Bristol-Myers Squibb Company

Good day and welcome to the Bristol-Myers Squibb 2019 first quarter results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. John Elicker, Senior Vice President, Public Affairs and Investor Relations. Please go ahead, sir.

Thank you, Sandy, and good morning, everybody. And thanks for joining the call to discuss our first quarter earnings. With me this morning is Giovanni Cafforio, our Chairman, Chief Executive Officer Charlie Bancroft, our Chief Financial Officer Chris Berner, our Chief Commercial Officer, and Tom Lynch, our Chief Scientific Officer. Giovanni and Charlie will have prepared remarks, and Chris and Tom are available for Q&A. First, the safe harbor language. During the call, we'll make statements about the company's future plans and prospects that constitute forward-looking statements. Actual results may differ materially from those indicated by these forward-looking statements. as a result of various important factors, including those discussed in our SEC filings. These forward-looking statements represent our estimates as of today and should not be relied upon as representing our estimates as of any future date. We specifically disclaim any obligation to update forward-looking statements, even if our estimates change. Today we'll also focus our comments on our non-GAAP financial measures, which are adjusted to exclude certain specified items, reconciliations of these non-GAAP financial measures, to the most comparable gap measures are available at our website. Giovanni?

Thank you, John, and good morning, everyone. I'm pleased to speak with you today about our strong performance in the first quarter and the progress we have made on our pending acquisition of Cellgene. I am very proud of our team's focus and execution in the quarter to drive our business forward. Let me start with some highlights from the quarter and a brief discussion of our key growth franchises Obdivo and Eliquis. Our results this quarter were driven by strong commercial execution across the portfolio. Obdivo delivered a solid quarter and continues to perform well. As we look into the future, we recognize we are working in a very competitive space. However, we continue to see Obdivo as a growth franchise, given the breadth and depth of our clinical program. Given the rapid uptake of new indications in IO, The growth of Opdivo going forward will be driven by new indications over time. Specifically, I think about our growth opportunities in three areas. First is the opportunity in adjuvant, where we have a robust program beginning to read out in 2020. We've already seen the potential in adjuvant melanoma, where treatment rates have gone from 20% to nearly 80%. The second area of opportunity is in the metastatic setting across a range of tumors, including upcoming readouts in renal and gastric cancers. And importantly, the third area is the near-term readouts in non-small cell lung cancer beginning this summer and into next year with 9LA. Eliquis continues to drive significant growth to strong execution and a best-in-class profile. We are encouraged that the strength of the Eliquis profile continues to be reinforced by numerous new data sets and additional studies. For example, during the quarter, the AUGUSTUS study was presented at ACC and published in the New England Journal of Medicine, demonstrating favorable safety results of Eliquis versus vitamin K antagonists in patients with both atrial fibrillation and ACS, and or PCI. The study offers clarity for a patient population with high unmet medical needs, for which the ideal treatment strategy is not well understood. We are confident that Eliquis will continue to be a strong growth franchise going forward. Charlie will discuss details of operating performance and the P&L in more detail. Turning now to our acquisition of Celgene, our entire team is enthusiastic about the transaction. We are creating a stronger, more diversified company that is poised for growth and value creation. Let me step back and provide my perspective on why this is important. We've been very successful establishing Eliquis and Obdivo as growth drivers for the company. We're conscious of the fact that in our industry, science is always evolving. Product development cycles are long, and these products will eventually face loss of exclusivity. Eloquence in 2026 and Opdivo beginning in 2028. By combining with Celgene, we've taken the right actions to ensure that we continue to have a robust pipeline for future growth. The combined company positions us well to do this from day one. We will have nine marketed products, each with over $1 billion in annual sales. six product launch opportunities, and over 50 phase one and phase two clinical programs. With a broader and deeper pipeline, we will have more registrational opportunities across our key therapeutic areas. And importantly, the acquisition of Celgene provides us with a more diversified portfolio of marketed products that has a more balanced payer mix. expanded treatment modalities and earlier life cycle. We believe this breadth will be important as we navigate an evolving and an increasingly complex reimbursement environment. Our confidence in the transaction was enhanced by the milestones achieved by Celgene this quarter. First, the FDA accepted Celgene's NDA for Fedratinib and granted priority review. In addition, Ozanimod and Luspatercept were both submitted to the FDA for review. We also saw three important developments regarding Revlimid IP. The U.S. Patent Office's dismissal of two key patent challenges combined with the Celgene settlement with Alvogen have provided further clarity and security around the patent estate for Revlimid. These milestones are consistent with our due diligence and support our conviction in the transaction. Now, let me touch briefly on our long-term outlook post-acquisition. This transaction allows us to stay ahead of the curve and strengthens our future position. The combined company is expected to have sales and earnings growth every year through 2025, despite the erosion of red limits. This growth will be fueled by Bristol-Myers Squibb's strong foundation of products, Celgene's current product portfolio, our lifecycle management programs, and our six potential launch opportunities. Looking to the second half of the next decade, our marketed portfolio has the potential to be earlier in its lifecycle and more diverse within our areas of focus. Our early pipeline will have matured, giving us the next set of registration opportunities. We expect to have a strong balance sheet with continued flexibility to invest in innovation, valuable and expanded technology capabilities and complementary platforms such as cell therapy and protein homeostasis. We are working on securing the required regulatory approvals for the transaction and we remain on track to close in the third quarter of 2019. I fully recognize the importance and work required for a successful integration. We are putting the right resources in place to plan and manage this process, including Charlie's appointment as the executive lead for integration. And we are building in accountability for success with senior management compensation metrics adjusted to reflect the importance of this outcome. One of our guiding principles is to manage this integration with minimal disruption to our ongoing business and future value drivers. We have a head start in this because of the complementarity of our businesses. I am confident that we are appropriately planning for the integration, and Charlie will provide more details. To conclude my remarks, I'd like to reiterate I am pleased with our strong performance this quarter. and excited about our opportunity to create a leading biopharma company. We are at the beginning of an exciting new chapter for Bristol-Myers Squibb, as we work to create significant value for our patients and shareholders. And with that, I'll hand it over to Charlie.

Thanks, Giovanni. Good morning, everyone. As Giovanni said, this was another strong quarter for the company, highlighted by continued growth across our portfolio of prioritized brands. Let's start with Apivo. During the quarter, we saw good growth, up 19% compared to last year. Let me take a few minutes to discuss what we're seeing in the business today and the dynamics in play going forward. Firstly, with respect to lung cancer, with our commercial team continuing to execute well, Avivo remains the leading IO agent in second-line lung in the U.S. Within this segment, as we've been describing, the size of the IO-eligible population is declining, and continues to erode in line with our expectations. Internationally, we also see Opdivo commanding leading share in second-line lung, and though the size of the opportunity will also decline, we expect this to be slower due to first-line PD-1 adoption being gated by reimbursement approvals. And looking forward within lung, we have several important data readouts coming in first line with Checkmate 227 Part 1A and Part 2 this summer and Checkmate 9LA expected next year. Secondly, in first-line renal cell, we continue to see our U.S. business doing well, with share increasing above 40% during the quarter. Internationally, we are in launch mode as we continue to secure reimbursement, and we've seen encouraging early signs from markets with access already in place, such as Germany and Japan. And as we plan for new competition from TKI combinations, we're also looking forward to seeing data for the Opdivo-Cabo combination from Checkmate 9ER, likely early next year. Thirdly, we continue to be positioned very well in melanoma. In a metastatic setting, Opdivo alone or in combination with Urovoi is the leading treatment globally with more than 50% share in the U.S. and Germany. And with respect to adjuvant melanoma, we also continue to deliver very strong performance. In the US, we maintain greater than 70% share despite recent competition in this segment. And similar to first-line renal, we are encouraged by initial adoption in early reimbursement markets outside the US. In summary, we continue to drive strong commercial execution with leading shares and key indications. We also recognize that the dynamics in first-line renal and second-line lung will continue to play out. However, as Giovanni has mentioned, we continue to see Opdivo as a growth brand in 2019, and based on the breadth of potential registrational readouts that we expect across lung, other tumors, and especially in the adjuvant setting, we continue to view Opdivo as a growth brand longer term. Moving now to Eliquis, which continues to deliver exceptional commercial performance. In the US, Eliquis delivered demand growth of 30% versus prior year from a total Scripps perspective and exited the quarter with leading share of almost 40% of total prescriptions for oral anticoagulants used to treat AF and VTE. Compared to Q4, Eliquis also benefited from a lower coverage gap liability since we accrue this as patients enter the donut hole. With fewer patients affected early in the year, the liability increases as the year progresses. This will be an important factor for reported sales later in 2019 since the coverage gap liability increased from 50% to 70% this year. For reference, the coverage gap impact for Eloquus for full year 2018 was roughly $550 million. Eloquus is now the number one OAC, not just in the U.S., but also in many countries around the world, including Germany, Canada, and Australia. As our best-in-class clinical profile continues to be supported by real-world data, we see scope for further expansion of the NOAC class at the expense of warfarin, with Eliquis taking a disproportionate share of the conversion. And in the longer term, we see opportunities to continue to expand the use of Eliquis more broadly by serving those patients that are either not well-controlled on warfarin, are untreated, or are undiagnosed. Therefore, looking forward, we continue to see a very strong growth opportunity ahead for Eloquus. Let me now turn to a few items in our non-GAAP P&L, starting with gross margin. MIPS continues to be a key driver of our margin, and during the quarter, we saw unfavorability primarily due to the strong growth of Eloquus. Additionally, we saw a higher level of the Puerto Rico excise tax during the quarter that negatively impacted our gross margin, and drove favorability in our tax rate due to the associated U.S. tax credit. You'll note that our line item guidance for the full year for both gross margin and tax rate have been adjusted accordingly. Turning to OPEX, during the quarter, R&D expenses were increased due to investment behind the portfolio, and SG&A was impacted by several one-time items, such as a true-up for the pharma fee. With no change to our expected OPEX for the full year, we project more evenly phased OPEX in 2019 than in other years. As I've described in the past, our other income and expense this year will be affected by changes in diabetes royalties, increased PD-1 royalties, as well as reductions in pension income and the expiry of the Erbitux royalty. I'll now turn to some topics related to the cell gene acquisition that have been of interest in many of our recent discussions. starting with cash flow, balance sheet, and capital allocation. We view the combined company as having potential for substantial cash generation with more than 45 billion of free cash flow projected in the first three years. Our priorities for capital deployment moving forward include rapidly paying down debt over the next few years, improving our credit metrics, and we expect to continue to increase our dividend. Regarding business development, In the near term, we will plan to continue to look for smaller and earlier deals. Once our balance sheet is reset, we will have the capacity for additional BD. And with respect to share repurchases, as we've already announced, we plan to execute an ASR of approximately $5 billion upon closing the acquisition. Turning to integration, as Giovanni has outlined, we are very focused on successfully integrating Celgene and protecting the value drivers of the combined company. Integration leads for each company were identified soon after the deal announcement, and teams are already working on integration planning. Because we are combining two mid-sized companies, each with a lean employee base, limited manufacturing networks, and largely overlapping geographies, our plans can be more immediately focused on protecting and integrating core business functions than other large acquisitions in the past. With the complementary nature of our businesses, we believe we can ring-fence key teams and functions to minimize distractions. For example, with our critical mass in oncology being in solid tumors and cell genes being in hematology, we expect to maintain focus and minimize disruption for the research and commercial functions in each company. Additionally, we've announced that we plan to maintain a presence in three strategic cell gene U.S. geographies. Summit, New Jersey, which includes important scientific, commercial, and cell therapy manufacturing capabilities. San Diego, California, as a research and development hub, including protein homeostasis. And the greater Seattle, Washington area as a scientific hub, including cell therapy development, manufacturing, and commercialization. Accordingly, though there is a lot of work ahead to integrate the two companies, we believe that we are off to a very good start. Turning finally to the pro forma non-GAAP P&L. As Giovanni discussed, we believe that growth of the inline and pipeline products of the combined company will offset the expected decline of Revlimid beginning in 2022 and drive continued annual growth through 2025. From a cost perspective, we will include stock-based compensation expense in our non-GAAP earnings, and with respect to synergies, we expect to realize 40% by the end of 2020 and 100% by the end of 2022. We expect that the growth in revenue and continued cost discipline, including synergies, will drive future margin expansion and annual growth in net income through 2025. To conclude, we've delivered a strong quarter with continued robust commercial execution. Looking forward, we are focused on delivering our own business and successfully integrating Celgene. Post-close, we believe we are poised to be an even stronger company with a significant growth outlook. Now, I'll turn it back to John to start the Q&A. Thanks, Charlie.

And Sandy, I think we're ready to go to questions.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach your equipment. Again, press star 1 to ask a question.

We take the first question from Jeff Meacham at Barclays.

Thanks so much for the question. Charlie, just on the integration, which you just mentioned, there's a lot to work on. There's a cadence of cost synergies from a facility perspective, but I also wanted to ask you just about the investments and the launches, Liz Pattersept and Coming from the Celgene side and then perhaps TIK2, maybe just give us some comfort in the level of investments that you need to make as an offset to the synergy. And then I wanted to also kind of dig into a little bit of the first-line long commentary with respect to – what you guys view as maybe a reimbursement, maybe a shift in reimbursement, or the comments I think that you guys made were that you're not seeing as much of a rollout due to first-line reimbursement access hurdles. Maybe just give us a little bit more color on that and what it means to second-line Abdevo adoption. Thank you.

Yeah, so Jeff, maybe I can start just on your comment regarding synergy and value protection. You know, as I mentioned in my comments, we're very focused on making sure that we ring, fence, and protect the value drivers of both companies, VMS and Celgene. And we're very focused on the upcoming potential launches of both brands. And we've done, I think, a really good job of focusing on where we can drive value and not distract the organization from those launches. But from an investment standpoint, I don't think you would see much different anything than what Celgene would have done on a standalone basis.

So this is Chris and Jeff. I'll try to take the second part of your question regarding the first line dynamics and the implications on second line. So as expected, we continue to see the launch of IO agents in the first line setting continuing to have an impact on the size of the IO eligible pool in the second line. In the U.S., as we expected, that's been a bit of a quicker decline in the second line than what you will have seen outside of the U.S. So for example, in the U.S., The use of IO therapies in first line is about 57% today. We see that having an impact on the size of the eligible pool in second line, continuing pretty much in line with what our expectations have been. About a third of patients in second line today are chemo-experienced patients and thus would be eligible for IO therapy. And again, that's in line with the U.S. expectations. Outside of the U.S., because of the timing of first line approvals for IO agents, and importantly, how quickly those IO agents then get access and reimbursement and thus drive utilization. That's going to be a bit slower, and we've seen that translate into a continued fairly large pool of second-line patients who are eligible for IO therapy outside of the U.S.

Andy, can we go to the next question, please?

The next question comes from Squish Shot at J.P. Morgan.

Great, thanks very much. Just a couple Opdevo questions here. Maybe the first question is just on the RCC market and a bit more color about how you're thinking about the competitive landscape shaping up here as we consider Opdevo-Urvoy versus the PD-1 TKI combinations. And the second part of that RCC question is, on 9ER, did the timelines push out there? And are there any interims that we should be thinking about that could allow for an earlier stoppage Final question was up, Devo was just, Giovanni, maybe come back to some of those initial growth comments. At this point, is adjuvant the larger of the opportunities relative to the remaining metastatic readouts? And in those adjuvants, what are the ones you're most focused on or excited about? Thanks very much. Chris, why don't you start?

So let me start, Chris. So we continue to see a very strong business in first-line renal cell, both in the U.S. and while it's still early days, the early feedback XUS has been very good. In the U.S., we grew Obdivo Eurovoy share in the first quarter to just over 40%. That's mainly as a result of growth in the PDL-1 negatives. As I mentioned, it's early days outside of the U.S., but the feedback from early launch markets like Germany and France has been very good. We've actually obtained access in the UK, Australia, and Canada. And we expect other key European markets to come on later this year. And interestingly, we've seen very rapid uptake in Japan where shares over 30%. With respect to competition, look, we've been preparing for the launch of IOTKI since last year. As we've said repeatedly, we believe that the IOTKI combination is going to have an important role. There's certainly interest in this combination in the first-line setting, and that's why we have our 9ER study. And undoubtedly, that will put some pressure on Abdevo plus Urovoi. However, we also believe, and what we are hearing from customers, is that Abdevo plus Urovoi is going to continue to be a standard of care in the first-line setting in renal cell as a result of the depth of responses that we see, the durability of those responses, and importantly, the quality of life and safety profile that we've seen with Abdevo plus low-dose Urovoi. The other thing that we're hearing as more of the data about Keytruda and Nleida has come out from customers is that we really do need to unpack this data. We're talking about very different populations, so you can't really compare directly about a third of the patients in the Keytruda and Nleida study were favorable patients. If you compare that to the extent of the extended follow-up that we've seen with Checkmate 214, Avdevo plus Urovoi has about twice the number of the percentage of complete responses relative to Keytruda plus Enlida. And those responses are very durable. About 88% of the patients getting a CR in Checkmate 214 continue to benefit. And we simply don't know the durability of the data yet for Keytruda plus Enlida. So from a commercial standpoint, our focus very much is continuing to emphasize the value and long-term benefit of Updiva plus Yorvoi to appropriately put the data in this space in context. And I have complete confidence in our team's ability to continue to compete in that space.

And, Chris, thank you. And, you know, Chris, to address your two questions, one on 9ER and then one on adjuvant. So with 9ER, a couple things about this study. This is our randomized trial looking at CABO plus NEVO versus SUTENT in this setting. And we expect that data to read out in early 2020. The reasons for the slight push out of the timelines are are the fact that we felt it was important to accrue patients in Asia, and we had some Japan accrual. We've actually increased the accrual in that study from about 500 to about 700. This gives us a little bit more optionality in terms of looking at overall survival as a potential secondary endpoint. But remember, PFS remains the primary endpoint of that study. So we look forward to seeing that data in the early part of 2020. I think you pointed out a really important point with adjuvant, and I think One of the points that we have made consistently is the fact that we believe that the opportunity for IO and adjuvant is extremely important. When you think in cancer in general, you think that while many drugs have made impact in metastatic disease, real breakthroughs occur when you can prevent disease from coming back. And I think that's true with Herceptin. I think that's true with adjuvant chemotherapy. And I think it's clearly demonstrated in the melanoma space with Opdivo in that setting. So, as you know, we have nine adjuvant trials that we'll be reading out over the next three years in six important tumor types, melanoma, bladder, esophageal, renal, hepatoma, and a neoadjuvant study in lung. You know, I'm always hesitant to say which trials are you most excited about. I will say a couple things about one or two of them. The first is, you know, in melanoma, we've seen that Opdivo and Yervoy has improved outcome compared to Opdivo alone. And so I personally am interested in seeing, does this translate into a difference in the adjuvant setting? So the melanoma trial, which we believe we'll read out in 2020, I think will be important to look at in that setting. I think the second place, obviously, is in renal cell. Opdivo-Yervoy has made a big difference in renal cell carcinoma. There really is no proven adjuvant therapy in renal cell carcinoma. This remains an important unmet medical need. Looking forward to see that. The final one I'll call out will be bladder, non-muscle invasive, muscle invasive bladder cancer. Again, an important area of unmet medical need, an area where I think IO is going to make a difference.

Thanks, Chris. Sandy, can we go to the next question, please?

The next question comes from Alex Arfay at BMO Capital Markets.

Great. Thank you. And congratulations for winning your shareholder support for the merger. A couple, the first one on the IO franchise and specifically Checkmate 227 Part 2. Can you give us your latest thinking there, please? Frankly, you've sounded somewhat cautious about this trial, which is puzzling for investors given the amount of information you have both from your trials and your competitors. Is there any reason we should temper our expectations for this trial, such as higher expected crossover or any other variable? Next on the merger, Celgene had provided their expectations for their Big Five assets by product. You have provided your estimates for an aggregate of six products, including your TIC-2. Could you please comment on whether you agree with Celgene's expectations for their Big Five assets as they have laid them out by product? And if I could just speak one more end, could you give us the latest estimated sales of Opdivo by indication? Thank you.

Thank you, Alex. This is Giovanni. So let me just answer the first two questions, and then I'll ask Chris to give you an update on Opdivo sales by indication. So with respect to 227 readouts, as we mentioned in our remarks, we expect 1A and 2 in the summer. There is really no update there and no news there from our perspective. Obviously, as you said, they're important data readouts, and we look forward to seeing that data. With respect to the Celgene 5 launches, as we've communicated extensively in the last few months, we provided an estimate of what we believe the peak sales for the six launches are in aggregate. Obviously, as you know, we've included risk-adjusted assumptions in our financials, but we wanted to provide that incremental disclosure as we were really discussing the value of the pipeline as it relates to future guidance we may provide for the combined company or individual assets. We'll talk about that after we close the transactions.

Let me just hit on the allocation of business. In the U.S., lung's about 25%. Melanoma is about 30%. Renal is just over 20%, and all other indications are about 20% as well. The only comment I'd make outside of the U.S. is lung's about 45%, and that just reflects the dynamics of lung being a bigger percentage in second line, just given the timing of indications. Thanks, Alex. Sandy, can we go to the next question, please?

The next question comes from Tim Anderson at Wolf Research.

Thank you. A couple of questions. The first one is kind of a higher level. So your stock has been in free fall for the last few weeks at least. In your opinion, and based on your conversations with investors and analysts, why do you think this is happening? What are the biggest areas of concern that you hear about that you think are misplaced? That's the first question. Second question is part one of 227. It actually has a monotherapy Opdivo arm tucked within it that tends to get overlooked. It's fairly large, several hundred patients. I think it's around 400. It's not registrational, but it seems like it could still be a chance for the product to redeem itself in frontline lung as monotherapy following the spectacular failure of 026 back in August. So I'm guessing you'd say the odds are fairly high that we see good competitive results from this often forgotten about arm in recognizing it's not registrational. Can you comment?

Yeah, Tim, let me address your first question, and I'll ask Tom to give you his perspective on the second one. So with respect to interaction with shareholders, obviously, as you can imagine, we are continuing to interact with all of our shareholders. we are strong believers in the value of the company that we are creating and the opportunity to deliver significant value for shareholders in the long term. So our focus right now is really on making sure that the integration is successful and that we deliver the full value of the combination. I think that's where we can make a big difference as a team, and that's where our focus is right now. And as we've discussed in the remarks, I think we're making great progress already.

And, Tim, thank you for your question on lung cancer. I just want to sort of put in perspective the totality of what we're doing in lung cancer. And we've said all along that we have multiple different approaches to non-small cell lung cancer. And you'll be seeing the results this summer of 227 Part 1, which will be coming out, Part 1A, which we'll be reading out, in terms of overall survival in a group of patients selected by PD-L1 status. And I think that data is going to be important for several reasons. You're correct in saying that it will give us a look at the monotherapy arm, but it will also be able to allow us to understand better the overall data from TMB as well, to get a sense of the interaction and the interplay of the biomarkers in trying to understand what's driving response in IO, because I still think this remains a very important question. Also this summer, we expect to see the results of Part 2, which is our chemo combo, And then I want to also draw your attention to 9LA, which we'll be reading out in 2020. Again, two cycles of upfront chemotherapy followed by Opdivo-Uravoid, which we think has the potential to establish a durability of response that we're looking for in that setting. So I think a number of very important readouts in lung cancer, and you're absolutely right to point out that it will be interesting to see how the monotherapy performs in that setting. We look forward to seeing all of this data.

The only other thing that I would comment is that the use of monotherapy right now in the first-line setting tends to be dominated in the greater than 50% PD-L1 expression that's almost entirely catered to monotherapy, and the vast majority of the business outside of that setting has begun to evolve to a chemo combo. Thanks, Tim. Sandy, can we go to the next question, please?

The next question comes from Seamus Ferdinand at Guggenheim.

Oh, great. Thanks for the question. So, just a couple here. Tom, you mentioned that the 9ER study, the primary endpoint is progression-free survival, but the study has been pushed out to 2020 because of recruiting in some Asian markets. I'm just trying to kind of triangulate that and understand that better. It would seem like PFS would likely have the study finished sooner. you know, or at least at or around the same time. So I'm just trying to get an understanding of did you guys alter the statistical analysis plan at all to ensure that you have overall survival as kind of a part of a stopping rule? I'm just trying to get a better understanding of why the study would get pushed out if PFS is the primary endpoint, as most of us understood it, And then you're adding the Asian patients in an event-driven study. And then the second question, can you just maybe update us on your thoughts on what we might learn about the competitive landscape and how Bristol is positioned at ASCO this year? Obviously, we have the approval of Merck's label heading into ASCO. I'm just trying to get a better sense of, you know, the areas of focus that you're going to be bringing in your discussions with physicians from the data that you present there. Thanks.

Seamus, thank you. So let me just reiterate on 9ER, and there's been no change to the statistical plan, and it's not a dramatic push-out of the readout date. It's just a slight push-out of the date. One, we increased the sample size significantly. to give us more optionality around a key secondary endpoint, which is overall survival in this setting, and we think that that's going to be important. And the second is, you know, it's important for our study to have global impact and global reach, and we felt it was important to accrue a sufficient number of patients in Japan to be able to address the needs of the Japanese market as well. So there's been no change in the statistical plan, and we do believe that we will be well-positioned to answer the important questions that help us determine the role of Opdevo and Cabo in that setting. Now, regarding ASCO this year, as we've said a couple times on this call, a number of our important readouts are actually happening this summer and won't really be available in time for ASCO, such as part one and part two. We hope that many of those will be available, including potentially even an update of our head and neck data at ESMO this year. I think we're very proud of some of the data we presented at ASCO-GU this year, which showed that Abdevo Yervoy had activity in patients with homo-infractory prostate cancer, particularly in a group of patients that had high TMB. Again, I think this is a good example of the productivity of our translational medicine group, the fact that we're able to look at a group of patients with TMB defined by a different cutoff, actually, than the TMB that was used for lung cancer, and find a really important group of patients who benefited from Opdivo-Uravoi in that setting, and that was at ASCO-GU. Also at ACR, we reported data this year on some of the long-term benefit that we're seeing in patients with previously treated lung cancer. If you're PD-L1 positive, a 19% four-year survival in second-line lung cancer, which is truly remarkable in that setting. So there'll be a lot of important data readouts, and I think ESMO will be a good place to see some of the larger studies, again, depending upon timing of data. Thanks, Seamus. Sandy, can we go to the next question, please?

The next question comes from Matt Phipps at William Blair.

Hi, thanks for taking my question. So, on Opdivo, it looks like this is the second quarter in a row with a slight quarter-over-quarter decrease in U.S. sales. I guess not to be unexpected with the second-line lung dynamics, but given the Keith Trudeau approval and first-line RCC ahead of schedule, Do you think that slight decrease in U.S. sales will continue, or is there a chance for acceleration in the second half of the year? And then secondly, you mentioned 40% market share right now in first-line RCC, I believe. Is that in the per-label patient population of intermediate poor risk, or is that across all first-line patients?

Thanks for the question. So let me just address Abdevo growth. First, if you just put the Abdevo story for the quarter in context, it was a very good quarter. We saw strength really across all of our tumors outside of lung cancer. In fact, we estimate that sales in all tumors outside of non-small cell lung cancer grew quarter over quarter. And that's really a function of the base business continuing to be strong. We still have leading shares in all of our promoted tumors. And as I mentioned, we're seeing growth as expected in first-line renal cell as well as adjuvant melanoma. So overall, you continue to see very good strength across the majority of our businesses. The headwinds that we saw in the first quarter really were very much focused on lung cancer. As expected, we continued to see pressure in the second line setting due to the decrease in the eligible pool of patients I referenced previously. That's very much in line with expectations, but does impact quarter-over-quarter growth. The second thing that we saw this quarter was we saw a decrease in Obdivo monotherapy non-promoted sales in the first line setting. That had been running about 4% to 5% in the latter half of 2018. We saw that come down in the first quarter to about 1%. And I would expect it's going to stay in that range for the remainder of the year. And as we flash forward to the remainder of the year, I think that first and foremost, we continue to see Avdevo growing globally year over year. But I think the dynamics that you saw in the first quarter are likely going to continue as we move forward through the remainder of the year. Just addressing the question in renal cell, the 40% share, the vast majority of that is in the intermediate and poor population that is consistent with our label. We do see about 5% share in the favorable risk population, but that's relatively small in the grand scheme of things. Thanks, Matt. Sandy, can we go to the next question, please?

The next question comes from Vamil Divan at Credit Suisse.

Hi, great. Thanks so much for taking my question. So one just around sort of dynamics around drug pricing reform. And I have a specific question related to this concept of international reference pricing for Part B. I think when that was first proposed, I don't think investors and maybe analysts, we didn't give too much credit to that actually becoming reality. But it feels like in our conversation that there's maybe a growing sense of that may actually become reality. So I'm just wondering if you can share your expectations on some degree of international reference pricing being implemented for Part B and how that might impact and your voice specifically, and just, I guess, Bristol overall. And then my second question is just on the following up on the Part 1a and Part 2 comments you guys made. I know you can't control the timing of these event-driven trials, but given that the data is coming a little bit later than expected, does that in any ways raise the bar in terms of what you need to show, given the uptake Merck's already seeing with Keytruda monotherapy and combination therapies in frontline non-small cells? So just wondering if you have to show even stronger data to displace it at that point.

Yeah, thanks, Manuel. This is Giovanni. Let me just start with your question about pricing. So first of all, let me say, as I've said many times, I think that from my perspective, we are entering a period in which we have to expect that the discussion about pricing and reimbursement will continue. I personally feel that it will be an evolution over time, and I do believe that the pressure to demonstrate value and the focus of payers on pricing and access will continue in the U.S. And in fact, as you may remember, I really believe that one of the important things for us to be doing is to continue to accelerate strengthening and broadening the pipeline, adding more growth drivers for the company, diversifying the portfolio with a larger number of assets, and having a presence as a company that spans across multiple payer segments. I think these are all things that in an increasingly competitive market from a payer perspective, which is what we should be expecting, will position BMS much better as a broader innovation company after the transaction with Celgene is completed. Now, with respect to the IPI, international referencing, As you know, we don't think that's a really good idea and we are really not supportive of that proposal because I think when you look at what is happening in many of the countries that are included in that reference basket is that patients are not having access to new therapies. When you look at the approval of Obdivo and Yervoy in metastatic melanoma. That's a transformational regimen. It's a standard of care in the U.S. It was approved in Europe in 2016, if I remember correctly. And I think in almost half of the markets included in the basket, it's not been reimbursed yet. I think the same is true for the adjuvant melanoma indication approved last year. There are many of the markets that are included in the reference basket where that's not reimbursed yet. And almost half of the oncology products approved in the last few years are not reimbursed in those markets. So we are proponents of policies that enable stakeholders to continue to work together to address the issues of out-of-pocket exposure for patients and affordability and access, but in a way that continues to reinforce and reward innovation, and clearly that's not what the proposal does. It's difficult for me to handicap the probability that a radical proposal like IPI has in truly moving forward. What I can tell you is that as an industry, we are in discussions with the administration, and we are supportive of policies that achieve some of the goals of out-of-pocket exposures for patients, but in a way that rewards innovation.

Let me just quickly comment on the first-line opportunity. Undoubtedly, the timing of Merck entering first-line vis-a-vis data readout from us is an important consideration. It does frame the competitive context into which we would be launching. What I would say, though, is that Frontline lung cancer is a very large opportunity. There's still room to play. As I mentioned earlier, only about just over half of the frontline opportunity is currently being addressed through IO therapy. I don't think we think about this in terms of needing to hit a particular hazard ratio. Physicians are still looking for multiple options to treat patients in this space. They're looking for chemo-sparing options, which is obviously relevant potentially to Part 1A. And what I would say is that from a competitive standpoint, we know this space well, and we know how to compete, and we're looking forward to seeing these data readout. Great. Thanks, Vamo. Can we go to the next question, please, Sandy?

The next question comes from Steve Scala at Cohen.

Thank you. It was said a couple times that the Checkmate 227 readouts are due this summer. Previously, the Opdivo plus Yurovoi OS data was expected in the second quarter. and that was a push out from prior expectations which at one point were late 2018. There appears to be obviously ongoing delays. Can you provide a range of possible reasons for the delays which are now approaching over a year? There could be good reasons of course, so maybe you can paint both sides. And then secondly, not all KOLs are fans of the Keynote 426 data in first line renal. Dr. Lynch, I'm wondering, if you can point out some of the lingering uncertainties and questions on the data beyond what Chris already identified, or in your eyes, is Keynote 426 a clear win? Thank you.

Steve, thank you. First on the first point regarding the lung readouts, just a couple of things. One is these are event-driven studies, and they're large trials. And the events happen when the events happen. And I think it's really important not to read too much into event rates, because event rates can slow down because things are going really well, or they can slow down just because of the way people were accrued to the different arms. So I don't read anything into the event rates. And I think the event rates are what they are. We'll see the data this summertime in that respect. I think the thing about renal cell carcinoma that I want to say, again, that I think is really important is that What you're looking at when you're comparing or looking at a regimen like Opdivo and Yervoy is you're looking at a regimen that's provided that we have excellent follow-up on now, and we have a sense of what the duration of response and duration of benefit is. And that's something that's still a bit unknown with the TKI combination with Keytrude in that setting. And, again, it may be fine, but it's unknown at this point. So you're comparing a known, very strong duration of benefit with with one that we'll have to see how that data evolves. But although, as we've pointed out, we still also believe that the TKI plus PD-1 could be important. That's obviously why we have studied 9ER. Thanks, Steve.

Sandy, can we go to the next question, please?

The next question comes from Jason Dravery at Bank of America, Merrill Lynch.

Hey, thanks so much for taking my question. I guess just wanted to follow up on the comment about Opdivo remaining standard of care in renal. Is your thought that this would remain the dominant treatment option in poor to intermediate, or do you think that it's more of a shared market between IO TKI and IO IO? And then as we think about the evolving second-line market in renal, do you think that the field will evolve to either IO-IO followed by IO-TKI or vice versa, you know, given the lack of proven second-line options behind an IO therapy. Thanks.

Yeah, both very good questions, and I think that to a certain extent the answer is going to be these dynamics are going to have to play out in the marketplace over the coming months. What I would say with respect to Avdevo plus Urovoid continuing to be a standard of care in the frontline setting is I very much think that it will be one of multiple modalities that are an option for first-line patients. I would suspect that the initial use of IO plus TKI will likely be in the favorable patients where we are not indicated. But I think you're going to likely see physicians make choices about which option is best for their patients. That then in turn will impact the second line dynamics. You're correct in pointing out that you might continue to see the increasing use of combination therapy in the second line space. We've begun to see an uptake in the use of Opdivo plus Urovoi, for example, in second-line renal cells, about 20% now in the second-line setting. And so I think you're going to continue to see physicians start to think through if they used Opdivo plus Urovoi in first line, thinking about a combination with TKI in second line and potentially vice versa. Those dynamics are going to play out in the coming months, and we'll obviously need to stay connected on those as the data continue to evolve. Thanks, Jason. Can we go to the next question, please, Sandy?

The next question comes from David Jacob at UBS.

Hi. Thanks for taking the question. Maybe one for Charlie. Charlie, can you remind us about your dividend policy post the deal closed? How do you think about the dividend from the perspective of a payout ratio? Will you be maintaining the ratio? that you had for Bristol standalone, which I think was roughly 50%, maybe a little bit above that for 2018. Is that how we think about it over the next few years? And then a commercial question, if I may, for an upcoming trial that you have, Checkmate 459, first-line HCC trial, which is interesting. How do we think about the size of HCC? Is that mostly an ex-US trial? market, U.S. market, and are we talking about a $1 to $2 billion opportunity or $3 to $5? Any kind of call would be appreciated.

Hey, Nathan, this is Charlie, so thanks for your question. On the dividend, as we discussed, we said that we will continue to increase the dividend. We haven't said a specific payout ratio, as we haven't said with Crystal. Our payout ratio at one point was over 90%. And as we continued to grow our earnings, we were more in line, I would say, with our peers. So I think on a go-forward basis, it will be the nature of the business. Where is our business at that moment in time? How are we doing against a number of fundamental factors? So like we have in the past, we give our dividend policy once a year for the next immediate year.

Yeah, and with respect to HCC, HCC is obviously a particularly attractive market. We see considerable use of Avdevo today in the second line space with about 53% share. We also have good use in the third line setting with upwards of 45% share. In terms of the opportunity, I think we're going to have to wait and see how the data pan out. And once we get that data, we'll be able to provide a bit more clarity. But it's an attractive opportunity, and we've seen IO be very effective in this space. Thanks, Naveen, for the questions. Sandy, can we go to the next one, please? I think we have time for two more.

The next question comes from Uma Rafat at Evercore.

Hi. Thanks so much for taking our questions. First, we saw the Celgene settlement with Dr. Reddy's for the Canadian territory, not for the U.S. My question was, do you know if Reddy filed an amorphous form of revelment in Canada? That was the first. And the second is, on the TIK2 program, I feel like street focus will inevitably shift to this next key trial coming up, the lupus trial next year. And I've noticed there's a very specific forced steroid taper being implemented in that trial. Can you give us a little more details on exactly how that taper works on steroid? I'm just trying to understand how to think about the placebo arm in that trial. Thank you.

Let me speak first about, you know, Revlimid. You know, they're different patent regimes in Canada and the U.S., so you can't really read across from one jurisdiction to the other. I don't know offhand, quite frankly, if Dr. Reddy's had filed the amorphous claim or not, so we'll have to get back to you on that.

And, Uma, regarding TIK2, I think you pointed out this is a compound that we're extremely excited about. As you know, It's a drug which looks like it has activity both through the type 1 interferons as well as the IL-1223 pathways. We were delighted to see the data that we saw in psoriasis, and we look forward to seeing those phase 3 trials continue to mature. We also think this is an agent that could have benefit in inflammatory bowel disease, and we're beginning studies in inflammatory bowel disease in that setting. We do have a phase 2 study in lupus which is appearing. I think one thing to keep in mind with lupus, is how challenging of a disease lupus has been. And I think we saw that this year with some notable shortcomings in other trials. It's a very difficult disease to treat. It's also a very heterogeneous disease in terms of what defines the disease and what drives the disease. And so the purpose of the steroid taper is to be able to have a more objective look at the potential for the benefit of TIK2 versus the potential for the benefit of the steroid interaction. So it's really trying to reduce the number of variables that are present in an inherently variable disease.

Thanks, Umar. Sandy, can we go to our last question, please?

The last question comes from David Riesinger and Morgan Stanley.

Great. Thanks very much.

I have two questions for Tom, please. First, could you just talk a little bit about the similarities and differences between Part 2 of 227 and 189 and talk about your placebo expectations? And then second, with respect to adjuvant trial readouts, could you just go through a little bit more specifics on the potential for the timing of some of the other trials that you highlighted as most important. Thanks very much.

David, thank you. And a couple things to start off with part two. So part two is, I guess the biggest difference is the histology. Part two is an all-comers histology. 189 is a histology that's driven by non-squamous cell. You know, the The interesting issue on the placebo arms, we have noted for some time that the performance of the placebo arm in 189 was particularly poor, which I think led to a very extremely positive hazard ratio in that setting. I don't know how our placebo arm will perform in Part 2. Obviously, we look forward to seeing what that is and to seeing what benefit we can provide to patients in that setting. I do think it causes some caution then in looking at hazard ratios as a way of comparing across trials. One of the things I always like to think about when I think about what makes a trial effective or what makes a treatment effective is really to look at landmark analysis, how many of the people you treated, and this is really the way the doctors think, how many of the patients you treated have not progressed a year later or are still alive three and four years later. That's much more relevant now. Patients never ask doctors what a hazard ratio is or what the hazard ratio will be with this given treatment, so I think that's something important to keep in mind when we look at the data from Part 2, and again, when we look at the data from 9LA. Regarding the timing of readouts, I can give you some estimates at this point. Remember, we're pretty far away. These are event-driven, so I think you have to be a little bit cautious about putting too much into the specific timeline. I mentioned the melanoma trial earlier that I was very excited about. We think that's gonna read out second half of 2020. But remember, that's a 2,000 person trial. So the readout could be quicker, it could be later. Again, event-driven trials. And in the adjuvant setting, the events obviously take longer to develop. In our muscle invasive bladder cancer, that's also second half of 2020. In our renal cell trial that I mentioned, that's the second half of 2022. at that point and I mentioned in hepatoma we have a 500-person randomized adjuvant trial which reads out in the first half of 2022. So that gives you the scale of what we're thinking about in terms of when these read out. But again, I ask you to exercise caution because of the size of the trials and because of the variability in readouts in those settings.

Thank you. Thank you, Tom. Thanks, everyone. In closing, This is a remarkable time for us at Bristol-Myers Squibb. We've had a strong quarter, and importantly, we've made progress with respect to the acquisition of Celgene. We've maintained a strong focus on executing our strategy and driving the business forward, and I'm really confident in the company we are building and the opportunities that we have ahead. Thanks, everyone, for participating in the call. Thank you.

This concludes today's call. Thank you for your participation.

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