施貴寶 (BMY) 2014 Q2 法說會逐字稿

Good day and welcome to today's second-quarter 2014 earnings conference call.

Today's conference is being recorded.

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

These go ahead, sir.

Thanks, Aaron, and good morning, everybody.

Thanks for joining the call to review our Q2 results.

Before we get started, let me take care of the Safe Harbor language.

During the call we will make statements about the Company's future plans and prospects that constitute forward-looking statements.

Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Company's SEC filings.

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

We specifically disclaim any obligation to update forward-looking statements even if our estimates change.

We'll also discuss non-GAAP financial measures adjusted to exclude certain specified items.

Reconciliations of these non-GAAP financial measures to the most comparable GAAP measures are available at our website.

With me this morning we have Lamberto Andreotti, our Chief Executive Officer, and Charlie Bancroft, our Chief Financial Officer.

Both Lamberto and Charlie will have prepared remarks.

And then joining for Q&A, Francis Cuss, our Chief Scientific Officer, and Giovanni Caforio, our Chief Operating Officer.

Lamberto?

Thank you, John, good morning, everyone.

Well we just completed another good quarter for Bristol-Myers Squibb.

Good in terms of financial performance and good in terms of clinical results and regulatory milestones.

Overall, revenues were $3.9 billion, a 7% increase over last year, excluding the diabetes business that we still had in the second quarter of 2013.

We delivered strong growth of our key products and in particular of Eliquis and Yervoy.

For Eliquis, we continue to execute against our strategy to clearly capitalize on its differentiated and unique profile.

And we continue to see improved prescription trends generated by the increased resources we and Pfizer have been devoting to direct-to-consumer advertising in the US and to save towards expansion and peer-to-peer medical education activities in all countries.

We've also made good improvements in access.

And the label of Eliquis is expanding beyond atrial fibrillation.

We just received a positive recommendation for approval in Europe for the treatment of recurrent DVT and pulmonary embolism.

And subject to approval, the final registration should be formalized in August.

The same indication is under regulatory review in the US.

Yervoy also had a very strong performance this quarter.

It's best quarter ever with $321 million in sales, a 38% increase over last year.

We continued to see strong demand worldwide.

As we advance and expand our immuno-oncology leadership position, we continue to view Yervoy as an important component of our strategy both in monotherapy and in combination regimens.

With respect to other regulatory developments, the big news this quarter was our recent Japanese approval of our hepatitis C dual regimen, Daklinza and Sunvepra This is a significant development for this 1.2 million hepatitis C patients living in Japan, many of whom currently have no treatment options.

It was also significant for our Company, for Bristol-Myers Squibb.

We saw the first approval of our dual regimen anywhere in the world, and this is the first time that a first approval of one of our products, and in fact two products at the same time, occurred in Japan, something that underscores the global nature of our Company.

And while the Japan approval was the first, we also expect important news in other key markets starting with Europe where the CHMP has given daclatasvir a positive opinion for use with other agents.

This has also been a very important quarter for Opdivo or nivolumab, with key data presentations, new regulatory development, and new collaborations that enhance our global development portfolio.

We presented important data at ASCO regarding renal cell carcinoma, lung cancer and melanoma as monotherapy and in combination regimens.

A double-blind phase 3 Opdivo study melanoma was stopped for a very good reason.

The data were too good to keep patients on the treatment with the traditional chemotherapy to which it was compared.

In the US, we recently announced our plan to seek marketing approval for Opdivo in advanced melanoma with a filing with the FDA in the third quarter.

This is in addition to the rolling submission in lung cancer that we have previously initiated and that should be completed by the end of the year.

For Europe, we have just received confirmation this morning that the CHMP granted us accelerated assessment for metastatic melanoma.

We expect to complete our European metastatic melanoma submission in Q3.

And yesterday we completed a strategic collaboration agreement with Ono Pharmaceuticals to help address the unmet medical needs of patients with cancer in Japan, South Korea and Taiwan.

This follows the approval on or received for Opdivo in Japan making it the first PD-1 approved anywhere.

We will have more important milestones for our immuno-oncology program over the coming months, including regulatory submission and data read outs.

We are definitely uniquely positioned and we believe we can realize the potential of immuno-oncology with our deep and large portfolio and our experienced and committed people.

Taken together this was a good quarter, one that reflected our balanced approach of delivering strong results today while building a solid foundation for tomorrow.

And now I will turn the floor to Charlie.

Thank you, Lamberto, and good morning, everyone.

Overall we had a very good second quarter with strong growth across most of our key brands.

Let me provide a few highlights.

Eliquis sales were $171 million.

As Lamberto noted, our continued investments are building momentum for Eliquis around the world.

In the US, net sales for Eliquis were $94 million, up 54% from the first quarter.

Our new to brand share among cardiologists has grown nearly 8 share points since the start of the year.

Outside the US, net sales were $77 million, up 71% from the first quarter.

In addition to Germany, where Eliquis use remains strong, we are seeing robust growth elsewhere in Europe, especially Italy and France following recent launches there.

We're also seeing very good growth in Japan.

We continue to make progress in broadening our label.

We launched our ortho indication for deep vein thrombosis in the US in mid April and expect regulatory decisions for VTE treatment in the US by late August and in Europe by the end of the year.

Yervoy sales grew 38% to $321 million.

US sales were $173 million, Yervoy's best quarter since launch.

Sales outside the US totaled $148 million led by markets such as Germany, France, and just recently the UK where we have reimbursement in the first-line setting.

We also reported strong sales in Australia, Brazil and Canada.

Driven by our execution in the markets, we are seeing increased awareness about immunotherapy and more community oncologist prescribing Yervoy for the first time.

Orencia sales increased 14% to $402 million.

Orencia had a solid quarter due to higher demand in the US, Canada and South America.

Orencia SubQ has grown 60% worldwide since the same quarter last year and 18% sequentially from the first quarter as we continue to improve our performance in the first-line setting.

SubQ now account for 40% of all Orencia sales, even as the ID remains strong.

We did see softness in our virology business in the quarter.

In our HIV franchise, we are seeing increased competitive pressure for Reyataz and the continued impact of last years' loss of exclusivity for Sustiva in Europe.

For Baraclude, sales were down 1%.

Strong sequential and year-over-year growth for Baraclude in the US and Europe was offset by lower demand in China and inventory work down in Japan.

Abilify sales were $555 million during the quarter, including $97 million in Europe.

Recall that our rights to Abilify in Europe expired on June 11.

As a result, we no longer have any commercial interest in or obligations to Abilify in Europe, which has accounted for the majority of our Abilify sales outside the US.

Before moving to the rest of our P&L, let me remind everyone how we account for the diabetes transaction as this is the first full quarter since we divested our diabetes franchise in February.

We record diabetes related royalties in other income.

Due to the tiered structure of these royalties, we recorded the largest royalty income for 2014 in Q2.

These royalties are expected to decline as the year progresses.

Our other income line also includes transitional services income from AstraZeneca of over $30 million in the quarter.

We expect this income to taper off between now and the end of the year.

We also expect to book diabetes products supply revenues of about $30 million per quarter through year end.

For details about our diabetes royalty tier structure and other diabetes related revenues and expenses, please see our SEC filings.

Now let me highlight a few items from our non-GAAP P&L.

Gross margin was 75.5% during the quarter, up 110 basis points compared to the same period last year, mostly due to product mix following the divestiture of our diabetes business.

Marketing, selling and admin expenses increased 9% as our increased investments in Eliquis, Yervoy and our pre launch assets in immuno-oncology and hepatitis C were offset by reduced expenses in diabetes.

Our non-GAAP tax rate was 21.3% during the quarter compared to 13.8% for the same period last year.

The difference is due to earnings mix plus the expiration of the R&D tax credit which has not yet been extended.

I want to spend a few moments discussing business development.

Our approach has not changed.

We continue to view business development as a top priority for capital allocation and we will continue to explore opportunities to enhance our commercial and R&D portfolio.

These opportunities must meet three criteria.

They must be aligned with our diversified specialty biopharma strategy, they must have a strong scientific rationale and they must have the potential of providing a meaningful return to our shareholders.

Since last quarter we have signed several agreements to strengthen our global I/O development portfolio.

As Lamberto mentioned, yesterday we announced an agreement with Ono Pharmaceutical to jointly develop and commercialize Opdivo, Yervoy and three of our early stage I/O assets in Japan, South Korea and Taiwan.

This agreement significantly enhances our ability to pursue combination regimens with Opdivo as the foundation, since Ono previously owned exclusive rights to Opdivo in these markets.

Similarly, our recently announced agreements with Incyte and Celldex will expand a number of clinical trials involving Opdivo and other immunotherapy.

I will conclude my remarks on 2014 guidance.

Our non-GAAP EPS guidance range of $1.70 to $1.80 is unchanged.

Our guidance assumes we retain exclusivity on Baraclude sales in the US at least through the end of 2014.

It also assumes that the R&D tax credit will be extended this year.

Now, we'd be happy to address your questions.

(Operator Instructions)

Colin Bristow, Bank of America Merrill Lynch.

A little more on the business development priority front.

Given the increasing competition in the I/O space and how levered you are to this story, does this change your appetite or how you're thinking about doing deals with an I/O versus diversifying into other therapeutic areas?

Number two, on Eliquis, congrats on the results this quarter.

Can you give us a little more color on what's going well, where there's still room for improvement?

And then finally, if you could give a bit more color on what we should expect from you between now and year end in terms of data readouts and any color around (inaudible) would be helpful, thanks.

Okay, a few questions.

Let me start with BD and I don't know Charlie if you want to add something to what I'm going to say.

But on BD we -- criteria that Charlie mentioned in his remarks apply to both immuno-oncology and other areas.

So to answer your questions, we are looking at opportunities in both immuno-oncology and other areas.

And the concept is always to add -- the goal is always to add things that make our overall portfolio stronger using selective integration of external R&D and internal R&D.

The only thing I would add in regard to I/O, we are pioneers in this space, we have a lot of assets, we have deep knowledge and great science.

So we tend to be a strong partner of choice within the I/O space and we will continue to look for deals in that area that make sense that meet our criteria.

And we continue to look at ideas across the spectrum outside of I/O.

As you know we signed the iPierian deal earlier this year which is one indication of things that we're looking at.

So let's move to Eliquis.

It is -- we've always known that the strength of the Eliquis clinical data is really unmatched among the novel anticoagulants.

And we are glad that this strength is increasingly understood and is increasingly appreciated by physicians.

And the data set we are generating a [fib] is clearly very important as we bring the additional indications to the market.

Giovanni, do you want to say a few more things about --

Yes, thank you and good morning.

So we indeed had a good quarter with Eliquis in the US.

We had a very good quarter in key international markets and I'll make a couple of comments about both areas.

In the US we saw good progression and trends with a 40% increase in NBRx volume and a 50% increase in TRx volume versus the previous quarter.

Interesting notably, in cardiology which is really our area of primary focus, our NBRx share grew to 38%.

But interestingly we also started seeing really trends and progression in primary care where our NBRx share grew significantly to 28% versus the previous quarter.

What's driving our performance in the US is really first what Lamberto mentioned, the strength of our profile and our clinical data.

Second, solid execution of our strategy and I'll point to a few things.

First, we clearly have set an objective to continue to strengthen our access position.

And in the second quarter we were able to continue to make progress with formulary listing of Eliquis in now over 90% of our target hospitals.

Second on the access side, we were able to add referred status with approximately $20 million incremental lives in the US.

We had good success with Caremark and WellPoint and now we have very strong preferred access to the tune of about 60% on the commercial side and 80% on the Medicare side.

And this obviously is a development that will continue to generate growth going forward.

We have very competitive investment levels in the US and leading share of voice in cardiology and primary care.

And we continue to make investments in medical education and in DTC advertising.

Thinking about the US, as Lamberto mentioned, we have an ongoing file with the FDA for VTE treatment and we think that is a meaningful opportunity going forward.

First broadening of our label, reinforces the strength of our profile.

It also continues to result in growing our prescribers base and we consider that to be very important.

Just a couple of comments outside of the US.

We have strong performance in Europe in those markets that were imbursed first, like Germany.

We continue to make inroads against Pradaxa and Xarelto.

In other markets like France that launch recently enjoyed very strong initial uptake.

Outside of Europe in Japan, which is another one of our priority markets, you'll remember that at the beginning of the year, our initial reimbursement restriction was lifted.

Following that, we had a very rapid acceleration of our growth.

And I'm really happy to report that in terms of the dynamics segment, Eliquis is now the leading agent in terms of the ability to capture new and switch patients in the market.

We are leaders with a 40% share in the total dynamics segment.

We are leading in terms of the switch share and approaching Xarelto in terms of the new patient share, so very strong performance there as well.

Good morning, Colin.

We have an exciting second half of the year in terms of data flow.

We have the 063 results, third-line lung results coming up at the multidisciplinary symposium in thoracic oncology in October.

We're very excited about our hematological malignancies data in both non-Hodgkin's and Hodgkin's lymphoma, which we will be preventing at ASH in December.

We clearly have data coming in house for 017 and 057.

And during the next few months 069.

And as far as the CheckMate 37 and CheckMate 66 in melanoma, we are talking at the moment to our investigators to determine exactly our presentation and publication strategy.

But we're very excited about the data and we're looking forward to sharing that with the medical community over the next few months.

Great, Aaron, can we go to the next question, please?

Tim Anderson, Sanford Bernstein.

A couple questions please.

Last quarter when you announced the plans for rolling submission with nivo and lung there were a lot of questions about additional data FDA might want to see and that sort of thing.

And it felt like there wasn't much that you could say at the point -- at that point.

But here we are three months later, I'm wondering if you have any new information you can share?

And then a separate question is going back to M&A.

In terms of target sizes that Bristol is considering I'm wondering if you can bracket those for us?

Some companies have said that they'll only be pursuing small bolt-on targets.

I don't think Bristol has ever really used that language.

And related to this topic is tax inversion a realistic possibility for something that you may be seeking in any potential acquisitions?

Good morning, Tim.

Let me say that to reiterate, we started the rolling submission, we expect to complete it by the years end.

The basis of this submission is 063 data, but as you appreciate there's substantial data that [open tiered] during the second half of the year that would be available to the FDA.

But beyond saying that we've had regular and productive discussions with the FDA, I won't comment further on our regulatory timing or our strategy.

So about five of M&As we've never made statements about small size being our target and we're not going to make it today.

So we continue to use the criteria that Charlie described and looking at different sizes of opportunities.

And going back again to the criteria which Charlie described, financial criteria including a tax criteria is important but for us technology products are important and therefore tax inversion per se is not an individual target that we are going after.

Yes, I would just add that while we do understand the rationale for tax inversion strategy, including the potential tax rate improvement and increased balance sheet flexibility, there are several things from our perspective that we would consider.

And one is our tax rate is already low on a relative basis.

Two, future legislation is unclear and hard to predict in this area.

And three, as Lamberto mentioned tax is not the primary driver of our M&A strategy.

I mentioned our criteria in my remarks and I would say that only transactions that fit all three we would pursue.

Thanks, Aaron, can we go to the next question, please?

Jami Rubin, Goldman Sachs.

Francis, a couple of questions.

Your plan to file nivolumab this quarter for previously treated advanced melanoma, is there an opportunity to seek a broader melanoma label?

In other words you have additional data from your earlier phase I trials that could support a broader label.

And secondly on CheckMate 069 which I think you briefly mentioned, that's the combination phase II study, my understanding is that that trial is expected to end this month and that you'll have access to that data.

Is there an opportunity to use that data to supplement your phase III melanoma trial to include the combination?

Thanks.

Okay.

You asked the question to Francis and Francis will answer the question.

I just want to ask Francis also to speak about European submission.

Because Jami you are referring to the US submission, but the news of the morning is that we are filing this quarter also in Europe and the CHMP gave us accelerated review status for our submission.

Francis?

Thank you, Jami, good morning.

So first of all let me talk about our submission in previously treated melanoma both in the US and in Europe.

The United States, the basis of our submission is the CheckMate 37 data.

And while the 066 data we believe is very important, as you appreciate this was a study that was characterized and designed together with the CHMP.

It was conducted in Europe and Canada where the comparison was first-line therapy.

It is very striking that it shows a survival benefit against a comparator.

And of course we will be sharing it with the -- with regulatory authorities because we do believe it's important.

As far as Europe, the basis of that submission in the third quarter will be the CheckMate 37 and the CheckMate 66.

And then you mentioned about CheckMate 069.

We don't have the data.

As I said we will be getting the data in-house in the next few months.

I think its premature for me to speculate what we will do with that data until we have it and we see what it is.

Thank you.

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

Seamus Fernandez, Leerink.

I have a couple of quick questions.

First off can you update us on trends in the HIV market and what's happening specifically with Reyataz?

We're seeing some fairly precipitous declines in Reyataz sales and wanted to get an update on what your thoughts are on the market there particularly considering that product runs out to 2018.

And then separately, as we think about the -- I wanted to clarify a couple of things.

CheckMate 057, the non-squamous -- non-small cell lung cancer study.

Francis I believe you said that 057 could have data in-house towards the end of this year.

Is that an interim look at 057 and I know that it's event driven, but is that an interim look at 057 or is this actually the final look and could that be something that actually occurs next year?

And then my last question is we just noticed on www.clinicaltrials.gov you did initiate an expanded access or a program with the combination of Yervoy plus Opdivo in melanoma.

Wondering how that expanded access program works into your long-term strategy in melanoma?

Is this designed to really educate more physicians or is it going to be rolling out with the same clinical trial sites?

Thanks so much.

Seamus, this is Giovanni.

Let me take the question on HIV first.

Obviously this is a market where we have a strong presence.

We have over 35% of all of the market through our regimens.

And it is a very competitive market where we've seen the entry of a number of new competitors that are impacting the dynamics and trends there.

With respect to Reyataz, we have seen a decrease in our volume.

And TRxs in the US are down 8% in the quarter versus previous year.

That's driven really by two factors.

It's driven by the launch of new STRs and the increase penetration of STRs in early lines in the naive setting where the share of Reyataz traditionally has been quite strong.

And also it's been driven by an acceleration of the growth of integrate inhibitors.

We obviously have a number of programs in place to continue to support our product.

I would just point to the US filing for our FTC of Reyataz and Cobicistat, we think that's a meaningful opportunity.

It's under review with the FDA and obviously we're very focused on that.

Outside of the US, we see some similar trends in Europe.

But also I would say that year-to-year comparison for the international business are -- which is down 16% versus prior year, are really impacted by timing of significant vendors in our business in Brazil that are impacting both the Q2 to Q1 comparison and substantially the comparison to previous years.

Thank you, Seamus.

Let me say that the 057 non-squamous study, it is as you say an event driven study.

The timing of which is around about the end of the year because it does depend a lot on the events.

And as you appreciate as patients go longer, and hopefully get more survival benefits, the exact timing of that depends a bit on what is happening in the study.

But it is an interim analysis.

As far as the EAP for the combination is concerned, as you noted, that is now open, it's CheckMate 218.

And it is the combination of Opdivo and Yervoy in untreated melanoma patients.

But -- and that of course is to try and meet the need of patients following the excitement the CheckMate 4 data that was presented at ASCO and the unprecedented prolongation of survival in that exploratory study.

I do want to add however that in addition to the last question about 069, there's also -- we have 067, CheckMate 067 which is a phase III study in combination.

There's a big focus for us in the combination because we think it has the potential to offer unprecedented, not just duration but increase the number of patients that might have benefits.

That is a phase 3 study comparing Yervoy, Opdivo and the combination.

Primary endpoint (inaudible) most of our phase III studies has the optionality to look at shorter end points.

So the EAP program is part of just a broader approach to both monotherapy and we think importantly combination therapy.

Thank you.

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

Steve Scala, Cowen.

I have three questions.

First, Bristol typically announces NDA acceptances and not filings.

So assuming that it is ultimately accepted, do you anticipate telling us that the NDA for nivolumab in previously teated advanced melanoma has been accepted in Q3, implying the filing is very near term given the 60-day spread between acceptance and filing?

So that's the first question.

Second, sorry if I missed it but is Bristol still on track to initiate the phase III trial of nivo plus Ipi by year end in lung?

And then thirdly, when we think about the 017 trial and the severity of patients enrolled, how should we think about the survival in the docetaxel arm?

Recent trials with less sick people have shown docetaxel delivering overall survival of nine months, yet the label says four months to eight months.

Any perspective or color would be appreciated.

Thank you.

Hey, Steve, its John.

I'll take the first question.

We will -- we usually do let you know when we are planning our submissions, but our formal communication with the press release you're correct is when we issue a press release is when those filings are excepted.

So the next you'll hear from us on the US filing is when that filing is accepted.

Good morning, Steve.

So first of all let me say that the CheckMate 12 study is ongoing and it's informing us with in-house data about the design for a potential upcoming study in lung in the combination of Opdivo and Yervoy.

And I will say it's informative and we are still on track to initiate that study before the end of the year.

As far as the 017 study, I think you have to be careful.

We all have to be careful about comparing different patient populations in different studies because it can often be misleading.

So for instance, you brought up the example of the REVEL study.

And I think in the REVEL study the patient population that is normally contraindicated for angiogenesis therapy was actually not included in that study.

That was about we believe about 25% of the lung cancer population has a lower functional ability and might well explain if that excluded why docetaxel actually looked better in that study.

But I think the general message is, we are comfortable with the population we have in the 017 study.

We think it's a good population to represent the potential we believe Opdivo has for prolonging survival and showing overall survival in lung cancer.

Thank you.

Great, Aaron, can we go to the next question, please?

Mark Schoenebaum, ISI Group.

The first one, Gilead and AbbVie tend to get all the attention hep C, but looks like you'll be a major player in the US market within a year or so.

So I was wondering if you could in some kind of a general sense talk about your philosophy in using price to compete in the hepatitis C market, if that's possible?

Number -- my second question please, if I may, is I believe you've talked a little bit publicly now about the statistical techniques being used in the squamous second-line nivolumab trial that may increase the probability of detecting a signal in that trial that is increasing the probability of success.

Perhaps you could explain that to us, what that statistical technique is and why it might enhance your ability to detect a late tail?

And the third one is very simple, you mentioned non-Hodgkin's lymphoma at ASH this year, I was wondering if you could tell us without -- obviously without revealing details of the data.

But if you could tell us whether or not you think you've seen a convincing signal in NHL or not, that would be interesting.

Thank you.

Giovanni will -- this is Lamberto, Giovanni will tell you a few things about our plans for hep C, but one thing for sure that we'll not tell you is about -- anything about prices, Mark.

And it is clear but we will not disclose anything about prices until we reach the market and there's a lot of attention we're giving to this subject internally before we take final decision.

Yes, Mark, a couple of comments, and this is Giovanni, a couple of comments on hep C. So as we've discussed before, we have clearly a global strategy in hep C that's centered around daclatasvir as an ideal component of multiple regimens.

But we also have in that context specific regional strategies.

And we've made progress across the board during the quarter.

So obviously Japan is the number one priority for us because of the approval of the dual and the significant unmet medical need in genotype 1b patients in Japan.

We are conducting, as we speak, pricing negotiations in Japan and we are confident that we would be ready to launch at the beginning of September.

And that clearly we see as a very significant opportunity for us.

We received CHMP positive opinion for the use of daclatasvir in Europe in combination with multiple other agents.

And we believe there are opportunities in Europe with daclatasvir because of the existence of segments of the population of high unmet medical need that particularly were suited to the use of daclatasvir in combination with sofosbuvir and potentially other agents.

And obviously we're getting ready to launch in Europe.

And as you know we do have an ongoing filing with the FDA for our dual regimen and we see that as an important event as well.

Good morning, Mark.

I think there's two elements to the analysis question, both of which have been much informed by our long experience with Yervoy.

The first one is the timing of the analysis and the other as you say is the analytical model.

Let me take the analytical model first of all.

Traditionally median overall survival has been used to measure the effects on (inaudible) as we've shown with Yervoy and we're beginning to see now with our Opdivo.

Much of the benefits, if you're looking for durable responses and overall survival, is seen in the bottom part of the curve later on in the critical trial.

So we used the proportional hazard ratio to make sure we capture that survival benefit.

Now the other issue of course is if you don't wait long enough for patients in the study you run the risk of missing that benefit because you've analyzed it too soon.

So again our experience here is very important both to understand the model and to start the right time to the study.

And of course that was why we moved back the indication of the timing because we're able to shift our model and understand how to do that.

As far as non-Hodgkin's lymphoma at ASH, let me make the general comment that we're getting increasingly excited about our portfolio in hematological malignancies.

Certainly in terms of Opdivo you will be seeing data at ASH for non-Hodgkin's and Hodgkin's lymphoma.

I think you'll have to make your own judgment about that.

But what I will say is we were interested enough, excited enough by that data to start our mid stage studies, which I will say are recruiting very well.

But we also have a combination study ongoing with Sprycel in CML and of course we have our elotuzumab, which again in multiple myeloma gives us real opportunity.

So we're very excited overall about the expansion of our position in hematological malignancies, thank you.

Next question, please, Aaron.

Vamil Divan, Credit Suisse.

A couple on the nivo, you mentioned interim looks for 017 and 057.

My question is, are there futility analyses incorporated into those interim looks or can they only be stopped if there are clear signs of superiority for the active agents?

And then the second one on hep C, congrats there again on the Japan news you mentioned.

You talk a lot about the near-term opportunity, but longer term if you can touch on what you see as the longevity of the market?

And do you see yourself being a player over the long term in that space, and if so, do you need to do further investment in terms of acquiring new or some other assets beyond what you have in your control right now?

Thanks.

So do you want to start with hep C?

We are -- we consider virology as one area of focus for us because of our presence in HIV, our presence in the hepatitis B and our presence now in hepatitis C. And it is clear that we continue to look at opportunities also of investing in that area.

And again I don't want to repeat again but I will, but we have the criteria that Charlie mentioned before that if we keep in mind.

And they apply also to virology.

Virology remains an area of focus for us.

Thank you, Vamil.

All our large studies have data monitoring committees in them who would obviously look at the safety of the product.

And of course in the case of 066, they were looking at that and it turned out it was stopped because Opdivo was actually superior.

What I would say and I think it's a very important point is even though this in www.clinicaltrials.gov says it's an open study, we are keeping blind to this.

So we do not see what is going on in the study and I think that's an important point.

Thank you.

Next question, please.

Chris Schott, JPMorgan.

The first one is as we think up to the Opdivo launch next year in melanoma and lung, can you help us think a little bit and frame this comparing and contrasting how you see this launch and its dynamics relative to what we saw with Yervoy and melanoma back in 2001?

Trying to understand how you're seeing those two launches comparing to another.

The second question was if you could elaborate on some of your earlier comments regarding increased usage of Yervoy with community oncologist.

Can you update us a little bit in terms of the mix of usage you're seeing here in terms of community versus the centers, maybe also breakdown of front-line and second-line.

And finally a third quick one.

2015 expenses, is there any factors we should keep in mind as we're thinking about our model here?

Specifically should we think about a lot more in the way of SG&A as you prepare for the Opdivo rollout?

Trying to get my hands around how you're thinking about spend going forward.

Thanks very much.

Yes, this is Giovanni.

Let me start on Yervoy and Opdivo launches.

Maybe I'll start from your second question regarding the performance of Yervoy.

Community -- the community business in the US specifically now represents approximately 60% of our sales.

It is continuing to grow significantly and it actually accounts for a meaningful part of the growth we've experienced in the quarter as Lamberto and Charlie mentioned in introductory remarks.

We had a very strong quarter in the US, the strongest quarter since launch with very good growth versus last year but also versus Q1.

With respect to the use of Yervoy today, I would say that we have approximately a 40% share of the market when you look at the totality of the market.

Our share is significantly higher in the BRAF wild-type segment of the market where virtually all of our use is in first-line.

And obviously our share is lower in the BRAF mutant segment of the market where we see more Yervoy being used in second-line.

Thinking about the launch of Opdivo next year in lung and melanoma, I think there are a number of parallels to the launch of Yervoy.

Because we have developed a really good understanding of how to effectively educate physicians in the community setting and in the academic institutions about the use of immuno-oncology agents.

We've been very successful in doing that with Yervoy and clearly have developed the ability to do that when we launch Opdivo as well.

There obviously will be some differences because the prescribing population for lung for example is broader.

It's a larger number of physicians, they tend to be based more in the community versus melanoma and they have not had as much experience with immuno-oncology agents.

So we obviously will do the same thing we did in 2011 when we launched Yervoy.

We will begin to educate physicians on the value of immunotherapy options, the long-term survival opportunity and we will follow the same model.

Within melanoma obviously prescribing physicians are very knowledgeable.

They are prescribers of Yervoy, believers in Yervoy.

We have a good organization in place that can begin to promote Opdivo when that is approved.

I would just mentioned that obviously we are making all of the right investment.

We've increased the size of our teams and we are preparing actively for launch for Opdivo.

Quickly on 2015 expenses, as you know we don't give out forward guidance.

I would say though that we are committed to making all the right investments as we think about our business moving forward.

Particularly as you think about I/O and hepatitis C both on the R&D side and as Giovanni just mentioned on the commercial side.

We also always are looking at where can we find savings across our P&L that really weren't directly focused on the areas that we think are going to drive long-term growth.

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

Jeff Holford, Jefferies.

The first one is around 2015 earnings.

You can see the consensus is looking for EPS around $1.71 next year.

This is at $1.78 this year in consensus now.

Given the repeated comments you've been making regarding SG&A and what you've already cut from behind Abilify, do you think consensus has fully appreciated these given the sell side models that you see?

And secondly I wanted to also ask because I haven't really heard you specifically talk about it, we think Roche might be moving forward quite rapidly in the triple negative breast cancer segment with immuno-oncology with their PDL1.

Is this an indication that you've looked at and you think could be interesting for ipilimumab?

Thank you.

(Inaudible) it's a bit too early to speak about it and we will issue guidance as usual at the right time.

So our apologies, but we'll not address your question 2015.

And I think in terms of our ongoing studies Jeff, we have a lot of studies early on.

Triple negative breast but also in gastric, [cellular] pancreatic and so on and so forth.

So we acknowledge there's a lot of medical need and a great opportunity to go broad here.

So we're looking at all of these and obviously we'll move stuff forward as we are ready have in the last few months if we feel there's a real opportunity there.

Thank you.

I think Aaron, we have time for two more questions.

Marc Goodman, UBS.

Same kind of question, a little differently.

When you think about R&D and investing in R&D over the next couple of years obviously we're going to have the sales lines starting to ramp-up with I/O and hep C. So are you going to take advantage of that opportunity and increase R&D more or do you feel like that mid single-digit growth the next couple of years is probably appropriate?

Second question is, can you help us on the tax rate and how we should think about third quarter versus fourth quarter and the dramatic difference to get to your 2018 guidance?

I don't know if Francis asked you to ask this question about his R&D budget for the next few years, (laughter) but for sure we will continue to invest in all opportunities we find, worth investing in we've done it over the last few years and we continue to do it.

So our idea is not to decide on R&D expenses based on the percent but just save that we can afford but on the value of our programs.

Want to speak about tax?

Yes, I would briefly Marc regarding the tax rate, our tax rate is primarily a function of earnings mix.

But I would say for 2014, a big component is the R&D tax credit which hasn't been extended yet by Congress.

So that's why you'll see some fluctuation.

So through the first two quarters, it doesn't reflect the benefit of the R&D tax credit, it will only reflect that once that legislation has passed.

And our last question, Aaron, please.

Alex Arfaei, BMO Capital Markets.

A couple quick follow ups.

Have you picked a dose for the Yervoy, nivo combo in the phase III non-small cell lung cancer?

You mentioned that you're following CheckMate 12, but I'm wondering if you're closer to finding the right dose there.

And could you comment or elaborate a little bit more on the hep C opportunity in Japan with some more specifics?

It looks like you have the market to yourself for about a year.

If I recall it's a more advanced cohort of patients with a greater unmet need.

So if you could give us more color on how we should think about that opportunity in the near term it would be great.

Thank you.

Alex, thank you very much.

Basically as I said, the CheckMate 12 is very informative.

We are designing the study, we're on track and I think you'll go to read about the study design and the dose in www.clinicaltrials.gov when it's actually published.

Thank you.

And with respect, this is Giovanni, with respect to the hep C opportunity in Japan, yes, we are very focused on it.

It is a meaningful opportunity.

We are first in the market, the unmet medical need is very high.

Approximately 1.2 million patients in Japan, 70% of them with genotype 1b.

A population that is disproportionately elderly and intolerant to interferon in Japan.

We are launching the dual starting from a very strong position because of our leadership position in hepatitis in Japan and a very high market share we have with Baraclude.

That's one of the largest markets around the world for us for that brand.

And we've made the right investments in order to have the right organization in place to launch.

We believe that our dual is particularly well suited to address the unmet medical need of patients in Japan.

As I said we are negotiating pricing.

Obviously we will be targeting at the beginning those patients that have already been diagnosed that are already actively seeking treatment.

There is approximately 150,000 patients that are currently seeking physicians and are seeking a treatment option.

There is a second segments of the population of approximately the same size which is also diagnosed but not actively being seen by physicians.

So that's an opportunity for us as well.

And obviously in the medium term, the full population represents a significant opportunity for us as well, but we will be really thinking about the different stages of the launch in very rapid sequence there.

Thank you., Giovanni.

Well again, we had a good second quarter, good in terms of financial performance as well as clinical results and regulatory milestones.

We thank you for participating in this call, and wish you a good day.

Thank you.

Thanks, Lamberto, Giovanni, Francis and Charlie and everybody for joining the call.

As always if you have any follow-up questions please give me a call or Ranya or Ryan.

Have a good day.

This does conclude today's conference.

We thank you for your participation.