Bristol-Myers Squibb Company (BMY) Earnings Call Transcript & Summary

Good morning, everybody. I'm Chris Schott from J.P. Morgan, and it's my pleasure to be introducing Bristol to kick off the 38th Annual J.P. Morgan Healthcare Conference. From the company, we have Giovanni Caforio, the company's Chairman and CEO. Bristol's announced acquisition of Celgene was clearly the talk at the conference last year. With the deal now closed, very much looking forward to Giovanni's comments on the new company. With that, turn it over to Giovanni.

Thank you, Chris. Good morning, everyone. It's a pleasure to be here. I do remember being here a year ago when we had just announced the acquisition of Celgene. I am actually really proud of what has happened in 2019 and how well we are positioned as a company as we start 2020. So you will remember that -- I'm sorry, can you go back one? Thank you. You remember that last year, I discussed the value of the new company. And today, I can say we are a new company at Bristol-Myers Squibb. Our mission hasn't changed. Our vision is to create the leading biopharma company in the industry, and we've made great progress towards the accomplishment of that vision. We are a very diversified and differentiated company. We have the scale and resources and global reach of a large company, at the same time as we're investing in exciting science with the agility and speed of a biotech company. We are really focused on our research strategy, which positions us at the center of ecosystems of innovation. And I'll talk to you about the great progress that we've made. Ultimately, we are a great company because we have great and passionate people and the execution that we've seen in 2019 is really a demonstration of what our people are doing working together. One year ago, I did present to you the vision that we had for bringing in the 2 companies together, what we could achieve and the value drivers of the deal. And I am pleased that after 1 year, we've made great progress on all fronts and we've executed against all of the key priorities. The performance of our business has been strong. We've made progress on IP for Revlimid. Importantly, there has been great progress with our late-stage pipeline and we are working on 8 launches during a period of 24 months. We've executed well from a financial perspective, including a $7 billion ASR, a recent 10% increase in the dividend. We did have the need to divest OTEZLA, which was unexpected, but I'm pleased with the speed at which we were able to execute that transaction and the value that we've received. Integration activities are well on track and the strength of the execution of the company in '19 really speaks to our ability to integrate while we continue to deliver on the value drivers. In summary, we are a growth company. We are well positioned for the short and the long term. There are 4 reasons why I believe we are well positioned. One is the strong execution of our business, the importance of the new launches, the significant late-stage and life cycle management opportunities we have with our pipeline, and finally, the financial strength of the company and our continued focus not only on funding internal innovation but also on business development. And I'll cover every one of those 4 pillars. Before I do that, I just want to mention we've made great progress with integration. Our leadership teams are in place. We have designed the operating model for the new company, made great progress towards integrating the companies on the commercial side, on the research and development side. Again, execution in '19 speaks to our ability to do that. We are on track to deliver on $2.5 billion of synergies, approximately 1/3 this year. At the same time, there are many areas where we are just at the beginning. We are beginning to look at processes and systems, integrating the companies from an IT perspective, from a financial perspective, in terms of our pricing system. All of those are just beginning today, but I'm really confident with where we are with integration. So speaking to the strength of our business. You see here the performance of our franchises through the first 3 quarters of 2019, very strong performance not only in terms of growth versus prior year but also competitively. And I'd like to mention 3 of our important franchises: Eliquis, Opdivo and our leading presence in multiple myeloma through Revlimid and Pomalyst. With respect to Eliquis, this is the leading new oral anticoagulant globally. It's the leading oral drug in the U.S. It is a growing brand in a growing market. There are significant incremental opportunities for Eliquis, by continuing to erode the use of warfarin, but also because many patients are not yet diagnosed or not yet treated. On this slide, you see the opportunity that still exists in the U.S. market and clearly, the difference between new brand shares and total shares in the U.S. for warfarin speaks to the incremental opportunity that exists there. For Opdivo, I'm really proud of what we've accomplished. We've established a leading franchise with 19 indications approved in the U.S. across 11 tumor types. Performance in '19 was strong driven by really good commercial execution. What's important? We continue to make progress. We had 2 first-line lung cancer studies positive in 2019 for the combination of Opdivo and Yervoy, and our broad life cycle management program continues to expand, both in the metastatic setting and in the adjuvant setting. For multiple myeloma, Revlimid and Pomalyst truly have transformed the treatment of this disease. The teams remained focused in '19. Growth was strong. We had 1 new indication approved and I think that's really an important area for us. We made progress on the IP front. Most importantly, pipeline opportunities are coming to fruition. There is a very broad effort to continue to address the unmet medical need in multiple myeloma and we're working across multiple modalities and multiple mechanisms of action. We have continued to progress our CELMoD program, made great progress on the BCMA front, both for cell therapy and our T cell engager. So a lot happening in this very, very important field. Moving to the second pillar, which is the 8 launches we're working on. This is an unprecedented opportunity for us across solid tumors, hematology and immunology. In solid tumors, as I mentioned, the combination of Opdivo and Yervoy. We already have established that regimen as a standard of care in melanoma and in renal cancer. In 2019, we had 2 positive studies in first-line lung cancer. What we are hearing from physicians is that they actually value the long, durable and deep responses they have seen in Study 227. They do value in a very competitive market, we recognize, the opportunity to offer the combination of 2 immuno-oncology agents to some patients. Study 9LA will be an important study. We'll present data later this year. And what physicians will be interested in looking at is whether by adding 2 cycle of chemotherapy, we are able to address the needs of rapidly progressing patients in first-line lung cancer. This is a very competitive market but I am confident that given the strength of the data and our commercial expertise, we will be able to play a role in first-line lung cancer. In hematology, we have an unprecedented set of opportunities. Four launches, these are best-in-class, first-in-class medicines. They address areas of high unmet medical need. They can evolve the standard of care in their diseases. This is a field where we have a leading presence, significant medical and commercial expertise, and our teams are hard at work preparing for exciting launches. I'm also really happy that the combination of our 2 companies in the new Bristol-Myers Squibb gives us the opportunity to be an important player in immunology. We have, as you know, a PDUFA date for ozanimod in multiple sclerosis in March. We have an opportunity to establish this asset as an asset with compelling efficacy and differentiated safety and play a role in the multiple sclerosis market. What's most exciting is data readouts we are expecting this year. For ozanimod, the Phase III program in ulcerative colitis and for our TYK2 program, the first of our 2 Phase III studies in psoriasis. I'm particularly excited by the TYK2 program. This is a very selective pathway. We have an extraordinary selective molecule within that pathway. We have seen some really interesting data in Phase II. And as I said at the beginning, at the end of 2020, we will have an opportunity to see the first of the Phase III studies in psoriasis. In both molecules, for both medicines, we have significant life cycle management opportunities and, importantly, the opportunity to get into inflammatory bowel disease. So when I look at the 8 launches, that's very exciting. It's over a short period of time, but the life cycle management opportunities that exist for those assets are very significant. Here, you see some of the most important data readouts that we are expecting this year. In addition to what I just mentioned, the PDUFA date for luspatercept in MDS in April, important data readouts in immunology and for Opdivo and Yervoy, continued progress with our life cycle management program. In the metastatic setting, I would point to study 9ER, which is the combination of Opdivo plus cabo in first-line renal and on the adjuvant setting, 3 studies that are going to be the first readouts of a broad and deep program in the adjuvant setting. There are more data readouts coming in the future beginning in 2021. I would point to the broadening of our opportunity with our leading cell therapy platform across multiple assets and multiple diseases, the evolution of our development strategies in inflammatory bowel disease for ozanimod and TYK2; progress with our Factor XIa program, where we expect results from important Phase II studies in 2021; and the continuation of readouts from a broad life cycle management program in oncology, both in the metastatic setting and, importantly, with one of the broadest and deepest adjuvant programs in the industry. I do believe adjuvant is poised to be the next frontier for immuno-oncology. It's where we can really make a big difference for patients by treating them early. We are very well positioned with significant investment in this field. Going to the next pillar, which is the long-term strategy for the company. Our research strategy is based on leading science in therapeutic areas we know well. We have a broad and diverse platform of opportunities ranging from protein homeostasis to cell therapy, deep expertise in biologics and novel small therapies. I'm really excited that our R&D footprint places the research organization of Bristol-Myers Squibb in the most exciting hubs of innovation in the country and around the world. In every one of those sites, we have an integrated discovery, translational, early development and business development strategy that will enable us to continue to advance internal innovation at the same time as we continue to pursue business development. This is important, and we have built strong capabilities in order to support execution and research and development. Those capabilities span from deep expertise in translational medicine to a significant presence in data and analytics. There is a very strong collaboration between our research organization and the early development teams, between early development and late-stage development for seamless transition of a large number of programs across the development spectrum. This is important because we have one of the deepest and broadest pipelines in the industry, and the pipeline is continuing to progress. In fact, I'd like to point to just a couple of those programs. We've made continued progress with our CELMoD agents that progress through clinical development. At ASH in December, we presented important early data on our BCMA T cell engager, which was one of the really interesting presentation at the conference. We continue to advance the next-generation of cell therapy agents. And importantly, outside of oncology and hematology, our Factor XIa program continues to advance. There is a significant focus on advancing this very promising early pipeline in the company. As I said earlier, our strategy has always been one where we've demonstrated the ability to complement internal innovation with business development. Business development remains a critical priority for the company. It is important to be able to do both, and we do have a track record of successfully executing against this strategy. The pillars of our business development strategies are not changing. We are looking for opportunities that are strategically aligned with the areas we know well, whether that is therapeutic areas, platforms or technologies. We're looking for breakthrough science and the opportunity to develop truly transformative medicines, and we will continue to be disciplined from a financial perspective as we look at opportunities outside. Our capacity for business development is good today and it will continue to expand in the future. The company has significant financial strength driven by the cash flow of our strong in-line business. Over the next 2 years, our focus will be on delevering; paying down the debt. We feel comfortable about the commitment we've made to go back to less than 1.5x debt/EBITDA ratio by 2023. As I mentioned earlier, we have executed a significant $7 billion ASR, and we continue to be committed to the dividend. In fact, we announced recently a 10% increase in our dividend. At the core and at the center of our business development strategy remains business development. As I just mentioned, we have the deepest and broadest pipeline we've ever had, one of the best in the industry. We are advancing that pipeline with great energy. At the same time, we're continuing to look at conferences like JPM for opportunities to further expand our reach and focus and bring even more attractive science and opportunities into the company. In summary, we are a growth company. We are building the leading biopharmaceutical company in the industry. There is strong momentum in our business as we've entered 2020. Today, we are well positioned as a company because of the strength of our in-line business. In the near term, we have, what is for us, an unprecedented opportunity, with 8 launches and significant life cycle management opportunity for every one of those assets. In the long term, we're building a strategy for sustainability, which is based on the strength of our early pipeline, the financial flexibility of the company, which enables us to continue to invest in research and development. I feel better about our opportunity at Bristol-Myers Squibb today than I felt 1 year ago when we announced the deal. The company truly is well positioned today and in the future. And with that, I want to thank you for your attention and wish all of you a very good conference. Thank you.

Good afternoon, everybody. I'm Chris Schott from J.P. Morgan, and joined by my colleague, Richard Vosser, and I want to thank you for joining us for our annual drug pricing panel. This has become an even more controversial topic over the years. And today, we're pleased to have Giovanni Caforio, the Chairman and CEO of Bristol; Bill Anderson, CEO of Roche Pharma; and Steve Ubl, the CEO of the PhRMA trade association, to discuss some of the key controversies, misconceptions and initiatives to address this very important issue. So I thought, Steve, maybe you could kick off with some comments on your priorities, what you're focused on, and we'll kind of jump into the broader discussion from there.

Great. Thanks. And I'll just keep my comments brief and a high level, and we can jump in, in the Q&A. It's obviously very exciting to be -- for us to be at a conference like this and to hear from the companies. We're obviously living in a very exciting era, where the industry is really delivering enormous advances in the science and improvements in public health, whether it's immunotherapies, CAR-T cell and gene therapies, for SMA, sickle cell, hemophilia, the innovation cycle in the companies is incredible. And yet, all of those innovations are meaningless if patients don't have access to them, which is why the industry really is in a posture of not supporting the status quo. We believe the system needs to change in important ways. And hopefully, in the course of discussion, we can talk about some of the concrete solutions that we would like Congress and other policymakers to adopt. At the same time that we're seeing this incredible innovation, drug spending and drug prices are actually rapidly decelerating, both of which are growing under the rate of inflation. But for a variety of reasons, patients aren't feeling the fruits of the competitive marketplace. I mean, as you know, we have a very consolidated marketplace where 3 PBMs control 90% of the market. They use that leverage very effectively. It's a big reason why cost growth has been constrained. But over the same period of time, the last few years, our companies' revenues have been growing under the rate of inflation, about 2.6%. Out-of-pocket costs for patients have grown substantially, 50% over the last few years. So in our view, we need to continue to focus on rationalizing the supply chain and other discrete reforms that would actually lower what patients pay at the pharmacy counter, because unless we do that, we're going to be still in this vicious cycle where even if Congress passes drug pricing legislation, patients aren't going to feel the benefits of it, and we're going to be right back at it. So we want to make sure that Congress acts in a balanced way. We understand there's going to likely be pain involved in any drug pricing legislation, but we want to make sure that any offsets involved really go to other reforms that lower patient out-of-pocket obligation. So maybe I'll stop there. We can talk more specifically about those ideas in the course of conversation.

Excellent. I mean, you referenced that the rise in out-of-pocket costs going up substantially, and that being a barrier for patients getting access to the drugs. If we think about the latest proposed solutions that have come out of Congress, come out of the lawmakers, it doesn't seem to address the issue head-on or at all. So I mean, Bill, from your side, thoughts on solutions for this from your point of view?

Yes. I think agree with what's been said in terms of the importance of getting access to these life-changing therapies for patients. I mean, that's really such an important part of it. I mean, we think there are market-based approaches that can work. Most of the situations we have that result in these strange outcomes where the pharmaceutical inflation is 2.6% in terms of the revenues to innovative pharmaceutical companies, but patient out-of-pocket costs are going up 50% over the last 5 years, these are places where the healthy market mechanisms are not being allowed to act. So for example, rebate reform is something that it has to be a good idea that we don't have middlemen, institutions, hospitals ending up with -- almost half of the revenue of pharmaceuticals goes to the channel, hospitals, pharmacy benefit managers. And so we think rebate reform is a no-brainer. It's good for patients. Just say if rebates are negotiated, the patient has to at least participate proportionately in that, but better yet, clear it out in a more substantial way. In Part B and hospital-acquired medicines, we think this is an area where there's not much market action allowed to happen. Because of the ASP mechanism, it actually -- it creates a -- sort of a perverse situation where discounts are not easily provided because the discount that's given to a payer automatically comes out of the providers, and then the providers are not able to afford the medicines. So we've proposed something called market-based pricing mechanism in Part B that basically splits out those sorts of discounts and allows the market to behave in a healthy way so that we can have more market-based competition in Part B. So I think it's really important to note that the industry and companies are coming forward with concrete solutions and proposals that have the effect of lowering the cost for insurance companies, lowering the cost for government, lowering the cost for patients and increasing competition. But unfortunately, the solutions that are being proposed in Congress right now and something like IPI, those are not addressing any of those things.

And Giovanni, from your side, your thoughts on this issue?

Well, I must say I agree with what has been said. I -- from my perspective, what's important is I see a clear willingness from the industry to move forward, as Steve and Bill said, with the reforms that are going to be helpful for patients and willing to play a role in enacting those reforms. We agree that there is a significant issue. When you look at the speed at which out-of-pocket exposure for patients, for seniors has increased, it is not sustainable at a time in which our companies are bringing forward very innovative medicines that can prolong lives and change the course of serious disease. So there is a real need for reform, and there is a real need to realign the incentives in a way that the market works for patients because that's not happening today. So I think it is about reducing out-of-pocket caps, reducing -- certainly, introducing out-of-pocket caps, reducing the contribution of patients to the cost of medicines overall. In some cases, we see patients paying disproportionate amounts at the beginning of the year. I think there is a real opportunity to spread that cost throughout the year to make it more manageable for patients. But I think I want to just go back to what Bill said. I think this is the only country where we see that 46% of the cost of medicines goes to the distribution chain and does not go to the innovators. So I think it's important to use that 46% to make medicines affordable for patients. And there are real solutions that can be implemented today. I must say there are some policies among the policies that are being proposed, specifically in the Senate, some of those policies go in the right direction, and the industry supports them. But there is clearly an opportunity to do more.

Right. And I guess this topic of does something have to happen, because I just want to -- the debates we have, I think in the investment community is, is there's just a lot of noise, and we're going to not see a lot of actual action come out of this, given that there seems to be many different views to how to address this problem, but consensus view of how to fix everything. So do you think we've reached a point in terms of the amount of noise and frustration without a pocket that, one way or the other, that there's going to be some sort of change in the system as we think about the next, let's say, 1 to 2, maybe 3 years?

Maybe I'll jump in. I -- like Giovanni said, I'm sort of optimistic. If you look at the course of the debate on drug pricing, there is now broad bipartisan support for focusing on lowering patient out-of-pocket costs, whether it's capping out-of-pocket costs, as Giovanni said, or spreading those costs across the calendar year, if a patient has high out-of-pocket obligations, say, in January before they meet their deductible, lowering cost-sharing outright from 25% to something lower, whether it's 20% or 15%, rebate reform, as Bill mentioned, a lot of these ideas have bipartisan support. And it wasn't always the case. I mean, there was a bit of a philosophical view that more skin in the game is a good thing. So the fact that we now have both parties sort of aligned around some of these affordability reforms, I think is quite significant. If you look at the work of the Congress on drug pricing, there's a number of bipartisan bills that have been worked through the committees of jurisdiction on things like modernizing the Part D benefit, the Part B benefit, IP and patent reforms, transparency. To be honest, we don't love every aspect of every one of these bills. But if Congress wants to act on drug pricing, they're -- the contours of an agreement are there in terms of broad bipartisan legislation that could be enacted. The real question is whether there's -- politics will supersede those discussions. We've unfortunately seen some bad sort of bumper sticker policies, whether it's Medicare setting the price or letting the French Health Minister set the price or other artificial caps in the Medicare program. So the big question is really will policymakers pursue this pragmatic path where there are bipartisan reforms that would lower out-of-pocket costs, hopefully rationalize the supply chain at the same time, or move in the direction that's more political, frankly, we think would slow the advances in science that we're seeing and move in the wrong direction. And so we'll be working in both directions to try to dissuade policymakers from price controls and advance a more proactive patient-centered set of solutions.

And maybe the coverage gap proposals, it's specifically proposed by Senator Grassley. I mean, just the thoughts there in terms of the impacts or that doesn't really solve the out-of-pocket costs, but just your thoughts.

I think the sentiments are in the right direction. And I mean I think that's the ground where we can start to have that discussion and say, "How do we really address this patient out-of-pocket requirement?" Because you asked the question, Chris, about whether something really must be done or is this just noise. And I think what's different, I mean, I think some of the debates are similar to debates that happen even back in the '90s. But what's really changed is the patient burden. I saw a study recently that showed that patients pay for about 3% of the costs of doctors and hospitals, and other sources, mostly insurance, pays for the other 97%. But on medicines, it's 16%. It just doesn't make any sense. There is no rationale why you should put this high burden on medicines. And I think we could talk for a long time about, like, how did it come to be that way and why is it that way. But the fact is that's how it's set up right now. The system is really punishing the use of medicines. And it doesn't make sense when you have medicines that can radically change a disease or even provide a cure but there's this affordability crisis. So absolutely, we have to address it. I think the bipartisan approach is going to be the only way it's going to work. Because if it's sort of an ideological-driven approach, where there's -- where it's about scoring political points, that's not necessarily tackling the real need, which is to solve the patient out-of-pocket costs but in a way that supports innovation for the future.

Yes. And just a question for Steve. Do you think that we're going to see a Grassley-type bill passed that kind of address this all at once? Or is this going to be solved in like maybe small incremental steps, where we'll kind of pick up a piece of it here and there and maybe we'll hit the right place in a few years, but it's -- I guess especially coming back to that issue of with such a polarized kind of environment, can you actually get a bill forward in this setting, I guess?

Yes. My own view is that legislation tends not to pass in the sort of one big bill sort of in a schoolhouse rock fashion, where it starts in the house; it's modified; sent over to the Senate; there's a conference committee, et cetera, et cetera. It just doesn't work that way anymore. So it's much more likely that it would be a part of a broader must-pass fiscal bill that the Congress is considering. And in this case, this year, you have what are called health care extenders, a whole set of programs that were extended at the end of last year on a short-term basis until the end of May. And they'll have to be acted upon then. So that's a logical point at which you could see drug pricing enter into the mix, and it remains to be seen what the scope of that would be. So for example, when they extended it until May, they included the CREATES Act to help pay for the other health care programs to be extended. You could see it be done like that, in an isolated sort of more modest basis to extend those programs further or it could become a much larger vehicle. But again, I would point people to look at the House Republican alternative on drug pricing, even H.R. 3, the Grassley-Wyden bill for the areas of overlap, where there is bipartisan support. And again, we think some of those provisions need important changes on the margins. But again, there is a pathway to legislation coming together.

Maybe a question for Giovanni. There is a perception, I think, that kind of injectable drugs prescribed in hospitals are highly priced, and there's not really a mechanism for price control in Medicare Part B. I guess it clearly seems like IPI has been proposed a solution here. Maybe just talk through the problems you see with IPI and what maybe alternatives we could consider to kind of -- I think, Bill touched on this earlier, but just kind of address some of the -- kind of the -- this perception issue. There's not a relief valve, I guess, in terms of negotiation.

Yes. I think that from my perspective, you can look at this issue from multiple points of view. So first of all, I would start by agreeing with Bill, that there is an opportunity to have more competition in Part B for hospital products if you use market-based solutions, and there are concrete proposals on the table that would accomplish that objective. The second thing that I would say is that looking at foreign countries is really not the right thing to do because when you look at what is happening outside of the U.S., particularly for specialty care medicines, there is a real gap in terms of availability of new medicines in the specialty sector outside of the United States. And there are multiple different statistics. It depends on what therapeutic areas you look at, what time frame you look at. But there is up to 50% of the medicines that were approved over the last few years in the U.S. that are not available to patients outside of the U.S. There are countries where 5 years after Yervoy and Opdivo were approved as the standard of care in first-line melanoma, patients still don't have access to the combination of Yervoy and Opdivo. And so I think that looking at the policies of those countries to bring them into the U.S., I think it's the right -- wrong thing to do. I would say that we should be thinking about how do we do the opposite. And we should be thinking about how the U.S. government helps an industry which has become primarily a U.S. industry, quite frankly, be more successful in defending the value of its innovation as part of trade deals and the overall industrial policy of the government. I think that would be much more important for us. The other thing that is really important is that across multiple segments, including the hospital sector, the markup on drugs is extraordinary, and it is used by hospitals to maybe compensate parts of their businesses, where they may not have the right margin. But that's not what our system should be rewarding. So there are studies that have demonstrated that for specialty care medicines in the hospital, the average markup is in the range of 500%. And that's not healthy. And so I think that's a really good example of how you have to look at the entire system and find a way to realign incentives because right now, I think, over time, they become really misaligned, and that includes the hospital as well.

And just, if I might, to build on Giovanni's comments, because we released a study on this in the last few days, Bill alluded to this as well, that we work with the Berkeley Research Group to look at the supply chain 3 years ago and have found that our companies were retaining $0.60 on the dollar over list price of a medicine. 3 years later, it's 50%. But another key aspect of the study looked at hospitals and actually, other providers, their share of what they're absorbing has doubled in the last 3 years. And a big part of that is because of the markups that Giovanni mentioned, but also hospitals are marking the product up by 500% to 1,000%, they are oftentimes acquiring it at a 340B discount at 50% of the list price. And so that delta is growing over time. And it's not unlike the rebate issue that has been discussed earlier, where those rebates, if you will, are not flowing to the benefit of patients. Hospitals have very little obligation to not only report in a transparent way where those are going, but they're certainly not going to lower their patients' drug costs for drugs that they're consuming in the hospital. And one last stat on the hospital side that was really -- has really stuck with me, even though hospital spending is nearly $1 trillion more than drug spending, it's about $850 million, out-of-pocket spending for medicine is greater than out-of-pocket spending for hospitals. Think about that for a moment. Almost $1 trillion more in spending, but there's greater out-of-pocket obligations for medicines. We have to get to more equilibrium where insurance is insurance again if we're going to ensure patient access to these new transformative medicines.

Yes. I mean, just you touched on 340B. And there is -- is there any sort of linkage with reform? You've touched on market-based mechanisms, where the government or the lawmakers are thinking, "We'll reform 340B at the same time." Is that an element that we could see?

Well, I think -- first off, I think everyone agrees that hospitals that care for a high proportion of indigent patients deserve financial support. In fact, I was just in one of the local county hospitals last week, just -- and seeing 90% of their patients are indigent patients. And the things they're dealing with, sexually transmitted diseases, abuse, I mean, drug addiction and in addition to many other illnesses. So the work they do is amazing, and the 340B program has all the right intent, but unfortunately, with some of the changes that were introduced as part of ACA, the program has expanded beyond, I think, the original intent in multiple ways, including with all these sort of acquisition of satellite practices, and there's become sort of a cottage industry, in how to sort of maximize 340B revenue. And so I think it needs a serious look to make sure that we preserve the program for its original intention and that we don't -- that it's not jeopardized. But I think there is something about this idea of putting the additional subsidy for hospitals on the price of medicines that it's a bit tricky. Again, the intent was good. But if what it does is it creates these inflated bills of medicines, it sends a distorted view of what the real health -- the health care economics are. So I think it would be good to reform it. I don't know if it all can be done in one go or whether there needs to be separate approaches, one for 340B and others for drug pricing.

I think it's more likely to occur administratively than it is legislatively, candidly. At one point, we looked at how many members of Congress don't have a 340B hospital in their district, and the number is -- you can count on one hand. There's now 50% of the hospitals in the country that access the 340B program. And just to build briefly on Bill's comments, I think there are much larger system issues. Not only is it a distortion, obviously impacts pricing when 50% of the market gets a 50% discount, but there are much larger issues. It's fueling consolidation. It's fueling site of service changes from community settings to hospital settings. It's fueling the prescription of higher-priced medicines because the delta is greater. So it's pernicious. And we're hopeful that whether it's in the legislative context or more likely in the administrative context, that it gets addressed.

Let me go back to a point about the out-of-pocket dynamic. Do you feel the consolidation we've seen of the PBMs with the insurers that we saw the past few years can maybe change the dialogue at all? Because it seems like some of the challenges around these topics are becoming more and more complex and require solutions beyond just increasing rebates. And conceptually, it seems maybe like an end-to-end provider might be more focused on that type of discussion and with the structure we had going back a few years. Is that something you should think about? Or is it just wishful thinking, I guess?

I mean, in theory, vertically integrated PBMs and plans should be more focused on total cost of care. And I think about just what we're talking about in terms of the 340B program. It's entirely possible. But there's shared interest, right, I mean it's not in the payer's best interest to not address the issues that I raised before. So I think we do need to look for opportunities to work together. However, I do think the business model, the PBM business model has -- is flawed in certain ways that end up driving price higher and out-of-pocket costs higher. And if you look at the PCSK9 example or Lilly launching an authorized generic of insulin, that plans are not picking up, it just shows the misaligned incentives that the PBMs and plans are still preferring higher-priced, higher-rebated medicine. So we absolutely have to address those incentives. We have to get the whirlpool kind of spinning in the other direction where you have incentives to lower price.

Yes. The one thing I would add is, in theory, you would want a more integrated system because in theory, you would want somebody to be able to look at the totality of health care costs and make decisions that are in the interest of patients. Because when you look at the totality of the cost, then drugs are cost-effective, and they reduce costs of hospitalization, the cost of managing side effects, et cetera, et cetera. So I don't think the issue of consolidation is necessarily the core issue here. I think when I look at the role of the PBMs and when I look at the rebates of $170 billion of rebates in the U.S. every year, the real issue is not the competitive marketplace where the rebates are extracted. The real issue is that the rebates are not used to lower the exposure of patients to the cost of care. The rebates are using -- are used primarily to actually reduce the monthly cost of healthy individuals, the premium for healthier individuals. So I think that we have a system here where incentives have turned 180 degrees from what insurance should be, which is to actually pay your premium to ensure that when you are secure covered, to a model where now when you have a chronic disease, you have a very high economic burden, and the justification that is provided is that it's keeping premiums lower for healthier individuals, which is really not the way insurance should work. So for me, the issue is not really consolidation versus nonconsolidation or even the ability of PBMs to manage formularies. To me, the issue is do we use that rebate and that negotiating power to benefit patients with chronic diseases or do we actually penalize patients with chronic diseases to keep premiums lower for the total population. So that, to me, is a really big issue. And I think it's fundamental to the business model of that part of the supply chain, and it's one of the policy issues that we need to deal with.

Yes, absolutely. Maybe shifting gears a little bit here, kind of moving to responsible pricing and value-based pricing, I think it's another big topic across the industry. So I guess how does the industry address the debate of pricing new drugs to address both concerns over high costs but to also ensure a strong uptick of the drug and access to those medications as it seems like that's going to becoming a more and more kind of central topic with all the innovations across the space?

Do you want to start, Bill?

Yes. I think the innovator companies have an obligation to think -- when they're pricing to think about a variety of factors, including paying for the next innovation, recouping investment but also making sure that patients have access. And I think we've taken that responsibility very seriously. I think there's a number of examples and we have some of them, where drugs that represent a big breakthrough in terms of advancing treatment are also priced at a very reasonable level. I mean, we saw this -- we launched an MS therapy, OCREVUS, several years ago. That's the first MS therapy to be approved to treat primary progressive MS, a very severe form, and we priced it actually lower than the other MS therapies because we looked at value, and we thought the price level was too high. And also, we noted that some of those drugs had large rebates, and we were trying to kind of cut through that and make sure that the savings were passed on to patients. And so we did that. I wish I could say that everything worked out happily ever after, because what we saw was because some providers, hospitals attach large markups on the price of the medicine, that, in some cases, it could still end up being at a much higher price. And so this is -- again, this is why we're talking about reform and -- but it's back to -- so you say, "Well, how could they do that?" And it comes down to market power. If a hospital has a high level of market power in a locality or a hospital chain, they have the ability to sort of dictate price. And that's, I think, one of the reasons why, as an industry, we're talking -- we have a -- so then we say, "Let's talk about costs. Let's get into it." We're not afraid of transparency because the -- when you get the facts out on the table and you see a medicine that costs $1,000, but the bill from a hospital is $8,000, we need to talk about that, and we need to lay that out. So I do think that as an organization, the pharma is really sort of insisting on high standards on this, but we need to make this a wider discussion. It can't just be about medicine manufacturers. It needs to be about the whole health care system.

Yes. I would add, we obviously all spend a lot of time really thinking about what is the right price for a new medicine. And we look at the value it delivers to patients, the value -- the impact it has on total health care costs before we price a new medicine. Because ultimately, unless it reaches a patient that can afford it, we don't, first of all, do our job; and second, we don't generate value. I think there are other areas we should be working on. The U.S. is one of the markets where it's the most difficult, for example, to really think about pricing combination of 2 drugs differently than the sum of the 2 drugs. That's possible in other parts of the world. And the future of specialty care medicine is combination therapy. There is no flexibility in the U.S. market for pricing 2 drugs that are part of the combination regimen differently than the sum of the 2 individual drugs. I think we want to have more flexibility there. We would like to be able to have easier access to value-based arrangements where we are rewarded based on the outcomes that our medicines generate for patients. There are some pilots in the U.S. market. But there are some real barriers to adopting value-based agreements in the U.S. It's very difficult. In fact, it's not possible to price the same medicine for 2 different indications differently. And sometimes, we actually develop medicines for 2 -- the same medicine for 2 indications that are diseases that have fundamentally different economic considerations. And so there is so much we could do if we started really thinking about what is a model that makes sense and what is a model that works for patients and that also continues to support innovation. But I think that's why I believe that if we move the dialogue from being a political dialogue to be a policy dialogue, I believe it won't be very difficult to find solutions that actually work for all of the different stakeholders.

I participated in a panel discussion this morning on cell and gene therapies that was -- I think this is an area where collaboration with payers and PBMs will be quite fruitful. The discussion focused on a variety of different novel approaches, whether it's prevalence-based approaches, installment, subscription models, other value-based approaches. But as Giovanni said, there are some public policy barriers to moving in that direction. There's 3, one of which has already been addressed by the FDA. It used to be difficult for our companies to even engage payers before a product was approved. FDA has addressed that through guidance. The 2 other barriers are, one, Medicaid best price, where, if you have a value-based arrangement or if the patient doesn't respond and the reimbursement rate is 0, you obviously don't want that to factor into your best price calculation. And then there's the anti-kickback issues, where typically, you have wraparound services that go along with a value-based approach to encourage adherence, for example. And heretofore, the government views that as an inducement to use the product. It was really -- those laws were really built for a fee-for-service world that doesn't exist anymore. And the administration has been focused on overhauling them. So hopefully, all 3 of those barriers can be addressed in a way that makes it less of a gray area for companies to engage in those discussions because, obviously, a more granular discussion around performance of the product is better for everyone. It's better for plans because they get information about a product outside of the clinical trial. So when they get that information, they tend to lower the patients' out-of-pocket burden. It's better for patients because they pay less, and it's better for our companies, I think, too, because we're not disintermediated by other stakeholders in the discussion. Our companies know more than anyone about their products. So it's much better to be involved in a performance-based discussion with a plan than have ICER or other third parties determining value.

Do you think there's enough data out there to be able to implement these value-based pricing? So you know -- following the patient, do the pharma companies have enough data to sort of prosecute a value-based approach with the PBMs?

Well, I know -- speaking of innovative pricing models to start. I mean we have -- I think in about 20 countries in the world, we have indication-based pricing arrangements. Similar to what Giovanni mentioned, the idea that you're going to have one medicine that has a very different level of value in one disease than another, and it's very difficult because what do you do? Do you price it in between, and sort of no one is happy. But actually, that we're able to track how is the medicine being used, which indication is it, and then we have an ability to pay or receive payment based on that. That also comes into use in this combination pricing that if you have 1 medicine, you'd add it to another, that the sum doesn't have to be the -- or the total doesn't have to be the sum of the parts, but it could be a substantial discount. And we have those systems in place, and we have the data, and we're able to collect it. I don't see any reason why we couldn't also achieve that in the U.S. And I think -- I don't think the primary obstacles in this day and age are technological. They're more policy and the kinds of barriers that Steve mentioned.

Yes. I could mention one of our products. We have over 2 million patients that we follow longitudinally, real-world data around the world, and we are able to discuss with payers what happens in terms of total utilization of health care resources when a patient uses our medicine as opposed to other medicines, or how does it impact the total cost of care for each one of those payers. So the data is available, in fact. And I agree with Bill, I don't think technology is the barrier. In oncology, there are many companies that have larger and larger datasets that enable us to look at the real-world utilization of oncology medicines, the effect on survival and the overall utilization of health care resources across multiple lines of therapy with a lot of data, including genomic data. And so there is no shortage of data that could support. And in fact, if those agreements were possible, they would be beneficial. They would accelerate the integration of data at the health plan level because they would be useful tools.

Just going back to some of the novel pricing models with -- as we've seen some rapid advancements in science. I think we mentioned gene therapy, you've got things like CAR-T where you have agents with a very high onetime cost associated with them. Where do you think we end up in terms of pricing models for agents like that? Is it going to be the systems we're seeing today? Or do you think we end up at a different place looking down the road a few years?

So I'll start briefly. But from my perspective, I think we have to evolve to different models, where -- and you mentioned particularly for onetime administrations of high-cost therapies, there is a clear opportunity to really think about different models, whether that's paying for an outcome or whether there is -- there are installments over time. It is clear that when you have a CAR-T intervention, for example, the onetime cost of administration is high, but it actually should be compared with the prolonged administration of a chronic therapy and potentially multiple lines of therapy used over time. And so I think there is real opportunity for thinking about different models. All of those models, though, require more flexibility.

Yes. I think for gene therapy, in particular, is now -- I mean, it's one thing in an oncology setting, in a chronic care setting, where you have a therapy that could provide a benefit for, I don't know, 20, 30, 50 years. And so the cost of that all upfront could seem really prohibitive, and yet the savings can be enormous. And I think it's encouraging to me. I know I heard recently from Spark that they had said for their LUXTURNA, the eye treatment gene therapy, that they believe in the U.S. now, virtually all privately insured patients are covered under various -- in one way or another. But they've been flexible. They've been able to craft some innovative arrangements. So I mean I think it's positive progress. We're really in early days on gene therapy. But I think it's important that we progress that discussion.

Maybe moving topics and turning to Steve and the topic of the FDA. Just the agency's made a lot of progress with the industry in terms of faster approvals, et cetera, under Scott Gottlieb. So what are you focused on as the new leadership comes onboard at the FDA? What can they still do better interacting with the industry?

We are approaching another PDUFA cycle, so we'll be engaged with the agency in that regard. But I must say I've been impressed with the agencies. There's 2 things happening. One is the science is changing in a way where patients are having more pronounced effect. They're seeing things earlier. It gives them more confidence to act more expeditiously, and they have more tools to measure performance, pre-market and post-market. So I think, frankly, a lot of the criticisms of late have been misplaced in the sense that more products are being approved, and they're being approved more quickly. So on balance, I think there are larger issues candidly and working through some of the issues we talked about earlier in terms of the course of public policy. But of course, there are always opportunities to ensure that the agency is able to recruit and retain talent. That tends to be its largest issue and making sure that things like real-world data are being incorporated into reviews, not just on the post-market side, but increasingly on the pre-market side. So there are incremental steps we can take that we look forward to working with the agency on.

A couple of areas that I would mention in our interactions with the agency as an association. First of all, there is a real desire to invest in technology and upgrade the capabilities and infrastructure of the agency from a technology perspective. I think we see that very positively. The second one is consistency across divisions. We, personally as a company, have had more opportunities to interact with the oncology units. And I would echo what Chris -- what Steve said in terms of the openness to really look at the value of new medicines and the flexibility in terms of looking at real-world data and moving rapidly. I think having consistency across units is very important. There is a real need for the agency to continue to accelerate the development of guidance documents, for example, because with gene therapy and cell therapy and many new areas coming, I think there are clear areas where the agency is evolving their positions and continuing to move towards publishing clear guidance positions for the industry. I think it's important. These are all areas that I know the agency is focused on, but I think they're all important areas that we as an industry are looking at very carefully.

Great. Well, it's been a great discussion. I think there's a lot of important points raised here. And it seems like we're -- I think we've been doing these panels for a few years. It does seem like we're making kind of more and more specific kind of approaches of how to maybe address this pricing issue that seem to kind of pop up and kind of consume the group for a bit. So hopefully, we'll start to see some progress on this front as we go through the next year. But thank you guys so much for joining us. It's a very informative panel. So thank you.

Thank you.

Thank you.

Thank you.

Thanks, everyone.