UNITED STATES

SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

_______________

FORM 10-K_______________

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2015

Commission File Number 1-1136_______________

BRISTOL-MYERS SQUIBB COMPANY(Exact name of registrant as specified in its charter)

________________

Delaware 22-0790350(State or other jurisdiction of

incorporation or organization) (IRS Employer

Identification No.)

345 Park Avenue, New York, N.Y. 10154(Address of principal executive offices)

Telephone: (212) 546-4000Securities registered pursuant to Section 12(b) of the Act:

Title of each class Name of each exchange on which registeredCommon Stock, $0.10 Par Value New York Stock Exchange

1.000% Notes due 2025 New York Stock Exchange1.750% Notes due 2035 New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

Title of each class

$2 Convertible Preferred Stock, $1 Par Value_________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes xx No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No xxIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during

the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for thepast 90 days. Yes xx No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required tobe submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that theregistrant was required to submit and post such files). Yes xx No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will notbe contained, to the best of the registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. Seedefinitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.

Large accelerated filer xx Accelerated filer Non-accelerated filer Smaller reporting company

Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No xxThe aggregate market value of the 1,665,867,299 shares of voting common equity held by non-affiliates of the registrant, computed by reference to the closing

price as reported on the New York Stock Exchange, as of the last business day of the registrants most recently completed second fiscal quarter (June 30, 2015 ) wasapproximately $110,846,810,075. Bristol-Myers Squibb has no non-voting common equity. At February 1, 2016 , there were 1,669,459,090 shares of common stockoutstanding.

DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Proxy Statement for the registrants Annual Meeting of Stockholders to be held May 3,2016, to be filed within 120 days after the conclusion of the registrant's fiscal year ended December 31, 2015 , are incorporated by reference into Part III of this AnnualReport on Form 10-K.

PART I

Item 1. BUSINESS.

General

Bristol-MyersSquibbCompany(whichmaybereferredtoasBristol-MyersSquibb,BMS,theCompany,we,ourorus)wasincorporatedunderthelawsoftheStateofDelawareinAugust1933underthenameBristol-MyersCompany,assuccessortoaNewYorkbusinessstartedin1887.In1989,Bristol-MyersCompanychangeditsnametoBristol-MyersSquibbCompanyasaresultofamerger.Weareengagedinthediscovery,development,licensing,manufacturing,marketing,distributionandsaleofbiopharmaceuticalproductsonaglobalbasis.

WeoperateinonesegmentBioPharmaceuticals.Foradditionalinformationaboutbusinesssegments,refertoItem8.FinancialStatementsNote2.BusinessSegmentInformation.

Wecompetewithotherworldwideresearch-baseddrugcompanies,smallerresearchcompaniesandgenericdrugmanufacturers.Ourproductsaresoldworldwide,primarilytowholesalers,retailpharmacies,hospitals,governmententitiesandthemedicalprofession.WemanufactureproductsintheUnitedStates(U.S.),PuertoRicoandinsixforeigncountries.

Thepercentageofrevenuesbysignificantregion/countrywereasfollows:

Year Ended December 31,DollarsinMillions 2015 2014 2013UnitedStates 49% 49% 51%Europe 21% 23% 24%Japan 10% 6% 5%China 4% 4% 4% TotalRevenues $ 16,560 $ 15,879 $ 16,385

Acquisitions and Divestitures

WehavetransitionedBMSintoaleading-edgespecialtybiopharmaceutical companyfocusedexclusivelyondiscovering, developing,anddeliveringinnovativemedicinesthataddressseriousunmetmedicalneeds.Thistransitionhasencompassedallareasofourbusinessandoperations.Aspartofthisstrategy,wehavedivested our diabetes and non-pharmaceutical businesses, restructured our alliances to divest certain mature brand products, implemented our acquisition andlicensing strategy and executed our productivity transformation initiative. Significant divestitures include the anticipated divestiture of the investigational HIVmedicinesinthefirsthalfof2016,Erbitux* inNorthAmericain2015,ourdiabetesbusinessin2014andMeadJohnsonin2009.Aspartofouracquisitionandlicensingstrategy,weacquiredCardioxylPharmaceuticals,Inc.(Cardioxyl)andFlexusBiosciences,Inc.(Flexus)in2015,iPierian,Inc.(iPierian)in2014,AmylinPharmaceuticals,Inc.(Amylin)andInhibitex,Inc.(Inhibitex)in2012andAmiraPharmaceuticals,Inc.(Amira)in2011andenteredintoseverallicenseandothercollaborationarrangements.Thesetransactionshaveallowed,andcontinuetoallow,ustofocusourresourcesbehindgrowthopportunitieswhichdrivethegreatestlong-termvalue.Fromadiseasestandpoint,wearefocusedonthefollowingcoretherapeuticareas:oncology,immuno-oncology,immunoscience,cardiovasculardisease,fibrosisandgeneticallydefineddiseases.

Products

Ourpharmaceuticalproductsincludechemically-synthesizeddrugs,orsmallmolecules,andanincreasingportionofproductsproducedfrombiologicalprocesses(typicallyinvolvingrecombinantDNAtechnology),calledbiologics.Smallmoleculedrugsaretypicallyadministeredorally,e.g.,intheformofapillortablet,althoughotherdrugdeliverymechanismsareusedaswell.Biologicsaretypicallyadministeredtopatientsthroughinjectionsorbyinfusion.Mostofourrevenuescomefromproductsinthefollowingtherapeuticclasses:virology,includingHIVinfection;oncology;immunoscience;cardiovascular;andneuroscience.

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Inthepharmaceutical industry, themajority of aninnovativeproducts commercial valueis usuallyrealizedduringtheperiodinwhichtheproduct hasmarketexclusivity.Ourbusinessisfocusedoninnovativebiopharmaceuticalproducts,andwerelyonpatentrightsandvariousformsofregulatoryprotectiontomaintainthemarketexclusivityofourproducts.IntheU.S.,theEuropeanUnion(EU)andsomeothercountries,whenthesepatentrightsandotherformsofexclusivityexpireandgenericversionsofamedicineareapprovedandmarketed,thereareoftensubstantialandrapiddeclinesinthesalesoftheoriginalinnovativeproduct.Forfurtherdiscussionofpatentrightsandregulatoryformsofexclusivity,refertoIntellectualPropertyandProductExclusivitybelow.Forfurtherdiscussionoftheimpactofgenericcompetitiononourbusiness,refertoGeneric Competition below.

Thefollowingchart showsour keyproducts together with the year in whichthe earliest basic exclusivity loss (patent rights or data exclusivity) occurredor iscurrentlyestimatedtooccurintheU.S.,theEU,JapanandChina.Wealsosellourpharmaceuticalproductsinothercountries;however,dataisnotprovidedonacountry-by-country basis because individual country revenues are not significant outside the U.S., the EU, Japan and China. In many instances, the basicexclusivitylossdatelistedbelowistheexpirationdateofthepatentthatclaimstheactiveingredientofthedrugorthemethodofusingthedrugfortheapprovedindication,ifthereisonlyoneapprovedindication.Insomeinstances,thebasicexclusivitylossdatelistedinthechartistheexpirationdateofthedataexclusivityperiod.Insituationswherethereisonlydataexclusivitywithoutpatentprotection,acompetitorcouldseekregulatoryapprovalbysubmittingitsownclinicaltrialdatatoobtainmarketingapprovalpriortotheexpirationofdataexclusivity.

Weestimate the market exclusivity periodfor eachof our products for the purpose of business planningonly. Thelength of market exclusivity for anyof ourproducts is impossible to predict with certainty because of the complex interaction between patent and regulatory forms of exclusivity and the inherentuncertaintiesregardingpatentlitigation.Therecanbenoassurancethataparticularproductwillenjoymarketexclusivityforthefullperiodoftimethatappearsintheestimateorthattheexclusivitywillbelimitedtotheestimate.

ThefollowingschedulepresentsrevenuesofourkeyproductsandestimatedbasicexclusivitylossintheU.S.,EU,JapanandChina:

Total Revenues by Product Past or Currently Estimated Year of Basic Exclusivity LossDollarsinMillions 2015 2014 2013 U.S. EU (a) Japan ChinaVirology Baraclude (entecavir) $ 1,312 $ 1,441 $ 1,527 2014 (b) 2011-2016 (c) 2016 --HepatitisCFranchise(d) 1,603 256 2028 2027 2028 (e) ++Reyataz (atazanavir sulfate) Franchise 1,139 1,362 1,551 2017 2017-2019 (f) 2019 2017Sustiva (efavirenz) Franchise 1,252 1,444 1,614 2017 (g) 2013 (h) ++ ++Oncology Empliciti (elotuzumab) (i) 3 2026 ++ ++ ++Erbitux* (cetuximab) 501 723 696 2016 (j) ++ 2016 (k) ++Opdivo (nivolumab) 942 6 2027 (l) 2026 (l) 2031 (l) ++Sprycel (dasatinib) 1,620 1,493 1,280 2020 (m) ^^ 2021 2020Yervoy (ipilimumab) 1,126 1,308 960 2023 (n) 2021 (o) 2023 (p) ++Neuroscience Abilify* (aripiprazole) 746 2,020 2,289 2015 (q) 2014 (q) ++ ++Immunoscience Orencia (abatacept) 1,885 1,652 1,444 2019 (r) 2017 (s) 2018 (t) ++Cardiovascular Eliquis (apixaban) 1,860 774 146 2023 (u) 2022 (v) 2026 (v) ^Note: Thecurrentlyestimatedearliest year of basic exclusivity loss includes anystatutoryextensionsof exclusivity that havebeengranted. In someinstances, wemaybeable to obtain anadditionalsixmonthsexclusivityforaproductbasedonthepediatricextension.Incertainotherinstances,theremaybelater-expiringpatentsthatcoverparticularformsorcompositionsofthedrug,aswellasmethodsofmanufacturingormethodsofusingthedrug.Suchpatentsmaysometimesresultinafavorablemarketpositionforourproducts,butproductexclusivitycannotbepredictedorassured.UndertheU.S.healthcarelawenactedin2010,qualifyingbiologicproductswillreceive12yearsofdataexclusivitybeforeabiosimilarcanenterthemarket,asdescribedinmoredetailinIntellectualPropertyandProductExclusivitybelow.

*IndicatesbrandnamesofproductswhicharetrademarksnotownedbyBMS.SpecifictrademarkownershipinformationisincludedintheExhibitIndex.++Wedonotcurrentlymarkettheproductinthecountryorregionindicated.--ThereisuncertaintyaboutChina'sexclusivitylawswhichhasresultedingenericcompetitionintheChinamarket.^ThereisuncertaintyaboutChina'sexclusivitylaws.^^ InMay2013,ApotexInc.,ActavisGroupPTCehf,Generics[UK]Limited(Mylan)andanunnamedcompanyfiledoppositionsintheEuropeanPatentOffice(EPO)seekingrevocationof

European Patent No. 1169038 (the '038 patent) covering dasatinib, the active ingredient inSprycel . The 038 patent is scheduled to expire in April 2020 (excluding potential termextensions).OnJanuary20,2016,theOppositionDivisionoftheEPOrevokedthe038patent.TheCompanywillappealtheEPOsdecisiontotheEPOBoardofAppeal.The038patentwill remain in force pending the outcome of our appeal of the EPOs decision, and we intend to pursue legal options to defend our intellectual property rights from any futureinfringement.RefertoNote22.LegalProceedingsandContingenciesformoreinformation.

(a) ReferencestotheEUthroughoutthisForm10-KincludeallmemberstatesoftheEuropeanUnionduringtheyearendedDecember31,2015.Basicpatentapplicationshavenotbeenfiledinallcurrentmemberstatesforallofthelistedproducts.Insomeinstances,thedateofbasicexclusivitylosswillbedifferentinvariousEUmemberstates.ForthoseEUcountrieswherethebasicpatentwasnotobtained,theremaybedataprotectionavailable.

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(b) Baraclude U.S.:InSeptember2014,TevaPharmaceuticalslaunchedagenericversionofBaraclude andwehaveexperiencedanegativeimpactonU.S.netproductsalesofBaracludebeginninginthefourthquarterof2014.TheseactionsfollowadecisioninJune2014bytheU.S.CourtofAppealsfortheFederalCircuittoupholdalowercourtdecisioninvalidatingBaraclude spatentinFebruary2013.InMay2015,theU.S.SupremeCourtdeniedtheCompany'spetitionforawrit of certiorari .Accordingly,thiscaseisnowconcluded.Formoreinformationaboutthispatentlitigationmatter,referto"Item8.FinancialStatementsNote22.LegalProceedingsandContingencies."

(c) Baraclude EU:ThecompositionofmatterpatentexpiresintheEUbetween2011and2016.(d) ExclusivityperiodrelatestotheDaklinza brand.(e) ThecompositionofmattercoveringdaclatasvirinJapanexpiresin2028includinggrantedpatenttermextension.(f) Reyataz EU:DataexclusivityintheEUexpiredin2014andprojectedmarketexclusivityexpiresbetween2017and2019.(g) Sustiva U.S.:ExclusivityperiodrelatestotheSustiva brandanddoesnotincludeexclusivityrelatedtoanycombinationtherapy.ThecompositionofmatterpatentforefavirenzintheU.S.

expiredin2013andthemethodofusepatentforthetreatmentofHIVinfectionexpiredinSeptember2014.Pediatricexclusivityhasbeengranted,whichprovidesanadditionalsixmonthperiodofexclusivityaddedtothetermofthepatentslistedintheOrangeBook.InOctober2014,theCompanyannouncedthatit hassuccessfullyresolvedall outstandingU.S.patentlitigationrelatingtoefavirenzandthatlossofexclusivityintheU.S.forefavirenzisnotexpectedtooccuruntilDecember2017.

(h) Sustiva EU:ExclusivityperiodrelatestotheSustiva brandanddoesnotincludeexclusivityrelatedtoanycombinationtherapy.MarketexclusivityforSustiva expiredinNovember2013incountriesintheEU.DataexclusivityforSustiva expiredintheEUin2009.

(i) Empliciti :WehaveacommercializationagreementwithAbbVieInc.(AbbVie)forEmpliciti .FormoreinformationaboutourarrangementwithAbbVie,refertoAlliancesbelowandItem8.FinancialStatementsNote3.Alliances.AbbVieownsapatentcoveringelotuzumabasacompositionofmatterthatexpiresin2026intheU.S.(excludingpotentialpatenttermextension)and2024intheEU,JapanandChina(excludingpotentialpatenttermextensionsintheEUandJapan).

(j) Erbitux* U.S.: Biologic product approved under a Biologics License Application (BLA). Data exclusivity in the U.S. expires in 2016. There is no patent that specifically claims thecompositionofmatterofcetuximab,theactiveingredientinErbitux* .In2015,theCompanytransferreditsrights,includingfullcommercializationandmanufacturingresponsibilitiesofErbitux* in North America to Lilly in return for sales-based royalties. For more information about our arrangement with Lilly, refer to "Alliances" below and Item 8. FinancialStatementsNote3.Alliances.

(k) Erbitux* Japan:Exclusivityperiodisbasedonregulatorydataprotection.BMStransferreditsco-commercializationrightsinJapantoMerckKgaAin2015inexchangeforsales-basedroyalties.

(l) Opdivo :WejointlyownapatentwithOnoPharmaceuticalCo.,Ltd.(Ono)coveringnivolumabasacompositionofmatterthatexpiresin2027intheU.S.(excludingpotentialpatenttermextension)and2026intheEU(excludingpotentialpatenttermextensions).ThecompositionofmatterpatentcoveringnivolumabinJapanexpiresin2031includinggrantedpatenttermextension.

(m) Sprycel : ApatenttermextensionhasbeengrantedintheU.S.extendingthetermonthebasiccompositionofmatterpatentcoveringdasatinibuntil June2020.In2013,theCompanyentered into a settlement agreement with Apotex regarding a patent infringement suit covering the monohydrate form of dasatinib whereby Apotex can launch its generic dasatinibmonohydrateabbreviatedNewDrugApplicationproductinSeptember2024,orearlierincertaincircumstances.IntheU.S.,orphandrugexclusivityexpiredin2013.

(n) Yervoy U.S.:Exclusivityperiodisbasedonregulatorydataprotection.DataexclusivityexpiresintheU.S.in2023.Weownapatentcoveringipilimumabasacompositionofmatterthatcurrentlyexpiresin2022intheU.S.(excludingpotentialpatenttermextension).

(o) Yervoy EU:Exclusivityperiodisbasedonregulatorydataprotection.DataexclusivityexpiresintheEUin2021.Weownapatentcoveringipilimumabasacompositionofmatterthatcurrentlyexpiresin2020intheEU(excludingpotentialpatenttermextensions).

(p) Yervoy Japan:Exclusivityperiodisbasedonregulatorydataprotection.Weownapatentcoveringipilimumabasacompositionofmatterthatcurrentlyexpiresin2020inJapan(excludingpotentialpatenttermextension).

(q) Abilify* :OurcommercializationrightsofAbilify* terminatedinApril2015intheU.S.andinJune2014intheEU.(r) Orencia U.S.:Wehaveaseriesofpatentscoveringabataceptanditsmethodofuse.IntheU.S.,apatenttermextensionhasbeengrantedforoneofthecompositionofmatterpatents,

extendingthetermoftheU.S.patentto2019.DataexclusivityexpiresintheU.S.in2017andthemethodofusepatentexpiresin2021.(s) Orencia EU:IntheEU,thecompositionofmatterpatentcoveringabataceptexpiredin2012.InthemajorityoftheEUcountries,wehaveappliedforsupplementaryprotectioncertificates

andalsopediatricextensionofthesupplementaryprotectioncertificatesforprotectionuntil2017.Mostoftheseprotectioncertificateshavebeengranted.DataexclusivityexpiresintheEUin2017andthemethodofusepatentexpiresin2021.

(t) Orencia Japan:Exclusivityperiodisbasedonregulatorydataprotection.(u) Eliquis U.S.:ThecompositionofmatterpatentcoveringapixabanintheU.S.expiresinFebruary2023(excludingpotentialpatenttermextension).InAugust2015,wereceivedaPetition

forInterPartesReviewofthecompositionofmatter patentcoveringapixabanfiledat theUnitedStatesPatentandTrademarkOfficebytheCoalitionforAffordableDrugs.Formoreinformationaboutthispatentlitigationmatter,refertoItem8.FinancialStatementsNote22.LegalProceedingsandContingencies."

(v) Eliquis EU and Japan: The composition of matter patent covering apixaban in the EU expires in 2022. We have applied for supplementary protection certificates. Some of thesesupplementaryprotectioncertificateshavebeengrantedandexpirein2026.DataexclusivityintheEUexpiresin2021.ThecompositionofmattercoveringapixabaninJapanexpiresin2026includinggrantedpatenttermextension.

Belowisasummaryoftheindication,productpartner,ifany,andthird-partymanufacturingarrangements,ifany,foreachoftheaboveproductsintheU.S.and,whereapplicable,theEUandJapan.

Baraclude Baraclude isapotentandselectiveinhibitorofhepatitisBvirusthatwasapprovedbytheU.S.FoodandDrugAdministration(FDA)forthetreatmentofchronichepatitisBvirusinfection.Baraclude wasdiscoveredanddevelopedinternally.

Bulkactiveentecavirismanufacturedbyboththecompanyandathirdparty.Theproductisthenfinishedinourfacilities.

HepatitisCFranchise Daklinza (daclatasvir(DCV))isanoralsmallmoleculeNS5AreplicationcomplexinhibitorforthetreatmentofhepatitisCvirusinfection(HCV)andwasapprovedbytheFDAforusewithGileadSciences,Inc.'s(Gilead)sofosbuvirforgenotype3.

Sunvepra (asunaprevir(ASV))isanoralsmallmoleculeNS3proteaseinhibitorforthetreatmentofHCVandispartofthedualregimenofDCV+ASVinJapan.

Wemanufactureourbulkrequirementsofdaclatasvirandfinishtheproductinourfacilities.Weobtainbulkrequirementsforasunaprevirfromathird-partymanufacturerandfinishtheproductatathird-partyfacility.

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Reyataz Franchise Reyataz is a protease inhibitor for the treatment of HIV. TheReyataz Franchise includesReyataz and combination therapyEvotaz (atazanavir 300 mg and cobicistat 150 mg), a once-daily single tablet two drug regimen combining Reyataz and Gilead's Tybost*(cobicistat)forthetreatmentofHIV-1infectioninadults.

WedevelopedatazanavirunderaworldwidelicensefromNovartisPharmaceuticalCorporation(Novartis)forwhicharoyaltyispaidbasedon a percentage of net product sales. We are entitled to promoteReyataz for use in combination withNorvir* (ritonavir) under a non-exclusivelicenseagreementwithAbbVie,asamended,forwhicharoyaltyispaidbasedonapercentageofnetproductsales.WehavealicensingagreementwithGileadforEvotaz ,whichwasapprovedintheU.S.inJanuary2015andintheEUinJuly2015.

Wemanufactureourbulkrequirementsforatazanavirandfinishtheproductinourfacilities.

Sustiva Franchise Sustiva is a non-nucleoside reverse transcriptase inhibitor for the treatment of HIV. The Sustiva Franchise includes Sustiva , anantiretroviraldrugusedinthetreatmentofHIV,aswellasbulkefavirenzwhichisincludedinthecombinationtherapyAtripla* (efavirenz600mg/emtricitabine200mg/tenofovirdisoproxilfumarate300mg),aonce-dailysingletabletthree-drugregimencombiningourSustivaandGileadsTruvada* (emtricitabineandtenofovirdisoproxilfumarate).FormoreinformationaboutourarrangementwithGilead,refertoAlliancesbelowandItem8.FinancialStatementsNote3.Alliances.

RightstomarketefavirenzintheU.S.,Canada,theUnitedKingdom(UK),France,Germany,Ireland,ItalyandSpainarelicensedfromMerck&Co.,Inc.(Merck)foraroyaltybasedonapercentageofrevenues.EfavirenzismarketedbyanothercompanyinJapan.

Weobtainourbulkrequirementsforefavirenzfromthirdpartiesandproducefinishedgoodsinourfacilities.WesupplyourthirdpartiesbulkefavirenztoGilead,whoisresponsibleforproducingthefinishedAtripla* product.

Empliciti Empliciti is ahumanizedmonoclonal antibodywhichwasapprovedbytheFDAasatreatment formultiple myelomaandis part ofouralliancewithAbbVie.Underthetermsofthealliance,weweregrantedexclusiveglobalrightstoco-developandcommercializeEmpliciti .In November 2015, the FDA approved Empliciti for the treatment of multiple myeloma as combination therapy withRevlimid* anddexamethasoneinpatientswhohavereceivedonetothreepriortherapies.Revlimid* isaproductofCelgeneCorporation.InJanuary2016,the Committee for Medicinal Products for HumanUse (CHMP)of the European Medicines Agency (EMA)adopted a positive opinionrecommending that Empliciti be granted approval for the treatment of multiple myeloma. We manufacture the bulk requirement forelotuzumabandfinishtheproductinourfacilities.

Erbitux* Erbitux* , a biological product, is an IgG1monoclonal antibodydesignedto exclusively target andblockthe Epidermal GrowthFactorReceptor(EGFR),whichisexpressedonthesurfaceofcertaincancercellsinmultipletumortypesaswellassomenormalcells.Erbitux*isapprovedincombinationwithirinotecanforthetreatmentofpatientswithEGFR-expressingmetastaticcolorectalcancer(mCRC)whohavefailedanirinotecan-basedregimenandasmonotherapyforpatientswhoareintolerantofirinotecan.TheFDAapprovedErbitux*foruseincombinationwithradiationtherapy, for thetreatment oflocallyor regionallyadvancedsquamouscell carcinomaoftheheadandneckand,asasingleagent, for thetreatment ofpatientswithrecurrent ormetastatic squamouscell carcinomaoftheheadandneckforwhompriorplatinum-basedtherapyhasfailed.TheFDAalsoapprovedErbitux*forfirst-linerecurrentlocoregionalormetastaticheadandneckcancerincombinationwithplatinum-basedchemotherapywith5-Fluorouracil.

ExclusivedistributionrightsinNorthAmericaforcetuximabweregrantedtotheCompanybyImCloneSystemsIncorporated(ImClone),thepredecessorcompanyofImCloneLLC,awholly-ownedsubsidiaryofEliLillyandCompany(Lilly)andispartofouralliancewithLilly.InOctober2015,wetransferredourErbitux* rightsinNorthAmericatoLilly,includingfullcommercializationandmanufacturingresponsibilities inreturnfor sales-basedroyalties. Formoreinformationabout our arrangement withLilly, refer to"Alliances" belowandItem8.FinancialStatementsNote3.Alliances.

Opdivo Opdivo, abiologicalproduct,isafullyhumanmonoclonalantibodythatbindstotheprogrammeddeathreceptor-1(PD-1)onTandnaturalkiller T(NKT)cells. In2015,theFDAapprovedOpdivo forpreviouslyuntreatedpatientswithmetastaticmelanoma,previouslytreatedpatientswithadvancedrenalcellcarcinoma,andpreviouslytreatednon-squamous(NSQ)andsquamous(SQ)non-smallcelllungcancer(NSCLC). In 2015, Opdivo received approval in the EU for previously treated SQ NSCLC and first-line and previously treatedunresectableormetastaticmelanoma.TheOpdivo +Yervoy (ipilimumab)regimenwasalsoapprovedbytheFDAin2015forthetreatmentof BRAFV600wild-typeunresectable or metastatic melanoma. There are several ongoingpotentially registrational trials forOpdivo inheadandneckcancer,hodgkinandnon-hodgkinlymphomaandbladdercancer,amongothertumortypes.Referto"Alliances"belowandItem8. Financial StatementsNote3. Alliances for further discussionof our arrangement withOnoforOpdivo inJapan,SouthKoreaandTaiwan.

WeobtainourbulkrequirementsforOpdivo fromathirdpartyandfinishtheproductinourfacilities.

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Sprycel Sprycel isamulti-targetedtyrosinekinaseinhibitorapprovedforthefirst-linetreatmentofadultswithPhiladelphiachromosome-positivechronic myeloid leukemia in chronic phase and the treatment of adults with chronic, accelerated, or myeloid or lymphoid blast phasechronicmyeloidleukemiawithresistanceorintolerancetopriortherapy,includingGleevec* (imatinibmesylate).Gleevec* isatrademarkofNovartis.

Sprycel wasinternallydiscoveredandispartofouralliancewithOtsukaPharmaceuticalCo.,Ltd.(Otsuka).FormoreinformationaboutouralliancewithOtsuka,refertoAlliancesbelowandItem8.FinancialStatementsNote3.Alliances.

Wemanufactureourbulkrequirementsfordasatinibandfinishtheproductinourfacilities.

Yervoy Yervoy, abiologicalproduct,isamonoclonalantibodyforthetreatmentofpatientswithunresectableormetastaticmelanoma.Yervoy wasapprovedintheU.S.andtheEUin2011andinJapanin2015.In2015,theFDAapprovedYervoy fortheadjuvanttreatmentofpatientswith cutaneous melanoma. For more information, about research and development ofYervoy , refer to Research and Developmentbelow.

Yervoy wasdiscoveredbyMedarexandco-developedbytheCompanyandMedarex,whichisnowoursubsidiary.

BulkipilimumabismanufacturedbyboththeCompanyandathirdparty.Theproductisfinishedbothinourfacilitiesandatathird-partyfacility.

Abilify* Abilify* is an atypical antipsychotic agent for adult patients with schizophrenia, bipolar mania disorder and major depressive disorder.Abilify* alsohaspediatricusesinschizophreniaandbipolardisorder,amongothers.

BMS's rights to Abilify* expired in the U.S. in April 2015 and in all EU countries in June 2014. For more information about ourarrangementwithOtsuka,refertoAlliancesbelowandItem8.FinancialStatementsNote3.Alliances.

Orencia Orencia ,abiologicalproduct,isafusionproteinwithnovelimmunosuppressiveactivitytargetedinitiallyatadultpatientswithmoderatelyto severely active rheumatoid arthritis (RA) who have had an inadequate response to certain currently available treatments.Orencia isavailableinbothanintravenousandsubcutaneousformulationintheU.S.,EuropeandJapan.Referto"Alliances"belowandItem8.FinancialStatementsNote3.AlliancesforfurtherdiscussionofourcollaborationswithOnoforOrencia inJapan.

BulkabataceptismanufacturedbyboththeCompanyandathirdparty.Wefinishbothformulationsoftheproductinourownfacilities.

Eliquis Eliquis is an oral Factor Xa inhibitor targeted at stroke prevention in atrial fibrillation and the prevention and treatment of venousthromboembolic (VTE) disorders. Apixaban was discovered internally and is part of our alliance with Pfizer, Inc. (Pfizer). For moreinformationaboutouralliancewithPfizer,refertoItem8.FinancialStatementsNote3.Alliances.

ApixabanismanufacturedbyboththeCompanyandathirdparty.Theproductisthenfinishedinourfacilities.

Research and Development

Weinvestheavilyinresearchanddevelopment(R&D)becausewebelieveitiscriticaltoourlong-termcompetitiveness.WehavemajorR&DfacilitiesinNewJersey,andareexpandingourexistingCalifornia-basedresearchfacilityandhaveannouncedfutureplansfortheopeningofanewR&DsiteinMassachusetts.Researchactivities at our Connecticut facility will bephasedout in thenext fewyears. Researchanddevelopment is alsocarried out at various other facilitiesthroughouttheworld,includinginBelgium,theUK,India,JapanandothersitesintheU.S.Wesupplementourinternaldrugdiscoveryanddevelopmentprogramswith alliances and collaborative agreements which help us bring new products into the pipeline. In drug development, we engage the services of physicians,hospitals, medical schools and other research organizations worldwide to conduct clinical trials to establish the safety and effectiveness of new products.Managementcontinuestoemphasizeleadership,innovation,productivityandqualityasstrategiesforsuccessinourresearchanddevelopmentactivities.

We concentrate our research and development efforts in the following disease areas with significant unmet medical needs: immuno-oncology, oncology,immunoscience,cardiovascular,fibroticdiseasesandgeneticallydefineddiseases.Wealsocontinuetoanalyzeandmayselectivelypursuepromisingleadsinotherareas.Inadditiontodiscoveringanddevelopingnewmolecularentities,welookforwaystoexpandthevalueofexistingproductsthroughnewindicationsandformulationsthatcanprovideadditionalbenefitstopatients.

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In order for a new drug to reach the market, industry practice and government regulations in the U.S., the EU and most foreign countries provide for thedeterminationofa drugseffectiveness andsafetythroughpreclinical tests andcontrolledclinical evaluation. Theclinical development of a potential newdrugincludesPhaseI,PhaseIIandPhaseIIIclinicaltrialsthathavebeendesignedspecificallytosupportanewdrugapplicationforaparticularindication,assumingthetrialsaresuccessful.

PhaseIclinicaltrialsinvolveasmallnumberofhealthyvolunteersorpatientssufferingfromtheindicateddiseasetotestforsafetyandproperdosing.PhaseIIclinical trials involve a larger patient population to investigate side effects, efficacy, and optimal dosage of the drug candidate. Phase III clinical trials areconductedtoconfirmPhaseIIresultsinasignificantlylargerpatientpopulationoveralongertermandtoprovidereliableandconclusivedataregardingthesafetyandefficacyofadrugcandidate.

TheR&Dprocesstypicallytakesaboutfourteenyears,withapproximatelythreeyearsoftenspentinPhaseIII,orlate-stage,development.WeconsiderourR&DprogramsinPhaseIIItobeoursignificantR&Dprograms.TheseprogramsincludebothinvestigationalcompoundsinPhaseIIIdevelopmentforinitialindicationsandmarketedproductsthatareinPhaseIIIdevelopmentforadditionalindicationsorformulations.

Drugdevelopment is timeconsuming, expensive andrisky. Onaverage, only about one in 10,000chemical compounds discovered bypharmaceutical industryresearchersprovestobebothmedicallyeffectiveandsafeenoughtobecomeanapprovedmedicine.Drugcandidatescanfailatanystageoftheprocess,andevenlate-stage product candidates sometimes fail to receive regulatory approval. According to the KMR Group, based on industry success rates from 2010-2014,approximately 92% of the compounds that enter Phase I development fail to achieve regulatory approval. The failure rate for compounds that enter Phase IIdevelopmentisapproximately83%andforcompoundsthatenterPhaseIIIdevelopment,itisapproximately39%.

Total research and development expenses include the costs of discovery research, preclinical development, early- and late-stage clinical development and drugformulation,aswellaspost-commercializationandmedicalsupportofmarketedproducts,proportionateallocationsofenterprise-widecosts,andotherappropriatecosts. Research and development spending was $5.9 billion in2015,$4.5 billion in2014and$3.7 billion in2013and includes payments under third-partycollaborations and contracts. At the end of 2015, we employed approximately 8,500 people in R&Dactivities, including a substantial number of physicians,scientistsholdinggraduateorpostgraduatedegreesandhigher-skilledtechnicalpersonnel.

We manage our R&D programs on a portfolio basis, investing resources in each stage of research and development from early discovery through late-stagedevelopment.WecontinuallyevaluateourportfolioofR&Dassetstoensurethatthereisanappropriatebalanceofearly-stageandlate-stageprogramstosupportthefuturegrowthoftheCompany.Spendingonourlate-stagedevelopmentprogramsrepresentedapproximately30-45%ofourannualR&Dexpensesinthelastthreeyears.Noindividualinvestigationalcompoundormarketedproductrepresented10%ormoreofourR&Dexpensesinanyofthelastthreeyears,exceptforOpdivo in2015.

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Listed below are the investigational compounds that we have in Phase I, II and III clinical trials. Whether or not any of these or our other investigationalcompoundsultimatelybecomesoneofourmarketedproductsdependsontheresultsofclinicalstudies,thecompetitivelandscapeofthepotentialproductsmarketandthemanufacturingprocessesnecessarytoproducethepotentialproductonacommercialscale,amongotherfactors.Therecanbenoassurancethatwewillseekregulatory approval of anyof thesecompoundsor that, if suchapproval is sought, it will be obtained. There is alsonoassurancethat a compoundthat isapprovedwillbecommerciallysuccessful.Atthisstageofdevelopment,wecannotdetermineallintellectualpropertyissuesorallthepatentprotectionthatmay,ormaynot,beavailablefortheseinvestigationalcompounds.ThedataisasofJanuary1,2016.

Immuno-Oncology Oncology Immunoscience Cardiovascular Fibrotic Diseases

Genetically DefinedDiseases Virology

Phase I Phase I Phase I Phase I Phase I Phase I

Anti-CSF1R(a) Anti-FucosylGM1 Anti-CD40 FactorXIaInhibitors Galectin-3Inhibitor(f) Anti-eTau(j)

Anti-GITR Anti-HER2(d) Anti-CD40L PAR4Antagonist PEG-FGF21 Anti-Myostatin

Anti-LAG3 BETInhibitor BTKInhibitor Lirilumab

(Anti-KIR)(b) Mesothelin-ADC TYK2Inhibitor Urelumab

(Anti-CD137) Ulocuplumab(Anti-CXCR4) Anti-PD-L1

Phase II Phase II Phase II Phase II

Lulizumab(Anti-CD28) IKurInhibitor

BMS-986020(LPA1Antagonist)(g)

BMS-955176(HIVMaturationInhibitor)(k)

NitroxylDonor(e) PEG-FGF21(h) Pentraxin-2(i)

Phase III Phase III

Prostvac* (c) Beclabuvir

BMS-663068(HIVAttachmentInhibitor)(k)

(a) ExclusivelylicensedfromFivePrimeTherapeutics,Inc.(b) ExclusivelylicensedfromInnatePharmaS.A.(c) ObtainedthroughanexclusiveoptiontolicensefromBavarianNordicA/S.(d) ObtainedthroughanexclusivelicensetoacquireF-StarAlphaLtd.(e) ObtainedthroughacquisitionofCardioxylPharmaceuticals,Inc.(f) ObtainedthroughanexclusiveoptiontoacquireGalectoBiotechAB.(g) ObtainedthroughtheacquisitionofAmiraPharmaceuticals,Inc.

RefertoItem8.FinancialStatementsNote14.GoodwillandOtherIntangibleAssets"foradditionalinformation.(h) ExclusivelylicensedfromAmbrx,Inc.(i) ObtainedthroughanexclusivewarranttoacquirePromedior,Inc.(j) ObtainedthroughacquisitionofiPierian,Inc.(k) PendingsaletoViiVHealthcare.

Additionalinformationonourlate-stageinvestigational compoundsthatwehaveinPhaseIIIclinical trialsorunderregulatoryreviewforatleastonepotentialindicationisbelow.Thepatentcoveragehighlightedbelowincludespatenttermsandpatenttermextensionsthathavebeengranted.

BeclabuvirBeclabuvirisanoralsmallmoleculenon-nucleosideNS5BinhibitorinregulatoryreviewinJapanforuseincombinationwithDCVandASVforthetreatmentofHCV.WeownapatentcoveringBeclabuvirasacompositionofmatterthatexpiresin2027intheU.S.

BMS-663068

BMS-663068 is an investigational compound being studied in HIV-1 which has shown antiviral activity in HIV-1 infectedindividuals.Attachmentinhibitorshaveadistinctmodeofactionfromotherentryinhibitors,whichprevententryofHIV-1intothehost cell following attachment. BMS-663068 is a prodrug which is metabolized to the active basic compound. We hold a patentcoveringBMS-663068asacompositionofmatterthatexpiresinNovember2027intheU.S.BMS-663068isexpectedtobesoldtoViiVHealthcareinthefirsthalfof2016.

Prostvac*

Prostvac* is Bavarian Nordic's investigational Phase III prostate-specific antigen (PSA)-targeting cancer immunotherapy indevelopmentforthetreatmentofasymptomaticorminimallysymptomaticmetastaticcastration-resistantprostatecancer.BMShasanexclusiveoptiontolicenseandcommercializeProstvac* .

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Thefollowingtablelistspotentialadditionalindicationsand/orformulationsofkeymarketedproductsthatareinpotentiallyregistrationaltrialsorcurrentlyunderregulatoryreview:

Key marketed product Potential indication and/or formulation HepatitisCFranchise CombinationwithotherantiviralsforthetreatmentofHCV Empliciti Additionalindicationinfirst-linemultiplemyeloma Opdivo Additionalindicationsinmelanoma,renalcellcarcinoma(RCC),lungcancer,hodgkinandnon-hodgkinlymphoma,headandneck

cancer,bladdercancer,glioblastoma,hepatocellularcarcinoma,gastriccancer,esophagealcancerinmonotherapyand/orincombinationwithYervoy

Orencia Additionalindicationsinlupusnephritis,psoriaticarthritis,earlyRAandauto-injectordevice Eliquis PediatricVTEtreatment

Thefollowingkeydevelopmentsarecurrentlyexpectedtooccurduring2016withrespecttooursignificantpipelineprograms.Theoutcomeandtimingoftheseexpected developments are dependent upon a number of factors including, among other things, the availability of data, the outcome of certain clinical trials,acceptance of presentations at certain medical meetings and/or actions by health authorities. We do not undertake any obligation to publicly update thisinformation,whetherasaresultofnewinformation,futureevents,orotherwise.

HepatitisCFranchise DataavailablefromclinicaltrialsPotentialapprovalsforadditionalindications

Empliciti PotentialapprovalinmultiplemyelomaintheEUandJapan

DataavailablefromPhaseIIIstudyinfirst-linemultiplemyeloma Opdivo

PotentialapprovalintheEUforNSQNSCLC,Opdivo +Yervoy combinationinmelanomaandRCCDataavailablefrompotentiallyregistrationalclinicaltrialsinhodgkinandnon-hodgkinlymphoma,headandneckcancer,bladdercancer,glioblastomaandlungcancerPotentialsubmissionsinvarioustumorsbasedonregistrationaltrials.

Alliances

Weenterintoallianceswiththirdpartiesthattransferrightstodevelop,manufacture,marketand/orsellpharmaceuticalproductsthatareownedbyotherparties.Thesealliancesincludelicensingarrangements,co-developmentandco-marketingagreements,co-promotionarrangementsandjointventures.Whensuchalliancesinvolvesharingresearchanddevelopmentcosts,theriskofincurringallresearchanddevelopmentexpensesforcompoundsthatdonotleadtorevenue-generatingproductsisreduced.However,profitabilityonallianceproductsisgenerallylowerbecauseprofitsfromallianceproductsaresharedwithouralliancepartners.Weactivelypursuesucharrangementsandviewalliancesasanimportantcomplementtoourowndiscovery,developmentandcommercializationactivities.

Each of our alliances with third parties who own the rights to manufacture, market and/or sell pharmaceutical products contain customary early terminationprovisions typically found in agreements of this kind and are generally based on the material breach of the agreement by a party, or bankruptcy (voluntary orinvoluntary)ofapartyorproductsafetyconcerns.Theamountofnoticerequiredforearlyterminationgenerallyrangesfromimmediatelyuponnoticeto180daysafterreceiptofnotice.Terminationimmediatelyuponnoticeisgenerallyavailablewheretheotherpartyfilesavoluntarybankruptcypetitionorifamaterialsafetyissue arises with a product suchthat the medical risk/benefit is incompatible with the welfare of patients to continue to develop or commercialize the product.Terminationwithanoticeperiodisgenerallyavailablewhereaninvoluntarybankruptcypetitionhasbeenfiled(andhasnotbeendismissed)oramaterialbreachby a party has occurred (and not been cured). Most of our alliance agreements also permit us to terminate without cause, which is typically exercisable withsubstantial advance written notice and is sometimes exercisable only after a specified period of time has elapsed after the alliance agreement is signed. Ouralliancestypicallydonototherwisecontainprovisionsthatprovidetheotherpartytherighttoterminatethealliance.

Ingeneral,wedonotretainanyrightstoaproductbroughttoanalliancebyanotherpartyortotheotherpartysintellectualpropertyafteranallianceterminates.Thelossofrightstooneormoreproductsthataremarketedandsoldbyuspursuanttoanalliancecouldbematerialtoourresultsofoperationsandcashflowscouldbematerialtoourfinancialconditionandliquidity.Asiscustomaryinthepharmaceuticalindustry,thetermsofouralliancesgenerallyareco-extensivewiththeexclusivityperiodandmayvaryonacountry-by-countrybasis.

Our most significant current alliances for both currently marketed products and investigational compounds are described below. Refer to Item 8. FinancialStatementsNote3.Alliancesforadditionalinformationonourallianceagreements.

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Otsuka

WemaintainaworldwidecommercializationagreementwithOtsukatoco-developandco-promoteAbilify* ,excludingcertainAsiancountries.TheU.S.portionoftheagreementexpiredinApril2015.TheagreementexpiredinallEUcountriesinJune2014andineachothernon-U.S.countrywherewehavetheexclusiverighttosellAbilify* ,theagreementexpiresonthelaterofApril20,2015orlossofexclusivityinanysuchcountry.BMSreceivedashareofU.S.netsalesofAbilify* basedonatieredstructure.

BMSandOtsukaalsohaveanallianceforSprycel intheU.S.,JapanandtheEU(theOncologyTerritory).InFebruary2015,theco-promotionagreementwithOtsukawasterminatedinJapan.Ixempra* (ixabepilone)wasincludedintheabovealliancepriortoBMS'sdivestitureofthatbusinessin2015.AfeeispaidtoOtsukabasedonthecombinedannualnetsalesofSprycel and Ixempra* intheOncologyTerritory(includingpostdivestitureIxempra* sales).

Gilead

WehavejointventureswithGileadtodevelopandcommercializeAtripla* intheU.S.,CanadaandinEurope.TheCompanyandGileadshareresponsibilityforcertainactivitiesrelatedtothecommercializationofAtripla* intheU.S.,Canada,throughouttheEUandcertainotherEuropeancountries.Gileadrecognizes100%ofAtripla* revenues in the U.S., Canada and most countries in Europe. Alliance and other revenues recognized forAtripla* include only the bulk efavirenzcomponentofAtripla* whichiscalculateddifferentlyintheEUandtheU.S.followingthelossofexclusivityofSustiva intheEUin2013.TheallianceandotherrevenuesaredeferredandtherelatedalliancereceivableisnotrecognizeduntilAtripla* issoldtothird-partycustomers.

ThecollaborationagreementgoverningthecommercializationofAtripla* intheU.S.andCanadawillcontinueuntilterminatedbymutualagreementofthepartiesor otherwise as described below. In the event of a material breach by one party of the collaboration agreement, the non-breaching party may terminate theagreementonlyifthebreachingpartydoesnotcurethematerialbreachandbothpartiesagreethatitisbothdesirableandpracticabletowithdrawthecombinationproductfromthemarketswhereitiscommercialized.Atsuchtimeasoneormoregenericversionsofapartyscomponentproduct(s)arelaunchedintheU.S.,theotherpartywillhavetherighttoterminatethecollaborationagreementandbeincontrolofthejointventureandthecommercializationofthecombinationproduct,bothintheU.S.andCanada;however,forthreeyearstheterminatedpartywillcontinuetoreceiveapercentageofthenetproductsales-basedonthecontributionofbulkcomponentstoAtripla* ,andotherwiseretainsallrightstoitsownproducts.

InEurope,followingthe2013lossofexclusivityofSustiva andeffectiveJanuary1,2014,thepercentageofAtripla *netsalesinEuroperecognizedbyBMSisequal tothedifferencebetweentheaveragenet sellingpricesofAtripla* andTruvada* . Thisalliancewill continueinEuropeuntil eitherpartyterminates thearrangementorthelastpatentexpirationoccursforAtripla* ,Truvada* ,orSustiva.

In2011,weenteredintoalicensingagreementwithGileadtodevelopandcommercializeafixed-dosecombinationcontainingReyataz andGileadscobicistat,apharmacoenhancing or boosting agent that increases blood levels of certain HIV medicines to potentially allow for one pill once daily dosing.Evotaz wasapprovedbytheFDAinJanuary2015andtheEuropeanCommission(EC)inJuly2015.

Lilly

BMShadacommercializationagreementwithLillythroughLillyssubsidiaryImClonefortheco-developmentandpromotionofErbitux *intheU.S.,CanadaandJapan.InOctober2015,BMStransferreditsrightstoErbitux* inNorthAmericatoLillyinexchangeforsales-basedroyalties.Thetransferredrightsinclude,butarenotlimitedto,fullcommercializationandmanufacturingresponsibilities.

BMSsharedrightstoErbitux* inJapanunderanagreementwithLillyandMerckKGaAandreceived50%ofthepretaxprofitfromMerckKGaAsnetsalesofErbitux* inJapanwhichwasfurthersharedequallywithLilly.BMStransferreditsco-commercializationrightsinJapantoMerckKGaAin2015inexchangeforsales-basedroyaltiesthrough2032.

AbbVie

BMSandAbbVie have an alliance forEmpliciti . Under the terms of the alliance, BMSwas granted exclusive global rights to co-develop and commercializeEmpliciti fromPDLBioPharma,Inc.(nowpartofAbbVie).Bothpartiesareco-developingtheproductandAbbViefunds20%ofglobaldevelopmentcosts.BMSissolelyresponsibleforsupply,distributionandsalesandmarketingactivitieswithintheallianceandistheprincipalintheendcustomerproductsales.AbbVieshares 30%of all profits andlosses in theU.S. andwill be paidtiered royalties onnet sales ofEmpliciti outsideof theU.S.Inaddition, AbbVieis entitledtoreceivemilestonepaymentsfromBMSifcertainregulatoryeventsandsalesthresholdsareachieved.

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AstraZeneca

InFebruary2014,wesoldtoAstraZenecaPLC(AstraZeneca)ourdiabetesbusinessthatwascomprisedoftheglobalalliancewiththem,includingallrightsandownershiptoOnglyza* ,Farxiga* ,Bydureon* ,Byetta* ,Symlin* andMyalept* .WeandAstraZenecaterminatedourexistingallianceagreementsinconnectionwiththesaleandenteredintoseveralnewagreements,includingatransitionalservicesagreement,asupplyagreementandadevelopmentagreement.Underthesupplyagreement,wecontinuetohavesomemanufacturingresponsibilitiesforOnglyza*, Kombiglyze* andFarxiga*.

Pfizer

TheCompanyandPfizerarepartiestoaworldwideco-developmentandco-commercializationagreementforEliquis. Pfizerfundsbetween50%and60%ofalldevelopmentcostsdependingonthestudy.ThecompaniessharecommercializationexpensesandprofitsandlossesequallyonaglobalbasisexceptforincertaincountrieswherePfizercommercializesEliquis andpaysBMScompensationbasedonapercentageofnetsales.

Ono

BMSistheprincipalintheendcustomerproductsalesandhastheexclusiverighttodevelop,manufactureandcommercializeOpdivo inallterritoriesworldwideexceptJapan,SouthKoreaandTaiwan(whereOnowasresponsibleforalldevelopmentandcommercializationpriortothearrangementdescribedbelow).Onoisentitledtoreceiveroyaltiesfollowingregulatoryapprovalsinallterritoriesexcludingthethreecountrieslistedabove.Royaltyratesonnetsalesare4%inNorthAmericaand15%inallotherapplicableterritories,subjecttocustomaryadjustments.

ThealliancearrangementwasexpandedinJuly2014toestablishcollaborationactivitiesinJapan,SouthKoreaandTaiwanpertainingtoOpdivo andseveralBMScompoundsincludingYervoy ,lirilumab,urelumabandBMS-986016(anti-LAG3).Bothpartieshavetherightandobligationtojointlydevelopandcommercializethecompounds.BMSisresponsibleforsupplyoftheproducts.Profits,lossesanddevelopmentcostsaresharedequallyforallcombinationtherapiesinvolvingcompoundsofbothparties.Otherwise,sharingis80%and20%foractivitiesinvolvingonlyoneofthepartyscompounds.

BMSandOnoalsohaveanalliancetoco-developandco-commercializeOrencia inJapan. BMSisresponsiblefortheorderfulfillment anddistributionoftheintravenousformulationandOnoisresponsibleforthesubcutaneousformulation.BothformulationsarejointlypromotedbybothpartieswithassignedcustomeraccountsandBMSisresponsiblefortheproductsupply.Aco-promotionfeeof60%ispaidtotheotherpartywhenasaleismadetothatotherpartysassignedcustomer.

Other Alliances

InMay2013,BMSandReckittBenckiserGroupplc(Reckitt)startedathree-yearallianceregardingseveralover-the-counter-productssoldprimarilyinMexicoandBrazil.Reckittreceivedtherighttosell,distributeandmarkettheproductsthroughMay2016.BMSalsograntedReckittanoptiontoacquirethetrademarks,inventoryandcertainotherassetsexclusivelyrelatedtotheproductsattheendoftheallianceperiod,includingaBMSmanufacturingfacilitylocatedinMexico,ata price determinedprimarily basedonamultiple of net sales fromMay2014throughMay2016. InJuly2015, Reckitt notified BMSthat it wasexercisingitsoption.SubstantiallyallemployeesatthefacilityareexpectedtobetransferredtoReckitt.TheclosingisexpectedtooccurinMay2016.

Other Licensing Arrangements

In addition to the alliances described above, we have other in-licensing and out-licensing arrangements. With respect to in-licenses, we have agreements withNovartis for Reyataz and with Merck for efavirenz, among others. We also own certain compounds out-licensed to third parties for development andcommercialization,includingthoseobtainedfromouracquisitions.Weareentitledtoreceivemilestonepaymentsasthesecompoundsmovethroughtheregulatoryprocessandroyaltiesbasedonnetproductsales,ifandwhentheproductsarecommercialized.

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Intellectual Property and Product Exclusivity

We own or license a number of patents in the U.S. and foreign countries primarily covering our products. We have also developed many brand names andtrademarksforourproducts.Weconsidertheoverallprotectionofourpatents,trademarks,licensesandotherintellectualpropertyrightstobeofmaterialvalueandacttoprotecttheserightsfrominfringement.

Inthepharmaceutical industry, themajority of aninnovativeproducts commercial valueis usuallyrealizedduringtheperiodinwhichtheproduct hasmarketexclusivity. Aproducts market exclusivity is generally determinedbytwoformsofintellectual property: patent rights heldbytheinnovator companyandanyregulatoryformsofexclusivitytowhichtheinnovativedrugisentitled.

Patents are a key determinant of market exclusivity for most branded pharmaceuticals. Patents provide the innovator with the right to exclude others frompracticinganinventionrelatedtothemedicine. Patents maycover, amongotherthings, theactiveingredient(s), varioususesofadrugproduct, pharmaceuticalformulations,drugdeliverymechanismsandprocessesfor(orintermediatesusefulin)themanufactureofproducts.Protectionforindividualproductsextendsforvaryingperiodsinaccordancewiththeexpirationdatesofpatentsinthevariouscountries.Theprotectionafforded,whichmayalsovaryfromcountrytocountry,dependsuponthetypeofpatent,itsscopeofcoverageandtheavailabilityofmeaningfullegalremediesinthecountry.

Marketexclusivityisalsosometimesinfluencedbyregulatoryintellectualpropertyrights.Manydevelopedcountriesprovidecertainnon-patentincentivesforthedevelopmentofmedicines.Forexample,intheU.S.,theEU,Japan,andcertainothercountries,regulatoryintellectualpropertyrightsareofferedasincentivesforresearchonmedicinesforrarediseases,ororphandrugs,andonmedicinesusefulintreatingpediatricpatients.Theseincentivescanextendthemarketexclusivityperiodonaproductbeyondthepatentterm.

TheU.S.,EU,JapanandChinaalsoeachprovideforaminimumperiodoftimeaftertheapprovalofanewdrugduringwhichtheregulatoryagencymaynotrelyupontheinnovatorsdatatoapproveacompetitorsgenericcopy,ordataprotection.InsomeregionssuchasChina,however,itisquestionablewhethersuchdataprotection laws are enforceable. In certain markets where patent protection and other forms of market exclusivity mayhave expired, data protection can be ofparticular importance. However, most regulatory forms of exclusivity do not prevent a competitor from gaining regulatory approval prior to the expiration ofregulatory data exclusivity on the basis of the competitors ownsafety and efficacy data on its drug, even when that drug is identical to that marketed by theinnovator.

Specific aspects of the lawgoverningmarket exclusivity anddata protection for pharmaceuticals varyfromcountryto country. Thefollowingsummarizes keyexclusivityrulesinmarketsrepresentingsignificantsales:

United States

IntheU.S.,mostofourkeyproductsareprotectedbypatentswithvaryingtermsdependingonthetypeofpatentandthefilingdate.Asignificantportionofaproductspatentlife,however,islostduringthetimeittakesaninnovativecompanytodevelopandobtainregulatoryapprovalofanewdrug.Ascompensationatleastinpartforthelostpatentterm,theinnovatormay,dependingonanumberoffactors,extendtheexpirationdateofonepatentuptoamaximumtermoffiveyears,providedthattheextensioncannotcausethepatenttobeineffectformorethan14yearsfromthedateofdrugapproval.

A company seeking to market an innovative pharmaceutical in the U.S. must submit a complete set of safety and efficacy data to the FDA. If the innovativepharmaceuticalisachemical,thecompanyfilesaNewDrugApplication(NDA).Ifthemedicineisabiologicalproduct,aBLAisfiled.Thetypeofapplicationfiledaffectsregulatoryexclusivityrights.

Chemical products

AcompetitorseekingtolaunchagenericsubstituteofachemicalinnovativedrugintheU.S.mustfileanabbreviatedNewDrugApplication(aNDA)withtheFDA.IntheaNDA,thegenericmanufacturerneedstodemonstrateonlybioequivalencebetweenthegenericsubstituteandtheapprovedNDAdrug.TheaNDAreliesuponthesafetyandefficacydatapreviouslyfiledbytheinnovatorinitsNDA.

Aninnovatorcompanyisrequiredtolist certainofitspatentscoveringthemedicinewiththeFDAinwhatiscommonlyknownastheOrangeBook.Absentasuccessful patent challenge, the FDAcannot approve an aNDAuntil after the innovators listed patents expire. However, after the innovator has marketed itsproductforfouryears,agenericmanufacturermayfileanaNDAandallegethatoneormoreofthepatentslistedintheOrangeBookunderaninnovatorsNDAiseither invalid or not infringed. This allegation is commonly known as a Paragraph IV certification. The innovator then must decide whether to file a patentinfringement suit against the generic manufacturer. From time to time, aNDAs, including Paragraph IV certifications, are filed with respect to certain of ourproducts.WeevaluatetheseaNDAsonacase-by-casebasisand,wherewarranted,filesuitagainstthegenericmanufacturertoprotectourpatentrights.

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In addition to benefiting from patent protection, certain innovative pharmaceutical products can receive periods of regulatory exclusivity. An NDA that isdesignatedasanorphandrugcanreceivesevenyearsofexclusivityfortheorphanindication.Duringthistimeperiod,neitherNDAsnoraNDAsforthesamedrugproduct can be approved for the same orphan use. A company may also earn six months of additional exclusivity for a drug where specific clinical trials areconductedatthewrittenrequestoftheFDAtostudytheuseofthemedicinetotreatpediatricpatients,andsubmissiontotheFDAismadepriortothelossofbasicexclusivity.

MedicinesapprovedunderanNDAcanalsoreceiveseveraltypesofregulatorydataprotection.AninnovativechemicalpharmaceuticalisentitledtofiveyearsofregulatorydataprotectionintheU.S.,duringwhichcompetitorscannotfilewiththeFDAforapprovalofgenericsubstitutes.Ifaninnovatorspatentischallenged,as describedabove, a generic manufacturer mayfile its aNDAafter thefourthyear of thefive-year data protectionperiod. Apharmaceutical drugproduct thatcontainsanactiveingredientthathasbeenpreviouslyapprovedinanNDA,butisapprovedinanewformulation,butnotforthedrugitself,orforanewindicationonthebasisofnewclinicaltrials,receivesthreeyearsofdataprotectionforthatformulationorindication.

Biologic products

TheU.S.healthcarelegislationenactedin2010createdanapprovalpathwayforbiosimilarversionsofinnovativebiologicalproductsthatdidnotpreviouslyexist.Priortothattime,innovativebiologicshadessentiallyunlimitedregulatoryexclusivity.Underthenewregulatorymechanism,theFDAcanapproveproductsthataresimilarto(butnotgenericcopiesof)innovativebiologicsonthebasisoflessextensivedatathanisrequiredbyafullBLA.Afteraninnovatorhasmarketeditsproductforfouryears,anymanufacturermayfileanapplicationforapprovalofabiosimilarversionoftheinnovatorproduct.However,althoughanapplicationfor approval of a biosimilar may be filed four years after approval of the innovator product, qualified innovative biological products will receive 12 years ofregulatoryexclusivity,meaningthattheFDAmaynotapproveabiosimilarversionuntil12yearsaftertheinnovativebiologicalproductwasfirstapprovedbytheFDA.Thelawalsoprovidesamechanismforinnovatorstoenforcethepatentsthatprotectinnovativebiologicalproductsandforbiosimilarapplicantstochallengethepatents.SuchpatentlitigationmaybeginasearlyasfouryearsaftertheinnovativebiologicalproductisfirstapprovedbytheFDA.

IntheU.S.,theincreasedlikelihoodofgenericandbiosimilarchallengestoinnovatorsintellectualpropertyhasincreasedtheriskoflossofinnovatorsmarketexclusivity. First, generic companieshaveincreasinglysoughttochallengeinnovators basicpatents coveringmajorpharmaceutical products. Second,statutoryandregulatoryprovisionsintheU.S.limittheabilityofaninnovatorcompanytopreventgenericandbiosimilardrugsfrombeingapprovedandlaunchedwhilepatent litigation is ongoing. As a result of all of these developments, it is not possible to predict the length of market exclusivity for a particular product withcertaintybasedsolelyontheexpirationoftherelevantpatent(s)orthecurrentformsofregulatoryexclusivity.

European Union

Patents onpharmaceutical products aregenerally enforceable intheEUand, as intheU.S., maybeextendedtocompensate for thepatent termlost duringtheregulatoryreviewprocess.Suchextensionsaregrantedonacountry-by-countrybasis.

The primary route we use to obtain marketing authorization of pharmaceutical products in the EU is through the centralized procedure. This procedure iscompulsoryforcertainpharmaceuticalproducts,inparticularthoseusingbiotechnologicalprocesses,andisalsoavailableforcertainnewchemicalcompoundsandproducts.AcompanyseekingtomarketaninnovativepharmaceuticalproductthroughthecentralizedproceduremustfileacompletesetofsafetydataandefficacydataaspartofaMAAwiththeEMA.AftertheEMAevaluatestheMAA,itprovidesarecommendationtotheECandtheECthenapprovesordeniestheMAA.ItisalsopossiblefornewchemicalproductstoobtainmarketingauthorizationintheEUthroughamutualrecognitionprocedure,inwhichanapplicationismadetoasinglememberstate,andifthememberstateapprovesthepharmaceuticalproductunderanationalprocedure,thentheapplicantmaysubmitthatapprovaltothemutualrecognitionprocedureofsomeorallothermemberstates.

Afterobtainingmarketingauthorizationapproval,acompanymustobtainpricingandreimbursementforthepharmaceuticalproduct,whichistypicallysubjecttomemberstatelaw.IncertainEUcountries,thisprocesscantakeplacesimultaneouslywhiletheproductismarketedbutinotherEUcountries,thisprocessmustbecompletedbeforethecompanycanmarketthenewproduct.Thepricingandreimbursementprocedurecantakemonthsandsometimesyearstocomplete.

ThroughouttheEU,allproductsforwhichmarketingauthorizationshavebeenfiledafterOctober/November2005aresubjecttoan8+2+1regime.Eightyearsaftertheinnovatorhasreceiveditsfirstcommunityauthorizationforamedicinalproduct,agenericcompanymayfileamarketingauthorizationapplicationforthatproduct with the health authorities. If the marketing authorization application is approved, the generic company may not commercialize the product until aftereither10or11yearshaveelapsedfromtheinitialmarketingauthorizationgrantedtotheinnovator.Thepossibleextensionto11yearsisavailableiftheinnovator,during the first eight years of the marketing authorization, obtains an additional indication that is of significant clinical benefit in comparison with existingtreatments.ForproductsthatwerefiledpriortoOctober/November2005,thereisa10-yearperiodofdataprotectionunderthecentralizedproceduresandaperiodofeithersixor10yearsunderthemutualrecognitionprocedure(dependingonthememberstate).

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In contrast to the U.S., patents in the EU are not listed with regulatory authorities. Generic versions of pharmaceutical products can be approved after dataprotectionexpires,regardlessofwhethertheinnovatorholdspatentscoveringitsdrug.Thus,itispossiblethataninnovatormaybeseekingtoenforceitspatentsagainstagenericcompetitorthatisalreadymarketingitsproduct.Also,theEuropeanpatentsystemhasanoppositionprocedureinwhichgenericmanufacturersmaychallengethevalidityofpatentscoveringinnovatorproductswithinninemonthsofgrant.

In general, EU law treats chemically-synthesized drugs and biologically-derived drugs the same with respect to intellectual property and data protection. Inadditiontotherelevantlegislationandannexesrelatedtobiologicmedicinalproducts,theEMAhasissuedguidelinesthatoutlinetheadditionalinformationtobeprovidedforbiosimilarproducts,alsoknownasgenericbiologics,inordertoreviewanapplicationformarketingapproval.

Japan

InJapan,medicinesofnewchemicalentitiesaregenerallyaffordedeightyearsofdataexclusivityforapprovedindicationsanddosage.Patentsonpharmaceuticalproducts are enforceable. Generic copies can receive regulatory approval after data exclusivity and patent expirations. Asin the U.S., patents in Japanmaybeextendedtocompensateforthepatenttermlostduringtheregulatoryreviewprocess.

Ingeneral,Japaneselawtreatschemically-synthesizedandbiologically-deriveddrugsthesamewithrespecttointellectualpropertyandmarketexclusivity.

China

InChina,medicinesofnewchemicalentitiesaregenerallyaffordedsixyearsofdataexclusivityforapprovedindicationsanddosage.ThereisuncertaintyaboutChinasexclusivitylawswhichhasresultedingenericcompetitionintheChinamarket.Genericcopiescanreceiveregulatoryapprovalafterdataexclusivityandpatentexpirations.Currently,unliketheU.S.,Chinahasnopatenttermrestorationtocompensateforthepatenttermlostduringtheregulatoryprocess.

Ingeneral,Chineselawtreatschemically-synthesizedandbiologically-deriveddrugsthesamewithrespecttointellectualpropertyandmarketexclusivity.

Rest of the World

IncountriesoutsideoftheU.S.,theEU,JapanandChina,thereisawidevarietyoflegalsystemswithrespecttointellectualpropertyandmarketexclusivityofpharmaceuticals.MostotherdevelopedcountriesutilizesystemssimilartoeithertheU.S.ortheEU.Amongdevelopingcountries,somehaveadoptedpatentlawsand/or regulatory exclusivity laws, while others have not. Some developing countries have formally adopted laws in order to comply with World TradeOrganization(WTO)commitments,buthavenottakenstepstoimplementtheselawsinameaningfulway.EnforcementofWTOactionsisalongprocessbetweengovernments,andthereisnoassuranceoftheoutcome.Thus,inassessingthelikelyfuturemarketexclusivityofourinnovativedrugsindevelopingcountries,wetakeintoaccountnotonlyformallegalrightsbutpoliticalandotherfactorsaswell.

Marketing, Distribution and Customers

We promote the appropriate use of our products directly to healthcare professionals and providers such as doctors, nurse practitioners, physician assistants,pharmacists, technologists, hospitals, Pharmacy Benefit Managers (PBMs) and Managed Care Organizations (MCOs). We also provide information about theappropriateuseofourproductstoconsumersintheU.S.throughdirect-to-consumerprint,radio,television,anddigitaladvertisingandpromotion.Inaddition,wesponsorgeneraladvertisingtoeducatethepublicaboutourinnovativemedicalresearchandcorporatemission.Foradiscussionoftheregulationofpromotionandmarketingofpharmaceuticals,refertoGovernmentRegulationandPriceConstraintsbelow.

Throughourfieldsalesandmedicalorganizations,weexplaintherisksandbenefitsoftheapprovedusesofourproductstomedicalprofessionals.Weworktogainaccessforourproductsonformulariesandreimbursementplans(listsofrecommendedorapprovedmedicinesandotherproducts),includingMedicarePartDplans,byprovidinginformationabouttheclinicalprofilesofourproducts.Ourmarketingandsalesofprescriptionpharmaceuticalsislimitedtotheapprovedusesof the particular product, but we continue to develop scientific data and other information about our products and provide such information in response tounsolicitedinquiriesfromdoctors,othermedicalprofessionalsandmanagedcareorganizations.

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Ouroperationsincludeseveralmarketingandsalesorganizations.Eachproductmarketingorganizationissupportedbyasalesforce,whichmayberesponsibleforsellingoneormoreproducts.Wealsohavemarketingorganizationsthatfocusoncertainclassesofcustomerssuchasmanagedcareentitiesorcertaintypesofmarketingtools,suchasdigitalorconsumercommunications.Oursalesforcesfocusoncommunicatinginformationaboutnewproductsornewuses,aswellasestablishedproducts,andpromotiontophysiciansisincreasinglytargetedatphysicianspecialistswhotreatthepatientsinneedofourmedicines.

Ourproductsaresoldprincipallytowholesalers,andtoalesserextent,directlytodistributors,retailers,hospitals,clinics,governmentagenciesandpharmacies.GrossrevenuestothethreelargestpharmaceuticalwholesalersintheU.S.asapercentageofourglobalgrossrevenueswereasfollows:

2015 2014 2013McKessonCorporation 21% 20% 19%AmerisourceBergenCorporation 16% 17% 15%CardinalHealth,Inc. 12% 12% 14%OurU.S.businesshasInventoryManagementAgreements(IMAs)withsubstantiallyallofourdirectwholesaleranddistributorcustomersthatallowustomonitorU.S.wholesalerinventorylevelsandrequiresthosewholesalersanddistributorstomaintaininventorylevelsthatarenomorethanonemonthoftheirdemand.TheIMAs,includingthosewithourthreelargestwholesalers,expireinDecember2017subjecttocertainterminationprovisions.

InanumberofdefinedcountriesoutsideoftheU.S.,wehaveestablishedafullscaledistributormodeltomakemedicallynecessarydrugsavailabletopatients.Wecontinuetoownthemarketingauthorizationandtrademarksfortheseproducts,buthavecontractedtheservicesofafull-servicedistributortoprovidedistributionandlogistics;regulatoryandpharmacovigilance;andsales,advertisingandpromotionforcertainproducts.Salesinthesedistributor-basedcountriesrepresentedapproximately2%oftheCompanystotalrevenuesin2015.

Competition

Themarkets inwhichwecompete aregenerally broadbasedandhighlycompetitive. Wecompetewithother worldwideresearch-baseddrugcompanies, manysmallerresearchcompanieswithmorelimitedtherapeuticfocusandgenericdrugmanufacturers.Importantcompetitivefactorsincludeproductefficacy,safetyandeaseofuse,priceanddemonstratedcost-effectiveness,marketingeffectiveness,productlabeling,customerserviceandresearchanddevelopmentofnewproductsand processes. Sales of our products can be impacted by new studies that indicate a competitors product is safer or more effective for treating a disease orparticularformofdiseasethanoneofourproducts.Ourrevenuesalsocanbeimpactedbyadditionallabelingrequirementsrelatingtosafetyorconveniencethatmay be imposed on products by the FDA or by similar regulatory agencies in different countries. If competitors introduce new products and processes withtherapeuticorcostadvantages,ourproductscanbesubjecttoprogressivepricereductionsordecreasedvolumeofsales,orboth.

Generic Competition

Oneof the biggest competitive challenges that weface is fromgeneric pharmaceutical manufacturers. In the U.S. andthe EU, the regulatory approval processexemptsgenericsfromcostlyandtime-consumingclinicaltrialstodemonstratetheirsafetyandefficacy,allowinggenericmanufacturerstorelyonthesafetyandefficacy of the innovator product. As a result, generic pharmaceutical manufacturers typically invest far less in research and development than research-basedpharmaceuticalcompaniesandthereforecanpricetheirproductssignificantlylowerthanbrandedproducts.Accordingly,whenabrandedproductlosesitsmarketexclusivity,itnormallyfacesintensepricecompetitionfromgenericformsoftheproduct.Upontheexpirationorlossofmarketexclusivityonaproduct,wecanlosethemajorportionofrevenuesofthatproductinaveryshortperiodoftime.

Therateofrevenuesdeclineofaproductaftertheexpirationofexclusivityvariesbycountry.Ingeneral,thedeclineintheU.S.marketismorerapidthaninmostotherdevelopedcountries,thoughwehaveobservedrapiddeclinesinanumberofEUcountriesaswell.Also,thedeclinesindevelopedcountriestendtobemorerapidthanindevelopingcountries.Therateofrevenuesdeclineaftertheexpirationofexclusivityhasalsohistoricallybeeninfluencedbyproductcharacteristics.Forexample,drugsthatareusedinalargepatientpopulation(e.g.,thoseprescribedbykeyprimarycarephysicians)tendtoexperiencemorerapiddeclinesthandrugsinspecializedareasofmedicine(e.g.,oncology).Drugsthataremorecomplextomanufacture(e.g.,sterileinjectableproducts)usuallyexperienceaslowerdeclinethanthosethataresimplertomanufacture.

IncertaincountriesoutsidetheU.S.,patentprotectionisweakornonexistentandwemustcompetewithgenericversionsshortlyafterwelaunchourinnovativeproducts.Inaddition,genericpharmaceuticalcompaniesmayintroduceagenericproductbeforeexclusivityhasexpired,andbeforetheresolutionofanyrelatedpatentlitigation.Formoreinformationaboutmarketexclusivity,refertoIntellectualPropertyandProductExclusivityabove.

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We believe our long-term competitive position depends upon our success in discovering and developing innovative, cost-effective products that serve unmetmedicalneeds,togetherwithourabilitytomanufactureproductsefficientlyandtomarketthemeffectivelyinahighlycompetitiveenvironment.

Managed Care Organizations

ThegrowthofMCOsintheU.S.isalsoamajorfactorinthehealthcaremarketplace.OverhalfoftheU.S.populationnowparticipatesinsomeversionofmanagedcare.MCOscanincludemedicalinsurancecompanies,medicalplanadministrators,health-maintenanceorganizations,MedicarePartDprescriptiondrugplans,alliances of hospitals andphysicians andother physician organizations. Those organizations havebeenconsolidating into fewer, larger entities, thus enhancingtheirpurchasingstrengthandimportancetous.

To successfully compete for business with MCOs, we must often demonstrate that our products offer not only medical benefits but also cost advantages ascomparedwithotherformsofcare.Mostnewproductsthatweintroducecompetewithotherproductsalreadyonthemarketorproductsthatarelaterdevelopedbycompetitors.Asnotedabove,genericdrugsareexemptfromcostlyandtime-consumingclinicaltrialstodemonstratetheirsafetyandefficacyand,assuch,oftenhavelowercoststhanbrand-namedrugs.MCOsthatfocusprimarilyontheimmediatecostofdrugsoftenfavorgenericsforthisreason.Manygovernmentsalsoencourage the use of generics as alternatives to brand-name drugs in their healthcare programs. Laws in the U.S. generally allow, and in many cases require,pharmaciststosubstitutegenericdrugsthathavebeenratedundergovernmentprocedurestobeessentiallyequivalenttoabrand-namedrug.Thesubstitutionmustbemadeunlesstheprescribingphysicianexpresslyforbidsit.

ExclusionofaproductfromaformularycanleadtoitssharplyreducedusageintheMCOpatientpopulation.Consequently,pharmaceuticalcompaniescompeteaggressively to have their products included. Where possible, companies compete for inclusion based upon unique features of their products, such as greaterefficacy,betterpatienteaseofuseorfewersideeffects.Aloweroverallcostoftherapyisalsoanimportantfactor.Productsthatdemonstratefewertherapeuticadvantages must compete for inclusion based primarily on price. We have been generally, although not universally, successful in having our major productsincludedonMCOformularies.

Government Regulation and Price Constraints

Thepharmaceutical industryis subject toextensiveglobal regulationbyregional, country, stateandlocal agencies. TheFederal Food,Drug,andCosmeticAct(FDCAct),otherFederalstatutesandregulations,variousstatestatutesandregulations,andlawsandregulationsofforeigngovernmentsgoverntovaryingdegreesthetesting, approval, production, labeling, distribution, post-market surveillance, advertising, disseminationof information, andpromotionof ourproducts. Thelengthyprocessoflaboratoryandclinicaltesting,dataanalysis,manufacturing,development,andregulatoryreviewnecessaryforrequiredgovernmentalapprovalsisextremelycostlyandcansignificantlydelayproductintroductionsinagivenmarket.Promotion,marketing,manufacturinganddistributionofpharmaceuticalproductsareextensivelyregulatedinallmajorworldmarkets.Inaddition,ouroperationsaresubjecttocomplexFederal,state,local,andforeignenvironmentaland occupational safety laws and regulations. We anticipate that the laws and regulations affecting the manufacture and sale of current products and theintroductionofnewproductswillcontinuetorequiresubstantialscientificandtechnicaleffort,timeandexpenseaswellassignificantcapitalinvestments.

Of particular importance is the FDA in the U.S. It has jurisdiction over virtually all of our activities and imposes requirements covering the testing, safety,effectiveness, manufacturing, labeling, marketing, advertising and post-marketing surveillance of our products. In many cases, the FDA requirements haveincreasedtheamountoftimeandmoneynecessarytodevelopnewproductsandbringthemtomarketintheU.S.

TheFDAmandatesthatdrugsbemanufactured,packagedandlabeledinconformitywithcurrentGoodManufacturingPractices(cGMP)establishedbytheFDA.IncomplyingwithcGMPregulations,manufacturersmustcontinuetoexpendtime,moneyandeffortinproduction,recordkeepingandqualitycontroltoensurethatproductsmeetapplicablespecificationsandotherrequirementstoensureproductsafetyandefficacy.TheFDAperiodicallyinspectsourdrugmanufacturingfacilitiestoensurecompliancewithapplicablecGMPrequirements.Failuretocomplywiththestatutoryandregulatoryrequirementssubjectsustopossiblelegalorregulatoryaction,suchassuspensionofmanufacturing,seizureofproductorvoluntaryrecallofaproduct.AdverseexperienceswiththeuseofproductsmustbereportedtotheFDAandcouldresultintheimpositionofmarketrestrictionsthroughlabelingchangesorproductremoval.Productapprovalsmaybewithdrawnifcompliancewithregulatoryrequirementsisnotmaintainedorifproblemsconcerningsafetyorefficacyoccurfollowingapproval.

TheFederalgovernmenthasextensiveenforcementpowersovertheactivitiesofpharmaceuticalmanufacturers,includingauthoritytowithdrawordelayproductapprovals,commenceactionstoseizeandprohibitthesaleofunapprovedornon-complyingproducts,tohaltmanufacturingoperationsthatarenotincompliancewithcGMPs,andtoimposeorseekinjunctions,voluntaryrecalls,civil,monetaryandcriminalpenalties.Sucharestrictionorprohibitiononsalesorwithdrawalofapprovalofproductsmarketedbyuscouldmateriallyadverselyaffectourbusiness,financialconditionandresultsofoperationsandcashflows.

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Marketingauthorizationforourproductsissubjecttorevocationbytheapplicablegovernmentalagencies.Inaddition,modificationsorenhancementsofapprovedproductsorchangesinmanufacturinglocationsareinmanycircumstancessubjecttoadditionalFDAapprovals,whichmayormaynotbereceivedandwhichmaybesubjecttoalengthyapplicationprocess.

ThedistributionofpharmaceuticalproductsissubjecttothePrescriptionDrugMarketingAct(PDMA)aspartoftheFDCAct,whichregulatessuchactivitiesatboththeFederalandstatelevel.UnderthePDMAanditsimplementingregulations,statesarepermittedtorequireregistrationofmanufacturersanddistributorswhoprovidepharmaceuticalsevenifsuchmanufacturersordistributorshavenoplaceofbusinesswithinthestate.Statesarealsopermittedtoadoptregulationslimitingthedistributionofproductsamplestolicensedpractitioners.ThePDMAalsoimposesextensivelicensing,personnelrecordkeeping,packaging,quantity,labeling, product handling and facility storage and security requirements intended to prevent the sale of pharmaceutical product samples or other productdiversions.

Ourmedicinesarepricedbasedonanumberoffactors,includingthevalueofscientificinnovationforpatientsandsocietyinthecontextofoverallhealthcarespend, economic factors impacting health care systems ability to provide appropriate and sustainable access and the necessity to sustain our investment ininnovationplatformstoaddressseriousunmetmedicalneeds.Centraltopriceistheclinicalvaluethatthisinnovationbringstothemarket,thecurrentlandscapeofalternativetreatmentoptions,thegoalofensuringappropriatepatientaccesstothisinnovationandsustaininginvestmentininnovativeplatforms.Wecontinuetoexplore innovative pricing approaches to ensure that patients have access to our medicines. Enhancing patient access to medicines is a priority for us. We arefocused on offering creative tiered pricing, voluntary licensing, reimbursement support and patient assistance programs to optimize access while protectinginnovation; advocating for sustainable healthcare policies and infrastructure, leveraging advocacy/payers input and utilizing partnerships as appropriate; andimprovingaccesstocareandsupportiveservicesforvulnerablepatientsthroughpartnershipsanddemonstrationprojects.

TheFDAAmendmentsActof2007imposedadditionalobligationsonpharmaceuticalcompaniesanddelegatedmoreenforcementauthoritytotheFDAintheareaofdrugsafety.KeyelementsofthislegislationgivetheFDAauthorityto(1)requirethatcompaniesconductpost-marketingsafetystudiesofdrugs,(2)imposecertaindruglabelingchangesrelatingtosafety,(3)mandateriskmitigationmeasuressuchastheeducationofhealthcareprovidersandtherestricteddistributionofmedicines,(4)requirecompaniestopubliclydisclosedatafromclinicaltrialsand(5)pre-reviewtelevisionadvertisements.

The marketing practices of all U.S. pharmaceutical manufacturers are subject to Federal and state healthcare laws that are used to protect the integrity ofgovernment healthcare programs. The Office of Inspector General of the U.S. Department of Health and Human Services (OIG) oversees compliance withapplicableFederallaws,inconnectionwiththepaymentforproductsbygovernmentfundedprograms(primarilyMedicaidandMedicare).TheselawsincludetheFederal anti-kickback statute, which criminalizes the offering of something of value to induce the recommendation, order or purchase of products or servicesreimbursed under a government healthcare program. The OIG has issued a series of Guidances to segments of the healthcare industry, including the 2003ComplianceProgramGuidanceforPharmaceuticalManufacturers(theOIGGuidance),whichincludesarecommendationthatpharmaceuticalmanufacturers,ataminimum,adheretothePhRMACode,avoluntaryindustrycodeofmarketingpractices.WesubscribetothePhRMACode,andhaveimplementedacomplianceprogramtoaddress therequirements set forth in theOIGGuidanceandour compliance withthehealthcare laws. Failure to complywiththese healthcare lawscouldsubjectustoadministrativeandlegalproceedings,includingactionsbyFederalandstategovernmentagencies.Suchactionscouldresultintheimpositionofcivil and criminal sanctions, which may include fines, penalties and injunctive remedies, the impact of which could materially adversely affect our business,financialconditionandresultsofoperationsandcashflows.

We are also subject to the jurisdiction of various other Federal and state regulatory and enforcement departments and agencies, such as the Federal TradeCommission,theDepartmentofJusticeandtheDepartmentofHealthandHumanServicesintheU.S.WearealsolicensedbytheU.S.DrugEnforcementAgencytoprocureandproducecontrolledsubstances.Weare,therefore,subjecttopossibleadministrativeandlegalproceedingsandactionsbytheseorganizations.Suchactionsmayresultintheimpositionofcivilandcriminalsanctions,whichmayincludefines,penaltiesandinjunctiveoradministrativeremedies.

Our activities outside the U.S. are also subject to regulatory requirements governing the testing, approval, safety, effectiveness, manufacturing, labeling andmarketingofourproducts.Theseregulatoryrequirementsvaryfromcountrytocountry.WhetherornotFDAapprovalorapprovaloftheEChasbeenobtainedforaproduct,approvaloftheproductbycomparableregulatoryauthoritiesofcountriesoutsideoftheU.S.ortheEU,asthecasemaybe,mustbeobtainedpriortomarketingtheproductinthosecountries.Theapprovalprocessmaybemoreorlessrigorousfromcountrytocountry,andthetimerequiredforapprovalmaybelongerorshorterthanthatrequiredintheU.S.Approvalinonecountrydoesnotassurethataproductwillbeapprovedinanothercountry.

In many markets outside the U.S., we operate in an environment of government-mandated, cost-containment programs. Several governments have placedrestrictions on physician prescription levels and patient reimbursements, emphasized greater use of generic drugs and/or enacted across-the-board price cuts asmethods of cost control. In most EUcountries, for example, the government regulates pricing of a new product at launch often through direct price controls,internationalpricecomparisons,controllingprofitsand/orreferencepricing.Inothermarkets,suchastheUKandGermany,thegovernmentdoesnotsetpricingrestrictionsatlaunch,butpricingfreedom

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is subsequently limited, such as by the operation of a profit and price control plan in the UK and by the operation of a reference price system in Germany.Companiesalsofacesignificantdelaysinmarketaccessfornewproducts,mainlyinFrance,Spain,ItalyandBelgium,andmorethantwoyearscanelapsebeforenewmedicinesbecomeavailable onsomenational markets. Additionally, memberstates of theEUhaveregularly imposednewor additional cost containmentmeasuresforpharmaceuticalssuchasvolumediscounts,costcaps,costsharingforincreasesinexcessofprioryearcostsforindividualproductsoraggregatedmarket level spending, outcome-based pricing schemes and free products for a portion of the expected therapy period. In recent years, Italy, for example, hasimposed mandatory price decreases. The existence of price differentials within the EU due to the different national pricing and reimbursement laws leads tosignificantparalleltradeflows.

The U.S. healthcare industry is subject to various government-imposed regulations authorizing prices or price controls that have and will continue to have animpactonourtotalrevenues.WeparticipateinstategovernmentMedicaidprograms,aswellascertainotherqualifyingFederalandstategovernmentprogramswherebydiscountsandrebatesareprovidedtoparticipatingstateandlocalgovernmententities.Wealsoparticipateingovernmentprogramsthatspecifydiscountsto certain government entities, the most significant of which are the U.S. Department of Defense and the U.S. Department of Veterans Affairs. These entitiesreceiveminimumdiscountsbasedoffadefinednon-federalaveragemanufacturerpriceforpurchases.AsaresultofthePatientProtectionandAffordableCareAct(HR3590)andthereconciliationbillcontainingapackageofchangestothehealthcarebill,wehaveexperiencedandwillcontinuetoexperienceadditionalfinancial costs andcertain other changes to our business. For example, minimumrebates onour Medicaid drugsales haveincreasedfrom15.1 percent to 23.1percentandMedicaidrebateshavealsobeenextendedtodrugsusedinrisk-basedMedicaidmanagedcareplans.Inaddition,weextenddiscountstocertaincriticalaccesshospitals,cancerhospitalsandothercoveredentitiesasrequiredbytheexpansionofthe340BDrugPricingProgramunderthePublicHealthServiceAct.

Wearerequiredtoprovidea50percentdiscountonourbrand-namedrugstopatientswhofallwithintheMedicarePartDcoveragegap,alsoreferredtoasthedonut hole and pay an annual non-tax-deductible fee to the federal government based on an allocation of our market share of branded drug sales to certaingovernmentprogramsincludingMedicare,Medicaid,DepartmentofVeteransAffairs,DepartmentofDefenseandTRICARE.

Forfurtherdiscussionoftheserebatesandprograms,refertoItem7.ManagementsDiscussionandAnalysisofFinancialConditionandResultsofOperationsTotalRevenuesandCriticalAccountingPolicies.

Sources and Availability of Raw Materials

Ingeneral,wepurchaseourrawmaterialsandsuppliesrequiredfortheproductionofourproductsintheopenmarket.Forsomeproducts,wepurchaseourrawmaterials and supplies from one source (the only source available to us) or a single source (the only approved source among many available to us), therebyrequiring us to obtain such raw materials and supplies from that particular source. We attempt, if possible, to mitigate our raw material supply risks, throughinventory management and alternative sourcing strategies. For further discussion of sourcing, refer to Manufacturing and Quality Assurance below anddiscussionsofparticularproducts.

Manufacturing and Quality Assurance

Weoperateandmanageourmanufacturingnetworkinamannerthatpermitsustoimproveefficiencywhilemaintainingflexibilitytoreallocatemanufacturingcapacity.Pharmaceuticalproductionprocessesarecomplex,highlyregulatedandvarywidelyfromproducttoproduct.Giventhatshiftingoraddingmanufacturingcapacity can be a lengthy process requiring significant capital and other expenditures as well as regulatory approvals, we maintain and operate our flexiblemanufacturingnetwork,consistingofinternalandexternalresourcesthatminimizeunnecessaryproducttransfersandinefficientusesofmanufacturingcapacity.Forfurtherdiscussionoftheregulatoryimpactonourmanufacturing,refertoGovernmentRegulationandPriceConstraintsabove.

OurpharmaceuticalmanufacturingfacilitiesarelocatedintheU.S.,PuertoRico,France,Italy,Ireland,Japan,MexicoandChinaandrequiresignificantongoingcapital investment forbothmaintenanceandcompliancewithincreasingregulatoryrequirements. Inaddition, asourproduct linechangesoverthenextseveralyears,weexpecttocontinuemodificationofourexistingmanufacturingnetworktomeetcomplexprocessingstandardsthatmayberequiredfornewlyintroducedproducts,includingbiologics.Biologicsmanufacturinginvolvesmorecomplexprocessesthanthoseoftraditionalpharmaceuticaloperations.TheFDAapprovedourlargescalemulti-product bulkbiologics manufacturingfacility inDevens, Massachusetts inMay2012andwecontinuetomakecapital investments inthisfacility.Wearebuildinganewlarge-scalebiologicsmanufacturingfacilityinCruiserath,Ireland.

Werelyonthirdparties tomanufacture or supplyuswithall or a portionoftheactiveingredients necessaryfor ustomanufacture variousproducts, includingBaraclude ,theSustiva Franchise,Yervoy, Opdivo ,Reyataz ,Orencia andEliquis. BeginninginOctober2015,followingthetransferofourrightstoErbitux* inNorthAmericatoLilly, Lilly assumedmanufacturingresponsibilities forErbitux* .Tomaintain astable supplyoftheseproducts, wetakeavariety of actionsincluding inventory management and maintenance of additional quantities of materials, when possible, designed to provide for a reasonable level of theseingredientstobeheldbythethird-partysupplier,usorboth,sothatourmanufacturingoperationsarenotinterrupted.Asanadditionalprotection,insomecases,wetakestepstomaintainan

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approvedback-upsourcewhereavailable.Forexample,wewillrelyonthecapacityofourDevens,Massachusettsfacilityandthecapacityavailableatourthird-partycontractmanufacturerstomanufactureOrencia .

Ifweoranythird-partymanufacturerthatwerelyonforexistingorfutureproductsisunabletomaintainastablesupplyofproducts,operateatsufficientcapacityto meet our order requirements, comply with government regulations for manufacturing pharmaceuticals or meet the complex processing requirements forbiologics, our business performance and prospects could be negatively impacted. Additionally, if we or any of our third-party suppliers were to experienceextendedplantshutdownsorsubstantialunplannedincreasesindemandorsuspensionofmanufacturingforregulatoryreasons,wecouldexperienceaninterruptioninsupplyofcertainproductsorproductshortagesuntilproductioncouldberesumedorexpanded.

Inconnectionwithdivestitures, licensingarrangementsordistributionagreementsofcertainofourproducts, orincertainothercircumstances, wehaveenteredinto agreements under which wehave agreed to supply such products to third parties. In addition to liabilities that could arise fromour failure to supply suchproductsundertheagreements,thesearrangementscouldrequireustoinvestinfacilitiesfortheproductionofnon-strategicproducts,resultinadditionalregulatoryfilingsandobligationsorcauseaninterruptioninthemanufacturingofourownproducts.

Our success depends in great measure upon customer confidence in the quality of our products and in the integrity of the data that support their safety andeffectiveness.Productqualityarisesfromatotalcommitmenttoqualityinallpartsofouroperations,includingresearchanddevelopment,purchasing,facilitiesplanning,manufacturing,anddistribution.Wemaintainquality-assuranceproceduresrelatingtothequalityandintegrityoftechnicalinformationandproductionprocesses.

Controlofproductionprocessesinvolvesdetailedspecificationsforingredients,equipmentandfacilities,manufacturingmethods,processes,packagingmaterialsandlabeling.Weperformtestsatvariousstagesofproductionprocessesandonthefinalproducttoensurethattheproductmeetsregulatoryrequirementsandourstandards.Thesetestsmayinvolvechemicalandphysicalchemicalanalyses,microbiologicaltesting,oracombinationofthesealongwithotheranalyses.Qualitycontrol is providedbybusiness unit/site quality assurance groups that monitor existing manufacturing procedures andsystemsusedbyus, our subsidiaries andthird-partysuppliers.

Environmental Regulation

Our facilities and operations are subject to extensive U.S. and foreign laws and regulations relating to environmental protection and human health and safety,includingthosegoverningdischargesofpollutantsintotheairandwater;theuse,managementanddisposalofhazardous,radioactiveandbiologicalmaterialsandwastes;andthecleanupofcontamination.Pollutioncontrolsandpermitsarerequiredformanyofouroperations,andthesepermitsaresubjecttomodification,renewalorrevocationbytheissuingauthorities.

Ourenvironment,healthandsafetygroupmonitorsouroperationsaroundtheworld,providinguswithanoverviewofregulatoryrequirementsandoverseeingtheimplementationofourstandardsforcompliance.Wealsoincuroperatingandcapitalcostsforsuchmattersonanongoingbasis.Weexpendedapproximately$18millionin2015, $18millionin2014and$19millionin2013oncapital projects undertaken specifically to meet environmental requirements. In addition, weinvestedinprojectsthatreduceresourceuseofenergyandwater.Althoughwebelievethatweareinsubstantialcompliancewithapplicableenvironmental,healthandsafetyrequirements andthepermits requiredfor our operations, wenevertheless couldincur additional c