施貴寶 (BMY) 2016 Q1 法說會逐字稿

Good morning.

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

At this time I would like to welcome everyone to the Bristol-Myers Squibb 2016 first-quarter results conference call.

(Operator Instructions)

John Elicker, you may begin your conference.

Thank you, Tiffany.

And good morning everybody, and thanks for joining the call on what I know is a very busy day for all of you.

Before we get to the call, 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 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 certain 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.

Joining me this morning are Giovanni Caforio, our Chief Executive Officer, and Charlie Bancroft, our Chief Financial Officer, who will both have prepared remarks.

And then joining for Q&A is Francis Cuss, the Head of R&D, and Murdo Gordan, our Head of Worldwide Markets.

Giovanni?

Thank you, John.

Good morning, everyone.

We just finished a very good quarter.

Performance across the organization was strong, and we had some important clinical and regulatory advantages in our immuno-oncology portfolio.

We have entered the period of growth I've discussed before.

We had $4.4 billion in sales, 9% growth over the previous year, which is especially strong given the loss of exclusivity for Abilify in April last year and the fact that we no longer book sales for Erbitux due to changes in our agreement with Lily.

Let me share just a few of our highlights, and Charlie will then provide more details about our key brands.

Starting with Eliquis, Global sales for the quarter were $734 million, more than doubling sales from a year ago.

Quarter-on-quarter growth was more than 20%, and we continued to make progress towards market leadership in key markets globally.

In the US Eliquis is now the number one novel anticoagulant in new-to-brand prescriptions for both Afib and VTE across all physicians.

Beyond the US, Eliquis is the number one NOAC in new-to-brand prescriptions among cardiologists in 12 markets around the world.

Based on this performance we are well on our way to becoming the number one NOAC globally.

Our hepatitis C portfolio delivered strong performance as well, with $427 million in revenues in the first quarter.

I'm very pleased with our strong performance, particularly in the US.

This is, however, a very competitive and highly dynamic market.

And we do expect competitions to have a significant impact on our business in the US for the rest of the year, as we've already seen in Japan.

Orencia's price had also had good quarters.

Orencia had revenues of $475 million, up 19% from a year ago.

Sprycel posted sales of $407 million, up 9% from last year.

Regarding immuno-oncology we've had a very strong start of the year, building on our leadership position.

Commercially the launch of Opdivo continues to accelerate, based on continued approvals and new indications around the world.

First-quarter sales were $704 million.

Physician adoption of Opdivo remains strong in markets where we have launched, with PD-1 dollar shares of more than 80% in the US and comparable shares in other key markets including Germany, France and Japan.

In lung cancer Opdivo remains the clear leader across histologies.

Our key competitive advantages remain.

Our overall survival data and the fact that physicians can treat patients with Opdivo, regardless of PD-L1 expression.

In melanoma we have the broadest portfolio of treatment options in both the adjuvant and the metastatic setting, including the first immuno-oncology combination with Opdivo and Yervoy.

Opdivo-based treatments are the leading treatments in new patients in first line melanoma in the US, driven by strong adoption of the combination regimen.

The adoption of our combination therapy has been strong in both academic and community settings.

And in renal cancer, overall survival and durability of response with Opdivo are recognized by prescribers.

And Opdivo is the leading treatment for newly-diagnosed second line patients.

With respect to R&D, we are already off to a good start in 2016.

Earlier this month the European Commission approved expanded use of Opdivo in nonsquamous nonsmall cell lung cancer and in advanced renal cell carcinoma.

And we received a positive CH and peer opinion for our Opdivo plus Yervoy combination for the treatment of melanoma.

In addition we have received Breakthrough Designation for our Opdivo filing in the US for the treatment of classical Hodgkin Lymphoma.

Our filing has been granted priority review by the FDA, and the EMA has validated our application.

Overall Opdivo has the potential to become the first PD-1 inhibitor approve in a hematological malignancy in the US, in Europe and in Japan.

Earlier this month at AACR we presented date from our CheckMate 141 study in patients with head and neck cancer.

The study, which was stopped earlier this year, is the fifth tumor type with overall survival data for Opdivo compared to a standard of care.

And earlier this week we received Breakthrough Therapy Designation from the FDA in head and neck cancer.

We also presented for the first time two-year overall survival data from our Opdivo plus Yervoy regimen, CheckMate 69, in patients with advanced melanoma.

We continue to believe that the Opdivo plus Yervoy regimen provides the best opportunity for patients to benefit from the long-term survival opportunity that immunotherapy offers.

Looking ahead, ASCO again will an important meeting for us.

We will be presenting longer-term follow-up from some studies that have previously been presented, including the combination of Opdivo and Yervoy in non-small cell lung cancer from CheckMate 12.

In addition we will be presenting data in new tumor sites for Opdivo monotherapy.

And we are looking forward to presenting new data from studies of our Opdivo plus Yervoy combination, including data in new tumors not previously presented.

And lastly you'll see the data from registration of studies, including Hodgkin Lymphoma and head and neck.

All in all, I am very proud of our accomplishments with immuno-oncology, including our ability to establish Opdivo as the leading immuno-oncology agent, one that is foundational and a standard of care within its approved indications.

Going forward we remain fully committed to further strengthening our position.

I am confident we are making all of the right investments from both a commercial and an R&D perspective, continue to execute our strategy in immuno-oncology and further strengthen our leadership position.

Before turning the floor over to Charlie, let me say that I am very confident and optimistic about our future here at Bristol-Myers Squibb.

Our increased sales and EPS guidance reflects the strength of our overall business.

We have significant growth opportunities in IO, where we have advanced our leadership position with Opdivo.

Eliquis is well on its way to becoming the number one novel anticoagulant.

The performance of our underlying portfolio remains very strong.

And we are advancing a diverse, innovative and promising pipeline by combining our internal R&D efforts with a continued focus on business development, seeking to develop transformative medicines for patients in need.

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

Thank you.

Thank you, Giovanni.

Good morning, everyone.

As Giovanni mentioned, we had a very good quarter driven by strong performance across our key products.

Overall, FX had a negative 2% impact on sales and about $0.03 on EPS.

Giovanni covered the sales performance highlights from some of our key growth drivers.

I will just add some additional color.

Eliquis continues to do very well.

Sales in the US were $468 million, which includes a one-time positive adjustment related to the Medicare coverage gap of $25 million.

We continue to see strong performance for Opdivo across the three tumors.

Opdivo continues to be the most prescribed drug for new patients in lung cancer.

Renal has also seen strong early adoption.

And in melanoma, the strong performance of the Opdivo Yervoy regimen is contributing to the growth for both Opdivo and Yervoy.

Opdivo has now been approve in 50 countries.

International sales in Q1 were $110 million.

Until recently the EU approval was in squamous lung cancer and melanoma only.

Pricing and reimbursement for melanoma and squamous cell lung cancer has been secured in most of the major markets and uptake remains strong, notably in Germany and France where we are operating through an early access program.

Additional indications for renal and nonsquamous lung cancer have now been approved by the EU.

The CHMP has also granted a positive opinion for the Opdivo Yervoy regimen in melanoma.

Yervoy sales in the US grew 10% over last year based on the strength of the regimen, which as Giovanni mentioned has seen strong adoption in first line melanoma.

Internationally sales were down over 50%, as Yervoy monotherapy remains under pressure from Opdivo and Keytruda.

We expect that to continue until the launch of the regimen, which should take place over the next year or so.

Our help C business was strong in the US and Europe where Daklinza is holding up well, primarily in the genotype 3 patient population.

We do, however, expect competition to significantly impact the business in the second half of the year.

In Japan, where we are competing in the genotype 1 population, new competitive launches have led to significant drop-off of our business there.

The launch of Empliciti in the US is going very well, with sales in the quarter up $28 million.

We are seeing good usage in key accounts in the US.

In Europe we have a CHMP positive opinion, and hope to gain approval later this quarter.

We do think reimbursement will be a bit more challenging there, given that multiple myeloma is a longer-term treatment and combining novel therapies could be challenging for payers.

We continue to see competitive pressures on our HIV business, with sales of Reyataz and Sustiva down from prior year.

Recent competitive launches are expected to further impact the Sustiva business in particular.

Gross margin was 76% during the quarter, down 370 basis points compared to the same period last year.

You will recall that we had a favorable FX impact on international inventory sold last year.

In addition, our gross margin was impacted by product mix, driven by Eliquis and the loss of Abilify where we had full quarter of sales in the first quarter of last year.

MS&A, which now includes A&P, was up about 4% due to investments in Opdivo, Eliquis and Empliciti offset by lower spend on older products, including Erbitux which is now fully supported by Lily.

Additionally there was a $36 million favorable adjustment related to our prior-year pharmacy based on the actual invoice received.

R&D expenses were up 17% (sic - see press release, 12%).

The increase in spending was due to higher clinical costs, including study supplies, new business development and research alliances and IO trials.

We also had higher medical investments, including data-generating studies and field support.

Other income and expense is up approximately $160 million versus prior year.

Diabetes royalties are higher due to increased sales and the transfer of future Amblin-related royalty rights, which will lead to increased royalties over the next few years.

Recall that due to the tiered structure of the agreement with AstroZeneca, the diabetes royalties are somewhat front-loaded and will decline throughout the year.

In the quarter, total royalties for Erbitux were approximately $60 million and were recorded in other income.

Moving to guidance.

We are increasing our non-GAAP EPS guidance range by $0.20.

Our new range assumes current foreign exchange rates.

With the dollar weakening against the yen and euro, we now expect the negative impact of FX on EPS to be between $0.06 and $0.08.

This is approximately a $0.04 improvement since original guidance, of which $0.01 has already been realized in Q1.

We raised revenue guidance due to the strong trends across the business, primarily Opdivo and Eliquis.

The negative FX impact on revenues is now expected to be approximately 1%.

We are increasing our guidance on MS&A, mostly due to higher commercial spending on IO, including additional DTC spend.

The increased investments in R&D are primarily for clinical study supplies, new BD alliances, and the development of additional biomarkers and diagnostics in oncology.

Overall, a strong start to the year which provides us with great confidence in how we see the full year.

Now we'd be happy to address your questions.

Thanks, Giovanni and Charlie.

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

I just remind everybody that in addition to Charlie, both Francis and Murdo are here to handle any questions you may have.

Tiffany?

(Operator Instructions)

Your first question comes from the line of Chris Schott with JPMorgan.

Your line is open.

Congrats on the strong results here.

First question is, can you talk about the commercial ramp of Opdivo in Europe in lung cancer now that you have the broader label?

Are you expecting similar dynamics to the US in terms of rapid uptake?

Or are you seeing any hurdles being put in place that could limit use in, for example, PDL-1-positive patients?

The second question was just on the time lines for Opdivo in first line monotherapy in lung.

You've been talking about a readout late this year.

I think it's about 18 months from the time your study completed enrollment.

I'm just trying to get a little color on what's taking so long in terms of get the data here, in that it seems like much of your control arm would have progressed well ahead of that target.

Thanks so much.

Chris, thanks.

This is Giovanni.

Murdo will address your question on international Opdivo sales.

Let me say that we are very pleased with how reimbursement negotiations and activities are going internationally.

That really reflects the value of Opdivo and the data.

And then Francis will cover your question regarding timing for first line.

Yes.

Thanks, Chris.

Overall we're feeling very good about what's happening in Europe.

Our performance in Germany and France has been very good.

France is hard to see because we're currently not recognizing those sales until future price negotiations, but we are doing very well across the indications that we have.

If you recall, we have our indication in metastatic melanoma, squamous lung at the beginning of our uptake curve and then recently additional approvals coming in that are yet really showing in our demand curves.

We've also seen, as Giovanni mentioned, very good response to the value of Opdivo in terms of our reimbursement negotiations.

Many of those negotiations and discussions with the various governments in Europe have gone quicker.

So we now enjoy good access in Germany, France, as well as recently Italy, Spain and the Netherlands.

We're continuing to work with, and these are relatively -- these are all broad indications, no restrictions on PDL-1 status and we're working on additional things for the new indications in nonsquamous when we have those discussions.

The other thing I will say is, we are still working through the HTA market, so Canada, UK, Australia.

And as anticipated, those will take a little bit longer.

I will turn it over to Francis.

Good morning, Chris.

Given the success we've had with our clinical trials, we are actually very confident in our ability to determine the appropriate time to perform the analysis of IO studies.

As you'll appreciate, this is the result of having developed the broader IO dates set in lung cancer and having considerable experience now with applying non-proportional analysis to PFS and OS curves.

Now, regarding CheckMate 26, we've said that both the events and the timing of follow-up were important considerations for the timing of the analysis.

And I want to say that based on what we now know about the progress of the trial and the current event rate, we believe we could have the results from CheckMate 26 in the third quarter, which as you appreciate, is earlier than we've previously estimated.

Now, I just want to emphasize, there are always risks inherent in clinical trials.

But this change in timing of having the date does not increase it for the CheckMate 26 study.

Thanks.

Thanks for the question, Chris.

Tiffany, next question, please?

Your next question comes from the line of Seamus Fernandez with Leerink.

Your line is open.

Thanks for the question.

So just a couple of quick questions on the increase in R&D spending.

Can you just help us understand the quality of the increase and what drove the increased guidance for R&D spending?

It's noteworthy that you recently start the Phase II fraction lung study, which includes your lag-3 antibody as well as Sprycel.

So just interested to better understand the R&D spend increase, and if that's driven by the promise of IO combinations.

And then the separate question on fraction lung specifically.

Is it possible that this study, given the fact that it incorporates and includes immunotherapy refractory patients, is it possible that it could be utilized as an -- for an accelerated path to approval, should it show impressive results?

Thanks.

Seamus, thank you.

Francis will address your questions on R&D broadly.

Right.

So let me just say, Seamus, that -- let me give you a little bit of background on fraction.

This is an [inuative] Phase I/Phase II design for early combination trials and as you appreciate, we have a number of potential combinations at the moment.

And this allows us to look at promising signals of activity.

To actually also test hypotheses about the underlying biology of combinations.

And you know we're -- as well as checkpoints, we have a number of non-effect mechanisms as well.

And of course to generate data to inform future combinations.

So therefore the fraction trial should allow us to efficiently identify the activity of promising novel combinations and quickly move them into potentially registrational trials.

Now as we've said, data from our earlier assets have started to come into house this year, and we are moving forward with the anti-lag 3 antibodies in the fraction study, as we think there is an opportunity to improve upon Opdivo monotherapy, or the combination of Opdivo and Yervoy, particularly as you say, in those patients who don't respond initially or who relapse.

I think the important thing to say, and put to this in the context, the broader context, is that we are very confident our broad strategy in first line lung, and we want it to address a very broad population.

Now, we clearly have emphasis on first line.

We already have second line.

But we do believe that the Opdivo Yervoy regimens could further improve overall survival.

And I want to note that we are really looking forward to presenting additional data from O12 at ASCO.

So overall we want to ensure as many lung cancer patients as possible can benefit, whether that's with monotherapy, combination Opdivo Yervoy, exploring other combinations, which fraction will allow us to do more quickly and efficiently, and whether that's targeted therapies or, indeed, chemotherapy.

So very broad program.

Thank you.

let me just, Seamus, just a couple of points on the R&D line.

So in the quarter we were up 17%.

But there are timing issues that relate to any quarter year over year.

For the full year, as I mentioned in my comments, we are raising guidance slightly.

We were at high single digits for R&D and now we're in low double digits.

Part of it's some of the things that Francis had mentioned and what I mentioned in my comments regarding clinical study supplies.

Some of the new BD things that happened since year end and additional biomarker diagnostic work in oncology.

They are the main elements.

Thanks, Seamus.

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

Your next question comes from the line of Jami Rubin with Goldman Sachs.

Your line is open.

Thank you.

Just a couple questions for you, Francis.

The first one is more related to the near term.

Obviously investors are very focused on the upcoming front-line long studies from both Merck and you guys.

Can you compare and contrast the first -- the two first line monotherapy trials of Opdivo versus Keytruda, since that's obviously what we're focused on?

And I think that investors seem to have more confidence in the Merck trial because they are looking at the highest expressers of PD-1 expression compared to your trials.

So I think there's more confidence that they're going to hit on PFS versus Bristol-Myers.

Plus there's also worry out there about PFS being a challenging endpoint, just given that chemotherapy works pretty well in front line lung.

So if you can address that first.

And then secondly, a more bigger picture strategy question for the long term.

Obviously monotherapy Opdivo is doing extremely well.

But as you know, doctors prefer combination therapy in treating cancer patients, and they also want to move away from chemotherapy.

So can you set the stage for Opdivo ] combination strategies and the outlook over the next couple of years, given that a number of companies have chosen the different path, which is chemo combo?

Thanks very much.

Jami, this is Giovanni.

Let me start with your second question and give you my perspective on strateging first line lung cancer.

Francis will add to my comments and then answer specifically your questions about the study design.

I feel very strongly, and I am very optimistic about our strategy in first line because we obviously have a lot of experience in lung cancer through our second line registrational strategy, which has given us not only a very broad approval but also very clear insights into physicians' prescribing behavior, behaviors in the adoption of Opdivo, the speed at which chemotherapy has been abandoned.

And while there are obviously differences between first line and second line, we really think we have developed a deep knowledge of this market, specifically as it relates to immunotherapy.

So when you think about our strategy, our approach is broad and informed by science.

We have, I am convinced, the right approach of investigating monotherapy, both in a broader population of PD-1-positive patients and in a subset of patients that express PD-1 at a higher level.

We have advanced a really exciting combination strategy through study 12 and obviously the Phase III study ongoing and we are also investigating the right combination of chemotherapy in the right patient subgroups.

And so when you look at the totality of our first line lung strategy, we believe it is the broadest approach.

It is informed by data and science and a really strong understanding on market dynamics.

Thanks, Giovanni.

Good morning, Jami.

So let me emphasize, we've really taken great care in the design of study O26 in its choice of its endpoint, the optimal timing of the analysis, which I just mentioned, the role of non-proportional hazard ratio, the role of PDL-1 expression, sample size.

And we've used the results of many of our published and unpublished data to look at this and essentially we remain very confident.

We think we've got the optimum balance of speeds and design, and to deliver results not just in a narrow population but in the widest population of first line lung patients, as we've done with other studies of Opdivo recently.

Just to be very specific, in the trial design we're looking at both strongly expressing patients and patients with any level of expression.

We've not actually disclosed the actual level of what strongly expressing PD-1 is, but it's lower than 50%.

It's not clear to us that you need to have very high levels of PDL-1 expression to benefit from treatment and if you recall, the OS curve from O57, the shapes of the Kaplan Meier curves were similar across the 1%, 5% and 10% cut-offs.

So overall, everything we know has gone into this study.

We're very happy with the way it's progressing.

As I said, without additional risk to the analysis we were able to bring forward the analysis this summer.

And we look forward to seeing that data then.

Thanks.

Thanks, Jami.

Tiffany, could we go to the next question, please?

Your next question comes from the line of Colin Bristow with Bank of America.

Your line is open.

Thanks for taking the questions, and congrats on the quarter.

So on the CheckMate 568 study, to what extent do you see this data set along from what we'll see from CheckMate 012 facilitating addition to what we'll from CheckMate 012, facilitating addition to the treatment guidelines ahead of formal regulatory approval?

And then in terms of CheckMate 012 and the data at ASCO, can you give us some sense of the incremental duration of data we'll see versus what present at World Lung?

And then just finally, Eliquis, clearly a great quarter.

Where do you primarily see growth from going forward?

And how do you see the approval of an antidote to impact the growth of this class, given there's one currently under review?

Thanks.

Murdo, why don't you start with Eliquis, and Francis will cover.

Sure.

Thanks, Colin, for the question.

We're really pleased with the Eliquis performance across all of our worldwide markets, inclusive, obviously, of the US, more than doubling our volume from first quarter last year.

So really, really strong.

We are seeing this growth really across all markets, in cardiology, in hospitals and in the community setting.

So we have very strong new-to-brand prescription shares evolving.

We're now the number one NOAC in the US in atrial fibrillation and VTE treatment.

So we're very, very pleased in new-to-brand RX there.

That's a 47% share and we're now within 10 points of our closest competitors, Zarelto, in TRX share in the US.

So we've got nice leading indicators.

We think we will continue to evolve that market share in cardiology and in primary care across all of our major markets, in BTE and in AF.

Really, that's going to be a continued trend that we're driving.

We see very good leading indicators, as I mentioned before.

We see cardiology is that leading indicator and we see our hospital business there.

So we're feeling quite good about it.

Good morning, Colin.

So I think it's interesting, in first line lung most companies are taking a fairly similar approach to monotherapy, as we've heard by looking in the [ritz] population.

But on the other hand, the strategies with combination regimens like the Opdivo Yervoy one that we'll see in O12, approaches there are quite different.

Some are focused, as you know, on combinations with chemo.

Others are looking at combinations for low PDL-1 nonexpresses.

We actually believe our strategy is quite differentiated.

And we believe that, I want to reemphasize this, that IO combinations specifically of Opdivo Yervoy is the best way to improve upon survival expectations for the patients over the long term.

Now, we're very encouraged by the safety and efficacy of dosing of the regimen in non-small cell lung based on the data we presented last year at the World Lung Conference.

And we are really looking forward to presenting an update of the CheckMate 12 at ASCO in June.

So that will be a more mature date set and of course, it's under embargo, so I can't say anything more about it now.

But we are looking forward with that and everything else in June to really an exciting ASCO for us, because as well as the updates on existing tumors, we're going to be looking at new tumor -- effects in new tumors and data from registration studies in Hodgkins and head and heck neck.

So let me just finish by talking about the CheckMate 568 study.

And I want to really emphasize that we have full confidence in the CheckMate 227, which is the definitive randomized registration study for first line lung in non-small cell lung.

But we do, however, believe that the experience we gain from single-on studies of combinations, like 568, can help inform us about future medical practice as part of the expansive data generation strategy that you've heard from Giovanni and myself.

Thank you.

Colin, just one other point.

You asked me about the Portola as a catalyst for Eliquis.

Fortunately Eliquis has one of the lowest bleeding rates in the NOAC class.

However, we do feel that the advent of the antidote should increase the comfort level for some physicians who continue to prescribe warfarin, albeit a modest one.

Your next question come from the line of Tim Anderson with Bernstein.

Your line is open.

A few questions.

Just going -- just taking on CheckMate 568.

You have is 227 running.

That's an OS trial.

It's a larger trial.

Suddenly you start 568, which is a Phase II study looking at the same doses in front line lung.

I still kind -- I'm am struggling to figure out why you started that trial.

My guess was maybe it's a way to get early registration ahead of having 227 results, which may not come out until 2018.

So really, what's the purpose of 568?

And then on 026, can you confirm that you have really the same exact efficacy endpoints and statistical analysis plan for that trial as you did maybe six months ago?

I know the time line has move around a little bit and now you're saying in third quarter.

And then last question on the fractional lung trial, 685 patients.

Is that going to be amortized across the three current arms?

Or does that anticipate other combo arms coming in and some of that 685 patients going to arms that have yet to be revealed?

Tim, let me just start by 568.

As we've said before, we have a very broad strategy in first line lung and obviously because of the strength of the profile of Opdivo and the importance in first line lung, every study gets rightfully a lot of visibility.

There are registrational trials, practice and forming trials and 568 is really an practice and forming trial, as we've designed it.

The Phase III study, 227, is really the critical registrational strategy there.

That's really the way to look at it.

Obviously as we've demonstrated before, we are executing our strategies very rapidly, with speed.

There are degrees of flexibility and optionality built into every one of our trials.

But that's really the reason why we did 568, is to inform medical practice.

Francis will address your question on fraction and 26.

Good morning, Tim.

So let me say again, and I want to reiterate, we have not changed our analysis at all.

The PFS analysis will be on the hazard ratio of the PFS curves in the strongly expressing population, as we've said before and of course this takes into account the totality of the Kaplan Meier curve.

If the primary endpoint of PFS is strongly -- is met in the strongly expressing patients, we'll also look at all the randomized population, which includes all those that express at the greater than 1% level.

That hasn't changed either.

And overall survival is a secondary end point and will also be analyzed.

This is obviously clinically important.

But I think it's worth reminding everyone that OS could be confounded by the crossover which is allowed within this particular trial.

So let me just say, nothing has changed in terms of the analysis.

What we're able to do as we've watched the drug -- I'm sorry, as we've watch the study mature in terms of the duration of therapy and the event rate is that we're able to advance it forward without any increased risk to the study.

Now, just a quick note on fraction.

Fraction is a study that gives us enormous flexibility.

So you've picked up on an interesting point.

There are a lot of patients in this, which allows us depending on the data to move to additional arms or to ramp up in the arms there.

So it's not the same as you would expect for a registrational study where you come up with the number at the beginning.

It's about efficiency, it's about speed, it's about being able to identify signals and move quickly should we see them.

Thank you very much.

Thanks, Tim.

Could we go to the next question, please?

your next question is from the line of Mark Schoenebaum with Evercore ISI.

Your line is open.

Hey, guys.

Thanks a lot for taking the question.

Francis, maybe for you.

Just -- you've touched on this, but just to hit it directly on the head.

Would you mind comparing and contrasting your front line lung cancer trial with the trial that Merck is running?

And the reason I'm asking is, it's possible we may see the Merck data first.

Don't know.

But if Merck were to fail for some reason on the PFS endpoint, how should we think about that in terms of reassessing odds that your trial would hit in PFS -- on PFS or not, as there are some design differences that are important.

I would love to hear you articulate those for us.

And then also, only one other question.

It may be too early, and I know companies don't often like to provide this data, but can you give us any sense of where you're seeing duration of therapy in second line lung right now?

Thank you very much.

Mark, let me just add a couple comments there.

First of all, on study 26.

It's obviously not appropriate to speculate on other trials.

Let me just reiterate, we are very comfortable about the design of our trial.

We are very comfortable about the depth of understanding that went into to the statistical plans and we are increasingly comfortable about the choices we've made in terms of the dosing and schedule of Opdivo as it relates to the efficacy we are seeing, both in the marketplace and in clinical trials.

And I think it will be important to really look at the results of our study to understand the performance of Opdivo in the first line setting in lung cancer.

With respect to length of therapy in lung as we've seen get [past] approval, Murdo will give you some perspective there.

Sure, Mark.

As you hinted, it is early days and we would prefer to have a two-year in-market experience so that we can do a full one-year look-back and provide more quantitative estimates of the duration of therapy that we are seeing in the second line lung market.

I would say we're very encouraged by the long-term follow-up data that were presented at AACR.

So we expect to see duration therapy in line with clinical trials, and hopefully even a bit longer

Thanks, Mark, for the questions.

Tiffany, could we go to the next one?

Your next question comes from the line of Geoff Meacham from Barclays.

Your line is open.

Good morning, guys.

Thanks for the question.

So a lack of testing has been obviously a very differentiated factor for Opdivo thus far.

Is there any updated thoughts on how that's going to evolve commercially when you look to first line lung?

And the second part if it is, does harmonization of any technologies for testing matter to you guys?

Help, hurt or sort of indifferent?

Thanks.

So, Geoff, I'll start.

It's Murdo here.

We're seeing some evolution in testing and it's primarily in the first line setting when tissue is available.

We're seeing 1% or 2% increases month over month.

We're currently running at about 30% of patients being tested, and over 60% of that is in the front line patient setting.

So very few second line patients continue to be tested.

So clearly we have decided to commercialize our companion -- sorry, our complementary biomarker, our PDL-1 test.

We have a full commercial effort behind that and we are setting the stage for what could happen in the front line setting, which would be a testing market as that's how we've defined our clinical trials.

Good morning, Geoff.

So I think what you're referring to is the blueprint study at the AACR and just reminding everyone, these were the Phase I results of a two-phase effort to compare four of the PDL-1 diagnostic assays across 39 non-small cell lung cancer tumors.

This was a cross-industry collaboration between four pharmaceutical companies, including us, and two diagnostic companies.

And the idea was to provide greater clarity on the analytical performance of each assay.

Now, the results indicated that two of the assays appear to be highly correlated, and three of the four assays were analytically similar.

And in this first phase of the study, while some differences were due to scoring approaches and selective cut-offs, the assays were deemed not identical and interchangeable at this point in time.

And I think one would say these preliminary results are not intended to alter the current guidelines for each diagnostic.

But also I want to say is, very importantly these findings confirm the quality and the utility of our assay.

So anyway, we're moving forward into the second phase.

We'll have to see how that goes.

But obviously we're working hard with others to try and get to a point where there is some interchangeability.

Thank you.

Thanks, Geoff, for the questions.

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

Your next question comes from the line of David Risinger with Morgan Stanley.

Your line is open.

Thanks very much.

So I have a couple questions.

First of all, with respect to ASCO, I believe that you're going to be providing some updated data from CheckMate 12 that helped inform your dosing for the Opdivo plus Yervoy combo in 227.

Could you just provide some more color on that?

Second, with respect to lag 3, I notice that you delayed and also down-sized your key lag 3 trial.

So that was down-sized from 540 to 360 patients, and pushed out from September of 2016 to May of 2018.

Could you discuss that?

And then finally, is there any other commentary you can offer on your other novel IO agents?

Thank you.

Good morning, David.

So let me just talk about ASCO.

And I just want to reiterate, we're really looking forward to ASCO.

And there will be a number of areas of interest for us, as well as the updating longer-term dates from previous studies.

But you did specifically ask about that.

Obviously I'm under embargo, the ASCO embargo.

So I can't really give you any more color.

But what we have done in the past and you should expect, is that in these studies, particularly ones that are particularly interesting, we are presenting updated data where the patient follow-up is extended and in the context of immuno-oncology, the durability of the responses is a particularly interesting aspect of this.

So one would expect a complete updated of the whole data set.

As far as lag 3. I think I've already said, I was -- and I appreciate how closely people look at the clintrials.gov data.

But particularly in the fraction context, particularly these adaptable and flexible trials, some of the changes, even quite large changes in numbers of people and duration, don't necessarily correlate with how the drug is and isn't going.

And particularly in this trial, I think we removed one site or a country and as a result you saw a big change in the numbers.

So it's not representative of the progress.

As far as novel IO combinations, I did want just to say that, first of all, we're very excited about the progress we're making with what has now become a fairly conventional but still effective bio-combination of Opdivo and Yervoy.

As you appreciate, as Charlie mentioned, it's approved in the United States now and should be approve soon in Europe and we have a number of trials ongoing and planned, some registration in lung and renal, as you mentioned.

Others exploratory and you'll be seeing data from some of those at ASCO also.

We're also continuing to bring novel IO agents into the clinic.

We now, if I'm correct, have six other combination -- possible combinations and OX-40 should come into the clinic in June, and the CD-73 we hope later in the year.

So we're very excited about the opportunity this offers us to really expand the opportunity for patients to get those durable responses across the broadest number of patients possible.

Thank you.

Thanks, Dave, for the questions.

Tiffany, can we go to the next one?

Your next question comes from the line of Gregg Gilbert with Deutsche Bank.

Your line is open.

Thank you.

First on Opdivo, I would like your view if PD-1s work well and move strongly into front line lung, to what extent do you think the second line lung opportunity moderates in size?

And Murdo, on Opdivo pricing in the US, are there any signs that payers are looking to negotiate price in any way?

Or do you pretty much get a label, get added to the compendia and your price is your price?

And lastly, just a quick one for Charlie.

On US Eliquis in the quarter, was there any creep-up in trade inventories or improvement in gross to net?

I think revenues were up quite a bit more than the impressive RX growth in Q1 versus Q1.

Thanks.

Le me just start maybe, Gregg, with a perspective on second line lung and what happens going forward, should there be a rapid penetration of Opdivo in first line.

My perspective is that, that really puts into context our strategy with novel agents where we've consistently said that we're looking at really understanding the basis for patients that don't respond or progress following a response.

I think fraction, as Francis mentioned, is a great trial for us to test hypotheses in advanced and early pipe line, very strategically.

It also underlines the importance of the breadth of our early pipeline with up to eight agents in early clinical development this year and obviously we're also investigating what happens in terms of retreatment potential and other evolution in how the sequence of [carried] lung cancer happens.

That really positions us very strongly because of the totality of what we have going.

Thanks, Gregg.

Your question regarding pricing in the US on Opdivo.

So far we've actually seen very good access to Opdivo, and have good appreciation of its value across all of its current indications and are close to 100% reimbursement without restrictions to those indications.

We're also seeing continued strong reimbursement of Yervoy and very good reimbursement of Yervoy plus Opdivo in regimen and in combination in metastatic melanoma.

Yes.

And Gregg, on your question on US Eliquis.

As I mentioned in my comments, we did have a one-time positive adjustment due to the Medicare coverage gap, that was about $25 million.

And there was a slight increase in the wholesale inventory, we think up to about $40 million.

Thanks, Gregg, for the questions.

Tiffany, if we could go to the next one, please?

Your next question comes from the line of Steve Scala with Cowen.

Your line is open.

Thank you.

I believe it was stated on the Q4 call, which was three months ago today, that there are or were no interim looks at CheckMate 026 and that Bristol did not expect early stoppage relative to the November 1 completion.

So a summer stoppage is a very positive development.

Has anything changed but the event rate?

It would seem to me that the Company would be able to predict with great precision the standard of care event rate.

So should we consider a scenario where the increased number of events are likely in the Opdivo arm?

I know you don't know, but is that a reasonable conjecture?

Or alternatively, what else could be driving this higher event rate?

Thank you.

Steve, I think it's -- I would be very careful about speculating at all.

Let me just say, and I want to repeat what I've said already.

We make a decision based on the event rate and the duration of therapy.

And in this particular study, for all the reasons we've already discussed, it's really important to get that right and we believe, based on our experience and our record of success, we have -- or we will be getting it right.

I can't speculate about the result.

I do think -- all I would say is, if this was -- if I knew the results and I knew how to predict exactly the events, we wouldn't need to do the trials.

So the thing is, there is always a degree of uncertainty in this.

But I don't think where we are towards the end of a trial there is any uncertainty left in terms of months and months.

So we are looking at the third quarter with a good deal of confidence.

And I just want to repeat again, it's without any reduction in -- well, I should say no increase in the risk in terms of the study design.

And, Steve, this is Giovanni, just to maybe address another of the other elements you highlighted.

So first of all, our timing in Q3 is not driven by an interim analysis, even by our understanding of the completion of the study and the time change is not driven by an increase in event (inaudible).

Thanks, Steve.

Tiffany, could we go to the next questions, please?

Your next question comes from the line of Andrew Baum with Citi.

Your line is open.

Thank you.

Three questions, please.

First, could I press Francis on how Bristol is thinking on the role of chemo to potentiate IO agents, namely nivolumab has evolved?

There's been some recent publications on reduced (inaudible) with chemo?

Some publications on the impact of chemo dependent on the immuno score.

Obviously you have your own clinical experience for the drug.

But I just wondered whether you are more sympathetic or less sympathetic to advancing chemo in combination with PD-1 blockade?

Second, one of your competitors, [Avi], just made a material acquisition of a company with its ELL-4 conjugated monoclonal for small cell lung cancer.

Obviously Opdivo is being developed in that setting.

I'm interested in your views of that particular target versus a PDL, PD-1 modality.

Finally, there are a proliferation of PD-1 monoclonals not yet approved but in a development from a variety of biotech and pharma companies.

Could you just remind us of Bristol's stance regarding prosecuting your intellectual property and what you think their ultimate outcomes are going to be here for the late entrance?

Thank you.

Andrew, let me just -- this is Giovanni.

Let me just start with a couple comments, and Francis will follow up on some of your questions as well.

So first of all with respect to intellectual property.

Obviously as the leader and the innovator in this field we have a broad slate of patents and intellectual property which we are defending vigorously.

There are a number of legal proceedings ongoing, some of them initiated by us, some of them initiated by Merck in the US and Europe and Australia.

I would say that in the cases in which we have received an opinion from courts, we are very pleased with the initial developments there and many of those cases will take a long time to conclude.

But we feel very strongly about where we are from an IP perspective and we are optimistic about the first court decisions.

With respect to the business development activity you mentioned at the beginning, obviously we know the fielding line very well.

As you also know, we have a clear priority in business development.

We look at many opportunities all the time and when we look at the value of platforms in the context of what our programs are, and as Francis will tell you, we have strong confidence in the breadth and depth of our pipeline specifically as it relates to small cell and nonsmall cell lung cancer.

Good morning, Andrew.

So first of all, let me just reiterate, we believe that the IO combination is the best way to improve upon the expectation, the long-term expectations of patients.

But we have got some trials based on a very robust set of data with various chemo/Opdivo regimens with considerable follow-up as well.

So just to remind you, we have as part of our 227 study in the non-expressive population, a chemo combination and we also have, actually, a CheckMate 37C which is a treatment informing a study in the community looking at different approaches, different regimens, different sequencing of chemo.

So while we're focused on IO/IO combinations, we're certainly open to the idea of chemo in certain patient segments.

I think as far as the small cell lung cancer, which you intimated from your question about TLL-4, chemotherapy there has an important role to play and TLL-4 the target is one way of addressing that with an ADC.

We think Opdivo and Opdivo Yervoy combinations, and we'll be presenting data on this at ASCO coming up, have an important role to play in small cell lung cancer, both on their own or potentially in combination with other regimens.

Thank you.

Thanks, Andrew.

Tiffany, I think we have time for one more questions.

Your next question comes from the line of Vamil Divan with Credit Suisse.

Your line is open.

Great.

Thanks so much for taking my question.

So two more again in the earlier stage IO assets.

One, if you could just comment on CD137.

I don't think I've heard you guys mention much about that one recently, unless I missed it.

And Pfizer does seem pretty optimistic with what they're seeing with that mechanism.

So curious on your thoughts.

You did touch on the CD73 and said that's moving into the clinic this year.

I think just there seems to be a lot of excitement about this adenosine pathway approach from a lot of companies.

I'm curious if you can kind of give your views on that approach as a monotherapy versus combination therapy.

And then touch on CD-73 versus maybe a directly going after the adenosine receptor with like -- the A2A receptor blockade sort of approach, and which one might be the advantage or disadvantage of the two?

Thanks.

Good morning.

So let me first of all talk about 137.

We will be presenting -- we've said for a while we've been sending data later this year and we will be doing that -- and we have studies in monotherapy in a number of tumors and in combination with nivo, and actually other agents too.

I think what's important to say here is that we believe the bar is being raised, and will be continue to be raised quite high by the combination of Opdivo and Yervoy.

So I think that's the benchmark to which we are looking to as we look at the data and consider whether to bring further combinations forward.

As far as CD-73, I draw your attention to the fact we presented data on this at the AACR.

It's one of a number of [nona]-factor mechanisms we're looking at in combination.

We believe we're certainly at the front of this and we're certainly looking forward to bringing this in and moving it into our fraction approach to efficiently and quickly see if there's some activity there.

Thanks.

Thanks, Vamil.

Tiffany, can we go to our last question, please?

Your last question comes from the line of John Boris with SunTrust.

Your line is open.

Thanks for taking the questions, and congratulations on the results.

First question for Murdo.

In first line lung cancer, when you segment the market and if you look at a label where you're restricted to just greater than or equal to 50% of PDL-1 patients, what percent of the market in first line does that represent versus having a label that would have 1%, 5%, 10% or any positivity in PDL-1?

Second question for Murdo and Francis on the regulatory timing around Hodgkins Lymphoma and head and neck cancer.

Can you give us some clarity on filing in US, Europe, Japan?

And then on the commercial side, what additional incremental investment do you have to make on those two indications?

You obviously have the Sprycel sales force in place, but don't actively sell in head and neck.

Just a little bit of clarity on investment?

And then lastly for Charlie on leverage with the revenue going higher, and potentially going higher in the out years as you optimize all of these indications.

How you're thinking in 2017 and beyond about operating leverage?

Thanks.

Okay, John.

I'll try and handle the first and part of the second question.

And then Francis and Charlie can jump in as required.

So first line lung segment.

If you take a 50% cut-off, you're talking about 25% of the market, approximately and if you take a greater than, let's say, 1% cutoff you're looking at about 70% of the market in terms of relative size.

When it comes to second line -- sorry.

Your second question.

When you look at the other indications, in the US we believe we've invested appropriately for commercializing those indications.

However, we've stated we want to be leaders in IO.

Right now we have dominant share voice in all of our core tumors.

We think we can continue that with the hemotological team that we have currently selling Empliciti and Sprycel.

I think Hodgkins Lymphoma fits in really nice there, and there's a good customer overlap and then other solid tumors, we think we're appropriately resourced as well for that.

Let me very quickly say, the FDA has accepted our SPLA.

We've got priority review.

The EMA has validated our type 2 variation.

The Japanese Ministry of Health has validated our application and we'll be presenting the data at ASCO in June.

Thanks.

And obviously that's on Hodgkin Lymphoma.

On head and neck we are working on the data setting in anticipation of submission.

Yes, John.

Just on your question on leverage.

Even our revised guidance in 2016 provides roughly (technical difficulties) guidance.

And as we've stated many times (technical difficulties) going forward throughout the decade, throughout the rest of this decade, but also beginning more acutely next year.

Thanks, everyone.

So we are at the end of the call.

I would just like to thank all of you again for your questions.

Reiterate we're off to a really strong start in 2016.

We're beginning the chapter of growth I've discussed before and we are successfully laying a strong foundation for our future.

Thanks, everyone.

This concludes today's conference call.

You may now disconnect.