reserves for certain transfer pricing ($160 million) and other matters." BMY is in ongoing transfer pricing dispute with the IRS — a material risk flagged as a CAM.

5. Debt Refinancing

Interest expense has grown from $1.17B to $1.89B in two years. Cash covers only 23% of the $47.1B debt stack. Continued high interest rates could pressure refinancing economics.

Auditor's Critical Audit Matters

Deloitte has audited BMY since 2006 — 20 years. The 2025 audit identified two Critical Audit Matters:

CAM 1: Gross-to-Net U.S. Rebate Accruals

Per the audit report: "Certain of the GTN liabilities related to U.S. Medicaid, Medicare Part D, and managed healthcare organizations rebate programs (the 'GTN U.S. rebate accruals') involve the use of significant assumptions and judgments in their calculation. These significant assumptions and judgments include consideration of legal interpretations of applicable laws and regulations, historical experience, payer channel mix, current contract prices, unbilled claims, processing time lags, and inventory levels in the distribution channel."

"Given the complexity involved in determining the significant assumptions used in calculating certain GTN U.S. rebate accruals, auditing these estimates involved especially subjective judgment."

This is the standard pharma rebate accrual CAM, mirroring what we saw at LLY, ABBV, and BIIB.

CAM 2: Unrecognized Tax Benefit Liabilities Related to U.S. Transfer Pricing

Per the audit report: "the amounts recognized as unrecognized tax benefit liabilities related to U.S. transfer pricing may be significantly affected in subsequent periods due to various factors, such as changes in tax law, identification of additional relevant facts, or a change in the Company's judgment regarding measurement of the tax benefits upon ultimate settlement with the taxing authorities. Given the complexity associated with significant assumptions used and judgments made to calculate unrecognized tax benefit liabilities related to U.S. transfer pricing, auditing these estimates involved especially subjective judgment."

A second CAM devoted specifically to transfer pricing — rather than the broader "uncertain tax positions" CAM we saw at ABT and BDX — signals that Deloitte considered this specific exposure especially material to BMY's financial statements. IRS transfer pricing disputes with large pharma companies (see: Coca-Cola, Medtronic, Microsoft, Perrigo) have resulted in multi-billion dollar settlements. This is a tail risk.

Key Financial Trends (4-Year)

*2024 includes Karuna $12.1B non-tax-deductible charge.

Summary

Grade: D. Two balance-sheet red flags and two auditor CAMs on a company with exceptional cash generation facing the IRA Eliquis negotiation.

BMY's operating cash flow is remarkable — $14.2B in 2025, up from $13.1B in 2022, undisrupted by the massive Karuna charge that turned 2024 net income to -$8.9B. Free cash flow of $12.8B funded a $5.0B dividend and continued to grow the cash balance. The CFFO / NI ratio of 2.01x confirms earnings are substantially cash-backed.

But the balance sheet shows the strain of the $21.8B 2024 acquisition year:

The auditor relationship: Deloitte has audited BMY for 20 years and issued a clean opinion. But two CAMs — one on the standard rebate accrual estimation, one unusually focused on U.S. transfer pricing unrecognized tax benefits — signal material estimation uncertainty.

The forward narrative is dominated by two non-earnings-quality questions:

How will Eliquis respond to IRA Medicare price negotiation beginning January 1, 2026? Eliquis is $14.4B of revenue, approximately 30% of total. The IRA price cut is estimated by various analysts at 20-40% of current Medicare list pricing. If the IRA reduces Eliquis U.S. revenue by even 15%, that is approximately $1.5B of annual revenue loss starting in 2026.

Will Cobenfy scale? The Karuna acquisition is the largest bet BMY has made in a decade. $155M of 2025 revenue is consistent with a new launch trajectory but leaves substantial execution risk on the $14B purchase price.

The M-Score of -2.68 passes the manipulation threshold. The F-Score fraud probability of 0.38% is low. Earnings quality itself is not the primary concern — the capital structure under scenarios of revenue contraction is.

Read the 10-K. Read Note 2 on revenue recognition and GTN rebates. Read Note 7 on income taxes and transfer pricing. Then decide whether the FCF engine can outrun the IRA headwind.

**Disclaimer**: This report is based on Bristol-Myers Squibb's fiscal year 2025 10-K filed with the SEC on February 11, 2026. This is NOT investment advice.

**About EarningsGrade**: We screen earnings reports for financial red flags using an 18-point forensic framework. Grade D means material concerns were identified that warrant investigation.