施貴寶 (BMY) 2014 Q4 法說會逐字稿

Good morning.

My name is Candace, and I will be your conference operator today.

At this time, I would like to welcome everyone to the Bristol-Myers 2014 fourth-quarter results conference call.

(Operator Instructions)

Thank you.

Mr. John Elicker, you may begin your conference.

Thanks, Candace, and good morning, everybody.

My apologies for any of you who had difficulty dialing into the call.

There was some confusion around the start date, but this -- I think we're ready to go at this point.

We are here to discuss our Q4 earnings, and as well we had issued our 2015 guidance.

With me this morning are Lamberto Andreotti, our CEO; Giovanni Caforio, our Chief Operating Officer; Charlie Bancroft, our Chief Financial Officer; and Francis Cuss, our Chief Scientific Officer.

Lamberto, Giovanni and Charlie will have some brief prepared remarks, and then we'll go to your questions.

First, I will 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 will 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.

Lamberto?

Well, thank you, John.

Good morning, everyone.

First, as you all know, we announced last week that, effective May 5, I will be retiring as CEO of Bristol-Myers Squibb, while remaining on our Board of Directors and becoming its Chairman, replacing Jim Cornelius.

Jim's role in our Company has been transformational and outstanding, and I feel honored to have worked with him for many years, and now to take over for him as Chairman.

I'm very pleased that Giovanni -- Giovanni Caforio -- will be my successor as CEO.

Giovanni is a global business leader with broad industry and management experience, including a solid background in oncology.

He is also a trained physician who brings to his work an important perspective and [certain] insights.

Importantly, Giovanni has not only been a key player in developing our strategy these past several years, he has also been one of the driving forces executing against it.

So, I feel very good about leaving our Company in his very capable hands.

I am going to ask Giovanni and Charlie to walk you through our fourth-quarter results; but before I do that, I will speak for a few minutes about some of the highlights of the past year, because 2014 was, without question, an important year for Bristol-Myers Squibb.

I am very pleased and very proud about it.

In 2014, we accelerated our evolution to being a diversified, specialty biopharma company, beginning with the completion of the divestiture of our diabetes business.

Under Giovanni's leadership, we have refocused our commercial organization to optimize global brand [and] markets.

This allowed us to drive strong sales across our portfolio and across the world.

In fact, our commercial organization had a good year, delivering 6% sales growth, excluding the diabetes franchise.

These changes position us well for continued success with our portfolio of marketed and pipeline products.

Under Francis's leadership, our organization -- [R&D] organization -- also had a good year, most notably with respect to our immuno-oncology portfolio, gaining approval of Opdivo in the US for melanoma, and with the early stoppage of two Opdivo studies in melanoma and lung due to very positive results.

These developments underscore the strength of our I-O strategy and our I-O programs, and the importance of continuing to apply the same strategy.

Beyond I-O, we made good progress across the rest of our diversified portfolio.

Just to mention a few examples, we obtained an important label expansion for Eliquis.

We continue to develop interesting (inaudible) [acids] in immunoscience and HIV.

We executed several business development transactions to make our I-O portfolio even stronger, and to build the rest of our specialty portfolio in areas like [fibrosis] and genetically defined diseases.

We committed significant resources to increase our biologics capacity, announcing strategic investments to expand our Devens, Massachusetts, facility, and build a new plant, a totally new plant in Ireland.

Biologics now comprise about 50% of our R&D portfolio, and that number will continue to grow.

So, taking them both together, 2014 was a good, important year for us, and expect a strength of the strong foundation for our future; financially, commercially, clinically -- by every indication -- Bristol-Myers Squibb is well positioned.

We will, of course, continue to face challenges, such as the [oncoming] losses of exclusivity, and a very competitive marketplace.

But we have the right products, the right plants and the right people to find our way through it all; in that, I have no doubt.

And because we are in such good position, I feel that my decision to retire as CEO, and to accept the proposal from our Board to become Chairman, comes at the right time.

And again, I'm very confident in Giovanni's ability to lead Bristol-Myers Squibb, to build on our success over the past several years, and to take our Company forward, with the support of the outstanding management team that I had the pleasure of putting together [and leading].

So, with that, I will turn the floor over to Giovanni to provide our Q4 results.

Giovanni?

Thank you, Lamberto, and good morning, everyone.

Let me begin by thanking Lamberto for his kind words of support, and more generally for his exceptional leadership over the last several years.

He has led our Company at a pivotal time, navigating us through a challenging but exciting biopharma transformation, and leading us to our current position of strength.

I'm looking forward to continuing our work together as we transition into our new roles.

So, as Lamberto discussed, 2014 was a very good year that ended on a very good note.

During the fourth quarter, we delivered 9% sales growth across our diversified portfolio and across our key markets, excluding our diabetes franchise and the impact of foreign exchange.

Let me touch on some of the highlights.

First, Yervoy had a very good quarter, with a 41% increase.

In the US, this strong performance was driven by continued penetration in the community sector.

Outside the US, it was driven largely by its first-line indication and improved access.

Even with our success in 2014, we recognize that the melanoma market dynamics will continue to evolve following the launch of Opdivo.

While this may impact Yervoy's short-term trends, we are very well positioned.

In monotherapy, both our products have demonstrated overall survival; and in combination, they have the potential to offer long-term survival to the largest number of patients.

Eliquis had its best quarter ever, with $281 million in sales.

In the US, the expansion of the label was a key reason why sales grew 20% over the previous quarter.

And we continued to make good progress in new-to-brand prescriptions by cardiologists.

Outside the US, we also made good progress, particularly in Germany and Japan.

Looking forward, we have every reason to believe that Eliquis's strong performance trends will continue.

Regarding hepatitis C, we had a really good quarter.

Generally speaking, our strategy is to focus on difficult-to-treat patients, and the unique medical needs of each market.

We made important progress in Japan, with our dual regimen, and in Europe, where Daklinza is approved in combinations, including Sovaldi.

In the US, we are working with the FDA, and expect to be able to resubmit Daklinza based on data from completed and ongoing studies.

And lastly, we are very excited about the US approval of Opdivo.

Our commercial organization was more than ready to go at the time of approval.

Shipments were ready by year's end, and our people have hit the ground running.

We are leveraging Yervoy's established commercial presence, building on our strong relationships with physicians and payers.

In fact, our commercial organization is actively promoting Opdivo; and within the first two weeks, we reached nearly 100% of the top accounts, and already have a 70% share of voice within the melanoma market.

And while it is early, we are making good progress with Access.

Although we are primarily focused on Opdivo for melanoma in the US, and hopefully soon in Europe, following our O-63 and O-17 announcements, we are also preparing for potential approvals in lung later this year.

Charlie will talk about our 2014 financials and our outlook for 2015.

But let me close with a few words about the coming year.

Clearly, 2015, like every year, will have its challenges and its opportunities; that's a given.

But I am confident that we will successfully find our way through it all by continuing to execute against our strategy, and by maintaining our balanced approach of driving results today while setting the stage for tomorrow.

That means growth of our marketed products, strong product launches and continued investments in our portfolio of the future.

And that means continuing to focus on leadership in immuno-oncology as a priority, but also remembering that we are a diversified, specialty biopharma company, one with multiple products across multiple therapeutic areas.

And with that, I will turn the floor over to Charlie.

Thank you, Giovanni.

Good morning, everyone.

I will discuss a few items from our fourth-quarter non-GAAP P&L and our outlook for 2015.

As Giovanni covered some of the highlights on sales, I will make just a few additional comments regarding revenues during the quarter.

First, Eliquis sales were reduced by approximately $15 million in gross to net adjustments for the Medicare coverage gap.

Sustiva benefited from a $30-million annual equity share true-up related to Atripla.

And finally, our net revenues for Plavix and [abraproavolide], which are captured under mature products, benefited from a $36-million reduction in our returns reserve.

With the dollar strengthening, foreign exchange had an unfavorable impact on both the top and bottom lines.

Compared to the same quarter last year, the negative impact was 3% on sales and approximately $0.03 on EPS.

Gross margin was 78% during the quarter, up 440 basis points compared to the same period last year, mostly due to product mix following the divestiture of our global diabetes business.

Marketing, selling and admin expenses increased about 9% in the quarter due, in part, to increased investments in key brands, including Eliquis, Yervoy, Opdivo, and our HCV franchise.

R&D expenses increased primarily due to timing of spending across our R&D portfolio.

Our non-GAAP tax rate was 10% during the quarter compared to almost 18% during the same period last year.

Our Q4 rate reflects a full year of the R&D tax credit, which was just extended in December.

Now I'd like to spend a few moments discussing capital allocation.

We will continue our balanced approach to using our capital.

We feel good about the strength of our balance sheet and the flexibilities these resources give us to make important investment decisions.

We continue to see business development as a top priority, and also remain committed to the dividend, which was recently increased for the sixth year in a row.

In regard to business development, we believe that innovation must be sourced both internally and externally.

We continue to look for BD opportunities that can help deliver long-term growth within our core areas of interest.

We are committed to fully advancing our leading immuno-oncology portfolio.

Our clinical collaboration strategy reflects our belief that combination therapy will be a key component of I-O in the future, and that we are open to exploring external I-O opportunities.

Since the end of Q3, we have announced four additional clinical collaborations, including Opdivo.

Overall, we have nine clinical collaborations that study Opdivo in more than a dozen tumor types.

In addition to these I-O collaborations, we also signed several deals that will strengthen our specialty portfolio.

We will continue to develop and diversify our R&D and commercial portfolios, focusing on high-quality opportunities that are closely aligned with our diversified specialty biopharma strategy.

I will now move to 2015 guidance.

We are setting our non-GAAP EPS guidance range at $1.55 to $1.70.

This range assumes current exchange rates and continuation of the R&D tax credit in 2015.

As a reminder, there are several factors to keep in mind which will have an impact on our 2015 revenues.

Our rights to Abilify in the US, and most remaining international markets, expire in April.

Abilify is a high-margin product, as we record our share of revenues without any meaningful associated costs.

We will see a full year's impact on Baraclude sales in the US due to the loss of exclusivity last year.

As we previously mentioned, we expect a negative impact on EPS of roughly $0.10 in 2015.

As I commented during our October earnings call, revenues from mature products and other non-core assets will decline significantly this year due to a one-time step down of about $400 million related to expiring agreements.

In addition, I remind you that this is a declining business.

As you all know, the US dollar has strengthened against almost all currencies from 2014 average rates, and quite a bit just in January.

Based on current FX rates, this will negatively impact our 2015 revenues by approximately $800 million, and $0.12 to $0.14 on earnings per share.

On the other hand, we expect continued growth in 2015 from the rest of our portfolio, where we are seeing strong [exit] trends that we believe will continue.

We are also very encouraged by the accelerated approval of Opdivo to treat advanced melanoma in the US, and hope to receive approvals in other countries and other tumors in 2015.

We expect our full-year gross margin to be approximately 74% in 2015.

Our gross margin continues to be largely driven by product mix, loss of exclusivity, and the structure of our co-promotion agreement for Eliquis.

We expect these downward pressures to be partially offset by the growth of new products, including Opdivo and our HCV portfolio.

You will see our line-item guidance for A&P, MS&A and R&D in our press release.

Our operating expense projections reflect our new operating model, following the divestiture of our global diabetes alliance early last year.

We remain committed to investing in key opportunities, including our late-stage pipeline, and the launch of Opdivo in the US in advanced melanoma, and potential subsequent launches in other regions and indications.

We also continue to drive growth of our priority brands, including Yervoy, Eliquis, Orencia and Sprycel.

We will, however, continue to be prudent with our resources on our older brands, and leverage our specialty model.

Our operating expenses outside the US will also be affected by prevailing exchange rates.

On the R&D side, we expect to spend less in 2015, primarily due to decreased spending on diabetes clinical trials.

Now we'd be happy to address your questions.

Candace, I think we're ready to go to the Q&A.

And, everybody, I'd just remind you that, in addition to Lamberto, Giovanni and Charlie, Francis is here to take any questions you might have.

Candace?

(Operator Instructions)

First question comes from Tim Anderson with Bernstein.

Your line is now open.

Thank you.

A few questions if I could.

Can you just outline for us when we might see human data on the next round of the various checkpoint modulators that you have?

Second question is just an update on the nivolumab and Yervoy trial in lung and when that Phase III will be starting and do you have the data from the earlier stage studies in hand to pick the dose?

So anything on that topic would be helpful.

And then last question, just an update on the timing of elotuzumab second line trial in multiple myeloma?

Good morning, Ted.

Happy New Year.

First of all, let me start, I think, between elotuzumab -- let me start from the back.

Our Eliquis II study, which is in relapsing, it's the second-line relapsing, multiple myeloma, is on track for us to see data in the first half of this year.

It's obviously premature to discuss [rakechee] strategy, but obviously if the data is positive, we will be seeking to submit this around the world.

As far as an update on the nivo -- I'm sorry, the Opdivo/Yervoy Phase III study first-line in lung, what I will say is we've completed the design phase of this.

We are on track to initiate.

We are not providing any further detail on the details, although I will say, too, it's a comprehensive study.

It's in a broad lung population, both in terms of histologies and biomarkers, and we'll be using different doses from the tumors we've so far initiated, combination studies.

We believe this combination does have the potential to provide incremental benefit across the broad lung cancer population.

And as far as the earlier studies in other -- the other four compounds we have in development, what I would say is they are progressing, those exploratory studies.

We will be seeing data this year.

We've not decided yet whether we will actually share that data publicly, because of the intense competitive situation, but obviously, like we have during last year, if we see interesting data, we would be moving fast to potentially registration studies and, of course, you'll be able to see that in clinical trials.

Thanks, Tim, for the questions.

Candace?

Next question comes from Mark Schoenebaum, Evercore ISI.

Your line is now open.

Yes, thank you very much for taking my question.

I'd like to offer my congratulations to Lamberto on a fantastic job and best wishes to Giovanni on his next steps.

If I may also ask on the I-O franchise, if you could just remind us timelines for the 057 trial in the non-squamous population.

When your best estimate is for when you'll have data from the interim analysis.

And then I was wondering if you were willing to provide any color about your filing strategy for nivolumab in the second line lung cancer setting now that you have one positive trial, obviously, in the squamous population?

And then just a broader question.

The PBMs have been, in pairs, have been very focused on Hepatitis C and now they seem to be setting their sights on oncology.

And I was just wondering if being --the Company launching probably the highest profile oncology drugs right now, if you had any reaction to that?

Thank you so much.

Well, Mark, first of all, thank you for your nice words.

I hope I will make one of your (inaudible) and with same comments.

Before Francis replies to your first two questions and Charlie and Giovanni to your third question, let me beg you for opportunity of saying a few things quickly about immunotherapy.

Because in the last few weeks, we had -- well, the last few weeks have really been very exciting for us at BMS, and obviously for the patients.

And while I'm really glad to see that the potential immunotherapy coming to fruition, first with Yervoy and now with Opdivo, some of the strategic choice that we made when we faced our development program are putting us now in what we believe is a very strong competitive position.

We have always felt that it was important to address the broadest set of patients as possible.

We have also always believed in the importance of demonstrating overall survival.

This is what counts for patients, physicians and payers.

And at the same time, we have built -- our IND people have built optionality into our clinical trial.

So while the trials were designed to show survival, overall survival, we have flexibility in evaluating our end points when they can accelerate the program.

And finally, we have also always believed in the important role for both monotherapy and combination regimens.

I said all this because I believe that the recent results of our studies are validating our strategy.

And now, Francis, you want to answer the question of 057 and [nivocyclomab.]

Thank you, Mark.

Good morning.

Obviously I was very pleased when the 017 study second-line squamous study was stopped early.

We are reviewing the data in-house and with our experts in lung cancer outside the Company.

We will be sharing the data with numerous regulatory authorities and we believe it's a very important event as both the patients and for BMS.

We've not made yet a decision when and where we will be presenting that data.

As far as 057 is concerned, as you're aware, this is an event-driven study which means that the patients -- the interim study will be triggered once we've reached the right number of events.

It's also a different population to the squamous population in the sense that there are more therapeutic options for these patients and they tend to do better with chemotherapy.

So that's why that's running behind the 017 study.

We obviously remain very confident about our trials for (inaudible), the potential for Opdivo in lung cancer, but obviously, like every other study, I'm looking forward to actually seeing the data before we can comment on what we'll do next.

Mark, this is Giovanni.

Thank you for your comments.

With respect to the PBMs and fighting and access in general.

First of all, let me say that we've been operating in an environment where the headwinds from a pricing headwind reimbursement perspective for quite some time.

We understand that will continue, including the US.

A good example for us is Yervoy, where, over the last few years, we were able to work with payers around the world very proactively and effectively.

And Yervoy today is really reimbursed in every market around the world according to label and access for patients has not been an issue.

So when we think about this issue going forward, obviously the first starting point is to have two differentiating data and product profiles and that's one of the reasons why, for example, as Lamberto mentioned, we are focused on overall survival as an endpoint for our trials.

The second one really is working collaboratively with payers around the world.

We have very strong history of having done that in the past and we continue to look at that as a priority for us.

The third one is we price our products based on the value they offer to patients and the healthcare system.

And as importantly, we have in the US and other parts of the world, one of the most comprehensive and most effective reimbursement in patient support program in oncology and in the industry.

So we are very focused on pricing and access.

We are investing in these area, and we are going to be proactively addressing every one of the area I mentioned.

Thanks, Mark, for the questions.

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

Next question comes from Jami Rubin with Goldman Sachs.

Your line is now open.

Thank you, and I offer my congratulations to Giovanni and Lamberto.

Fantastic job.

It's been a pleasure and I'm sure we'll continue to see each other.

But question for you, Francis.

I'm wondering if you could share your observations about Merck's lung strategy?

How your lung data and indications might compare to theirs?

They seem to have breakthrough designation in a population that accounts for 70% to 80% of lung compared to what we've seen with you guys so far, so I'm wondering if you could just comment on that.

And secondly, can you help us to think about -- and maybe, Giovanni, this is for you -- help us to think about the launch trajectory of this drug Opdivo.

How do we think about -- clearly, what's going to drive sales will be label expansion.

And how do we think about the timing for label expansion?

And are you going to the FDA with 017 now or are you planning to wait for the 057, the 057 to report out?

Thanks very much.

Thank you, Jami.

Happy New Year to you.

I'm not going to comment, really, on Merck's strategy but I would like to take the opportunity to comment on ours.

We have a very broad developed strategy in lung cancer.

As you know, we have ten ongoing studies.

We have an11th just about to start; that's the first-line combination study.

And it's basically all populations, all histology, all lines of therapy and both PD-L1 positive and negative.

So it's a very comprehensive study, and I think it's important to note that we have actually made significant progress over the last year.

I think I told you all a year ago, it's going to be a big year for data for Opdivo, and we would know more about Opdivo at the end of the year and I think we've shown that, particularly the last few weeks, which has been very exciting.

So we completed the rolling submissions for the third-line study in the United States.

And just to remind you, we did make a submission, have it validated in Europe around the middle of the year.

As you've heard on the call, a couple of weeks ago we announced the squamous study had been stopped because Opdivo was superior in terms of overall survival.

And overall survival, we believe, is the gold standard in cancer and a very important attribute we believe for I-O agents such as Opdivo.

And, of course, this marks the first time that any PD-1 has shown overall survival in cancer; it's not the first time we've shown superiority.

We, of course, showed it earlier last year in melanoma as well.

And as I just noted before, we are moving forward with the events proceeding in the non-squamous population and we will -- we should, if our projections are right, get to that by the middle of the year.

We also have a first-line study underway.

That started about a year ago.

It is in PD-L1 positive patients and it's our intent to go beat chemotherapy doublets in first-line, as we have already done in melanoma and in second-line squamous.

And just to round it out, I did mention, again, we will be starting a comprehensive study in first-line with our combination in this half of the year.

So a very broad program.

I'm confident by the end of this next 12 months, we are going to have approval in lung, and that we will have increasing submissions around the world.

Thank you very much.

Jami, this is Giovanni.

Thank you.

So with respect to launches and expectations for uptake, let me maybe start by saying we're really excited about the approval we have received at the end of December in advanced melanoma for Opdivo.

And we started working on the launch and executing the launch immediately after the approval by year-end.

We already had shipments in the market and our teams were actively promoting.

And while it clearly is early, we are very pleased that we have already reached about 100% of our work, most important targets, and we have a very high 70% market share voice in melanoma.

That reflects the fact that we have been successfully commercializing Yervoy over the last few years and we gained a lot of experience in immuno-oncology and in the US market in particular.

So as we think about the future, obviously, we are ready for potential future launches later this year in lung in the US, but we are also ready for launches in melanoma in lung in Europe, another key market.

And we've made a lot of the investments needed in order to make sure that our teams were properly staffed and ready to go.

Obviously, we will follow a very similar strategy of educating physicians on Opdivo, immunotherapy, and the strength of our data.

I think it's important to remember that there is a significant percentage of the [land]-prescribing community which is different from the melanoma-prescribing community.

And as a result of that, those physicians are probably at the beginning of their learning curve with respect to immuno-oncology.

And I think it would be important for us to do the same education we need four years ago when we launched in melanoma.

When you put all of those things together, we're very optimistic about the future, but we obviously realize that there is significant variability in 2015 because of timing of potential launches, the evolution of the label, and the speed of uptake in different tumor types.

Thanks, Jami, for the questions.

Candace, can we go to the next one, please?

Next question comes from Seamus Fernandez with Leerink.

Your line is now open.

Thanks very much.

Thanks for the questions and congratulations, Lamberto and Giovanni.

And congratulations to the whole team on the success of 017.

As we think about the opportunity for potentially accelerating uptake of Opdivo, the current indication is quite small.

The third line indication in lung also is quite small, at this point, but as we speak with payers, their feedback is that the incorporation of any of these products into the NCCN guidelines or perhaps into a compendia listing could be critical to gaining access and allowing physicians to prescribe more broadly.

Can you talk a little bit about how that typically lines up without an FDA label?

And if there is an opportunity, in your view -- perhaps Giovanni could answer this one -- to see that move forward?

And then separately, on a bigger-picture perspective, perhaps both Lamberto and Francis could comment on this a bit, but the focus on immuno-oncology has been extremely successful.

As you seek to build out in other areas, what are the areas of focus?

We've seen GDD, the genetic disorders, as a focus or derived diseases as a focus and also fibrosis?

Is that really the direction we should see the Company focused towards, and what types of business development would you anticipate going forward?

Thanks a lot.

Thanks, Seamus.

This is Giovanni.

Just to answer your first question on NCCN guidelines and compendia listing, obviously, we are focused on delivering data from a number of Phase III well-controlled clinical trials with overall survival as the primary endpoint.

And we believe that over time, as the data evolve, it is very likely that the NCCN and other groups may include that data in their guidelines and recommendations.

From our perspective, obviously, in terms of our promotional efforts, we will focus on the label indication, but as we've seen in oncology, the strength of the data that emerges is often reflected in guidelines and pathways.

And about the differentiation of our specialty portfolio, Seamus, I will let Francis discuss the different alternatives, but it is clear that our first goal has been that of making I-O presence, our I-O presence strong and deep and wide.

And we've continued to go in that direction.

But at the same time, we believe that what we are doing in GDD, in fibrosis, in immunology, and in biology to a certain extent, are all possible new areas in which we can follow the same strategy.

So strong internal R&D, acquisitions of technologies, products and an inclusion of research groups into our own pipeline and team and collaboration with other companies.

We are not, at this point, choosing one of the areas because it's premature to do so, so we are working on in different directions with the same approach that seems to have worked out well for immuno-oncology.

Francis?

Good morning, Seamus.

Let me say we are very excited about what's going on outside of I-O.

And so, for instance, at the end of last year we moved an HIV attachment inhibitor novel compound in Phase III.

And, of course, this year, we're going to be exploring further the immuno-stimulation in virology that our platform allows us to do in immunocytes.

In addition, our explorable polio immunocytes is progressing well, that's both biologics and small molecules.

As you've seen we've expanded our portfolio in fibrosis with a couple of year-end business development deals, one with [Kerapin], one with Galecto.

And during 2014, we moved a number of very novel compounds into the clinic.

And I think it has epitomized, really, our approach to this what we did in GDD, where we brought forward an [anti-tal] antibody acquired from iPierian, but also from our internal programs, myostatin and [Neptune] in Duchenne muscular dystrophy.

So we're making progress across a number of these areas and the pipeline really made some good progression during 2014.

Thanks.

Thanks, Seamus, for the questions.

Candace, can we go to the next one, please?

Next question comes from Steve Scala with Cowen.

Your line is now open.

Thank you so much.

I joined the call a bit late, so my apologies if these questions have already been asked.

But first, in the last 25 years or so, R&D at Bristol has only been down in two years.

Now Bristol has perhaps its best pipeline ever and you're guiding for R&D to be down in 2015.

I find that a bit surprising.

So can you tell us why that is the case?

And is this a trend that we should look forward to continue?

And then secondly, in melanoma, Opdivo and [Kutura] have similar indications.

So what are you finding hospital formularies are doing?

Are they stocking both products, or are they stocking one over the other?

And what is the mental process they're going through to make the decision?

Thank you.

Francis, do you have a comment?

I expect (inaudible) make a comment that it is clear to me and it is clear to my management team and to my Board that we will continue to finance adequately, more than adequately, everything that makes sense.

So our resources is devoted to I-O and our resources devoted to our (inaudible) differentiation out there and will be spent in a productive way.

But, Francis, anything?

So just to build on that, we certainly have a very full set of projects going forward into 2015 and we continue to do a number of productivity initiatives to make sure that our investments actually are very, very efficient.

I would just add one other point, Steve, as I mentioned my comments, that we also have a step-down in our diabetes clinical trials vis-a-vis the alliance that we have, so that's also impacting the year-over-year spend.

And this is Giovanni.

From the perspective of formally listing an access for Opdivo, these are clearly very early days, but we are starting from a position where we have established relationship with hospitals and payers in the US.

The early signals that we are seeing are quite positive.

We have some initial good progress in access, so we're working on it as a priority but so far, the first signals are positive.

Thanks, Steve, for the questions.

Can we go to the next question please, Candace?

Next question comes from Andrew Baum with Citi.

Your line is now open.

Three questions, if I could.

Firstly, could you just remind me when we'll see the one plus one data for the arm of Yervoy/Opdivo?

Number two, if memory serves me correctly, the recent nature papers included representation from diagnostics of all your competitors.

From memorizing, Bristol's contribution was lacking.

And, obviously, your diagnostic for PD-L1 has not shown the same predictive benefit as others.

To what extent are you iterating that diagnostic?

And assuming there is a new diagnostic, when will it be ready for prime time?

And then my last question is on bispecifics.

Could you tell me when your first bispecific I-O agent will be entering the clinic?

Many thanks.

Thank you, Andrew.

Let me go through these quickly.

So the one data from the 012 study continues to mature.

It's very informative.

We have not made a decision when we might present it.

For competitive reasons, we may not present it this year.

I take issue with you over the fact that our diagnostic is not working.

I think if you look at the data in our label, and look at Merck's label, it's very similar, so I think -- and then the platform is the same, so I think we're showing exactly what everyone else is showing.

The difference is we've done a comprehensive program and we are looking much more comprehensive, both the negative and the positive patients, with the opportunity to get a label in both of those.

And finally, as far as [bright] specific, I know we have a very broad preclinical program based in California from -- heads up by Nils Lonberg, who's an acknowledged leader in this field.

I'm very comfortable with the breadth of that.

We will certainly complement that with additional business developments.

But as far as bispecifics, I think we'll take every opportunity on its own merit, but we've certainly got plenty of monotherapy moving up into the preclinical and into the clinic.

Thanks, Andrew.

Andrew, thanks for the questions.

Candace, can we go to the next one?

Your next question comes Vamil Divan with Credit Suisse.

Your line is now open.

Great.

Thanks so much and thanks for taking my questions.

So a couple, if I could one.

One just on Hep C. I think what you've said is that the filing in the US is going to be based on data you already have and also some ongoing studies?

If that's correct, can you just clarify maybe when those studies will be done and when exactly you think you'll be able to re-file in the US?

And then my second question, following up on the earlier one on the expense side, just wondering if you could maybe help break up some of those moving parts here.

You mentioned the diabetes impact this year, also on [pure] currency, having an impact this year and then some of those might be more broader structural changes that might be more ongoing impacts we see in the expense line.

So, is there any way to just quantify?

The expense numbers are quite a bit below where we were expecting.

So how much of it is more of these one-time type things for this year and how much might be more of an impact going forward?

Hi, Vamil.

It's Charlie.

Maybe I'll start on the expense side.

So if you look at just the exchange impact on expenses where we guided, for example, A&P decreasing in the mid to high teen range, if you excluded exchange, that would be a decrease in the mid to low teens range.

Similarly with MF&A, that would be a decrease in the mid to low single-digit range if you exclude FX.

And then in R&D, it also had an impact related to of almost 1% on how we think about R&D.

As I mentioned in my comments, we are doing everything to invest in our opportunity in our new launches as well as the critical brands within our key portfolio.

But we've also, with the recent -- following the exit of the diabetes business, we also took the opportunity to reorganize and take expenses out, particularly in our mature brands.

So the combination of all those things and plus the last add, was what I had mentioned earlier around the diabetes expenses, having a step-down in R&D year over year.

Thank you.

Francis?

Vamil, good morning.

Just to remind you as to our approach, our strategy with [declass]has been to focus on difficult-to-treat patients around the world and that's the same as in the United States.

We have a complete response letter; we're talking to the FDA about the answers to that and I'm not going to go into details except to say that no new data will be required to make a submission.

Thank you.

Thanks, Vamil, for the questions.

Can we go to the next one, please, Candace?

Your next question comes from Chris Schott with JPMorgan.

Your line is now open.

Great.

Thanks very much.

And first, I just want to add my congratulations to both Lamberto and Giovanni with the new roles there.

A couple of quick ones here.

Maybe first, can you elaborate on the dynamics between Yervoy and the PD-1s in melanoma, as we think about 2015, just a little bit more about how you think that dynamic plays out?

Second thing on melanoma, any updates on the 069 study and the ability for Bristol to file off that data?

And a final one, just broadening out a little bit on the diagnostics.

Do you expect the FDA to recommend testing for PD-L1 status for non-small cell lung cancer patients?

And with a number of different assays and even definitions of what PD-L1 positive means, how do you see that dynamic playing out in the marketplace as we think out over the next few years and seeing multiple agents enter the market?

Thanks very much.

Chris, good morning, and thank you.

This is Giovanni.

Let me just start with the melanoma phase.

And first of all, we are coming out of a very strong year and a very strong quarter for Yervoy.

In the fourth quarter, we grew 41%, over 30% in the US versus prior year.

And that's driven by the fact that we've established a really strong presence in melanoma, with 60% of our sales coming from the community setting and about 70% of our sales coming from first-line.

So we have a really strong base there.

I would say that we expect the melanoma market to be evolving rapidly over the next 12 to 24 months.

And obviously, as a result of that, like I mentioned earlier, we see some uncertainty in volatility in the short-term, but we actually feel very good, very well about our prospects in melanoma because we have two agents, which in monotherapy, both have demonstrated survival.

And we have a combination strategy, which really has the potential to provide long-term survival to very significant percentage of patients.

And so some short-term volatility but from a very strong starting point and with very positive prospects in the medium and the long term.

Chris, good morning.

So let me just comment on the 069 study.

I'm very encouraged by the data I've seen.

We've not yet decided where we will present that data, but it will be this year.

I'm not going to talk about the details of our [ratings] strategy, but let me just zoom out a little bit and just mention our overall melanoma strategy.

I mean, I just remind you we have accelerated (inaudible) for monotherapy in Europe.

We are in the process of finding both second line and/or first-line around the world and the combo is a part of that broader strategy.

We're talking to authorities about the potential submissions there.

So I'm looking forward to the rest of 2015 because I think you're going to see further submissions, further approvals around the world, and potentially broadening of our label.

So it's very exciting for us in melanoma during 2015.

Thanks, Chris.

I know we're backed up against another call.

I think we, Candace, have time for two more questions we'll try to squeeze in.

Your next question comes from John Boris with SunTrust.

Your line is now open.

Thanks for taking the questions, and would also like to extend my congratulations to both Lamberto and Giovanni.

First has to do with your I-O franchise.

Certainly with you having a clinical development lead, one advantage you potentially have is survival data, not only in melanoma, but potentially in lung, possibly renal in the future.

Can you help me understand how long you might have that benefit, because you did run well-controlled Phase III clinical trials and having survival versus competitor that doesn't have survival data, how does that play with oncologists in the marketplace?

Second question has to do with Eliquis.

Just on new-to-brand share with cardiologists, can you articulate a percentage there?

You mentioned that broadening of the label was important in terms of expanding that and is that surpassing Xarelto now?

And then last question just has to do with M&A very quickly.

Can you maybe give some additional color, especially since you're potentially being viewed as not as diversified as you historically have been.

When you're looking at deals, are you looking at smaller or larger-scale transactions to either diversify the business or to further position the business in oncology going forward?

Thanks.

Yes, John.

This is Giovanni.

On I-O, we believe that having overall survival is very meaningful.

In our experience, it's obviously very, very meaningful to payers.

It is important for prescribing physicians and it obviously is essential for patients.

So we are very focused on that, as Lamberto and Francis mentioned, as a very, very important part of our strategy.

The second comment on Eliquis, we are very pleased with our performance in the US and other parts of the world.

Specifically in the US, we've seen that the expansion of the label to include [BT] treatment has accelerated the growth of our prescribers' base and also accelerated our trends in primary care.

Our focus remains primarily in cardiology and our new-to-brand share in cardiology, including VT and atrophic relation in the quarter in the US has grown from 41% to 47% which is a leading position.

And as far as VT is concerned, I can't say that nothing has changed from my discussions with Giovanni and Charlie being involved with all these over time, will not change.

Size is not the most important aspect.

The most important aspect is fit with our portfolio, fit our goals and good science and we continue to look at small and big things and the mass medicals, so good financial fits.

Thank you, John, for the questions.

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

Your last question comes from Alex Arfaei with BMO Capital Markets.

Your line is now open.

Good morning and I'll add my congratulations as well for a transformation within the Company.

A question on your gross margin guidance at 74% in 2015; it seems low compared to where you are at 78% right now.

Is it mostly Abilify and is this a one-time dip in 2015 because we expect your overall product mix to basically offset the impact of Eliquis?

And a follow-up on the earlier questions.

Could you give us a little bit more color on your revenue expectations for Opdivo and Hep C in 2015?

Your guidance suggests you have a conservative outlook there.

Thank you.

Okay, Alex, I'll start on gross margin and maybe Giovanni can touch on the revenue.

Abilify, as I mentioned in my comments, is a high-margin product for us and we lose almost the entirety of that in April of this year.

Eliquis also, which is a growing product for us, also has a very low margin because of our relationship with Pfizer, so we have below a 50% margin.

And as we've said all along, our gross margin is -- percentage is solely a function of product mix.

So over time, depending upon which products and their margin grow faster vis-a-vis the others, that will have an impact on our margin.

So it's hard to say at this point, at this juncture as we're launching Opdivo, which has its very decent margin, how our margin will play out over the longer term.

From the perspective of revenues, as I said before, first of all, we're really very excited about the potential for growth of the franchise and we are getting ready for potential multiple launches in the US and Europe.

But obviously there is a degree of variability in our forecast because of the timing of launches over the course of the next 12 months.

Okay.

So we understand that Pfizer is waiting for you, so we will let you go and I want just to conclude by saying that we had a good fourth-quarter and a good overall year.

Across the organization, we believe a strong result and that enables us to hit the ground running in 2015.

I'm very happy and very proud of what we achieved and very confident in what we will achieve.

Thank you and hope you have a good day.

And this concludes today's conference call.

You may now disconnect.