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

Okay. Good afternoon. My name is Carter Gould. I am a senior analyst here at Barclays. Good afternoon, and welcome to our fireside chat with Bristol-Myers Squibb. Representing the company is CFO, David Elkins, who is joining us by phone. David, thank you very much for joining us today, and looking forward to the conversation.

As am I, Carter. Thanks for having me.

Great. David, so we're just going to jump right in. I guess the question we get asked the most often is just around Bristol's ability to really sort of manage margins over the midterm with, yes, a number of launches, but also, some LOEs starting to hit. So I guess, if you could just kind of help us think through that period, what gives you confidence in some of the push/pulls, say, between now and, call it, 2025?

Yes. Thanks. So as we talked about, we really see our operating margins in the low to mid-40s range through 2025, and there's a couple of things that are driving that. Obviously, we're a very profitable company today with top-tier operating margins, and we'll be able to maintain that. It's really driven by product mix. As you know, Revlimid and Pomalyst are -- as they decline over time, they'll be offset by several high-margin oral products that we'll be launching, and we'll probably talk about those, Deucravacitinib as well as mavacamten and Zeposia as well as Onureg in first-line AML. So as Rev and Pom decline, we're seeing -- there's new products -- there's new product launches that are coming along that are high-margin oral products. Also, from a synergy perspective with Celgene, we started with a little over $2.5 billion of a synergy target in the last year. Given how strong the synergy realization was in the first half of the year, we received $1.4 billion in synergies. We achieved that by the end of the year. And we raised the synergy to $3 billion by -- run rate by the time we get to 2022, and that will also contribute to our synergies. But also, we've been very disciplined as a company from a P&L perspective. And we've done that in the past, and we'll continue to do that. We have the ability to reallocate resources from some of our older brands to new ones. And 2 great examples of that are hematology as we're getting ready to launch -- as we launch Reblozyl and getting ready to launch our cell therapies, we're able to reallocate resources, leveraging the skills and capabilities of that very strong sales force. And cardiovascular is another one, for instance, with the MyoKardia asset, we're able to leverage the Eliquis. We're ready to launch now and drop mavacamten right into their hands. Our reps are waiting and getting ready to go as soon as we get the approval of that product. So that resource allocation is also critically important, and we feel confident in being able to do that and continue to deliver the margins that we have.

Perfect. It's a great segue to sort of the next question, and I would echo that point that mavacamten and deucra are just sort of what the doctor ordered. I guess, focusing on mava for a second, I think, when you guys announced the deal, it really sort of emphasized the commitment to CV. But, I mean, you just mentioned it a little bit in terms of leveraging some of that Eliquis infrastructure. How should we think about the necessary build out to deliver on some of -- what are pretty high targets for where you think mavacamten can go?

Yes. I mean, we're very excited by mavacamten, and it's a really important component to our overall cardiovascular franchise, and will really help us build that out. As we're able to leverage the capabilities, but as well as the relationships that our Eliquis sales force has with the cardiovascular health care providers, as I was saying earlier, we have a launch-ready infrastructure today. And over time, we'll start to introduce mavacamten to the specialist centers first, where about 20% of the patients are treated today, and we'll expand to the broader cardiology community and ensure physicians understand the profile and how to use that medicine. And then, eventually, similar to what we did with Eliquis, we'll be able to expand into primary care providers to increase disease awareness, and that will help with the referrals into the cardiologies and to specialist centers. So it really does fit nicely into our portfolio and really strengthened the portfolio. And we also have factor XIa that we should get more data in the second half of the year there. So that's looking very promising for our cardiovascular franchise.

Maybe just one follow-up there on mavacamten. I mean, you've put out targets at sort of $4 billion-plus by 2029. I understand, those are non risk-adjusted, but, I mean, from a high level, how should we think about the -- how you're thinking about that number and the contributions between nonobstructive/obstructive and test trials?

Yes. So we are -- that forecast is related to the obstructive HCM, which we anticipate getting an approval for this year, and that's the $4 billion non risk-adjusted revenue in 2029. So obstructive is a really important market, high unmet medical need. There's really no treatment options other than surgery for these patients. And there's about 80,000 to 100,000 patients in the U.S., and similar numbers in the top 5 markets in Europe. So a significant patient population with an unmet need, and that will provide significant growth opportunities for us getting to that $4 billion. But as you rightly point out, there's other further expansion opportunities for us with mavacamten as well. And right now, we're planning for a Phase II/III trial in nonobstructive HCM. And also, we got -- as you indicated, we got a Phase II trial in selective HFpEF patients. Currently, we're initiating that trial as well. So given the data that we have to date and our experience in cardiovascular across the different specialties and the community of oncology -- sorry, cardiologists, we really see a lot of potential for the product.

Maybe just one last question on mavacamten. HCM is an area where you've been spending an increasingly amount of time in recently. Just sort of how you think about that competitive environment there is a competitor that's going to have sort of proof-of-concept Phase II data here mid part of the year? And to what extent is that sort of factored in? Or you -- that was considered as part of your -- clearly, I'm sure, it was part of your diligence around the MyoKardia deal.

Absolutely. We've been -- we were in discussions for a long time with MyoKardia, talking about partnering options. We got to know the management team, we got to know the space, but as well as mavacamten as well. And we did significant due diligence on this prior to the deal being announced, and we did factor in a very competitive landscape. And our understanding of Cytokinetics' candidate, it just started their cohort 2 of their Phase II trial, and they're several years behind us. So we've already completed our registration trial and our filing in -- is expected this quarter, and we continue to see significant opportunity with it. So from our perspective, being the firstcomer and a high unmet need, with good efficacy and a good safety profile, it's -- we feel very confident in our ability to deliver against that. I think, as far as the competitor products, they're years behind, and let's see where -- how that data reads out. But it's really too soon to put anything into that.

Perfect. Okay. Maybe moving on to TYK2 here, clearly, the data has sort of lived up to the hype, at least from what we've seen so far. And clearly, a lot of investor interest around this asset. And the peak numbers, I think, you put out there reflect that potentially transformative kind of product profile. But, I guess, with this -- while I'm not commenting directly on the safety profile you've seen so far, can you maybe just talk about your level of confidence in some of the other indications based on what you've seen so far in psoriasis?

Yes. Completely agree with you, Carter. We see, our TYK2 has significant commercial potential for immunology franchise. And as we already talked about, again, that's another product that we see greater than $4 billion in non risk-adjusted peak year sales in 2029, and to be able to grow beyond that. Some of the additional indications are expected to begin to contribute in the second half of the decade and would continue to contribute to the potential -- all of those will continue to the potential. So the need exists in several autoimmune diseases to have a safe and effective oral medicine. We see this as a potential to be the oral choice in the psoriasis. But getting to your question, on the other indications, specifically, we see the opportunity in psoriatic arthritis. So we're initiating Phase III trial this year in IBD with ulcerative colitis. We have got a proof-of-concept this year and Crohn's next year. And also, lupus, another area with high unmet need, early days, but we have a proof-of-concept study in SLE starting later this year, early next year, and we'll keep an eye on that one as well. But we see a lot of potential in this product. And given the profile that we're seeing and how specific it is, we think it's got a lot of potential.

I guess, obviously, with Zeposia, you're going to be building out that GI sales force. And as you think then around TYK2 and then potentially cendakimab, is that an area which investors, I guess, could look for some area of potentially higher incremental spend as you have to compete in a pretty competitive environment?

Yes. So we're already in the space, as you think -- with Orencia, and we'll continue with Zeposia. We'll be entering that space later this year in ulcerative colitis. And so, we will be investing in the immunology franchise with these products that we have to leverage the full potential. But it's great to have multiple products. We think Zeposia has got an important part to play in IBD. And being able to leverage that as the data matures for our TYK2, that's going to provide us potential there, and with the existing sales force that we have with Orencia. So this will be one of the franchises that you see us investing more in.

And, I mean, I'd be remised not to ask around sort of the -- I recognize it's early to talk about labeling, but you've -- at least, the team has been very, say, assertive in characterizing the profile as non-JAK. Like how critical is it that you avoid that sort of class labeling when you think about the estimates or when you think about sort of potential of Deucra here?

Having a safe profile is important in just about in any market that you're competing. And look, we firmly believe that the preclinical and clinical data we have generated suggests that deucravacitinib acts like we designed it, which is a selective inhibitor of IL-12 and IL-23 and Type 1 interferon and not a JAK. So the safety profile looks like we would expect with drugs that address those targets. So we believe, based upon this profile, deucravacitinib has the potential to be once-daily oral of choice based upon the mechanism, and also has the potential to be broad-based autoimmune medicine in those additional disease areas that we talked about like in psoriatic arthritis in the IBD disease states.

Right. Perfect. Maybe switching gears to the hematology franchise. [indiscernible] we're 12 to 13 minutes in and we haven't talked about it yet. I guess, Reblozyl was clearly a standout performer in 2020, and 2021 looks, at least how we're looking at it, still strong growth in U.S. and some of the OUS starting to come on. As we think about that OUS piece, how critical is that going to be the story in 2021, or is it just going to take time for some of those countries to come online? Clearly, you had a pretty strong bolus dynamic in the U.S. Is that going to also take place in Europe on a country-by-country basis?

Yes. So another great question. And we continue to be really pleased with the launch. Physician awareness here is very high and feedback remains positive. Physicians getting experience and patients getting experienced with the product. So good adoption so far. And getting to your question around international and how we think about that, we have recent launches in -- such as Germany and Austria, and both of those are going well. But as we think about Reblozyl ex-U.S. on the whole, access and uptake outside the U.S. is dependent upon reimbursement discussions with each of the individual countries. So it's a little different than in the U.S. And as usual, that process takes time. Once we score the reimbursement in each of those markets, we do expect the uptick to be strong. So looking forward to launching Reblozyl in those various markets across the world over the next 6 months to a year. And we plan to launch in Belgium, the Netherlands, Italy and France and some of the Nordic countries in 2021 once reimbursement decisions are made. But from a bolus perspective, that will have a bigger impact to roll out country-by-country on the uptake across Europe than necessary individual, the bolus like we saw in the U.S.

And then clearly, you've got Breyanzi approved and ide-cel sort of still to come. How should investors sort of level set their expectations around these launches, given that we're still working through the pandemic? I mean, Reblozyl had a great launch, but clearly a different set of dynamics and complexities here.

Yes. So as we think about cell therapy broadly, as we shared, we see this -- the growth potential of the franchise as being about $4 billion in non risk-adjusted revenues in 2029. Both multiple myeloma and diffuse large B-cell are -- still remain large unmet needs in the later settings, and we see both Breyanzi as well as ide-cel as differentiated treatments in those markets. We're ready from a manufacturing and from a commercial standpoint to execute against both of these. And we think it's an advantage having both the products launching at the same time in our centers, and we're really pleased with where we are with our centers that are up and running right now. Specific to Breyanzi, it's a best-in-class CD19 CAR T therapy in the treatment of third-line large B-cell lymphoma. And the efficacy profile is as good, if not better, than the current standard of care. And what's really good is to differentiate its safety profile that supports our outpatient administration in addition to the in-patient environment, which is now supported by a CAR T-specific DRG code, and a lot of the other cell therapies didn't have that. We're in a very strong position from infusion center perspective, but -- as well as having that DRG code is a really good starting place. So we also see this -- we also see Breyanzi expected to go into earlier lines of therapy. We're looking at second-line for DLBCL as well as additional indications like third-line CLL later this year, which would be a first. So a lot of potential there. And ide-cel, we see that to be the potential first-in-class BCMA CAR T therapy for the treatment of multiple myeloma and the potential to be transformational from efficacy in very sick patient population that have suboptimal treatment options today. And the potential, again, for ide-cel as well to advance into earlier lines of therapy and even improve outcomes in newly diagnosed patients. So broadly, we have a really unique opportunity, we believe, with 2 great products, unmet need and anticipating a strong launch and rapid activation in the centers that we have in place and driven by 2 CAR T options in the market.

All right. Maybe moving to Opdivo quickly. Clearly, you guys have talked up this return to growth on an annual basis this year. We started to see that play out on a sequential basis last year. And just sort of how critical renal cell at this point is to that dynamic? And any commentary you have sort of around trends you've started to see emerge, particularly in the wake of the last flurry of data.

Yes. So really, there's 2 components to it. The dual I-O therapy offering, Opdivo plus Yervoy, remains stable today at roughly 1/3 of the market in spite of the strong competition that's out there. This is due mainly to the durable response that we continue to see with that therapy. With 4 years of follow-up, we still -- mean overall survival still hasn't been met. So the durability looks very good there. TKI-based therapies, while we acknowledge that the KEYTRUDA LENVIMA data looked good with respect to response rates and patient free survival, the hazard ratio overall of OS looks similar to 9ER. So we've also noted that there's an increase in Grade 3, 4 adverse events in the Merck data and different patient population, a number of favorable risk points could have a role in the outcome. So we still see Checkmate-9ER is very competitive in this space, particularly in light of the tolerability of low-dose Cabo. And overall, we continue to feel good about the options we've provided for Opdivo in first-line renal and our ability to be competitive in that -- in a variety of patient settings.

And then, just in terms of how you guys are thinking then around or how you're communicating your thoughts around some of these novel agents in the I-O space reading out, LAG-3 being one of the higher-profile ones that maybe has been off the radar of investors for a little bit, but definitely seems to have been -- come back into focus now as we get a little bit closer to data, any commentary you can share there?

No. Look, we continue -- from our own pipeline perspective, have combination therapies that are in the pipeline. We anticipate this is a competitive environment. We continue to anticipate new competitors come in there. But with our pipeline, with I-O therapies, with the studies that we have in metastatic as well as adjuvant and we got first-line gastric coming as well, we think between the different tumor types as well as metastatic and adjuvant and as we think about lung cancer as well in periadjuvant and neoadjuvant treatment settings, there's a lot of opportunity for us to continue to grow the franchise.

Now maybe just shifting to capital allocation here. Really, I guess, from the start of 2020, you guys really talked about sort of doing it all, right, blending M&A, share buybacks, debt reduction. You've more than checked the box in each of those categories. With sort of all those sort of achievements now, is there, I guess, growing appetite to -- maybe the calculus around those decisions that shifted a little bit and maybe prioritization has maybe tilted a little bit more in one direction versus another?

Carter, from a capital allocation perspective, we remained very balanced and disciplined in our approach. The company is very diverse, and the financial flexibility that we have is one of the best in the industry. We ended the year with $16 billion in cash. We're anticipating generating $45 billion to $50 billion in free cash flow, and that provides significant flexibility for us. We've committed to paying down the debt, maintaining our strong investment grade. We have about $11 billion of maturities happening over the next 3 years with $4 billion we accelerated, so about $15 billion overall and bringing down that debt. And that gives us strategic flexibility as we move forward as we look at acquisitions. But as we demonstrated, we're not looking to hold on to create a large cash on our balance sheet either. And as we've demonstrated in the past couple of years, we continue to return cash in the form of share repurchases to our shareholders. But even with that, even if you look at what we've done historically and growing the dividend, we still have a lot of financial flexibility to replenish the portfolio, and that remains our top strategic priority. So we believe we can strengthen the balance sheet, continue to return cash to our shareholders. But at the same time, invest in early-stage projects like we've done because there's more of those and they're critically important on the early research side. But we have a lot of partnerships that we're constantly in conversations with like the MyoKardia is a great example of that. And when the data proves out, and we believe we can add value beyond where it is by the capabilities that we have from a research and development and a sales and marketing perspective, we'll capitalize on those opportunities as they present themselves. But there really isn't a shift in how we're looking at this. We're very disciplined financially, how we look at acquisitions, and we're balanced in our approach.

Okay. That makes sense. And I think maybe going into 2020, there were definitely questions around your commitment to CV. Clearly, you addressed those. And now, of course, with Factor Xiia on the horizon, I think that's been sort of asked and answered. As we think then around additional therapeutic areas, neuroscience and fibrosis, to a large extent, kind of feel like the odd man out. Is there some -- could we see a foundational deal like we've seen with like maybe MyoKardia in those spaces? Or should we be thinking about those growing organically? Any commentary there either around strategy or how important these TAs are into the broader Bristol offering?

Yes. And as we talk about, as we think through acquisitions, there's 3 things that we look for. Is it strategically aligned? Is it sound science? And does it make good financial sense for us? And when we say strategically aligned, it's really focused on the 4 therapeutic areas where we have existing capabilities, both from an R&D perspective and commercial perspective, and that's hematology, solid tumor, immunology and cardiovascular. What we do, do in our early research programs is we get a lot of partnerships where we see high unmet need, and neurosciences is one of those. We're mainly focused in neurodegenerative diseases. We got about half a dozen programs there, and we really need to wait to see how that data plays out to see what the opportunity is. Fibrosis, we got a couple of programs there. We've been working in this space for a long time. But as you know, this is a very difficult disease area to address. So we have a tendency in those types of areas to do more of the early-stage deals where we see emerging technologies that could wind up being important medicines for these therapeutic areas. But from a larger-sized deal, we have tended to stick to those therapeutic areas that we have the capabilities in and can create value beyond where they're being valued today.

All right. David, that was super efficient use of time. We've come to the end of our allotment here. Thank you very much for your time today, and great talking to you.

Carter, great talking to you as well. Thanks a lot.

Thank you.

Have a good evening. Bye-bye.