Bristol-Myers Squibb Company

Hey, and welcome to the Bristol-Myers Squibb 2019 Fourth Quarter Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. John Elgar, Senior Vice President, Public Affairs and Investor Relations. Please go ahead, sir.

Good morning, Anna, and thanks, everybody, for joining us today as we talk about our quarter and, importantly, the outlook for 2020 and beyond. I'll take care of the legal requirements before I turn it over to Giovanni, both Giovanni and David Elkins. Our CFO will have prepared remarks and then joining us for Q&A as well are Salmat Hirawat, our Chief Medical Officer and Head of Development, Chris Berner, Chief Commercialization Officer, and Nadeem Ahmed, our President of the Hematology Business. 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 the company's 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 our estimates change. We will 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 GAAP measures are available at our website. And just to remind everybody, in case you haven't seen them, there are slides to go along with today's call.

And with that, I'll turn it over to Giovanni. Thank you, John, and good morning, everyone. Welcome to our fourth quarter and full year 2019 earnings call. I am pleased to be here today to discuss the earning results of our new company for the first time. On slide four, let me start by reminding you who the new Bristol-Myers Squibb is today. Our mission hasn't changed. We are focused on discovering, developing, and delivering innovative medicines that help patients living with serious diseases. We aspire to be the leading biopharma company in the industry. Our strategic foundation remains centered on combining the scale and resources of a pharma company with the agility and speed of a biotech. I am proud of the strength and talent of our people who are focused on transforming patients' lives through science. Moving to slide five, I am more encouraged about our company's potential today than I was a year ago. The strength of our performance in 19 has positioned us very well for the future. As I look at 2019, we've delivered strong in-line performance across our businesses and geographies, and we've made important progress on our late-stage pipeline. I'm pleased with how integration is going so far, with good progress across our business units and functions, as we remain on track to deliver $2.5 billion in synergies. Of course, we have more work to do to integrate our processes, systems, and platforms, including IT, pricing, and accounting. Based on what I've seen to date, I'm confident about the successful integration of our company. Turning to our financial outlook, I feel really good about the financial strength of the company. Our guidance reflects the earnings power and significant EPS growth outlook that we have as a company. We continue to see potential for significant cash flows to support debt reduction and continued investment in innovation. Finally, as I look forward, we have an unprecedented number of new drug launches in the near-term horizon. These are all either first-in-class and or best-in-class medicines, and I am very encouraged by how prepared our teams are to maximize these launch opportunities. Now, let's move to the fourth quarter. Turning to slide six, I'll give you my perspective before David provides more color on product performance. We've delivered strong growth across multiple key brands, many with double-digit growth. With respect to the IO franchise, I'm pleased with the excellent work of our teams in this area. Opdivo grew on a full-year basis, and though we're seeing some pressure in the U.S., as expected, we saw growth internationally and continue to view 2020 as a year of transition for the brand. Looking forward, we have the potential for new launches, supporting an expected return to growth in 2021. This includes first-line lung cancer with studies 227 and 9LA, our first-line renal cancer opportunity with 9ER, and moving into earlier stage disease with a number of adjuvant opportunities. Regarding lung cancer, Let me talk briefly about Study 227. While we're disappointed by the position taken by the CHMP, we continue to view the combination of Obdivo and Yervoy as a differentiated regimen with the potential for long-term survival and one that should be available to patients globally. Going forward, we continue to focus on the review of Study 227 in the U.S., where it was granted priority with a PDUFA date in May. as well as the filing of 9LA in the U.S. and globally. In summary, I am very encouraged by the strength of commercial execution across the enterprise in oncology, hematology, cardiovascular, and immunoscience. This is a clear demonstration of our leading commercial capabilities, which will be important to deliver on the exciting potential near-term launch opportunities ahead. Let's turn to slide seven. In December, we attended our first medical meeting as a combined company at the American Society of Hematology, just a few weeks after we closed the cell gene transaction. Importantly, we saw very good data dash for our hematology pipeline, including pivotal data for three products which are potentially approaching launch and encouraging data from the early pipeline. I believe that this reinforces the opportunity we have to broaden the hematology portfolio and sustain a leadership position in multiple myeloma. Let's turn to slide eight. I feel good about the earnings power and growth outlook for the company moving forward. I am encouraged by the financial strength of the company this year. We see significant non-GAAP EPS growth from this year into next year, and we project continued non-GAAP EPS growth into 2022. So this will be moderated by the impact of generics on Revlimid. David will provide more details on this guidance, but I am pleased with the strength of our inline business, our launch opportunities, our financial flexibility, and the breadth of our pipeline. And with respect to our launch opportunities, we expect important potential milestones over just the next few months. In March, the U.S. approval of Ozonimod and multiple sclerosis. In April, the expansion of Reblosil in MDS. In May, the U.S. approval of Obdivoplast Yervoy in first-line lung cancer. Additionally, we continue to advance our regulatory filings for Lysosil IDASEL, and CC486. Taken together, the company is in a strong position, and this is reflected in the performance of our business and the outlook we are providing today. Turning to slide 9, to realize our potential, we will continue to deliver on the in-line business, drive integration and synergy capture, maximize the value of our launch opportunities, and advance our pipeline. Beyond this, I continue to be encouraged by our financial strength and flexibility, and how this enables us to continue to invest in innovation to deliver important medicines for patients. All of this is what gives me confidence in our near and long-term opportunities as a company. I'm looking forward to our Investor Day, which will be held on April 2nd in New York City. when my team and I will be able to talk in greater detail about the many opportunities ahead of us. Speaking of my team, I am very pleased to be joined today by David Elkins and Nadeem Ahmed. Welcome to both. At this point, I will hand it over to David, our new CFO, to walk you through the financials.

David. Thank you, Giovanni, and good morning, everyone. Having benefited from working in this industry for over 20 years, I could not be more excited about the growth potential and earnings power of bringing these two companies together. I've been very impressed by the employees of the combined company, and I'm encouraged by the breadth of opportunities we have ahead and our ability to deliver important new medicines to patients. Now, let's turn our focus to the performance in 2019. To start, the business continued to deliver strong performance in the fourth quarter, with 6% revenue growth on a performance basis. This performance serves as a strong foundation for the future outlook of the company, which we'll cover in a moment. Giovanni gave you some brand insights, and let me provide you with additional color on the underlying performance of the business. Beginning with Updivo on slide 11, we had continued strong commercial excellence in the quarter, where our teams continued to operate very well in increasingly competitive markets. Let me provide you with a perspective on how we see the business at the moment. From a U.S. demand perspective, we're seeing sequential low single-digit decline driven by the headwinds we've described in the past. Note that demand trends are more steady than reported sales, which were incrementally impacted by buying patterns, both in the government channel and from wholesalers. Now, with respect to some key indications, we expect steady performance in our melanoma business, driven by our leadership in both metastatic and adjuvant setting. In non-small cell lung cancer, The size of the eligible pool of second-line patients is leveling off at roughly one-third. In first-line RCC space, we continue to perform well, where Opdivo Yerevoi remains the standard of care in intermediate and poor-risk patients, and we've seen stabilization in this indication as well. Internationally, we've seen very strong commercial execution in all our key markets, resulting in encouraging growth in the brand. We expect further growth as we continue to secure reimbursement in first-line RCC. With respect to first-line lung, we look forward to the opportunity to launch 9LA in the same setting and making Opdivo available for patients in these markets. So stepping back, we continue to see 2020 as a transition year for Opdivo, with demand pressures in the U.S. and growth in our international business. More importantly, as we move into 2021, We believe we have a strong foundation for growth fueled by potential new indications, including first-line lung. Now, let's turn to Eloquence on slide 12. In the fourth quarter, we saw continued strong sales growth of 19% globally due to increased demand in both AFib and VTE. In the U.S., we saw 18% sales growth in the fourth quarter versus prior year, despite increased discounts for the Medicare coverage gap. Eloquist continues to increase its share at the expense of Warfarin in an expanding NOAC class. As the class has expanded, we've seen Eloquist taking share at the expense of other NOACs. Shown on this slide is the difference between new brand share and total brand share in the US for both Warfarin and Eloquist. This highlights the continued growth opportunity for the class and the brand. We are also very pleased with the growth of Eloquist internationally. where we have a leading share in a growing number of markets, resulting in 21% sales growth in Q4 versus the same quarter last year. We continue to view this brand, which remains the number one NOAC globally, as one position for significant future growth and continued opportunity for patients. We also see strong growth in our multiple myeloma franchise. As you will see on slide 13, Revlimid continued to grow in the fourth quarter. driven by triplet regimens and increased treatment duration, increasing 10% year-over-year on a pro forma basis. Panelists saw significant growth of 23% in Q4 versus last year on a pro forma basis, driven by increased demand and duration of therapy. We expect growth to continue across both brands through the increased adoption of the triplet regimens and increased duration of treatment. I'll now turn to slide 14 and review our fourth quarter P&L. This was an unusual quarter for the company as a result of the close of the Celgene acquisition on November 20th. Included on our reported P&L are the approximately six weeks of results from the legacy Celgene business post the transaction close. As it relates to the non-debt P&L, we now include the impact of stock-based compensation in our operating expense, which was previously specified for Celgene when it was a standalone company. With respect to O&E, since the close of the transaction, we have incorporated both the interest expense on legacy Celgene debt and have begun recognizing the interest expense on acquisition financing that had previously been specified since its issuance last May. Also, our Q4 tax rate was primarily impacted by several one-time favorable items, including the resolution of uncertain tax provision and provision adjustments for filings in the U.S. and other markets. Looking to 2020 from a financial perspective on slide 15, we provided guidance reflecting the strength and momentum in the business, plus our new launch products and indications and the realization of synergies. First, it's important to note that our guidance on non-GAAP earnings per share reflects the expected 40% accretion to the BMS standalone P&L and includes significantly higher operating margin than in the past. Given the unique circumstances as a new company, this year's guidance includes more detail than we typically provide. So let me provide some color on the key line items. Revenue represents growth on a performant basis driven by opportunities we see in our prioritized portfolio, more than offsetting declines in our established brands. We expect a continued decline in established brand portfolio due to strategic course choices and competitive dynamics. First, we expect Baraclude to continue to decline based on the maturity of that drug and generic competition. We expect by-days it will be impacted in 2020 by generics in Europe. And we expect the rest of the established brand's portfolio to decrease by about one-third compared to the 2019 performer results. This is driven by the full-year impact of the UPSA divestiture as well as further generic erosion of the HIV portfolio. OINE includes incremental interest expense offset by ruralities. From an interest perspective, In our non-debt P&L, interest expense will be driven by approximately $45 billion of debt at the weighted average interest rate of 3.4%. Note that royalties from the AstraZeneca are stepping up in 2020, and we also expect higher royalties on our PD-1 patents. Altogether, we expect royalties to roughly offset interest expense in the year. Our separate line items for R&D and SG&A include Each include the impact of stock-based compensation as well as deal synergies. We expect to realize about one-third of the total $2.5 billion synergies this year. With respect to stock-based compensation, EMS includes the impact of Celgene's employee stock-based comp in our operating expense, which negatively impacts our non-GAAP P&L. The full year amount of the stock-based compensation to Celgene in 2019 was roughly $800 million on a non-GAAP basis, which was incremental to the BMS standalone stock-based compensation. We expect levels of stock-based compensation to remain elevated in 2020 and begin to taper down over time as the Celgene and BMS legacy plans converge. We also want to remind you on slide 16 the evolution of our share count. Basic share count as of the end of 2019 was impacted by the $715 million of new issuances as a result of the Celgene conversion, and by the impact of the ASR. Going forward, our 2020 basic share count will be impacted by three factors. The number of stock options exercised, the finalization of the ASR program, and additional share repurchases, which provides us flexibility to manage the potential future dilution. Remember, there will continue to be a dilutive impact for the stock options that remain in the money. That said, no additional options will be granted under the legacy Celgene plan. So over time, this impact will lessen as the compensation plans from the both legacy companies converge. As you can see, we've guided our weighted average share count for the year to be approximately 2.3 billion shares for the year. Now, on slide 17, as we look beyond 2020, we see a robust growth in 2021. driven by the current portfolio, as well as new expected launch opportunities, and the impact of continued synergies, all of which is reflected in the EPS guidance. We expect continued growth into 2022, while acknowledging this will be at a moderated growth rate due to generic competition for revelment. It's important to mention that we do not anticipate continually updating our long-term guidance throughout the year. Now, let's turn to capital allocation on slide 18. As we said in the past, we continue to expect significant cash flow from the newly combined businesses, and we will continue to employ a balanced approach to capital allocation. Business development is a key enabler of our strategy and therefore remains a top capital priority. We also remain committed to the dividend, as evidenced by our 10-plus year track record of annual increases and our recent increase of almost 10% in December. At the same time, we remain fully committed to leveraging and achieving our 1.5 times gross debt to EBITDA ratio by the close of 2023. As you are aware, we have approximately $10 billion in bonds maturing over the next three years, providing an opportunity to reduce total debt. Finally, related to share repurchases, we repurchased 105 million shares in 2019, 99 million in Q4 under the $7 billion ASR, mostly due to the 80% retired upfront. The remaining roughly 20% of the ASR is expected to be completed by the end of Q2 this year. As we announced today, we've increased our share repurchase authorization by $5 billion to $6 billion. This provides us with the flexibility to execute disciplined share repurchases to manage the dilution from stock-based compensation and stabilizing the share count into the next year. Although typically we don't provide quarterly guidance, I'd like to remind you of the seasonality of the legacy Celgene portfolio. Specifically, Revlimid revenue is historically a bit lighter in the first quarter than the full year average run rate. Before we move to the question and answer session, I just wanted to reiterate that we feel really good about the growth outlook and financial flexibility of the business and have reflected this in our guidance. The company is in a strong position to embark on its next chapter in delivering important medicines for patients. I'll now turn the call back over to John and Giovanni for the question and answer.

Thanks, David. And Anna, I think we're ready to go to the Q&A session.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. And that's again star one to ask a question. We will pause for just a moment to allow everyone an opportunity to signal for questions. And that's again star one to ask a question. We take our first question from Chris Scott from JP Morgan. Please go ahead.

Great. Thanks so much for the questions. Maybe just two here on Updivo. First, I know, Giovanni, you touched on it a little bit in the prepared remarks, but can you just elaborate on the first-line lung strategy in Europe post last week's 227 update? And then when we think about first-line lung in the U.S., is Updivo, Yervoy, and the 227 data the primary focus, or do you feel that the 9LA strategy regimen of chemo, Updevo, Yervoy will be the bigger focus. I'm trying to figure out how you're balancing those two data sets. And then my second question was another one just as we think about 2020 for Updevo. When you look at where the street's shaken out here, which I think is about a 5% erosion for Updevo this year versus 2019, do you feel like consensus properly captures the balance of the second line lung erosion relative to the growth you're seeing in some of these other indications? Thanks so much.

Yes, thank you, Chris. So first of all, let me just say, as I mentioned in my remarks, our focus in Europe for first-line lung cancer obviously has shifted to 9LA, which we believe has, you know, and we've said before, is an important study. Let me just ask Chris Berner to give you a perspective on our overall strategy for first-line lung cancer in the U.S. as we think about the two trials. And then Chris can provide some perspective on Opdivo performance and the various components of that in 2020 as well.

Yeah, Chris, thanks for the question. I mean, I think we continue to see 227 and 9LA as being thought of in the U.S. very much in conjunction with one another. If you go back, what we hear consistently from physicians who have seen the 227 data is that, number one, they're impressed with the potential for long-term survival with dual IO therapy. They note the depth and durability of complete remissions, all coming with a very manageable safety profile. And so they see that as an important opportunity for patients who either don't need or don't want chemotherapy. And incidentally, I would say that the NCCN listing, the 2A listing that we got back in December, is a recognition both of the unmet need that continues to exist in first-line lung cancer, as well as the potential that exists for dual IO therapy. What 9LA then brings to the table is answering the question of for those patients who do need chemotherapy, does concomitant chemotherapy, two cycles in this case, along with dual-IO therapy provide a benefit? And we're very happy to see a second study that demonstrates overall survival. So as physicians in the U.S. think about these studies, they very much think about them in combination with one another, and that's an important part of how we are going to think about our long-term strategy in first-line lung cancer. As it relates to 2020 and how we think about the business, let me say just a couple of things. First of all, the business for Opdivo in the U.S. continues to perform in line with our expectations. In second-line lung cancer, eligibility is still on the order of 30% to 35%. We expect that's going to flatten out around 30% this year. Our shares are holding stable in the 35% to 40% range. The business continues to be stable in metastatic melanoma. We continue to have a leadership position in adjuvant melanoma. And again, in first-line renal, our business is stable in our approved indications. As we think about this year, as David mentioned, the business is going to continue to still be under pressure. As a reminder, that pressure really comes from three tumors. It's second-line lung cancer, where we've talked about the dynamics there, and it's small cell and head and neck. And in those two tumors, it's a very similar dynamic to lung cancer, where you've seen competitive approvals in the first line impacting eligibility in the second line, But I would say, importantly, our assumption for this year is that our shares in the second line setting across those tumors remain stable. It's just stable within a smaller pool of patients.

And again, as we said earlier in the remarks, Chris, while we're not commenting exactly on guidance for the growth of Bodevo this year, we remain confident with growth growing into 2021. And that's our focus, particularly as it relates to for launches and commercial executions.

Can we go to the next question, please, Anna?

We take our next question from Seamus Fernandez from Guggenheim. Please go ahead.

Oh, thanks very much. So, actually, I'd love to ask you guys about the Celgene portfolio a little bit rather than focusing on the Bristol portfolio. One of the products that we learned about at ASH was the opportunity. I was just hoping you might be able to help put that in context for us to help us understand what may be an underappreciated opportunity in the Bristol story and particularly something that falls outside of the CVR. Maybe this was a bit of a surprise upside. And then also, would you update us on the cell mod development opportunity? You know, maybe just put in context where you see the cell mod portfolio delivering the most upside. As we talk to physicians, some of the feedback that we get is that this is a pretty straightforward opportunity for physicians to treat patients that have progressed on both Revlimid and Pomalyst. So I'd just love to get your thoughts on both of those opportunities. Thanks.

Thank you, Seamus. Let me ask Sumit to start and give you a perspective both on CC486 and then cell modes, and Nadim will make some comments from a commercial perspective.

Thank you, Seamus, for the question. I think You already teed up the overall portfolio from what comes from the cell gene side of things in terms of hematology, where certainly beyond the ones that we've already talked about from REVLOS and INRIBIC, CC486 certainly adds on to that. CC486 study in patients with acute myeloid leukemia was certainly a very important data set that we presented at ASH looking at patients with AML who have received induction with or without consolidation chemotherapy and then achieve a complete response with or without complete recovery of the bone marrow. And what we saw over there is, of course, the overall survival improvement, as well as an improvement in the relapsed free survival. And this is an oral agent, so convenience of delivery for these patients becomes very, very important. And this is the first and only treatment that has shown a survival benefit in the maintenance setting. So we remain excited about that. And we're looking forward towards discussions with the health authority and the filings going forward. Of course, here we also continue to think about the overall lifecycle management plan with our portfolio and the combinations that could be available in the future. As it comes to the cell mods, and then I will pass it on to Nadeem to comment more on, I think cell mods are certainly a very, very exciting addition to the overall portfolio and in the armamentarium that we look forward to developing in multiple myeloma. We see this as an absolute necessary opportunity, and one of the datasets that were presented in ASCO 2019 were for CC220, where we saw that patients who had received prior treatment with IMiDS, proteasome inhibitors, daratumumab, they still went on to have a response rate of 31%, and these are durable responses that we saw in this late-line setting. So we have additional plans. for not only CC220 but CC480, which is another cell mod looking at multiple myeloma setting. And there are a multitude of opportunities with our overall portfolio of cell therapies as well as the T-cell engagers where we will continue to think about how to do treatments for further improvement in the outcome of these patients where the cure still does not exist. So we'll be sharing those plans in the coming months as we look forward. But let me pass it on to Nadeem to talk a little bit more from the commercial perspective. Thanks, Amit.

And then thank you for the question, Seamus. So if you think about frontline or newly diagnosed AML across EU5 and the U.S., about 33,000 patients, and about two-thirds of those patients are eligible for intensive chemotherapy and That's the patient group that we studied. And the unmet need, even in newly diagnosed AML, is very high. So with the elderly patients, you have a five-year survival of only about 15%. And 80% of these patients will relapse within 18 months. So to have a treatment that adds 10 months to overall survival and doubles the relapse-free survival is going to be really important. So we're very excited about the opportunity in AML. And I'll also remind you that this gives us another opportunity to once again establish the maintenance treatment paradigm in another disease after we did the same in multiple myeloma. So we're very excited about the opportunity. So that's CC486. In terms of 220, and Summit covered it very well, as well as 480, we are hearing the exact same thing from clinicians who have been using the drug on study. So certainly we're seeing these cell mods work after our image, our inline portfolio, But I think the additional opportunity, as Summit alluded to, is some of our lifecycle management opportunities where we then have the chance to move these treatments up earlier in the treatment sequence to displace the image. So we're very excited about that opportunity also.

Thanks, Seamus, for the questions. Can we go to the next question, please, Anna?

Thank you. The next question comes from Jeff Mecham from Bank of America. Please go ahead.

Morning, everyone. Thanks for the question. I just have a couple questions. For David or for Giovanni, for 2021 guidance, I know you guys don't want to give details, but generally should we assume that earnings growth will be mostly from, you know, the return to growth for IO and maybe new launches, or is it more from the operational synergy side of things? And then for Nadim, what is a crowded field for BCMA targeted therapy? I'm just curious about the status of moving. maybe 2121 up to second-line myeloma. And when you guys think about the BCM modalities in your pipeline, how do you all reconcile bispecifics with CAR-Ts and others? Thank you.

Yeah. Thank you, Jeff. Let me start. Obviously, when you look at 2121, as we've said, we have an opportunity to return to growth for Opdivo. We have a number of really exciting launch opportunities, and I've mentioned several of those. And so there is real momentum in the business, which is driven by the portfolio and how new launches come into play. That's the reason why I feel really good about the fact that, you know, the guidance we provided for 21 is driven by dynamics in the portfolio that are very encouraging for us. Of course, we will be disciplined. with respect to continuing to execute on the synergies. And as you know, we've updated that we feel comfortable with the $2.5 billion. About a third will come this year, and we expect about a third to come next year. But I think the growth of next year, we're really excited about the portfolio opportunities playing out. Let me just ask Samit and and Nadim to answer your second question.

Thank you, Giovanni, and thanks, Jeff, for the question on the BCMA portfolio. So from a BCMA cart cell perspective, from IDASEL perspective, we've already shared some of the data last year at ASH looking at IDASEL in the fourth-line plus patient population where we saw a CR rate of 31% overall, and we're certainly excited towards continuing to expand that portfolio and towards filing of that data set itself. There are three additional studies that are currently ongoing, as you can see on contrast.gov. CARMA-2 is the study, I think, that sort of answers your question, that we are beginning to look at the second-line setting. So we're looking at using Ida-Cell in the second-line patient population. CARMA-3 is a randomized Phase III study looking at Ida-Cell versus a triplet therapy for patients of third-line plus setting. And then CARMA-4 was just initiated at the end of last year looking at the first-line patient population in a Phase 1-2 study. So we're really excited towards looking into the outcomes of these studies and the data generation. And when we talk about the overall portfolio from a BCMA perspective, I think all the emerging data tells us that BCMA is absolutely an important target that we need to be able to attack from various modalities whether it be through the cell therapies that we talked about or the T-cell engager that we have now shared the data from the Phase I study to 6-9, and certainly looking forward to now looking at how to bring that forward as more data matures and accelerate that development plan. And then, of course, we'll look into our pipeline, how to combine these with, as we previously discussed, with cell mods, et cetera. But let me pass it on to Nadim to give you a little bit more on that.

Sure. Thanks, Summit. And so one thing I will remind everyone is that once we had a good idea that BCMA was going to be a very important target for multiple myeloma, we strategically and proactively embarked on a multi-modality approach to treating this disease. And our thinking there was, that you have very different patient segments that can benefit from CAR T versus a T-cell engage, and even ADC, which we have early on in the clinic. So as you think about the various patient segments, patient profiles, and patient preferences, you can envisage where a patient has the opportunity to receive CAR T with a once-one-and-done treatment that allows them to have a very long treatment-free interval. So there's an opportunity to do that. Physicians may choose to... refer their younger and fitter patients for CAR T, for example. You may have somebody who prefers to be treated closer to home for whom a T cell engager will be an ideal treatment. And then both treatments work differently. For a T cell engager, you need to continue the treatment to stay on top of the disease. And with the CAR T therapy, it's a once and done treatment. So we think there's definitely room for both and even potentially three modalities to coexist one within the same line of therapy, but also across multiple lines of therapy in exactly the same way we approached Revlimid and Pomalyst in the multiple myeloma market. So we feel very confident that we're actually delivering on our strategy, and there's the opportunity for multiple patient segments to benefit from all these types of modalities.

Great. Thanks. Anna, can we go to the next question, please?

The next question comes from Tim Anderson from Wolf Research. Please go ahead.

Thank you. A couple of questions. Originally, you guys, at the time of the deal, gave 2022 and 2025 guidance on revenues and net income. That has not been updated since the Otesla investiture, and I'm wondering, are you going to update that at some point, or can you update that today? Okay. I guess, as it will have changed. And then second question is, at least for us, a black box has been how to model Revlimid erosion. At the time of the deal, you made it very clear that your internal forecasts were much more conservative and cautious on the rate of erosion of Revlimid from 2022 onwards to the big product. I'm wondering now, a year on, as you see analyst models Do you think the analyst community is appropriately modeling that erosion? Thank you.

Thank you, Tim. Let me just start on both questions, and then David can add more comments. So, first of all, with respect to guidance, I think as we said from the beginning, we're not going to go back and update the S4 from last year. As you know, there have been a number of things that have happened since last year, the divestiture of Tesla, as you mentioned, the divestiture of our UPSA consumer medicines business, and on the other side, continued really strong performance with our inline business and significant progress with the pipeline, which obviously is a key driver of our performance in the next few years. Overall, as I mentioned also in my remarks, I feel better today about where we are than I felt a year ago when we first announced the deal. And the strength of our in-line business and the progress made with our pipeline make me feel really good about the future and the key drivers that were behind sort of the confidence we had last year and we have today. in the business. Today, we provided guidance on 2020 and 21. I made some comments about our perspective on 22, and we feel pretty good about where we are. So now, with respect to Revlimid, also there, there have been good developments. First of all, I would say the in-line performance of the brand continues to be strong, and the teams are doing a great job continuing to support an important franchise. I think that's important. We had two IPR decisions which were favorable to Bristol Myers Squibb. We did reach a settlement with Alvogen, which was aligned with our expectations. And I would say that overall, we continue to see the loss of exclusivity for Revlimid as a slope that is driven by sort of all of the same assumptions that we've discussed in the past. There has been good development and so nothing has really changed there.

Great. Tim, thanks for the questions. Anna, can we go to the next one please?

The next question comes from Terence Flynn from Goldman Sachs. Please go ahead.

Hi. Good morning. Thanks for taking the questions. I was wondering first on Opdivo if you can give us your latest thoughts on the opportunity in adjuvant bladder following the Roche data. Just wondering if there are any notable trial design differences you could point to for your study versus their trial. And then on BB2121 and JCAR and the commercial ramp on the forward, anything you guys have learned from the competitive CAR-T launches that you can leverage, and would you expect to have stronger launches as a result? Thank you.

Thanks, Terrence. Samit, why don't you start? Sure.

Thank you for the question, Terrence. And as it relates to the adjuvant setting, first of all, let me start by saying that immuno-oncology products are going to play a major role in the adjuvant setting because the earlier we can utilize these treatments, it will provide an opportunity to not only shift the level of recurrence but provide a potential for cure for these patients. And overall, As we move earlier and earlier from the metastatic setting to the earlier setting, the overall plan that we have in place, we feel very confident about it in non-small cell lung cancer, melanoma, RCC, gastric, and of course in bladder cancer as well. It's no point trying to do cross-trial comparisons at this point. I think we are pretty close to where we will be starting to see the data emerging. I think just to keep in mind that The overall patient population that we've enrolled seems very similar, and without getting into the specifics, the one major difference is placebo used in our trial versus observation in the other trial, and the treatment duration is different. But I think we should wait for the data for it to read out rather than getting into the specifics at this time. But I think Chris can give you more color on the question.

Yeah, so let me just say something on a macro level with respect to the adjuvant programs, and then I'll talk specifically about bladder. Just a reminder that as you think about the adjuvant setting, you need to think not only about the patients who are treated today, but also the potential for patients to be treated. So what we saw when we launched IO in the adjuvant melanoma space was that you saw treatment rates increase significantly, and in a number of the tumors in which we are pursuing our early stage program, you see treatment rates in the low to single digits, ultimately up to potentially around 40% for some tumors, but still there's plenty of opportunity for us to not only treat patients who are being treated today, but with improved therapies, improve the treatment rates overall. With respect to bladder cancer specifically, this is a very large patient population. It's highly fragmented, and we have, importantly, multiple opportunities in the muscle invasive space, About 50% of those patients are getting surgery today. We have Checkmate 78, which is in the peri-adjuvant setting. We're looking at the entire population with Checkmate 274, and we also have a non-muscle-invasive bladder program as well. So it's an important opportunity for us. We are still very confident in the opportunity for IO in the adjuvant setting, and we very much look forward to seeing the data. Great.

Thanks, Chris. So I'll pick up on Carl today. So I think a couple of things I would mention, as you alluded to. So clearly, there have been some headwinds in the marketplace. And I think about things like reimbursement access environment, complexity of manufacturing. Also, the safety profile of current agents has led to most of the administration being conducted in the inpatient setting. So we're addressing all of those near-term headwinds. So a couple of things I would say. So if I use Just Lyso as an example, the data we showed at ASH of the pivotal data, we're seeing a safety profile where we're seeing significant reduction in the incidence and severity of CRS neurotoxicity, which we think bodes well to be able to give this treatment in the outpatient setting, which will allow us to expand our prescriber base. So we're excited about that. The other thing that's important to point out from a differentiation of VMS is that we do have very deep relationships with hematologists, and that includes multiple myeloma, that includes lymphoma. So, our footprint out in the community will really help us to drive those referrals into the treatment sites where CAR T's will be given, as well as expand out into the community with assets like lysosol. So, from where we're looking, we think we're addressing the near-term headwinds in terms of the access environment. Ongoing work continues in terms of addressing the DRG issue. Great news last year that the national coverage determination wasn't implemented, so that could have impacted site of care, so that's not an issue for us now. From a manufacturing capacity capability between Summit and Seattle, we feel very good about capacity at launch, and we also have longer-term plans to expand that footprint to make sure we continue to have great capacity. But the other final thing I would add is we've seen transformational data in very late-stage settings, but I think the true potential of these therapies is moving them up earlier in the treatment sequence from a long-term potential perspective. And you heard from Summit that we have a very aggressive lifecycle management plan for both of these assets that will allow us to unlock that long-term potential for these transformational therapies.

Thanks, Terrence. Can we go to the next question, please, Anna?

The next question comes from Matt Pice from William Blair. Please go ahead.

Hi, thanks, Dan. My question, I was wondering if you could quantify the impact of buying patterns for Opdivo in the U.S. for the quarter, or do we just assume it's the difference between the 6% decline and quarter-over-quarter prices versus, I know you mentioned a low single-digit decline in demand?

Yes, Matt.

Chris?

Yeah, so let me address that, Matt. So, As David mentioned in his prepared remarks, we saw a devo decline on the quarter versus same time last year, about 2%. And let me just characterize that. That was entirely driven by the U.S., which was down about 10%. But virtually all of that decline year over year is a result of the dynamics we've been talking about quite a bit, which are the dynamics in second-line lung cancer. As you look on a sequential basis, the U.S. was down roughly 6%. About half of that was a result of the inventory worked down with the VA. The remaining portion of that was mainly the second-line eligibility issue in lung cancer. We saw a little bit of an impact in eligibility in small-cell lung cancer in head and neck. But importantly, if you normalize for the VA inventory movements, what you see in both Q3 and Q4 from a demand standpoint was up, EVO was down, as David mentioned, in low single digits around 2% to 3%. And importantly, as we see both 2020 and 2021, the impacts that you saw in the quarter will have no material impact on what we see for the year as a whole in 2020 and for the growth opportunities for Abdeeba as we go into 21. We'll go to the next question, please, Anna.

The next question comes from Steve Scala from Cowen. Please go ahead.

Thank you. I have two questions, both for clarification. First, Giovanni, to clarify on what you said about growth in 2022, did you say you see growth into 2022 or through 2022, although moderating? And if into, is there any scenario where earnings would be down in 2022? So that's the first question. And the second one is on the other income expense guidance for 2020. It appears way better than one would expect given the financing costs. Now, you mentioned the step-up in royalties on Keytruda and the AstraZeneca diabetes products in 2020, but I thought that the Keytruda royalty was flat at 6.5% through 24, and the AstraZeneca royalties are either flat or stepped down in 2020. So are you saying that the royalty rates are the same but the products will grow or something different? And I don't think there's a lot of optimism about the AstraZeneca diabetes portfolio. So I'm wondering, again, is it the royalty rates are changing or the products royalties are changing? So please clarify. Thank you.

Thank you, Steve. Let me answer the first question. So when I spoke about 2022, I'm speaking about growth in 2022 moderated by, in terms of the growth rate, by the potential beginning of the entrance of generics for Revlimid in 2022. So I see, you know, at this point our business growing in 2022 as a year, with a moderation of the growth rate versus 21, driven by the dynamic I just discussed. David?

Yeah, and Contruda, from a volume perspective, continues to grow, and AstraZeneca, the rate continues to increase. So that is being offset by the higher interest expenses I talked about in my prepared remarks, with the $45 billion of debt and average interest rate of 3.4%.

Okay, can we go to the – I think we have time maybe for two more questions, Anna.

Thank you. The next question comes from David Reisinger from Morgan Stanley. Please go ahead.

Thanks very much, and congrats on the disclosures. So sorry to go back on this, Giovanni, but just a quick question. I think that last year you had said you expected very sort of growth EPS through 2025. In your prepared remarks, you mentioned continuing growth into 2022. Could you just provide any comments beyond 2022, please? And then second, with respect to CAR T, hospitals are obviously losing significant amount of money on patients who are not in clinical trials which are paid for by manufacturers. Could you just talk about prospects for changes to Medicare reimbursement and potential changes in DRG codes in the future? Thanks so much.

Sure. David, let me start, and then Nadim will comment. So let me just say again, I feel really good about where we are with our business. We discussed very clearly in Q3 we would not update the S4 going forward, and I feel pretty good about having provided visibility into the next three years, which clearly demonstrate the earnings power, the growth outlook for the company. Most importantly, I feel really good about the fundamentals of the business, both in terms of the performance of the inline portfolio and the speed at which the pipeline that will drive the long-term growth of the company is advancing. So I'm not going to make comments beyond 2022, but I believe I provided my perspective on where we are as a company and the the real opportunity we have for the long term.

Sure. Thanks for the question. So, I think part of the issue around the access reimbursement environment has, as I said previously, has been driven a lot by the fact that many of these treatments have been given in the inpatient setting. So, one, I would say if you have a treatment that has the potential to be utilized in the outpatient setting, then you start entering into the Part B environment, which is very different to the inpatient capitated DRG environment. So that's one point I would make, especially as it pertains to Lysosol. I think in the inpatient setting, the challenge has exactly been that, the capitated treatment. Even having said that, though, things have started to improve. We saw the NTAP improve to 65% last year through CMS. I think there's been lots of talk, and we've been working on a potential DRG for CAR T specifically. Currently, sites are having to use the DRG for stem cell transplant, which under-reimburses the cost of CAR T therapy. So there is work to do, but the two things I would leave you with is outpatient represents a discrete different opportunity, which isn't affected by capitated payments. But at the same time, I think CMS is working on the opportunity to come up with a specific DRG potentially for CAR-T, and I think that will help reimbursement in the inpatient setting also.

Thanks, Dave. Can we go to our last question, please, Anna?

We take our next question from Navin Jacob from UBS. Please go ahead.

Hi, this is on behalf of Naveen. So my first question is on the checkmate for trial. There was some interesting data at ASCO GI recently in first line FCC for Opdivo-Cabo and Opdivo-Cabo-Yervoy triplet regimen. So any comment on the data presented and potential for these two regiments in FCC? And second question is on Yervoy. So Yervoy performed better than expectations this quarter. So the question is, is the impact from the uptake of Keytruda in latter regimen is in first line RCC mostly done? and should we expect more tempered erosion in the U.S. in 2020? Thank you.

Samit, why don't you start?

Yeah, in the HCC arena, our focus is primarily on the up-devoid-air-void combination, so beyond that, we're not really looking to any expanded way of looking at it at this time. So that's all I can share at this time from HCC perspective, but maybe Chris, you want to?

Yeah, so Uruguay for the quarter was flat relative to the same time last year, and we did show sequential growth of around 9% versus the third quarter of 2019. And that growth was driven really by both the U.S. as well as in ex-U.S. We saw a bit of an uptick in the use of Avdevo plus Urovoi really across multiple tumors and the remainder of the business where we have Avdevo plus Urovoi in the market today as well as the use of Urovoi as a monotherapy and a selected number of indications was relatively stable. for the quarter. So what we're really starting to see is the increased use of Opdivo plus Urovoi really spread across multiple tumors, and that's happening both in the U.S. and to a lesser extent outside of the U.S. Thank you.

Thank you, Chris, and thanks, everyone. So before we close, I would like to thank John Elicker for extraordinary leadership of IAR over many, many years. Thank you, John. Now, in closing, we've had a very successful 2019, and I'm proud of the focus that our teams have had throughout a very, very busy year. We advanced our pipeline. We delivered strong commercial execution to make a difference in the lives of patients, and we are very well positioned as we embark on our next chapter as a new company. Thanks, everyone.

Thanks everybody for taking the time. As always, if you have any follow-ups, give us a call.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation.