Bristol-Myers Squibb's Management Presents at UBS Global Healthcare Services Conference (Transcript)

Seeking Alpha

Bristol-Myers Squibb Company (BMY)

UBS Global Healthcare Services Conference Call

May 21, 2013 8:30 am ET

Executives

Charles Bancroft – Executive Vice President and Chief Financial Officer

Analysts

Marc Goodman – UBS Securities LLC

Presentation

Marc Goodman – UBS Securities LLC

We’re going to get started with the next session. We are lucky enough to have Bristol-Myers with us; we have Charlie Bancroft who is the CFO. He has been CFO of the Company I think for about three years now, but in addition to that role he also has operational responsibility for several countries in the world, small one such as Japan and Canada and all over Latin America, so he has got a big job and we appreciate you getting here to join us. So he’s going to make some opening comments for a little while, then we’re going to do a little Q&A in here and then we’ll go to the other room also for the full Q&A session. So I thank you very much for joining us and I’ll turn it over to you.

Charles Bancroft

Thanks Marc, good morning everyone. It’s great to be here to talk about Bristol-Myers Squibb as Marc said, I just have a few slides that I’ll briefly go over to set the context about Bristol-Myers Squibb and then turn it back to Marc for some questions.

For those of you who follow Bristol-Myers Squibb should be very – I better flip forward through this one first, that’s our Safe Harbor Obligation and so for those of you familiar with Bristol-Myers Squibb should be very comfortable with our strategic foundation. It was actually developed in 2007 and it not only helped explain our successful transformation into a pure-play biopharma company, but it also embodies the foundation on which we’re building our future success, consistency in our strategy has allowed us and will continue to allow us to be successful.

We have to be adaptable and flexible to an ever changing, ever dynamic external environment, which as most of you follow pharma know continues to get more complex and more difficult. We’re also I guess proud and maybe humble in some ways to say we feel we have indeed become in many ways the benchmark biopharma company.

We have a lot of things at Bristol-Myers Squibb to focus on being it very global company with diversified product portfolio, but these are the keys as we think about the future growth and we’re always trying to balance our short-term results with how we view the long-term progression of Bristol-Myers Squibb for a pharma company that long-term growth and the development of new products is critical to the life blood of our industry and in particular Bristol-Myers Squibb.

Key is driving our inline growth products, also executing best-in-class launches particularly as we think about Eliquis which we just launched at the end of last year, and also our diabetes franchise and partnership with AstraZeneca. We’re also need to invest and deliver our very exciting late stage pipeline, which have a lot of assets in immuno-oncology and also in hepatitis C, and of course we need to maintain the culture of continuous improvement being more efficient, more effective at every thing that we do and we have and we’ll continue to be very disciplined in how we spend shareholder money.

So, this is our portfolio. We have a very diverse portfolio. We have all of these products in virtually every geography and a lot of these products are different stages of their life cycle, I’m going to even take out a few, so if you take Orencia and Sprycel at the top there, these are products that grew over 25% just in the first quarter.

Baraclude which is one of our truly global products has more sales internationally than in the U.S. still grows at about 15% and we’re very proud that we got approval for Eliquis. We feel that Eliquis has the best-in-class differentiated profile across the axes of safety, efficacy and all cause mortality, and although we’re at the very early stages of launch. We feel that overtime we will be the leading new agent. So far the feedback from payors, physicians, and patients on Eliquis has been truly remarkable. So, we’re very pleased although it’s very early as I said.

And also our diabetes portfolio in partnership with AstraZeneca, we have three novel agents, three different classes at very competitive marketplace, but with our partner AZ and now with the full integration of Amylin, we feel that we’re in a great position to compete in this marketplace. So, overall these products are really helping us to transition from Plavix loss of exclusivity and will fuel our future growth as we look forward.

Now, let me just talk briefly about our late stage pipeline, for those of you probably seen some of the early abstracts from ASCO the early press release is very exiting news. Again Bristol-Myers Squibb is one of the leading companies at ASCO. We continue to have multiple products, so we have Yervoy which has already launched. PD-1, nivolumab and then also some earlier stage assets and also elotuzumab for multiple myeloma.

If you look at Yervoy; Yervoy has shown it has over five-year overall survival data and that’s unprecedented in melanoma. So, we are seeing durability of response, which is critical as we think of immuno-oncology. And in PD-1, we have, I think six Phase III trials going on across three different tumor types melanoma, lung and renal cell carcinoma. So we’re very, very excited and you’ll hear more in about 10 days as ASCO unfolds.

And in hepatitis C, we still see great potential in hepatitis C, we still feel that at this stage we’re not going to be a market leader overall, but we still have a very exciting pipeline led by daclatisvir NS5A and will be used in multiple regimen.

We also have a unique opportunity in Japan, where we will be the first all oral agent for hepatitis C in Japan. And just as a reminder Japan has 1.5 million patients, 70% of them are genotype 1b, which our product addresses and it’s a huge unmet medical need and we feel we have approximately two year headstart against the competition.

So, we plan to file it’s our NS5A and our NS3B at the end of this year with approval sometime in 2014. And we’ve also shown encouraging data at ease on our Phase II all oral triple combination, which we plan to file Phase III by the end of this year.

Let me briefly touch on capital allocation, we feel that we have had a balanced and disciplined approach to capital allocation with business development being one of our top priorities. We look at small molecules, biologics, early stage, late stage, marketed at various different types, sizes either licensing opportunities or companies. We’re relatively deal agnostic, so whatever the partner company would like to do. We feel that we are a partner that has flexibility in our business development approach.

We’re also very committed to our dividend four years in a row. We’ve had a dividend increase, which not only talks to how we think about the short-term, but how we think about the long-term of Bristol-Myers Squibb.

And then lastly share repurchases; we’ve repurchased $4.5 billion of our $6 billion authorization about $2.4 billion in 2012. Share repurchases remain a discretionary purchase and I don’t believe that we’ll maintain that pace going forward, but it is something that we’ll continue to pursue.

So, let me just close by saying that, we’ve done a lot of hard work over many years to get us in a position that we are today and we think our strategy although maybe not as unique as it was when it was developed in 2007, have been pure-play pharma company, we think it has positioned us well, clearly we need to grow our inline brand, we need to have superior best-in-class execution of our launches. We need to continue develop our late stage and what we feel is a very innovative late stage programs and continue to use our financial strength as it comes to shareholder distributions, but also business development and we think that continues to put us in good stead as we think about the bright future of Bristol-Myers Squibb. So, that was really it Marc?

Marc Goodman – UBS Securities LLC

That was good.

Charles Bancroft

I’ll toss it back to you.

Question-and-Answer Session

Marc Goodman – UBS Securities LLC

Have a seat, relax, we can have a couple of questions before we move into the next one, for us, I guess whenever I have the CFO I just want to talk a little bit of numbers. So, maybe you can talk about the gross margin lines as the product portfolio migrates, and obviously Hep C and Yervoy and PD-1 they are going to dominate along with the diabetes portfolio versus in all these other products that seem to be going away obviously, so how does the margin push/pulls in the next four, five, six years, how do we think about it?

Charles Bancroft

Okay, so let me just first start by saying in 2012, our gross margin was 75.5% and we guided in 2013 about 300 basis points lower and that’s predominantly because our partner products of that Eliquis where we partnered with Pfizer. And our diabetics portfolio, where we partnered with AstraZeneca. We payout 50% of the gross profit, so that’s before operating expenses in our cost of good. So that will have an immediate compression and that’s why you see the 300 basis points drop.

So, as we look out overtime as those products and Eliquis is in the early launch phase, in diabetes as we’ve acquired Amylin and we launched Forxiga they will continue to put pressure on our gross margin line overtime. I can’t give you the exact numbers, because ultimately it will be product mix, the products that we’ve developed internally, so immuno-oncology Hep C, as we think about the continued growth of Onglyza and Sprycel, where they were developed internally they have much better margins than our partnered products, all of our partnered products are below 50%.

Marc Goodman – UBS Securities LLC

But whereas Yervoy and PD-1, there are very margin products right?

Charles Bancroft

Yeah

Marc Goodman – UBS Securities LLC

So, I mean, I would think that these turn into as bigger products as everyone thinks they could be, then the margin can kind of trying to get backup to where it was.

Charles Bancroft

Well, it really depends on the mix of the products at this time.

Marc Goodman – UBS Securities LLC

And it’s interesting Lamberto I know has talked about R&D spend kind of staying roughly flat for the next couple of years $3.7 billionish you spend whatever else. I am wondering given all the excitement around PD-1 and how much money you want to be spending and accelerating to spend in that levels, does that mean there is going to be increased spending or what we see some other projects be sacrificed to kind of keep that level of spend.

Charles Bancroft

So for 2013, we are increasing R&D in the low single-digit. R&D organization has not only been productive as far as developing new compounds, but been very productive as we think about continuous improvement. And they will continue to have that have a charge from me and from Lamberto to be more efficient and effective at everything they do. I will say though when if we look back in time with Eliquis and with Forxiga and even Onglyza, part of our R&D spend was helped by the partnerships, where they were paying roughly 60% of our R&D spend in the Phase 3 aspect of those.

If we need to seize on the opportunity as we think about immuno-oncology and we have and I’ve talked a little bit about PD-1 and Yervoy, but we have other earlier stage assets and for us to be leaders and to think about combination therapy and we’ll have to invest in immuno-oncology pipeline. And also in hepatitis C, it’s a very dynamic environment, very competitive, there is still be lots of opportunity in hepatitis C. There is not going to be one company that’s going to have the full market share.

So, when you look across different genotypes and different geographies, we feel that there is still a big play within hepatitis C, so we’re also have to look about the multiple combination. So again, we have to balance the need of our product portfolio but also our ability to continue to drive productivity in R&D. So, I can’t give you exact numbers, but I would say that the growth in the life blood of any pharma company is R&D, so we have to make the right choice for investment.

Marc Goodman – UBS Securities LLC

And the other thing on the whole PD-1 opportunity, if this turns into multiple billions of dollars in this whole immuno therapy is a massive franchise for you, how does that play out for manufacturing cap expenditures and things like that, is that the common issue at all.

Charles Bancroft

Yeah, so these are all biologic, so we use our own internal network. So, we have the manufacturing facility in Devens, which primarily does Orencia. We also have Cirque which does a lot of our smaller lower volume biologic. But, we’re also using network of third party though when we lookout over time this isn’t true of just biologic history of our small molecule. We’re always looking about from a manufacturing standpoint, how do we make sure that we’ve sufficient quantities to not only drive the base case but we do multiple scenarios, I mean also always have the high case. So, we always plan from the manufacturing standpoint with the high case. The worst thing you can do particularly for a new product launch and it’s not just from the financial perspective, it’s also from the patient perspective is be have the stock of the product. So, I would say right now, we don’t view that as a particular problem given our current network.

Marc Goodman – UBS Securities LLC

And you’ve mentioned in PD before kind of interesting such a strong pipeline in and itself. I guess the question is your PD strategy changed at all, I mean given all the PD-1 data that you’ve seen, how much you need to spend just internally and what you have?

Charles Bancroft

Yeah, I mean not all scientists invented at Bristol-Myers Squibb and we have to look at not just in the back half of this decade and the early part of next decade, but we know what’s beyond that. So, our job as stewards of the company and many of you who are shareholders or investors or analysts, we have to continue to refresh our Phase III pipeline. So then again how we thinking about what’s behind hepatitis C? What’s behind immuno-oncology? But I think you’re right given the number of products we have an immuno-oncology.

We have to see that opportunity. I think we’re unique in the field of immuno-oncology. We have a significant number of assets in our ability to combine products. So, if you look at the early data, the Phase I data on PD-1 and Yervoy the overall response rate in melanoma are quite extraordinary. So, we think we will continue to develop our immuno-oncology and our ambition is to be a leader in immuno-oncology.

Marc Goodman – UBS Securities LLC

So, since you run some of the OUS areas maybe you could talk about some of these countries and what the big growth opportunities are for Bristol. You maybe take Japan, Latin America talk about how the businesses were doing, how much they’re going to change?

Charles Bancroft

Okay, let me focused on Japan. Because I think overall I think that all of our geographies Japan which is a very developed virtually no growth market from most industries even pharma in some respect has a unique and big opportunity for Bristol-Myers Squibb. Japan for Bristol-Myers Squibb is, I think at this stage our third largest market. We’re about number 38 in the market in Japan, and in part because we never launched some of our primary care portfolio.

So we never launched Plavix or AVAPRO in Japan because it was partnered to somebody else, and Otsuka we partner with Abilify has the rights in Japan. So we haven’t had the four portfolio in Japan as we had in other markets, but the products that we do have in Japan, so if I think of Baraclude, we’re capturing almost 95% of the naïve market of hepatitis B patients.

Sprycel has the highest market share in the world in Japan. And Orencia which IV which hasn’t been launched that long-ago has its second highest market share of any country in the world’s so the products that we have launched we’ve been very successful.

Where we’re going now with Japan as I mentioned earlier hepatitis C is a unique opportunity, it is a potential blockbuster just in Japan alone. So, forget the global aspect of Bristol-Myers Squibb our dual combo with the number of patients with the Japanese sort of commitment to hepatitis C, we feel that’s a big opportunity. We’re launching Orencia SubQ later this year. We are launching Bydureon. Actually we’re launching it in two days in Japan.

We filed for Forxiga in Japan and we hope to be able to launch that some time next year. So, as we think about Japan going-forward we will move from 38 into the top 20 just in the next several year. So for us although it’s a very developed market, it’s probably our fastest growing market of any market as we see over the next several years.

And in Latin America and Middle East I can comment on both of those together, we divested or had with distributors our matured brand. So in many countries like Egypt and Pakistan we sold not only our plant but many of our mature brands similarly in Latin America, we just sold our OTC business to Reckitt. And it’s really allowed those countries to focus on our innovative portfolio and they are really driving strong growth, I don’t have all the numbers of the top of my head, but Middle East and Latin America are from the growth perspective not absolute dollars, but growth are some of our fastest growing regions as well.

Marc Goodman – UBS Securities LLC

So is the infrastructure there already for Japan you have a lot of to rollout there or is that in process right now we’re seeing within the…

Charles Bancroft

So for diabetes, we are partnered with AstraZeneca and they have a big infrastructure and primary care. And for Eliquis that which I didn’t mention when we talked about Japan which we just launched. We’re partnered with Pfizer, which is the number one company in Japan. So our partnership strategy as it relates to Japan, it works well with those two companies, because, we’re starting diabetes basically de novo in Japan because we don’t have Onglyza that was licensed out to Kyowa Hakko.

So, as it relates to hepatitis C, which is a big opportunity, we are looking to continue to build out our infrastructure. So there is not only infrastructure, but capabilities that are required during the process of doing that now in Japan.

Marc Goodman – UBS Securities LLC

So, before you started talking every time about tax a little bit now you obviously don’t change to tax rate quite dramatically late last year. I mean, I was curious if, given the product mix and kind of your five year forecast, how it all plays out, are there any major changes in tax coming?

Charles Bancroft

So, from our tax planning in our tax position in 2013, we guided to 16%, but that included the 2012 R&D tax credit, which wasn’t approved until 2013. So, our tax rate on the normalized basis in 2013 would have been 17, little over 17%. Given our tax planning strategies, our product mix, we continue to see it’s hard to say exactly because mix is such a big where the actual earnings are delivered is such a big component of our tax rate. But I would say as we think about overtime so over the next several years that our tax rate will continue to be in the high teens so to speak.

Marc Goodman – UBS Securities LLC

If PD-1 and Yervoy that combined portfolio let’s say $5 billion, just to throw at a large number, we obviously have the diabetes portfolio that will be growing over time and most of the other stuff will kind of fade as far as important, if the tax rate is still around the same level as it’s get better or worse in that scenario.

Charles Bancroft

Yeah, again it depends on where the products profit is made in each of the countries and as everyone may know in pharmaceutical space we do transfer pricing between where the products are manufactured and where the actual distribution profits are made, but most of our countries are distributors, they don’t have the IP trademarks or anything like that, so I can’t tell you our tax rate based upon precisely where the product mix may come from, but I don’t see our tax rate dramatically changing from where we are at today.

Marc Goodman – UBS Securities LLC

And I guess the other question is, everybody’s focus is on immuno-oncology and if that becomes a big portfolio you probably don’t need a lot of sales rep I would think to sell it relative to the old primary care type of portfolio. So, how does the SG&A, I mean the infrastructure of the company obviously you have taken so much out already, I mean once Abilify goes, what are we looking like, kind of go even smaller.

Charles Bancroft

No, if you talk to some of our commercial colleague they won’t tell you that immuno-oncology will sell itself, so when you think about the number of different tumor types you’re talking about different physicians and we when you think of lung, which there is a lot more sort of – lung sort of physicians, you’ve heard in that space than they are with melanoma. So, I won’t say that exactly where the infrastructure will go, but if you think of Plavix that we lost in 2012, we took down all the infrastructure for Plavix and Avapro in 2011. We’ve already restructured our agreement with Otsuka, so we took out all of those expenses in 2012.

So I think where you have the push-pull yes, you’re right I think in, if you think about hepatitis C and if you think about oncology generally those areas don’t need as much sort of infrastructure as the typical primary care setting. But we also have the big diabetes portfolio, and we also have Eliquis, which are more sort of larger scale direct-to-consumer element to them as well. So I think there is a little bit of push-pull as we think about our expenses.

Marc Goodman – UBS Securities LLC

When should we start to look at Eliquis and start to see that the ramp take of, like we all know it should. Because really is the best product as far as, I mean if you look at the actual label?

Charles Bancroft

Yeah, so thanks. Yeah, everywhere in the world and but also where we launched in the U.S., which is our biggest market for Eliquis, it was about getting accessed. So was accessed both on the commercial plan and we were looking to get off-cycle Medicare access. So, today as we sit here today we have about 90% coverage on our commercial plan and roughly 60% coverage on our Medicare plan. We are also have to go because its hospital based products very much 50% of new patients get prescribed in the hospital. We also had to go to all the hospital formularies and that process were basically concluding now.

And we bought earlier on we will get more off-cycle formulary reviews at the hospital, we didn’t find that, but we are basically through that process. So we basically said that at the back half of this year, the second half of this year, you’ll start seeing an inflection point in the Eliquis. If I go back to Japan, Japan is unique in that, there is the limitation on two week prescription. So the first year of launch of any product in Japan you’re limited to two weeks. So you have to go back to your physician every two weeks that has a clear limitation on prescriptions in Japan. And then if I go to Europe we’re working through each of the country. So even though there is a sort of the European approval, we have to go country-by-country when you think about access pricing and reimbursement.

Marc Goodman – UBS Securities LLC

Is this a bigger opportunity in Japan that it is in Europe?

Charles Bancroft

Yes, Eliquis is a big opportunity in Japan as well yeah.

Unidentified Analyst

Okay. Good question (inaudible) the other one.

Unidentified Analyst

(inaudible) Charlie you’ve got leading products on the market with Eliquis Yervoy and others. You got leading products coming to market with PD-1 and the combination was there any hepatitis franchise. Your earnings have found a base in 2012, 2013, in the past Bristol used to give earnings growth outlook five years out. But as the stage is set for earnings growth acceleration when do you think Bristol will be ready to give that kind of outlook again five years, like you did in the past.

Charles Bancroft

Thank you for that. We’ve given future guidance a few times generally it’s been three years out. And there is limitations in a very dynamic ever changing environment that we faced to give guidance in the future. So I am not sure we will give guidance three years out. I think where there is a disconnect between market expectations and where we see the future I think that’s where we tended to give guidance.

So if I reflect back when we gave guidance for 2013, we saw a disconnect between where we saw Bristol-Myers Squibb and where the market saw Bristol-Myers Squibb both from an earnings, but also from our commitment to the dividend. So we wanted to give shareholders confidence that we will have earnings there we are committed to the dividend. So I think it’s situational so I can’t say sitting here today, if and when we’ll give future guidance.

Marc Goodman – UBS Securities LLC

Thank you. Before we can take more Q&A we’ll go across the hall and we’ll chat in the breakout session. Thank you.

Charles Bancroft

Yeah.



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