施貴寶 (BMY) 2016 Q2 法說會逐字稿

Good morning. My name is Jamie and I will be your conference operator today. At this time I would like to welcome everyone to the Bristol-Myers Squibb 2016 Second-Quarter results conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question and answer session.

(Operator Instructions)

John Elicker, you may begin your conference.

Thank you, Jamie, and good morning everybody. Thanks for joining us to discuss our second-quarter results. With me this morning are Giovanni Caforio, our CEO; Charlie Bancroft, our CFO. Both Giovanni and Charlie will have prepared remarks. And joining us for Q&A as well are Francis Cuss, our Chief Scientific Officer; and Murdo Gordon, our Chief Commercial Officer.

Before we get started I will cover the Safe Harbor language. During this 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 forwarding looking statements as result of various important factors, including those discussed in our 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 any forward looking statements if our estimates change.

We will also discuss non-GAAP financial measures adjusted to exclude certain specified items. Reconciliation of these non-GAAP measures to the most comparable GAAP measures are available at our website.

Giovanni?

Thank you, John, and good morning everyone. We just finished another very good quarter. Sales across key markets in key brands were strong. We had important clinical and regulatory advances in our immuno-oncology portfolio and an exciting ASCO.

We have entered the period of growth I've discussed before with 17% sales growth in the second quarter compared to last year. In fact, sales growth was 24% excluding the impact from Abilify and Erbitux. On a non-GAAP basis our EPS of $0.69 represents a growth of 30% versus last year.

I will share a few of our highlights and Charlie will then provide more details.

Starting with Eliquis, global sales grew 78% from a year ago as we continued to make progress towards our goal of becoming the number one novel anticoagulant.

In the US, the second quarter continued the trend of strong Eliquis performance. For both AFib and VTE, Eliquis is the number one novel anticoagulant in total prescriptions among cardiologists and new to brand prescriptions across all physicians.

Outside the US, Eliquis is the number one novel anticoagulant in new to brand prescriptions in Japan and the number one NOAC in cardiology across a growing number of markets. We continue to see strong demand trends from key markets across the globe.

At the upcoming ESC Congress in August, we will be presenting additional real world data supporting the efficacy and safety of Eliquis versus other NOACs.

Regarding immuno-oncology we have made great progress in transforming cancer care with more than 80 global approvals around the world including 9 approved indications in the US in less than two years. I am very proud of our accomplishments, 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.

We continue to see strong execution from our R&D and commercial organizations.

During the quarter, we saw strong sales performance for both Opdivo and Yervoy, with Opdivo growing 19% worldwide quarter over quarter. In the US, Opdivo sales were led by lung and renal cell carcinoma. Additionally, Yervoy grew 32% versus last year as the Opdivo plus Yervoy regimen became the single most prescribed therapy in first line metastatic melanoma in the US.

In Germany, we have seen strong uptake in first line melanoma and second line non-small cell lung cancer. In France, we have approximately 80% of the PD-1 market. We are not yet recording revenues there, as formal reimbursement has not been obtained and we are operating under an ATU. In Japan, Opdivo became the largest oncology brand in June.

With respect to R&D, Opdivo is now approved in 54 markets worldwide and we made some excellent progress in the second quarter. In the EU, Opdivo was approved for using combination with Yervoy for the treatment of advanced melanoma and received expanded approvals for use in pre-treated renal patients as well as broad use in pre-treated non-squamous lung patients.

The FDA granted a sixth breakthrough therapy designation to Opdivo for the potential use in previously treated patients with unresectable bladder cancer. And just last week, both the FDA and the European Medicines Agency validated applications for the use of Opdivo in the treatment of head and neck cancer.

ASCO was a very important meeting for us. We presented broad data across 13 types of cancer, reinforcing our commitment to addressing significant unmet needs in a wide range of tumors.

In first line, non-small cell lung cancer we presented unprecedented data from CheckMate 12, which strengthened our confidence that the I-O/I-O combination of Opdivo plus Yervoy may improve upon long-term survival expectations for patients who express PD-L1. In other tumors, such as small cell lung cancer and MSI high metastatic colorectal cancer, we presented encouraging data which has the potential to broaden the benefit of Opdivo plus Yervoy. And we presented encouraging new data in bladder and more mature data in hepatocellular carcinoma which speaks to the depth and breadth of our clinical program as we establish the promise of I-O in additional tumor types.

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

Now, before turning the floor over to Charlie, I want to highlight some news we shared earlier this week. Many of you know Fouad Namouni, as he has played a critical role in our immuno-oncology strategy so far. Fouad has been appointed to Head of Oncology Development, reporting directly to Francis. In his new role, Fouad will focus on our comprehensive portfolio of strategy for oncology and on driving product development plans from the early development stage to commercialization.

We also announced that after more than 17 years, Michael Jordana will be retiring from Bristol-Myers Squibb. I want to personally thank Michael for his many contributions since joining the Company. Michael and his teams have led the development and approval of more than a dozen medicines, marking a successful drug development career.

Now looking ahead, I am very confident and optimistic about our future here at Bristol-Myers Squibb. Our increased EPS guidance reflects the strength of our overall business. We have a significant opportunity for growth, driven primarily by Opdivo and Eliquis between now and 2020 and an exciting early portfolio of medicines with the potential to drive growth well beyond 2020.

Now I'll turn the floor over to Charlie for additional comments. Thank you.

Thank you, Giovanni. Good morning everyone. We had a very good quarter driven by strong demand from our key products leading to 17% sales growth and 30% non-GAAP EPS growth over last year. Overall, FX had a negative impact on EPS of about $0.02.

Let me start with a few additional comments on our sales performance. As Giovanni mentioned, Eliquis continues to do very well with Q2 sales of $777 million. We continue to see strong TRX growth trends quarter-on-quarter, some of which was offset by work down in the quarter from the Q1 inventory build in the channel as well as a higher Q2 Medicare liability.

Opdivo has become a foundational immuno-oncology agent and that is reflected in its continued strong performance. Physician adoption of Opdivo remains strong in markets where we have launched and have reimbursement, with PD-1 shares of approximately 80% in the US and in key international markets. With approvals now in 54 markets, international sales for Opdivo grew to $197 million in the quarter. Sales in the US grew 8% sequentially over first quarter driven by strong demand growth, which was partially offset by wholesaler inventory movement of approximately $45 million.

Yervoy sales were down 19% versus last year, driven mainly by pressure internationally from the launch of PD-1 agents. In the US, Yervoy was up 32% compared to last year driven by regimen use. We expect pressure to continue internationally until we secure reimbursement over this next year following our approval of the regimen in Europe from metastatic melanoma.

Daklinza had another good quarter with sales driven mainly by strong demand in the US and Europe in the genotype 3 patient population. We expect that competition from recently approved therapies will significantly impact the US business in the second half of this year. In Europe we also expect significant impact once access is secured.

Empliciti sales in the US were $33 million as we continued to focus on gaining new trials and driving demand in a very competitive, relapse refractory market.

Now I'll move to our non-GAAP P&L. Gross margin was 75.3% during the quarter, down 100 basis points compared to the same period last year. This is primarily due to product mix including the strong performance of Eliquis and the US Abilify contract expiration.

MS&A was up 9% versus last year driven by our investments behind new brands including Opdivo, Eliquis, and Empliciti. This was partially offset by lower spend on established products.

R&D expenses were $1.1 billion in the second quarter, the increase in spending was primarily due to grants, Opdivo study supplies and other immuno-oncology investments.

Other income was approximately $90 million, up versus prior year, which benefited from royalties we now receive on Erbitux, R&D expense reimbursement from our deal with ViiV, and higher diabetes royalties. This was partially offset by the write down of our uniQure equity investment of $45 million.

As I mentioned last quarter, diabetes royalties are higher in the first half of the year due to the tiering structure of our agreement with AZ. We therefore expect overall OI&E to be slightly lower in the second half of the year.

Business development remains a key priority and a strategic source of innovation for our Company. During the quarter, we announced the acquisition of Cormorant Pharmaceuticals and their novel antibody program targeting IL8, as well as four clinical collaborations that support our combination strategy for immuno-oncology.

Switching to guidance, we are adjusting our non-GAAP EPS guidance range to $2.55 to $2.65. This range assumes current foreign exchange rates. With the dollar weakening against the yen, we now expect the impact of foreign exchange on EPS to be $0.05 to $0.07.

I know our MS&A expense was higher than many of you expected during the quarter. This was primarily due to the timing of investments behind Opdivo and we still expect MS&A to decrease in the low single digit range.

We now expect R&D spend to increase in the mid-teens range driven by investments in Opdivo and other immuno-oncology programs. This also accounts for the increased spending related to business development transactions completed this year.

The effective tax rate is now expected to be 22%.

As Giovanni mentioned, we are very pleased with the strong performance across the entirety of our Company and now look forward to your questions.

Thanks, Giovanni, and thanks Charlie. Jamie, I think we're ready to go to the Q&A now. Just to remind everybody, in addition to Giovanni and Charlie, Francis and Murdo are here as well to answer any questions you might have. Jamie?

(Operator Instructions)

Your first question comes from Andrew Baum with Citi. Your line is open.

Hi. Thank you for the questions. Three, please. First one, to Francis, given the CMII initiative for Medicare Part B, we're hearing there's some potential the program could be made voluntary. I'd be interested to know what you are hearing given how it impacts reimbursements and potential use.

Second, CTLA-4 seems to be associated with more late response and pseudo-progression than perhaps you seeing with PD-1. Thinking about your CheckMate 227 trial, how do we think about that within the context of PFS as a primary endpoint? Obviously, the Merck data is supportive in this indication, but here we have the potential increased risk of pseudo progression. Again just focusing on PFS.

Then finally, there was some provocative data from one of your competitors in third line metastatic colorectal cancer non-MSI patients combining a MEK and a PD-L1 agent.

I think you are the only major PDx sponsor that doesn't have a MEK inhibitor in your portfolio. I understand there's lots of opportunities, but is this an area of interest and are you pursuing such a combination with a MEK?

Andrew, this is Giovanni. Thank you for your questions. Before Francis addresses some of your I-O questions, let me maybe just take the CMMI question. As you know, there has been a draft proposal made published by CMS. There have been a very large number of concerns raised, and questions, and comments made that are being reviewed. And while we don't have an exact timeline with respect to the publication of a potential final rule, obviously that is what we are waiting for.

I would say that what many stakeholders really have been concerned about is the possibility that changes that are suddenly introduced in the reimbursement mechanism for Part B products may have an impact in where patients are treated and may lead to a reduced capacity to treat patients in the community, which obviously, would not be good for patients and would create significant burden for hospitals. And so that is one of the elements we will be looking for, because obviously, it's critically important for patients.

With respect to the rule becoming voluntary, we will have to see. Clearly this is a time in which there are multiple other pilots in the market and therefore a voluntary rule may enable physicians to participate in one pilot and not have a very complex set of schemes they have to operate under at the same time. So I would leave it at that.

Good morning, Andrew. As you correctly note, pseudo-progression was an issue in the early days of I-O with Yervoy, but because we generated a lot of data now with Yervoy monotherapy, and of course with the combination -- of course we have the benefit, too, of looking at that data before we designed our 227 study. And I can assure you we have taken this into account as we've set up the designer study. So we don't believe there will be an impact on the way we have done our study here.

Talking about CRC, we are focused on diversifying across a very broad range of differentiated mechanisms of action and evaluating different combinations with I-O. Based on those where we have a biological rationale, in particular, tumors, and particularly where we are not seeing sufficient activity with Opdivo monotherapy or Opdivo/Yervoy regimen and that would include colorectal cancer.

As you said, Roche presented phase 1 data in combination of their PD-L1, in combination with the MEK inhibitor. And I agree, while the data was early and the size of the study was small, the combination did appear to show activity.

We continue to look for combinations both externally or internally with our several early stage assets, which would help us to identify patient populations and mechanisms and certainly CRC is a focus for that.

I would just comment that we presented in the MSI non-stable, or the MSI high patient population, very interesting data, not just of monotherapy, but combination at ASCO. And so there are some parts of CRC where we think our regimen will have an effect. Thank you.

Jamie, can we go to the next question please?

Your next question comes from David Risinger with Morgan Stanley. Your line is open.

Yes. Thank you very much. I have a couple of questions. First, with respect to US Opdivo sequential momentum, can you just talk about some of the pushes and pulls that will influence the third quarter Opdivo US sales sequentially versus the second quarter that you just reported?

Then with respect to the upcoming first-line trial results, assuming that Bristol hits on the first line trial primary endpoint in high expresser's, how would that impact, I guess, the likelihood of hitting on the secondary PFS endpoint in all positive patients?

And could you also please talk about how you're thinking about the OS assessment in this trial and some of -- maybe you could just provide some color on whether you think you can hit on OS if you hit on the primary and secondary endpoints of PFS. Thank you.

Thanks, Dave, I'll take your first question and then pass it over to Francis for the second question on the first-line study.

We are very pleased with the quality of the earnings in the second quarter and very pleased with the demand performance of Opdivo. Seeing strong, continued strong demand trends, across all of our approved indications, as well as seeing really high quality execution gives us confidence that we will be able to continue strong demand moving into the third quarter.

Obviously, there are some dynamic events that will occur throughout the back end of the year, including first-line lung data evolution as well as head and neck indications, which have PDUFA dates for us and our competition in the second half of the year. We also continue to look to prepare the market as we focus on PD-L1 testing for that first-line commercial execution later in the year.

Good morning, David. So let me just take you through the analytical hierarchy here in the -026 study. So as you recall, if the primary endpoint of PFS in the strongly expressing patients is met, we will then also look at the total randomized population. That includes all those that express a greater than the 1% level, which represents about 70% of the first-line patient population.

If we hit PFS at the greater than 1%, we can then test for OS in both strongly expressing and the greater than 1%. Now just to remind you, overall survival is a secondary endpoint in CheckMate 026. And we can still file without a positive OS result.

Now, the selected population of high expresses is not 50%, so we should be able to describe the effects at 50% cutoff once our analysis is complete.

Just to finish, as I have noted in the past and will note again today, I'm confident in the study design of 026 and I look forward to seeing the data in weeks, not months.

Thank you, David, for the questions. Can we go to the next one, Jamie?

Your next question comes from Geoff Meacham with Barclays. Your line is open.

Good morning, guys. Thanks for taking the question. Just another one on I-O combos. You guys have done a great job at going back and optimizing the Opdivo/Yervoy dosing schedule, which I thought was evident at ASCO. So a couple questions, how much of a priority is this over more novel I-O combinations? Would you go back and maybe repeat some of the earlier phase 1, 2 studies? And the third part of it is, how much recent payer pushback have you seen on the cost benefit of this combo in melanoma, for example?

Good morning, Jeff. First of all let me say we were very gratified at the progress we've been seeing in the regimen in the number of tumors. Now, as you saw at ASCO, in many cases where we see benefit with Opdivo we see further benefit with the regimen. So this is a high priority for us to expand our understanding of where the Opdivo/Yervoy regimen will play.

As far as the dose is concerned, it is becoming evident that not all tumors have the same dose. We are not altogether certain of what the biology behind that is, but we think it's significant. And we are paying great care to the dose, because we believe it will be relevant in terms of delivering the optimum value of the regimen, which as you see in the 012 data we presented, really does lead to fast and rapid responses, which in the past in melanoma has led to prolonged survival, so we're very optimistic about that.

Now, that being said, we are not trading off our excitement about the Opdivo/Yervoy regimen against the next wave. And we are certainly accelerating our efforts bringing more compounds into the clinic and are looking particularly in areas where Opdivo monotherapy and the combination are not as effective as we would like.

Jeff, to your question regarding payer pushback on the combination of Yervoy plus Opdivo in melanoma, I can tell you we've been really pleased in the performance of Yervoy plus Opdivo in first-line melanoma, and now we are the most frequently prescribed regimen or treatment in first-line melanoma, metastatic melanoma, setting.

In the US we enjoy very, very good access, greater than 90% open access, to the combination, and in fact, the reimbursement process with the regimen for melanoma is going very well across Europe with recent positive recommendations in the UK in NICE, which as you know, is a very, very high threshold.

What's driving that, obviously, is the very strong efficacy and the appreciation of the durability of the long-term survival benefit.

Jamie, can we go to the next question?

Your next question comes from Jami Rubin with Goldman Sachs. Your line is open.

Thank you. Just a few questions. Charlie, first, maybe for you. Can you elaborate further on the $45 million channel drawdown in Opdivo? It is just surprising given we're in the early days of what has been a very rapid launch, and I'm kind of surprised to see a drawdown. Can you explain why that happened because if you look at IMS and Symphony data, US sales should have been running around $680 million, so how we should be looking at that?

Secondly, maybe to -- I don't know who can take this. But, Lilly, on their call the other day said that they thought that front-line lung is already 20% penetrated by PD-1, specifically in squamous lung cancer. Are you seeing off label use in front-line lung? And if so, is that about the level that you are seeing?

Thirdly, maybe for you, Francis, when should we expect an interim look for CheckMate 227? On that note, is there the opportunity for publication of CheckMate 12, and would that be included in guidelines? Thanks very much.

Jamie, this is Charlie. I will take the first part of your question. Related to Opdivo sales in the US, our out movement, so our sales to the channel, was 17%. So that's indicative of how we view demand. And as we look at the inventory with our wholesalers, that actually on a per month basis dropped slightly from what we had on the percentage basis from the first quarter going into the second quarter.

Yes, so we're seeing strong demand there, Jami, and we feel good about the out movement from wholesaler into the different channels that we serve.

When we look at the data that other companies, like Lilly, have reported on, their performance in front-line squamous cell carcinoma -- and just a reminder, that is the smaller segment of the front-line market representing about 25% to 30% of total front-line patients. We are seeing a bit of off label usage there. We've maybe got penetration in the neighborhood of 10% to 15% by our calculations and estimates from some very thin data that we look at that tracks that. And then in non-squamous I would say it is much lower, it's about 5% in front-line off label use.

Good morning Jamie. So first of all, let me say that we will be publishing the 012 data, but we don't see that as our definitive registration opportunity.

Of course, 227, the situation there is we have estimated the final read will be in early 2018. But like all our studies we have a good -- we've built-in optionality. There is, as you know -- well, there's basically two studies there.

One that is in expressives and one in nonexpressives. We are very happy with the recruitment and it is likely that the expressive will read out first. And since it's a duel endpoint of OS and PFS, we certainly -- should the data be positive, would possibly have an opportunity to look at PFS somewhat earlier.

So the way we've set up the studies gives us a lot of optionality and a lot of opportunities to take good data that we see earlier should that be the case. Thank you.

Can we go the next question please, Jamie?

Our next question comes from Vamil Divan, with Credit Suisse. Your line is open.

Great. Thanks so much for taking my questions and good morning everyone.

Just following up a one of the questions earlier around the 026 study and the PFS and the OS discussion. Maybe if you could just -- I know you expressed high confidence in the study being successful and the parameters that you will do in terms of statistical analysis. But if you only were to hit PFS and not hit the overall survival endpoint, can you just talk about how you think about that from a commercial perspective given that -- we haven't seen the data yet, but at least the press release from Merck suggesting that they were able to achieve PFS and OS in the population that they studied.

Second, I was -- just, separate topic, on Orencia. I was just impressed by the performance there and I was wondering if you can give a little more color on the underlying trends that you're seeing with that product. Thanks.

Vamil, good morning, this is Giovanni. Let me just make a couple of comments and then maybe Murdo can address your question specifically with respect to Orencia.

Let me just go back and say, first of all, I am very pleased with our performance in lung cancer in the US and internationally. When you look at our quality of execution, the penetration in both squamous and non-squamous, and the market share we have in second-line, there is clearly broad acceptance of Opdivo in the physician community and familiarity with the use of the product based on the strong data.

I think that will be a really important point for us going forward, because in lung cancer, Opdivo clearly has become the foundational therapy. We're also very pleased that we are seeing similar dynamics happen in every international market in which we have obtained reimbursement at launching, and overall, we continue to maintain a very high percentage of total PD-1 sales in the 80% range.

As we think about our lung cancer strategy going into first-line, as Francis mentioned, we are very confident in our understanding of the disease, of Opdivo and in the design of the clinical trial. And overall, I would say in the long-term we're also very comfortable with our strategy that has a really strong pillar in monotherapy. But then over the next year or so we're transitioning to the potential use of the combination therapy.

We feel we are very strongly positioned in first-line today and we have a really solid strategy for maintaining that leadership position going forward as immuno-therapy moves into the first-line setting.

We will have to look at the study once we obtain the results of the study to really understand the data. And as Francis said, we are weeks away, we're not months away, and we will be obviously prepared to communicate the data when we have it.

Yes, and related to Orencia, we are really pleased with how we are seeing Orencia evolve. At the beginning of last year, we launched a campaign to focus on the early rapidly progressing patient. And given the size of this market it takes some time for a new focus patient type to really take hold in the marketplace.

I can see now across the world emerging strengthening trends in Orencia. In the US, in particular, we're seeing very good evolution of our subcu formulation of the product. And in major markets across Europe we also see good acceleration of the subcu performance.

We have an additional catalyst for growth in Europe with new labeling that allows Orencia to be promoted for methotrexate-naive patients with moderate progressive disease. So that also offers an opportunity in the latter half of the year.

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

Your next question comes from Tim Anderson with Bernstein. Your line is open.

Thank you. If I could go back 026 trial and the topic of first-line lung. I know we haven't seen Merck's full results. But did it surprise you that Merck hit both PFS and OS in the first-line trial?

And do you have any visibility on the degree of crossover that you have in your trial that could naturally impact achievement of overall survival? And another question on this topic is, is ESMO still the most likely venue?

And last question has to do with the cutoff. You haven't been willing to reveal that in the past. I am wondering why? I understand it is a 5% cutoff, I think the market assumes 10%. I'm wondering if you're keeping that close to the vest to allow you the flexibility to actually change that cutoff point before a database lock?

Tim, good morning. A lot of questions there. Let me start.

As far as Keynote-024 is concerned, it is hard for me to comment without having the trial designs and the enrollment details in terms of the crossover. Just to remind you, both studies allowed for PD-1 therapy after progression on chemo. And we are not actually aware of any technical differences that would create a difference in the crossover.

Now, as you know, there is always a possibility that OS may be confounded in an open trial and that is why we paid a lot of attention to the timing of analysis. I mentioned that over the last few months.

We also made sure that the CheckMate 026 protocol, that the patients on chemo, were required actually to have their progression confirmed centrally before they were allowed to receive Opdivo. That is important because that reduced the amount of wobble around that.

So again, we think it's always an issue, but we think we've minimized that in terms of getting a potential result, both in terms of PFS and, of course, OS.

We will, as usual, be looking for the earliest opportunity to present the data at a conference and publish it. And I will say again, we're not going to talk about the high [expressive] cutoff at this point. But you, obviously, will have an opportunity to see that when we talk about the data. Thanks very much.

Thanks, Tim. Jamie, can we go to the next question, please?

Your next question comes from Seamus Fernandez with Leerink. Your line is open.

Thanks for the questions. Just a couple here. Maybe just -- can you guys -- I think this question is for Charlie. Can you just remind us where you book royalties from Ono for Opdivo Japan? And what that actually contributed in the quarter to international? It actually looked quite strong. So just wondering if that was a meaningful contributor.

The second question, in terms of the France reimbursement delay, but active treatment. When would you anticipate having active reimbursement? And should we expect that to be a bolus payment similar to what we saw for daclatasvir, I believe it was last year.

Then the last question, if we think about the PFS benefit and having success on a PFS endpoint. Is it a natural conclusion that OS would have a very good chance of succeeding at the same time? Or is it possible that the study could continue to track for overall survival? And perhaps the PFS endpoint succeeds, but your directionally positive on OS, but not yet statistically significant? That is a last question. Thanks.

Thanks, Seamus. This is Charlie. We book the Ono royalties in revenue under what is called alliance revenue. And the amount for the quarter was approximately $150 million (sic -- $50 million).

Your second question, Seamus, related to France, is actually just a clarification. So we do have funding in France for Opdivo across our label of indications. What we haven't done is negotiated a final price to formalize the reimbursement. And that's why we haven't recognized revenues yet.

And you are correct in recalling Daklinza. It is a very similar situation. Once we establish an agreed-upon price with the French reimbursement authorities, we will recognize that revenue and it would appear as a single bolus number.

Good morning, Seamus. Let me say we to understand, of course, that OS and PFS tend to go together, but it's certainly not a foregone conclusion that PFS and OS will go the same way. Although we do understand and have set this up with every possibility that that would be the case, and of course we hope that will be.

As far as -- and I would just add that obviously we've had approval based on PFS alone, and that was the case with the combination in melanoma. So just having PFS alone certainly gives us a good opportunity to make a submission and move very quickly.

Just as far as -- I think is unlikely, but certainly not impossible that one won't -- that it's unlikely that we would get OS later if we don't see it at this point. But of course we continue to follow our patients over a long period of time and we will be following that.

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

Your next question comes from Chris Schott with JPMorgan. Your line is open.

Great. Thanks very much. Just two quick ones here. First on a the 227 enrollment. I guess, when do you expect enrollment to be complete here? And has the expressor arm of that study, is that fully enrolled at this point?

My second question was looking ahead to the commercial dynamics of the PD-1s in front-line lung. How do you see testing requirements impacting the rate of uptake in front-line? Should we be thinking of this similar to some of the prior indications, where PD-1 use quickly moves up to like 60% or 70% usage? Or would we expect this to be a bit more gradual ramp as physicians need to think about adopting the PD-1 testing? Thanks.

Chris, good morning. Just to remind you, the 227 is really two large separate studies, expresses and non-expresses. We have been very pleased with the enrollments and express enrollments is indeed complete.

Chris, on testing, as you know, right now testing in the overall lung market is quite low with about a third of patients being tested overall. Two-thirds of those patients are front-line patients, because of difficulty in sourcing tissue availability in second-line treatment.

We do feel that it is the intent to prescribe a PD-1 that will drive PD-L1 testing, and given that the label for at least both us and our competition will require PD-L1 testing, we do feel it will drive quicker in front-line than it has in second-line. You've got tissue availability and you've got a need to test.

As far as using analogs for it, I am not sure I can guide you on that, given that, in the immune checkpoint inhibitor market in general, we have seen fairly rapid evolution. So I would say -- I would err on the side of a very fast uptake of PD-L1 testing in front-line.

Maybe just to add on a related topic, my perspective is that when you look at what our experience has been in second line, I believe that going into first-line, it will continue to be extremely important to have data and the label that enables physicians to create the largest patient population that can benefit from a product like a Opdivo. Because what we have learned in second-line, clearly, is the desire of patients to move away from chemotherapy and physicians to treat lung cancer patients with Opdivo.

Going into first-line having a data and potentially an indication in a significantly broader patient population, will continue to translate into an important element for us. And I agree with Murdo that, given strong data, we don't see testing as a limiting factor in first-line.

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

Your next question comes from Jeff Holford with Jefferies. Your line is now open.

Thanks very much for taking the questions. Just on the HCV franchise, I'm wondering if you can just talk us through a little bit about your thoughts, particularly on the ex US sales for that franchise over the next few quarters, and how we should think about that? It was obviously a bit stronger than expected today.

And then secondly, earlier today on their call, AstraZeneca was talking about I-O combination pricing, hinting that they think the I-O Biologic's combination, the PD-L1 part of that, the price may be set and it may be the CTLA-4 side of it that they think, if I-O combinations in lung cancer, for example, become much more common, that that takes the hit from a pricing perspective.

I'm wondering if you could just give your thoughts around that -- how you may want the healthcare system to deal with pricing of I-O combinations? Thanks very much.

Jeff, let me just take the I-O combo pricing question, and then Murdo will give you some perspective about dynamics in HCV.

I will go back to what we said a few minutes ago at the beginning. Our experience is that given strong data and significant patient value, payers are providing access to combo regimens in I-O.

And when you look at the evolution of combination regimens, depending on the dose of different agents and frequency of those, the incremental cost to payers is very sustainable. Because when you look at our regiment in melanoma, for example, during the phase of induction, which is the 12 weeks in which two products are used together, the cost of induction is only 6% higher than monotherapy.

And then when you look at the regimen that we are taking into 227 for lung cancer, there is a lower dose of Yervoy, which is administered every six weeks.

So all of that to say that at this point we continue to think about the regimen that has the strongest data in the label and offers the most value to patients is the one that is reimbursed -- is one that is easily reimbursed by payers and adopted in the marketplace.

Regarding our hepatitis C franchise, we have seen a maturation of our business in Japan, new competitive entrants have significantly reduced our performance there. In Europe, however, we continue to sustain a very high penetration of the genotype 3 patient population with market shares in the range of 70% to 90%, 90% being in France.

However, with the advent of velpatasivir combination with sofosbuvir, as they secure reimbursement, we would expect downward pressure on our business across Europe as well.

And I know you didn't ask about it, but in the US, that would be a similar theme. We would expect in Q3, a decline in our hep-C business. I will say, very proud of the teams at VMS who work in this franchise and what they have done is shown outstanding execution and real focus and really making a very de-prioritized, let's say, opportunity that some people may have looked at, into a very good one for the Company.

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

Your next question comes from Gregg Gilbert with Deutsche Bank. Your line is now open.

Thanks. A couple of cleanups for Charlie. First, can you provide what you would call a normalized Eliquis sales number for the US in the quarter, excluding those variables you mentioned?

And on hep-C in the US, does the second quarter sales level reflect some inventory pruning ahead of the hit that you expect? Or could we see a very dramatic hit in third quarter well beyond just what scripts would suggest?

And perhaps for Francis, maybe you could offer some context around your recently announced new study for your products combined with Rova-T, as well as when some of that key data may read out? Thanks.

So thanks for the question on Eliquis. Total prescription volume for Eliquis grew 14%, so that would give you a good demand indicator. We did have some inventory movement quarter over quarter, but given the strength of the TRx demand performance, we're seeing a very good trend there on Eliquis. And we think that will continue to drive a very strong back half of the year.

Yes. And Gregg, on hep-C, as Epclusa continues to get formulary listings, we expect a fairly dramatic drop off beginning in the third quarter. Let me just correct something I said earlier. The Opdivo sales in Japan that we book is about $50 million in the quarter.

Thank you for that question about Rova-T. Small cell lung cancer is a very important part of our broad lung cancer strategy, and as you saw, we have some very interesting data that we presented at ASCO around monotherapy, and particularly, the combination of Opdivo and Yervoy together. We're actually very pleased about the collaboration with AbbVie, because we -- it is exploratory in nature, but we're exploring the safety and the activity and the sequencing of Rova-T together with Opdivo alone and Opdivo/Yervoy in patients who have previously failed platinum treatments.

I think there is, like many of these early studies, there is no specific timeline that one could point to, but obviously if we see promising data in a disease that really does need more options, we'll obviously be looking to move quickly into, potentially, registrational studies.

Gregg, let me just add to what Murdo had talked about on Eliquis. You may recall from my comments last quarter that we had in inventory build of about $40 million on Eliquis, which we've worked down in this quarter. And we also had a $25 million adjustment to the coverage of our pharmacy.

And we also in this quarter had a little slightly higher Q2 Medicare liability related to the donut hole. So there's a number of ins and outs related from the first quarter to the second quarter, and that's why I think Murdo, as he referenced prescription trends, is a better barometer for Eliquis.

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

Your next question comes from Tony Butler with Guggenheim Securities. Your line is now open.

Yes. Good morning. Two quick ones if I may. One on Empliciti. I just wanted to investigate, or at least get your comments on maybe the trouble that may be occurring, certainly getting Empliciti to patients having multiple myeloma. Is it because it is getting pushed later and later and that's maybe even beyond third-line? That's the first.

Second, Francis, I've heard you mention the combination, Opdivo/Yervoy, obviously being the hurdle to beat for other combinations. And I'm curious to date if you continue to believe that's the case? Obviously, that combination are the data we have to date, but I'm curious if you would still say that's really the dogma at Bristol-Myers today? Thanks.

Yes, so the first question on Empliciti, Tony, is basically what we're seeing is a lot of competition with a lot of new entrants and new data coming in to the multiple myeloma market. I would say we're still getting our indicated population. We are still seeing some second-line relapse refractory patients, as well as later lines.

We're watching this market closely, and we are being very specific in describing the patient type that benefits from Empliciti. So more to watch, this market is still very dynamic and there's more that will happen there, obviously, in the future.

Tony, thank you. It's a good question, because clearly our aim is to develop regimens that really push out survival for patients as long as possible. And doing it with -- as well as that great efficacy, potentially, but also with a tolerable regimen. And I think we are beginning to show that is certainly possible with Opdivo and the Yervoy regimen, and it is possible across many tumors, but not all.

In our recent reorganization this week, actually, we are sort of facing the innovator's dilemma, and we certainly see the opportunity to take the next wave of combinations. And we've sort of separated out a group that will look at that, indeed, to try and beat monotherapy -- I'm sorry, to beat the Yervoy/Opdivo combination.

So it's certainly not been complacent at all about this. We're trying to set up a situation where, overall, we would want to have options for patients and certainly bring forward the best combination, and if we can beat Opdivo/Yervoy or make it better in some way, we will certainly be prepared to do that. And that is exactly what we're trying to do.

We're not just putting our eggs all in one basket. We are keeping a very open mind and trying to drive forward to the great opportunities in I-O, which we think there are, and beyond I-O, as well, into other combinations.

Let me just add to what Francis said, because I think this is a really important part of our strategy as a Company. First I would say we're very pleased with the potential of Opdivo and Yervoy, and it is clearly at this point the only combination regimen that has demonstrated significant efficacy and acceptable safety profile.

We started that work in melanoma. We have, clearly, in R&D, expanded and progressed that work very significantly in lung cancer. I believe that the doubling of response across all levels of PD-1, expression versus Opdivo monotherapy in lung cancer in study 12 is extremely promising. And we are also challenging ourselves and we have challenged ourselves to find the regimens that are tolerable, which we believe we have with the new regimen in lung.

At the same time, we are taking this combination regimen to many more tumor types and the data continues to be extremely promising. It is really not a dogma, but in reality, it is a proven mechanism of treatment of patients that is demonstrating clinical trial, [out of] clinical trial to have a really big role to play.

As Francis said, our objective is, at the same time, to continue to accelerate new mechanisms of action into the clinic. That's why we have eight immuno-oncology agents in early development, and we will continue to work to raise the bar beyond what we think is already a very important accomplishment with Opdivo and Yervoy.

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

Your next question comes from Mark Schoenebaum with Evercore ISI. Your line is open.

I'm sorry. Hey, guys. Thanks very much for taking my question. It is great to have Tim back in IR.

Francis, I was going to ask a question in a little bit of a different way. A year ago, I think, you were in my office with a group of investors when they were extremely nervous -- or maybe it was two years ago, they were extremely nervous about the second-line trials. They weren't big enough, there wasn't enough -- all kinds of stuff.

You basically said, look, what I remember is you basically said look, these trials, we think they are designed well, we don't think they are risky. I'm just wondering if your confidence level in 026 is similar for the all-comer population to that? And then also, do you have any information on second line duration? Thank you.

It's a very short answer, actually, Mark. Yes, I am confident in that we have done everything to do that.

I think there's another part which I just want to take the opportunity to call out our development, regulatory and filing teams because I think there's another dimension to this, which is the speed aspect. And as you said, two years ago we were wondering how we would do with everything.

Now I think we've seen these teams deliver nine approved indications in 18 months. And what would be an exceptional performance for anyone else has become the norm for these folks. And I just know they are relishing the opportunity to get their hands on the data for 026 and to maintain or even exceed the performance they have already done.

They are a very excited team and we are very confident they are going to move this quickly forward. Thanks, Mark.

Mark, on your question regarding second-line duration of treatment, as I've said before, we need about two years of end market experience to determine what our actual duration of therapy is, so we're still light on that.

But, we continue to use clinical trial experience and our PFS curves to estimate the number of months before a patient progresses. That is what we continue to use in all our forward-looking assumptions.

Okay, Jamie. Thanks. Jamie, I think we have time for two more questions.

Your next question comes from Marc Goodman with UBS. Your line is open.

I was wondering if you'd be willing to give us a breakdown of Opdivo sales and what indications it's coming from?

And second, outside of Opdivo and all the potential new indications, can you talk about what are some of the other updates on the pipeline that you can give us? Thanks.

Marc, this is Giovanni. Let me just say on Opdivo, it is very difficult to give exact numbers by indications. These are relatively small data sets, they are very dynamic, trends are clear, but we are not breaking down sales by indication, by quarter.

The market share evolution, which we've communicated consistently in every one of the tumor types, represents a much better indication of where we are with penetrating every one of the opportunities.

Let me just ask Francis to give you a perspective on the rest of the pipeline outside of oncology.

Thank you, Marc. So while we actually have a sharp focus, obviously, on maintaining our leadership in I-O, we are also committed to having a diversified portfolio. And as with I-O our goal is discover and then develop quickly, potentially, transformational medicines in our other areas.

So I'm most excited at the moment about the burgeoning early imminent signs of portfolio that we have. We have got a portfolio now of about 15 assets from preclinical through to mid-stage. Many of them have the potential to be first or best in class. And we're looking forward to sharing data with you, perhaps in the next year or two, as we see the progression, which is beginning to accelerate. Thanks.

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

Your last question comes from Colin Bristow with Bank of America. Your line is open.

Hey, thanks for squeezing me in and congrats on the quarter. A couple of quick ones. On the next wave of I-O assets such as Lirilumab and Urelumab, can you just remind us of the timing of upcoming readouts?

And secondly, on business development outside of I-O, I just wanted to get what are your therapeutic areas of priority right now? Thanks.

Thanks, Colin. Good morning. So basically we have said we are going to talk about some of our next wave assets in the second half of the year. I can now confirm that we will be making disclosures at ESMO around the safety of Lirilumab in combination with Opdivo and Yervoy in advanced -- in a number of advanced refractory solid tumors. Also the safety and preliminary efficacy of fucosyl GM1 in relapsed refractory small cell lung cancer.

And we will actually talk about the FRACTION trial design. We will talk a little about this adaptive phase 1/phase 2 approach to speeding up our combinations.

And then after ESMO, of course, there is SITC. There we will be talking about Lirilumab and Urelumab, safety and preliminary efficacy of the combinations with Opdivo. And we will talk for the first time about anti-LAG-3 safety and the PK monotherapy in combination with Opdivo.

And, Colin, maybe let me just make a comment on business development before we close. Our areas of focus for business development, which as we have mentioned at the beginning, remains a really important priority of the Company. And really the therapeutic areas in which we have decided to focus our internal R&D efforts.

Outside of oncology, which clearly is the priority, there will be cardiovascular medicine, immuno-science portfolio, fibrosis, some of the genetically defined diseases. Those are the areas in which our business development teams are acting.

With that, let me close the call and thank all of you for participating. Again, we had a very strong quarter. I'm very optimistic. It continues to validate our strategy, demonstrates the ability of the Company to execute at a very high level. It positions us well for the rest of 2016. And clearly at the beginning of a period of growth, it creates a really strong platform for future growth and success. Thank you.

This concludes today's conference call. You may now disconnect.