Lesson 2 of 8
Reading a pharmaceutical
Bristol Myers Squibb spent 9,951 million dollars on research in 2025 and none of it is on the balance sheet. Total equity is 20.6 percent of total assets.
By Javier Sanz
Founder of ValueScreener. Built Ninety Nine, a securities services provider, and sold it to a tier-one global bank; ran operations and internationalization at Alpaca, the brokerage API.
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In one minute
- Research is charged as incurred, so the asset that produces future revenue never reaches the balance sheet and every return-on-capital ratio is computed on a denominator that omits it.
- The revenue at risk is dated: Revlimid fell 49 percent to 2,951 million dollars in 2025, Sprycel 62 percent and Abraxane 58 percent, while total revenues were flat.
- Acquired in-process research is charged too, at 3,721 million dollars in 2025 against 13,373 million in 2024, so buying a pipeline lands in the income statement as well.
Two things make a pharmaceutical company's accounts different from almost any other. The revenue has an expiry date that is public years in advance, and the spending that creates the next revenue is expensed rather than capitalised.
Four products past exclusivity, and the total they sit inside
| Line | 2025 | 2024 | Change |
|---|---|---|---|
| Revlimid | 2,951 | 5,773 | -49% |
| Pomalyst and Imnovid | 2,733 | 3,545 | -23% |
| Sprycel | 493 | 1,286 | -62% |
| Abraxane | 368 | 875 | -58% |
| Total revenues | 48,194 | 48,300 | 0% |
The cliff is visible before it arrives
The four products above lost 4,934 million dollars of revenue between them in one year, and the company's total revenue was flat at 48,194 million against 48,300 million. Other products grew into the gap.
That is the structure to read. A pharmaceutical company's total revenue line hides two opposite movements, and the interesting number is never the total. It is the share of revenue sitting in products whose exclusivity has a known end date, which the product table lets you compute.
Why return on capital misleads here
Research and development expense was 9,951 million dollars in 2025 and 11,159 million in 2024. Every dollar of it was charged against profit in the year it was spent, and none of it appears as an asset.
Acquired in-process research and development, which is what a company charges when it buys a pipeline, was 3,721 million in 2025 against 13,373 million in 2024. That too is an expense.
So the denominator of any return on capital is an asset base that excludes the entire accumulated investment in the products currently selling. Total equity was 18,506 million dollars against total liabilities and equity of 90,038 million at the end of 2025, which is 20.6 percent. A return computed on that equity is arithmetically correct and describes very little.
The line that says what was bought
Amortisation of acquired intangible assets was 3,317 million dollars in 2025 against 8,872 million in 2024. That is the one part of past research spending that does appear as an asset, because it was acquired rather than conducted, and it is being written off.
The asymmetry is the point. A product developed in-house has no carrying value; the same product bought from someone else sits on the balance sheet and is amortised. Two identical businesses can therefore show entirely different returns on capital depending on which route each took.
The three disclosures that matter
The product revenue table, because it dates the risk. The research and development line beside acquired in-process research, because together they say how much of the pipeline was built and how much was bought. And the amortisation of acquired intangibles, because it is the only part of either that a balance sheet ratio can see.
Check yourself
Why does return on equity mislead at a pharmaceutical company?
- Because earnings are volatile
- Because research is expensed as incurred, so the asset that produces current revenue is absent from the denominator
- Because equity includes goodwill
Show the answer
Answer: B.
Total equity was 18,506 million dollars against 90,038 million of total liabilities and equity. Computing a return on it is correct arithmetic on a base that omits the accumulated research behind the products selling today.Revlimid, Sprycel and Abraxane fell 49, 62 and 58 percent in 2025. What did total revenues do?
- Fell by a similar proportion
- They were essentially flat, at 48,194 million dollars against 48,300 million, because other products grew into the gap
- Rose 31 percent
Show the answer
Answer: B.
The total line hides two opposite movements, which is why the product table rather than the total is the place to read the risk.Why can two identical drug businesses show different returns on capital?
- Because of different tax rates
- Because a product developed in-house is expensed and carries no asset, while the same product acquired sits on the balance sheet and is amortised
- Because revenue recognition differs
Show the answer
Answer: B.
The asymmetry between built and bought is a feature of the standards, and it moves the denominator of every capital return ratio.Sources
- Bristol-Myers Squibb Company, Form 10-K for the year ended 31 December 2025, filed 2026-02-11, accession 0000014272-26-000004: the product revenue table, total revenues, research and development, acquired in-process research and development, amortisation of acquired intangible assets, selling general and administrative expenses, total expenses, and the consolidated balance sheet totals.
- ASC 350, Intangibles, Goodwill and Other: the asymmetry between a bought intangible that is recognised and a built one that is not.
What this leaves out
- Earnings before income taxes of 9,328 million dollars is this course's subtraction of two disclosed totals. No tax figure or net income is computed here.
- The 4,934 million dollar decline across four products is this course's arithmetic on the product revenue table.
- The filing gives its own explanations for each product's movement, and this lesson does not add to or reinterpret them.
- Nothing here is a view on Bristol Myers Squibb or on any security.