施貴寶 (BMY) 2006 Q2 法說會逐字稿

Good day and welcome to today's Bristol-Myers Squibb second quarter 2006 earnings release conference call.

This call is being recorded.

At this time, I'd like to turn the call over to Mr. John Elicker, Vice President, Investor Relations.

Please go ahead, sir.

Thanks, Allen, and good morning, everybody.

Thanks for joining us this morning to review our Q2 results.

With me this morning I have Peter Dolan, our Chief Executive Officer, Andrew Bonfield, Chief Financial Officer, and Lamberto Andreotti, Executive Vice President and President of Worldwide Pharmaceuticals.

Before I turn it over to Peter, let me take care of a legal requirement.

During this call, we may make various remarks about the Company's future expectations, plans and prospects that constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Company's most recent annual report on Form 10-K and if in our periodic reports on 10-Q.

These documents are available from the SEC, the Bristol website, or from Bristol-Myers Investor Relations.

In addition, any forward-looking statements represent our estimates only as of today and should not be relied upon as representing our estimates as of any subsequent date.

While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our estimates change.

With that, let me turn the call over to Peter.

Thanks, John and good morning, everyone.

First, let me address the PLAVIX issue that you probably read about.

We learned just yesterday that the Anti-Trust Division of the Justice Department is conducting a criminal investigation regarding the proposed settlement with Apatex of the PLAVIX patent litigation.

We don't have any specific information on the basis for or focus of the investigation.

I want to emphasize that the Company believes that all of its conduct relating to the proposed PLAVIX settlement has been entirely appropriate and we coordinated throughout with senior outside counsel.

We intend to cooperate fully with the investigation and have no further comment on it at this time.

Now let me turn to our business performance.

I'm pleased to say that we had another strong quarter with double-digit sales gains by our key pharmaceutical growth drivers.

We maintained the reaccelerated growth of PLAVIX, thanks largely to strong execution of our hospital outreach and the positive impact of the ongoing DTC campaign.

ERBITUX also performed well in the quarter with sales up 76%.

It's now our third largest pharmaceutical product in the U.S.

You will recall that ERBITUX received a head and neck indication earlier this year and we're seeing good growth in that area, as well as in colo-rectal cancer, its original indication.

In our pharmaceutical business, we launched two significant products over the past few weeks.

On June 28th, the FDA approved SPRYCEL for treatment of CML patients who are resistant or intolerant to GLEEVIC as well as Philadelphia positive ALL patients.

Right now, our sales force is moving quickly to communicate with oncologists about SPRYCEL and we expect to reach nearly all of the top-tiered prescribers very soon.

We're also evaluating its potential use in first line CML and solid tumors.

On July 12th, the FDA approved ATRIPLA, the first once-daily single tablet regimen for adults with HIV infection, containing SUSTIVA and Gilead's TRUVADA.

We are pleased this partnership has resulted in an innovative product that has the potential to help millions of people with HIV around the world.

Yesterday, our chronic hepatitis B treatment, BARACLUDE, was approved in Japan.

BARACLUDE is now available in more than 40 countries, including China and other Asian countries where hepatitis B is a significant health challenge.

We're optimistic about the prospects for ORENCIA for rheumatoid arthritis, which was launched in the U.S. at the beginning of the year.

Sales are ahead of our base case scenario and we continue our targeted outreach to rheumatologists and other key prescribers.

In May, the FDA approved the sBLA for the manufacture of ORENCIA at a site owned by Lonza and this facility, along with one owned by Celtrion and our own plant in Syracuse, will support increased production capacity necessary to meet the expected long-term demand for ORENCIA.

And related to that point, you probably saw that we announced last month the selection of Devens, Massachusetts as the site of our new large scale expandable bulk biologics manufacturing facility.

We expect to break ground on this facility later this year and we anticipate beginning commercial operations in 2011.

Our health care businesses continue to grow with solid performance in the quarter by Mead Johnson and ConvaTec.

With the loss of exclusivity on TRAVACOL in the U.S. and France, this is the last year in the current cycle when the Company is experiencing significant exclusivity losses in our RX business.

We expect that starting next year, we will generate sustained sales and earnings growth over a multi-year period, assuming, of course, that we maintain the PLAVIX patent.

We're moving forward with our productivity initiative to realize an additional $600 million in cost savings by 2008.

We've identified a range of significant cost savings opportunities as well as improved decision making and governance simplification and are preparing to begin the implementation phase shortly.

These savings will help us to continue to invest in R&D growth and new product launches and to sustain the forward momentum of our portfolio and pipeline in the expected growth period ahead.

And now I'd like to turn over the call to Andrew.

Thanks, Peter.

I'd like to briefly discuss our results and then we will go to your questions.

As you have seen from our release, fully diluted earnings per share from continuing operations for the quarter were $0.34.

Negatively impacted by $0.01 are specified items, primarily charges related to accelerated depreciation and downsizing, partially offset by income from the settlement of a legal matter.

Excluding specified items, fully diluted earnings per share on a non-GAAP basis were $0.35.

The full reconciliation of GAAP to non-GAAP earnings per share is posted on the website.

Sales from continuing operations were $4.9 billion, flat compared to the second quarter of last year.

Overall, we saw a positive 3% impact on price, a negative 3% impact from volume, of which 2% is due to the divestiture of Dovonex and the consumer business and no impact from foreign exchange.

Worldwide pharmaceutical sales were down 1% to $3.9 billion, significantly impacted by the loss of U.S. exclusivity of PRAVACHOL.

Our key growth drivers and new products had another strong quarter, contributing $2.2 billion in sales, up $449 million or 26% compared to the prior year.

Sales in our U.S. pharmaceutical business were up 5% to $2.2 billion.

This was a result of a number of factors.

Firstly, script trains for our growth drivers were quite strong, including the 14% script growth for PLAVIX compared to the second quarter of last year.

In total, our key growth drivers in new products in the U.S. saw a 19% volume increase.

This was obviously offset by the volume declines in PRAVACHOL.

Second, we did see some price benefit from the 4% price increase taken on most products in January.

As we discussed during the first quarter, as a result of change in managed care contracts, there was a positive impact on average selling prices and finally, we did see a smell net price benefit from MMA, mostly related to PLAVIX, where we estimate this as just over 1% of U.S. sales in the quarter.

Looking down the profit and loss account.

Excluding specified items in both periods, the gross margin decreased by 1.9% to 68.2%.

This was due to the continued impact from lost exclusivity, including PRAVACHOL, and the reclassification of some $50 million in expenses from general and administrative expense to cost of goods sold.

The reclassification will result in about a 0.5% incremental decrease in gross margins for the year and will be entirely offset by a corresponding decrease in G&A expense.

Including this, we now expect gross margins for the year to be down between 1 and 1.5% from 2005 levels.

Marketing, selling and administrative expenses decreased 7% for the quarter, driven in part by the reclassification I just mentioned.

We now expect marketing, selling and administrative expenses to be just slightly down compared to 2005 levels.

Advertising and promotion expense was down 4% reflecting the impact from the divestiture of our consumer medicines business.

We continue to invest in our growth drivers and new product launches through the year and expect A&P spend to be down in the low mid single digits for the year, again, reflecting the impact of the divestiture of the consumer business.

Excluding specified items, research and development expense for the quarter increased 14% to $739 million.

This increase was primarily driven by spending on increased resources behind the development projects, including late stage development spending on APILOMOOMAD and SAXOGLIPTIN as well as continued development of ARANGO and SPRYCEL.

Our current expectation is for R&D expense to grow in the low mid-teens range as obviously this is a priority area of investment for the Company.

Pharmaceutical R&D spending increased as a percentage of pharmaceutical sales to 17.8% from 15.6% in the corresponding period last year.

The effective tax rate from continuing operations before minority interests and income taxes and excluding specified items was 22.6%.

The variance compared to last year is due to the resolution of tax orders in the second quarter last year.

We continue to expect the full-year tax rate to be in the 22 to 24% range.

Net debt decreased to $3.1 billion compared to $3.2 billion at the end of the first quarter.

This is mainly driven by positive operating cash flows.

We are confirming our full year 2006 GAAP and non-GAAP guidance of $1.15 to $1.25 per share.

Looking at the six-month results, there is a bias toward the upper end of the range.

However, there are a couple of factors to keep in mind as you think about the second half of the year.

Firstly, the loss of exclusivity of PRAVACHOL in the U.S. and France, which contributed to just under $900 million in sales the second half of last year.

As I mentioned earlier, we will continue to invest in R&D and now expect full year R&D spend to be up in the low to mid-teen range.

Finally, the 2002 to 2003 tax orders, which were included in our original guidance, have not been settled yet and without this, the rate will be biased toward the upper end of the range I gave you earlier.

In summary, our second quarter performance beat consensus estimates.

Our growth drivers, newly-launched products and health and health care businesses are performing well.

And we are confirming our 2006 GAAP and non-GAAP guidance reflecting continued execution of strategy.

With that, I will hand it back to John for the question and answer session.

Thanks, Andrew.

And Allen, we're ready to go to Q&A.

I would ask people to try to hold your questions to one in the interest of time and getting in as many questions as we can and just remind you that unfortunately, I know you have a lot of questions about the PLAVIX situation, but we don't really have any further comment than what Peter has indicated already.

Allen, whenever you're ready.

I would ask people to try to hold your questions to -- to one in the interest of time and getting in as many questions as we can.

And just remind you that unfortunately I know you have a lot of questions about the Plavix situation, but we Don't really have any further comment than what Peter has indicated already.

Allen, whenever you're ready.

Thank you, Mr. Elicker.

The question and answer session will be conducted electronically. [ OPERATOR INSTRUCTIONS ] We will pause a moment to assemble our queue.

We will take our first question from Tim Anderson with Prudential Securities.

On PLAVIX, actually I guess it's more of a procedural question, which is -- does the Department of Justice investigation at all change any timelines the State Attorney's General may have been on?

And a question also that you do know the answer to, which would be on the revised settlement, can you just confirm that the $40 million payment is still part of the terms?

Thanks, Tim.

Tim, you know, we don't know how the review of the proposed settlement by the FTC and State Attorney General is impacted by this, if at all, and we really can't comment on it further than that.

And as regards -- as you will see from the release, Tim, we made no additional provision in the quarter so the terms relating to the $40 million provision that we made in the first quarter do not change.

Thank you.

And we'll take our next question from David Risinger with Merrill Lynch.

Thanks very much.

Just -- I missed the first part of the call.

But from a procedural standpoint, could you just explain how you were notified by the Department of Justice?

Was there a letter, or did you receive a phone call, or were documents requested?

What exactly -- or how exactly did you hear the news yesterday?

And then separately, can you just comment on the additional patent proceedings regarding PLAVIX that are ongoing in the U.S. that are mentioned in the press release and where those stand?

Thank you.

David, we said what we really had to say about the investigation.

We don't really have any further comment on it.

And the second question pertaining to the -- the other PLAVIX patent issues --

Yes, the --

I'm not -- David, I'm not sure which patent issues you're referring to, but it -- you may be referring to an unrelated patent issue with Watson for the -- if it relates to PLAVIX.

Obviously those are still in place until this issue with Apotex is resolved.

Thanks.

And we'll go to our next question from Jamie Reuben with Morgan Stanley.

Again, forgive me for taking on this topic, but I'm just wondering, Peter, has there ever been a precedent before?

A criminal investigation initiated for a proposed patent case?

It's been very much played out in the public.

And secondly, on ATRIPLA, can you help us think about what the ramp of this looks like?

Should we assume just all SUSTIVA sales are replaced by ATRIPLA sales and what this might mean in terms of increased demand or if demand is likely to stay the same?

Thanks.

Jamie, on the first question, we -- we just learned about it yesterday.

We're looking into it further.

We're not aware of any precedents.

On the ATRIPLA, let me hand it over to Lamberto Andreotti.

Yes, just a reminder, ATRIPLA is a combination of our SUSTIVA and Gilead's TRUVADA.

We have just launched it and we believe that this will be a very effective way to provide patients with one pill containing one of the most used combination in the market.

By -- by providing one pill, we believe that there might be or there will be some uptake in the use of that combination in the market itself.

Thanks, Jamie.

Can we go to the next question, Allen?

We will go to John Boris with Bear Stearns.

Thanks for taking the question.

Just on ORENCIA, can you provide an update on where you're at with the "J" code procedure for securing reimbursement on ORENCIA?

And then can you just give any additional visibility on what percent of ORENCIA use or anti-PNF failures?

And then just real quickly on SPRYCEL, you mentioned you're targeting top tier physicians.

Can you just comment on what percent of those top tier account for whatever percentage it might be of GLEEVIC utilization?

Thanks.

Okay, three questions.

Let me start -- let me start with ORENCIA.

We have -- as you know, we have launched ORENCIA and we have received a temporary trade code for ORENCIA.

We are working on the temporary "J" code.

There are two components for reimbursement for a product like this, with Medicare Part "B" and these patients, Medicare Part "B," that represent approximately 50% of the patients for similar products are covered immediately under Medicare Part "B."

Then there is managed care.

And in managed care, the management organizations are in the process of making decisions on the reimbursement of ORENCIA.

We anticipate that we will get better or equal access versus other biologics.

We have put together a small team of specialists, supporting our doctors and our patients to facilitate the process of reimbursement and this team is now in full operation since a few weeks.

Speaking of ORENCIA and the use of ORENCIA, I think we have, as Peter said, we are performing better than we had originally forecast.

What is interesting to see is that there is, even though ORENCIA has been in the market for just a short period of time, there are 10% of the patients that are naive to biologic therapy.

So that is an interesting observation that we have from market research and of the remaining 90% of that come from other anti-PNF treatments.

What is interesting to see is 30% of those patients were previously only on one anti-PNF.

So, there is a -- there is a use of the product in -- in naive patients and in patients that had just gone through one anti-PNF.

This is interesting confirmation of what we believe should -- should come for the product.

There is another interesting information that we saw from market research is that from both that complement the PNF therapy, there is a good balance between renegade patients and patients that come from anti-PNF -- so we are getting patients from all products in the market.

Moving to SPRYCEL, we have just launched.

So, we can only speak about the business opportunity in the first interesting -- interested reaction we see in the market.

In the U.S., there are 30,000 patients that are in therapy for CML.

We estimate there are 4,500 to 4,600 new patients per year.

We know from various studies that 30% of the patients are resistant to prior therapy and we also know that one-third, approximately one-third of the newly-diagnosed patients on GLEEVIC do not achieve the NTCEN guidelines of complete psychogenetic response, which means that the problem of resistance there and the problems are not sufficient.

And on top, there is growing evidence of intolerance in patients related to GLEEVIC.

So having a product that is less resistant gives us the confirmation that we -- we have a better business case and this is what we see in the initial reaction to the product and what we see in the initial reaction from the global leaders is an interest of in our life cycle management.

The use of ORENCIA in early stage, I'm sorry, use of SPRYCEL in early stages of CML and in other forms of leukemias.

We have a full life cycle management plan for that.

Thanks, John.

And let me go back to David Risinger's question, just David, to confirm, that patent that, the ongoing additional patent litigation we're referring to is is a secondary patent on PLAVIX that expires well beyond the composition of matter patent.

That's basically on hold until the resolution of the Apotex suit.

So, with that, Allen, can we go to the next question?

We go next to Tony Butler with Lehman Brothers.

Thanks very much.

Andrew, you made some comments about reclassification from G&A and to -- or from gross margins into G&A.

Could you more fully explain exactly what that reclassification is?

Thank you.

Yes, Tony.

What it is is general and administrative expenses that are incurred within our technical operations business, which should actually more correctly have been allocated to the cost of goods sold as they are part of the cost of inventory, rather than actually to G&A expense.

And this is a correction -- there is a catch-up in the quarter.

That's why the charge -- the amount is $50 million, and going forward it will be smaller and that will work its way out of the process by the time we get into the -- into 2007.

Thanks, Tony.

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

We go next to Catherine Arnold with Credit Suisse.

Thanks for taking my question.

First of all, I have a process question on the PLAVIX decisions coming from Washington.

Can you tell us that when you hear back from the State Attorney General's office, whether or not you will let the market know what that decision is?

Or will it be similar to the last round, where we -- you released a press release, actually, regarding your submission of a modified agreement.

So, if you could clarify how you plan to communicate with the market and if this modified agreement is, indeed, the second modification or is it possible that it's -- it is a -- a later generation?

And then on cost cuts, if you could give any more clarity on where the $600 million in savings is coming from from a functional perspective, that would be great.

Thanks.

Well, let me respond to the cost-cutting piece.

We've said previously that we had $600 million in savings we were targeting by 2008 and progress on that actually goes well.

We initiated a renewed effort in the middle of 2005, looking at all the work we're doing in our cost base and then we put in place this companywide program with a broad focus on procurement and global resourcing.

The progress we've seen so far, we're certainly pleased with and we're now in the process of looking at all of the changes brought fourth by the business units, validating the financials and the proposed changes and then building those changes into our budgets.

We're focusing on manufacturing efficiencies, particularly biologics, sales and marketing effectiveness, productivity, resource development and efficiency and administrator processes.

And on the PLAVIX case, we clearly would communicate with you as appropriate.

Can't predict, but our intention would be to get to you as quickly as we can.

Thanks, Catherine.

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

We'll go to Chris Shibutani with J.P. Morgan.

Thanks very much.

The results related to ABILIFY, particularly in the United States, were stronger than we had been looking for.

Can you comment a little bit about what's happening there, the source of that?

And on ORENCIA, in the past you made reference to expanding other indications, in particular for lupus and Crohn's.

Can you comment on where you are in terms of clinical trials, when we can look to see data for that?

And finally on ORENCIA, when do you expect to actually see actual product coming from the Lonza facility?

Is that happening now?

Is there a timeline?

I know you had the sBLA recently approved mid-year.

Thanks.

Okay, I will start with ABILIFY.

And the... what we see with ABILIFY in the U.S., ABILIFY continues to lead the atypical anti-psychotic class in shared growth.

I mean it's the fastest growing anti-psychotic in the market in the U.S.

We have gained approximately 1% share in new prescriptions since the beginning of the year.

Now, what we want to do is we want to intensify the acceleration of this growth and we have a number of initiatives in place to make this happen.

We have a new global campaign that is now used by all of our marketing and phase people and this is the campaign of assisting doctors to identify the most appropriate patients for the therapy with ABILIFY.

We also continue to focus on building confidence around the appropriate building for ABILIFY and we have an expanded our DTC campaign to outside just in print and we have expanding to other forms of media.

So, we have a solid program behind -- behind ABILIFY itself.

As far as ORENCIA, the product from Lonza is actually being distributed and used in the market.

This was started today, after, I believe, we had the approval of loans in the market.

And in the -- and we have various indications, as you know, on the studies for ORENCIA and we have, we are beginning -- we have currently started enrolling patients in Phase II studies for the treatment of lupus and we have an other, a wide range of studies in area used in rheumatoid arthritis and in other immunodeficiency or immunodisease.

Thanks, Chris.

Looks like we have two more questions in the queue.

So we'll go to those two and then wrap it up, Allen.

Okay.

We'll go next to Chris Schott with Banc of America.

Great, just another quick question on ABILIFY with regard to the international trends.

It's now the fourth straight quarter of relatively modest sequential growth.

Can you just comment on what you attribute that trend to?

Anything you can do to accelerate that sales opportunity?

And then a quick question with the ATRIPLA launch, how should we think about the accounting for that product line?

Thanks.

Chris, on the ATRIPLA launch, effectively we will be accounting for our relative share of the ATRIPLA sales as a lines revenue that will be reflected effectively in the sales and turnover line.

We will be combining in the future SUSTIVA and ATRIPLA sales.

So you will be able to see it because obviously we do expect some cannibalization of the SUSTIVA on that.

And as far as ABILIFY outside of the U.S., in particular Europe, you will remember that last year the whole anti-psychotic market slowdown in Europe.

We have seen a slight re-acceleration of the market in 2006, particularly in the U.K., where the market has slowed down more significantly than elsewhere.

And in this re-accelerating market, ABILIFY continues to outpace competition so we continue to gain market share.

As we have discussed many times, the loss of market share of Zyprex in the U.S. because of the dynamics of the market and the practices in Europe is less fast than the U.S., but we continue to emphasize work on the efficiency -- on emphasizing the importance of the ABILIFY and -- and the metabolic effects of ABILIFY versus other anti-psychotics.

So we continue to work very aggressively on ABILIFY and we must deal with the market dynamics that are different in the market dynamics of the U.S.

Thanks, Chris.

And Allen, can we go to the last question, please?

We'll take our last question from Barbara Ryan from Deutsche Bank.

Good morning and thanks for taking my question.

I actually have two questions.

One is a follow-on to ABILIFY.

We understand that you recently launched in Japan, so, I don't know whether it's too early to comment, but if you have any comments about that launch specifically?

And the second, Barbara?

And second, I hate to be totally picky on here, but when I take the $680 million in net income that you reported on an adjusted basis and I divide by 1994, I get $0.341 and so I'm having trouble reconciling those numbers with the $0.35.

Yes, Barbara, the difference is related to the interest on the convertibles, which actually are included in the -- in the stock.

So, in the -- and that adjustment needs to be reflected, I think it's about $8 million in the quarter.

Okay.

Thanks.

And Barbara, that's actually in the -- in the reconciliation in the package that went out.

Okay.

Thank you.

And as far as ABILIFY in Japan, we do not have marketing rights in Japan, so Otsuka Pharmaceutical is the --

Right, right.

-- is the sole marketer in that country.

So, I -- I cannot --

Okay, thank you.

I cannot comment on that there.

Okay, thank you.

Thanks, Barbara.

Allen, it looks like we have one more.

This will be our last question.

We'll go to David Moskowitz with Friedman, Billings and Ramsey.

Yes, thanks, John, for making room for me.

Just back to the PLAVIX situation, just one question on that and that is -- does this in any way affect the timing of the current court proceedings?

In other words, will this trigger the court to -- to, again, engage in litigating the case?

And then also just on the $600 million in cost savings by 2008, can you just talk about the phasing on an annual basis, wat we should look for through 2008?

Thanks.

Well, the phasing through 2008 on the $600 million, we've positioned this so that we're looking for $500 million in savings in 2007, an additional $100 million by 2008.

And on PLAVIX, we don't really have anything additional that we can comment on beyond what we've said.

If the settlement were not to be accepted, we believe the patent is valid and it's infringed.

We would continue to defend it vigorously with our partner Sanofi and we would pursue those proceedings at the appropriate time.

Okay, thanks, David.

And thanks, everybody, for joining us this morning.

As always, if you have follow-up questions, you can reach Blaine Davis or myself in -- in our New York offices.

Thank you.

And, ladies and gentlemen, that does conclude today's call.

Thank you for your participation.

You may disconnect at this time.