Bristol-Myers Squibb Company (BMY) — Q2 2019 Earnings Call Transcript

Thanks, Orlando, and good morning everybody. We're here to discuss our second quarter earnings as well as the news that was press released last night. With me this morning, Giovanni and Charlie will provide prepared remarks. Chris Boerner, our Chief Commercial Officer, will be here for Q&A, as well as Fouad Namouni, our Head of Oncology Development is here for Q&A as well.

Thank you, John, and good morning, everyone. I'm pleased to speak with you today about our strong performance in the second quarter and the progress we've made on our planned acquisition of Celgene. But first, let me start by discussing the results we announced last night and frame what it means for Opdivo and how I think about our outlook going forward. With respect to 227 results, as you know, we announced important results last night. We had a successful outcome, but also a part of the trial that didn’t meet its endpoint. Starting with the results of Part 1a, this is the third major tumor in which Opdivo+Yervoy shows an overall survival benefit in the first-line setting. And we believe these results represent a potentially differentiated opportunity in first-line lung cancer. If approved, the combination would provide an additional and chemo-sparing treatment option for patients. And I have full confidence in my commercial team's ability to execute in this competitive marketplace. As we noted in the press release, we also saw in an exploratory analysis, an overall survival benefit in PD-L1 negative patients. We’ll be sharing all the data at an upcoming medical meeting, so I won't go into the specifics today. Now, turning to the results of Part 2, they were not what we had hoped for. There are, however, important aspects of the study results to keep in mind. First, we're looking at a one-year landmark analysis. Opdivo plus chemo performed consistently with the experimental arms of other successful trials. The chemo control arm somewhat overperformed compared to what we regularly see. The performance of Opdivo was consistent with our expectations, but the trial was not positive.

Thanks, Giovanni, and good morning, everyone. Building on Giovanni's comments about Checkmate-227, I'll start by providing some additional color regarding dynamics in our I-O business during the quarter and how we think about it moving forward. In the U.S., we continue to see strong share across indications, including both metastatic and adjuvant melanoma, first-line renal cell, and second-line lung. As expected, we also continue to see the size of the eligible pool of second-line lung patients decline, which has impacted demand sequentially.

Thanks, Charlie. Orlando, I think we're ready to go ahead to the Q&A.

Hi. Thank you. First question is, results of 227, how do they influence how you now look at the odds of success on Checkmate-9LA? Does that trial have a CTLA component? I’m guessing you'd say the odds of success with that one have to be higher. Also, can I confirm that that trial stratifies by PD-L1 and not by TMB, which seems to make sense in light of the Part 1 findings. And the second question is on Part 1 itself. Just directionally, hoping you can see whether the magnitude of clinical benefit was the same in PD-L1 positive versus negative patients. It seems that across few different tumor types now, CTLA-4 combination may offer its greatest value in the PD-L1 negative segment where we know that PD-1s at least by themselves don’t really seem to work. Is that potentially where the best and easiest positioning of the combo would be?

Thank you, Tim. This is Giovanni. I'll ask Fouad to answer your two questions. I just want to start and reiterate how excited we are to have an opportunity to play in first-line lung cancer, which we now know with the results of Part 1a of 227, particularly with Opdivo+Yervoy, which, as you know, we’ve been successful in establishing in two other tumor types, melanoma and renal. So, I think that's important news for us. And I'll ask Fouad to give you his perspective on 9LA and PD-1 expression.

Thank you, Giovanni, and thank you, Tim, for the question. We have strong confidence in 9LA, which is the combination of two active checkpoint inhibitors, Yervoy and Opdivo, used in first-line lung cancer alongside two cycles of chemotherapy. The aim is to effectively manage early progressions while generating new antigens that will keep the immune system engaged. We are assured about the design of 9LA. Regarding your questions about Part 1, this is the third instance in which we have observed the performance of Yervoy and Opdivo in terms of overall survival compared to standard care in first-line non-small cell lung cancer. Clinically, we have noted a significant and meaningful improvement in overall survival with the combination for PD-1 positive early-stage lung cancer. There has also been an improvement in overall survival in the exploratory analysis for PD-L1 negative cases. Overall, Tim, we are observing a similar trend for Yervoy and Opdivo that we have seen in other tumors, such as melanoma and renal cell carcinoma.

Thanks very much for the questions. Just a little surprised by the new process with the beep. So, just a couple of quick questions. First off, I was just hoping the team could comment on whatever is possible to comment on relative to the Senate bill at this point and kind of the relative exposure that Bristol has to U.S. spending alone and then prospectively in combination with Celgene, and just hoping to get a little bit of your thoughts on the Senate bill itself. And then, separately, just hoping to get a little bit of color on 227. More than anything, the question really is, when we see the data presented, both from the Part 2 and the Part 1a study, are we going to not only fully understand, but also will come away with Bristol proving that the benefits of adding Opdivo on top of chemotherapy having a clear benefit also in non-squamous patients perhaps on PFS. And then in terms of Opdivo+Yervoy, are we likely to walk away with a clear view that not only is Opdivo a monotherapy showing improvements, but that Yervoy on top of that is additive?

Thank you, Seamus. This is Giovanni. I'll begin by addressing your question regarding the pricing and policy situation. As you've observed, the environment in Washington is quite dynamic. It's still early, and it's challenging to predict the specific outcomes of the current congressional discussions. We've talked for some time about being at the start of a period of policy change, and I believe that discussions surrounding this change are crucial to tackle the affordability challenges patients face. These affordability challenges are mostly driven by benefit design and the high out-of-pocket costs that patients incur due to insurance plan structures and misaligned incentives. I want to express concern regarding many of the proposals currently being discussed, including aspects of the Senate bill. Although some of these proposals may be seen as tough on the industry, especially for innovative companies, they don't provide significant benefits to most patients—only about 2% of Medicare patients would benefit based on the draft as it stands, and they fail to address the misaligned incentives in the system. We are in favor of change and have actively suggested policy solutions that could alleviate some of the current difficulties for patients. However, so far, the proposals do not tackle the major issues present in the marketplace. From the beginning, I've believed it essential for us to maintain a broader and more diverse portfolio during these policy transitions, encompassing various reimbursement types, expanding growth opportunities across different diseases, and creating more launch opportunities to enhance our portfolio's lifecycle. This is what the Celgene acquisition can accomplish for us. Given the current uncertainties, having a more diversified portfolio is increasingly vital, and that's precisely what we aim to achieve with Celgene. In response to your question about specific details, when we evaluate the potential impacts of the proposed measures, there may be a notable effect on Revlimid. However, it's important to note that many of these measures would not take effect until 2022, which would align with the latter stages of that asset's lifecycle. Additionally, other parts of our portfolio might experience benefits that could counterbalance these impacts. Thus, it's too early to provide a conclusive answer regarding the overall impact. Given our broad portfolio, we can expect fluctuations, as each product's lifecycle stage will influence the outcomes. Again, Revlimid would be nearing the end of its lifecycle. Chris, do you have anything to add?

Yes. I mean, Seamus, let me just pick up where Giovanni left off. I think you have a number of different proposals embedded within the Senate bill, there are a number of different additional steps that are going to be required before anything is enacted. And obviously, as you know, specifics matter here. What I would say is that, as Giovanni mentioned, having a more diversified portfolio is better. When you look at it on a product by product basis, obviously, the allocation of the business by payment mechanism is going to be important in determining the impact. What I will say is, from a BMS exposure, what we've said previously, I'll just remind you, is that looking across our business, we have about 24% of our business in Part B, about 26% in Part D, and relatively little Medicaid exposure. With respect to Celgene, remember, we’re two separate companies, so as for specifics, you would need to ask them. But multiple myeloma, for example, is primarily a disease of the elderly. So, we would skew a bit more towards the Medicare population.

And Seamus, this is Fouad. For your second question around what we will see, what we will understand when we show the data from both Part 1 and more data from Part 2, will be the following. Let me start with Part 1. When we will show the data from Part 1, clearly, we will understand the performance of nivo and added benefit of Yervoy on top of nivo, very clearly. And we will understand also the overall pattern that we are seeing with immunotherapy combinations, like depth of response, rate of complete responders, the durability of response, and the long-term survival. And I think these elements would be very clear when the data will be presented. For Part 2, in addition to what was reported in the press release today, what we will understand is one, the performance of nivolumab plus chemotherapy versus other combination of PD-1 and PD-L1 agents in chemotherapy. Basically, I think we will see that the performance of nivolumab in chemotherapy is very consistent with what we have seen with other PD-1s and PD-L1 agents combined with chemotherapy. I think we would see that the chemotherapy comparator arm in Checkmate, which we said on Part 2, has outperformed what we would expect in the standard of care. Let me remind us that, what we know from the activity in standard of care in terms of median overall survival, the chemotherapy is between 13 to 14 months, and this is supported by real-world evidence. I think the chemotherapy arm outperformed in 227, maybe underperformed in other studies. And I think this is broadly what people will take when we go in depth into the data from Part 2.

Thank you very much. I have two questions regarding 227. First, concerning the Part 1 study, while I understand you can't share specific numbers at this time, do you believe you need to achieve an overall survival hazard ratio similar to what was observed with chemotherapy in Keynote-189 for this offering to be competitive? Or are you more focused on other factors, such as complete response rates and the depth of responses, when considering the potential role and niche for that combination? My second question relates to Part 2 and the stronger control arm survival rate. Can you provide any insights regarding crossover rates to second-line immuno-oncology treatments in Part 2, and was that significantly different from what we have seen in previous competitor studies? Thank you very much.

This is Chris. Maybe let me start and then I'll turn it over to Fouad. As we said previously, as you think about how physicians have conversations with patients, very rarely do they have a discussion around hazard ratios. And so, we believe, what is important and what we hear from customers is, how are patients performing over time, so that would imply landmarks are very important. And one of the key drivers for treatment choice in first-line lung cancer continues to be our product showing durable efficacy. And so, when you step back and you think about first-line lung cancer, despite all of the progress that we've made in that area over the last few years, we need to keep in mind that the majority of patients progress within one year. And in doing so, many of the spaces actually burn through two options, I-O and chemo. So, there is a need for more options that potentially spare patients from chemotherapy and have proven OS and durability benefit, and that's what we hear consistently with respect to how physicians are going to make choices in first-line lung cancer.

And that with regards to the Part 2 crossover to I-O therapy in the chemotherapy reference arm, we have seen a level of crossover, about a third of patients, which is consistent with many other trials. And we do not believe that the crossover is the reason explaining the output performance of our chemotherapy arm.

I just wanted to understand the rationale behind the non-squamous as the primary endpoint for Part 2. The squamous data looked quite good in comparison to 407. And if you could, as it correlates to that, could you clarify if 9LA has a similar design as Part 1a where the primary endpoint is also specific to non-squamous?

Thank you, Navin, for your questions. So, first, the non-squamous and the primary endpoint, this is the largest population for this study. The squamous population is pretty small, only a percentage of the first-line. Data available to us at the time showed a benefit, and most of the benefit we see in the non-squamous population. Therefore, the study was really designed to ask the non-squamous question. For 9LA, the study is designed to go to all commerce in terms of histology and biomarkers. And looking at the first-line population of patients is different where you combine both checkpoint inhibitors and diminish the number of cycles of chemotherapy.

Maybe, as you think about the outperformance of the chemo arm in Part 2 of Checkmate-227, can you help us think about your adjuvant program and maybe again any puts and takes there as you think about the design or performance of those control arms and just confidence level in those trials, given that chemo outperformance that you saw in 227 Part 2? Thank you.

In the adjuvant space, we are very pleased with the data from the first-line setting with Part 1a. We believe that the performance of immunotherapy in the adjuvant setting will be strong, boosting our confidence in this area. Regarding standard of care, there have been many developments in managing patients with supportive care in the metastatic setting of lung cancer, but not much progress in the adjuvant setting concerning standard care and comparators. We believe that our adjuvant and early program is robust, and as you may have seen, we have initiated a study in the stage 3 setting of lung cancer, comparing nivolumab and nivolumab plus Yervoy to durvalumab, focusing on overall survival in this patient population.

The Company seems to be suggesting that the tail of the Opdivo+Yervoy curve will impress in Part 1a when it's presented, it has been mentioned two or three times on this call already. In Keynote-189, Keytruda plus chemo saw 69% of patients alive at 12 months. So, I’m interpreting Bristol's positive tone as Opdivo+Yervoy will show more than 69% of patients alive when Part 1a is presented. And I’m just wondering, would you suggest I consider other interpretations of the Company's positive tone? So, that’s the first question.

Go ahead, Steve.

Yes. The second question, is the Company dealing with crossover differently in 9LA than in Checkmate-227? Thank you.

Yes. Steve, let me just start before Fouad answers your two questions, by saying, I think we’ve really pointed to the types of benefits that I-O plus I-O. And we’ve seen consistently in tumors where Opdivo+Yervoy has provided a benefit. The physicians really have valued deep responses, complete responses, the durability of responses, and as the follow-up of those studies has continued is when we really started to see the value of the trend. So, I think that's an important consideration. But, Fouad?

I think, Giovanni summarized very well our observations on lung cancer. I would just add, this is a pattern that we have seen in other two major cancers, in melanoma and renal cell. For the question on 9LA crossover, the crossover is not systematic in 9LA, it was not systematic in 227. So, patients, when they progress in the study on the chemotherapy arm, they will receive standard of care therapy by their physicians.

And this is Chris. Let me just jump in here and make a couple of comments. So, first, as I mentioned, there's still considerable unmet need in first-line lung cancer. And we think there's an important role that Opdivo+Yervoy has to play. And I think that as you begin to think through what that opportunity could look like, remember the experience that we've had without Opdivo and Yervoy in melanoma and renal cell which are the two diseases in which we've seen significant benefit there. And what we see with the regimen is significant responses, including impressive CR rates, you see durable responses, you do see a compelling overall survival benefit that has that characteristic plateau in the Kaplan-Meier curve, which appears to be somewhat differentiated from other mechanisms. And you see a side effect profile that has advantages relative to chemotherapy. So, we think there's an important role to play for dual I-O therapy without Opdivo+Yervoy in that setting. The other thing I would say is that when you look at Opdivo+Yervoy and the clinical trials also, we see in the market when we hear back from customers is, it's very consistent with their real-world experience with the regimen. Why is that important? Well, first, that’s frequency, not the case with other modalities. And second, we have a strong base of Opdivo+Yervoy users across tumors. In fact, and when you look in lung cancer, of the highest prescribers in lung cancer, just over half of those physicians have used Opdivo+Yervoy in another tumor, notably melanoma and renal. And if you look at all of the targets in lung cancer, just over 30% have used Opdivo+Yervoy in other tumors. And those physicians account for about 45% of the total opportunity in lung cancer. And those are the very physicians who have made Opdivo+Yervoy a standard of care in those other tumors.

Thanks for taking my question. I guess, on the Part 1a or Part 1, you’ve now had Opdivo+Yervoy show improved survival, at least numerically in both the biomarker positive and biomarker negative population. So, how do you think about the totality of data when you're talking to these physicians and regulators as far as patient populations? And then, secondly, can you talk just generally about the potential for approval in neoadjuvant lung cancer, based on pathological complete response rate?

Matt, thank you for the question for Part 1a and Part 1. Overall, as we said, we have seen a clear benefit, clinically meaningful and statistically significant of Yervoy+Opdivo in the primary end of the study, which is in PD-1 positive. We have also seen good survival benefits in the PD-L1 negative. I think the totality of the data will be seen. We’re not going to comment on our interaction with health authorities. They will be happening in the next days and weeks. But I think we have seen benefits across the board in terms of biomarkers, in terms of the totality of the data. In terms of neoadjuvant, I think major pathological responses in lung cancer have not been actually used historically as an approval endpoint by the USFDA or other health authorities. On the other hand, it’s going to depend on how meaningful the data is. And when we see our data from study 186, we will be able to interact with authorities and see what will be the outcome of that.

And the only thing I would add to that is that, while obviously we’ll have to see how the discussions with regulators proceed, what I would say is, just consistent with what I've mentioned previously, we think A, there is opportunity in first-line lung cancer from an unmet need standpoint and we think that Opdivo+Yervoy has the opportunity to provide an important treatment option in PD-L1 patients across the full spectrum of PD-L1 patients, positive patients.

Hey. Thanks for taking my questions. I just wanted to come back to comments about Opdivo in 2020 and just make sure I understand the moving parts correctly. So, it sounds like, it’s flat or down year, driven by the drag on sales for lung cancer in 2020, presumably with like maybe flattish sales in renal with growth coming from melanoma and some of the other tumors. So, I just wanted to make sure, I sort of had a rough sense of how the moving parts will evolve before you get the lung expansion opportunity in 2021. And then, my second question, can you just elaborate a little bit more on FTC trends as it pertains to defining markets? And really what I'm getting at here is, whether or not your sales process could include companies that have meaningful share in the injectable space of moderate to severe psoriasis? Thanks.

Thanks, Jason. Let me ask Chris to give you some perspective on different dynamics impacting the Opdivo business today and into next year. And then, Charlie can comment on the FTC and where we stand, and what's the process there.

Yes. So, let me just start with, as we think about 2020, obviously performance in ‘19 becomes very relevant. So, where we are today, we continue to see strength in our core business. We continue to lead in virtually every tumor in which we are promoting. And as you think about our core tumors, the large tumors, first-line metastatic melanoma, second-line renal cell, second-line HCC, we continue to see I-O shares at or greater than 50%. And then, we've talked a lot about the two big growth drivers that we have for this year, which are notably first-line renal cell and adjuvant melanoma. And again, there, very happy with the continued performance of the teams. In first-line renal cell in the U.S., we are holding share at around 35%. Obviously, we have seen some impact of I-O plus TKI, mainly in the favorable patients less so in intermediate and poor, which is where we are indicated. And then, outside of the U.S., we’ve seen good uptake in key markets, notably Germany and Japan, where we have access and we expect additional access approvals later in the year. Similar story on the adjuvant melanoma side, U.S. shares still holding around 70%, in spite of competitive entries there, and outside of U.S. is still very early in terms of access. As we think about 2020, while we're very pleased with the results that we presented yesterday for Part 1a, given the competitive dynamics, the timing of data readouts, we do think there will be some pressure on Opdivo in 2020. But the growth picture becomes much clearer as you get into 2021. And exactly what that profile looks like is going to be informed obviously by the opportunities we see with 227. You will continue to see a stabilizing of the dynamics in second-line lung cancer, which is important. Just to remind you, we expect second-line lung in the U.S. to stabilize in terms of I-O eligible patients at the end of this year, a little bit later as you get into ex-U.S. markets. And then, clearly, we will be looking for some key study readouts that will inform that near-term growth picture, notably 9LA in lung cancer. We’ve got first-line GBM, 9ER in first-line renal cell and then first-line studies in head and neck and esophageal. As you get later out, clearly, the adjuvant programs become important.

Yes. Just, Jason, in regard to your question on the FTC. We believe that the divestiture of OTEZLA will satisfy the FTC’s concerns and allow us to close the transaction on a timely basis. We won't have full clarity on who is an acceptable bidder until we present a draft sales agreement to the SEC. But had to had some preliminary perspective from the FTC. So, we feel directionally we have a good understanding. As I mentioned in my comments, based upon what we see today, we believe we will be able to run a robust process that will generate significant bidding interest.

First, I want to touch upon a trial I feel like we haven't had much discussion on, which is your LAG-3 Phase 3 melanoma, which is due perhaps in the next 12 months or so as per ClinicalTrials at least. And my question is, we know it’s fully enrolled. And where is your expectation and how are you thinking about the trial? I also noticed it has a PFS primary endpoint, not an OS. So, I was curious to get your perspective on that. And then, secondly, it was helpful commentary on the market shares in various Opdivo indications. I was curious if you could give a bridge on a dollar basis on progression of sales from 1Q to 2Q for Opdivo U.S. Thank you very much.

Thank you. Why don’t we start with Fouad on the LAG-3 program.

Thank you, Umer, for the question about the melanoma development. LAG-3 is a Phase 2/3 study investigating the addition of LAG-3 to Opdivo, comparing it with Opdivo. As you mentioned, we expect to have the first readout from the Phase 2 part next month, and we will determine if we meet the threshold to progress to the Phase 3 part, as we stated earlier.

And then, let me just comment on Q2 dynamics. So, Q2 dynamics, Opdivo was down slightly about 1% in the U.S. And that’s really a function of a few things. First, we continue to see pressure in second-line lung cancer, due to the decline in the overall opportunity. That's what I referenced previously around the percent of I-O eligible patients. What I will say though is within the pool of I-O eligible patients, we continue to hold a market share for Opdivo of around 40%. We've also seen some competitive impact in tumors outside of any discussion around lung cancer, notably in first-line renal cell, and I referenced those previously. Again, they’re in that market. I’m very proud that the team’s holding share of roughly 30% to 35%. And the impact really of I-O TKI has been confined to favorable patients. And where they have gotten additional uptake outside of those favorable patients, has mainly come at the expense of monotherapy TKI. And then, beyond that, I think we’ve spoken to what the near-term opportunity looks like for Opdivo.

Thanks very much. I just wanted to pivot to ask about the TYK2 development program. Could you just provide an update on key trial progress, and when you expect enrollment to complete, and when you expect to be able to share key results? Thank you.

Sure, David. Good morning. This is Giovanni. So, as you will remember, we have two studies in our Phase 3 program for TYK2, and both studies are progressing rapidly through the enrollment period. And the design of those studies requires a one-year treatment period. And so, we do expect to see data one year after the completion of enrollment, which I expect to be sometime towards the end of next year, in that timeframe.

The only thing I would just add to that is we continue to be very excited about the profile of TYK2 and how it can play an important role in psoriasis. As you may recall, psoriasis is a debilitating disease, has very serious comorbidities, there's a considerable psychosocial cost associated with the disease. And based on what we've seen with TYK2, at least in the early days, we're seeing very good activity approaching biological efficacy with an easier mode of administration. So, we think it has an important role to potentially play in psoriasis. And from a commercial perspective, we're still very excited about the opportunity here.

Orlando, do we have any more questions?

Thank you. Thanks, everyone. In closing, this is an important time for us at Bristol-Myers Squibb. We've had another strong quarter demonstrating our ability to execute on many priorities. We delivered good financial results, driven by strong commercial execution. And going forward, we will continue to advance our pipeline and progress the integration planning with Celgene, including the divestiture of OTEZLA. The data that we announced in first-line lung cancer has really the potential to help us bring a new and an important option to more cancer patients who continue to have important unmet needs. Thanks, everyone, for participating in the call.

Thanks, everybody. Tim and I, as always, are available for follow-ups. I appreciate you joining the call this morning.