Bristol-Myers Squibb's (BMY) Management Presents at Stifel 2016 Health Care Conference (Transcript)

| About: Bristol-Myers Squibb (BMY)

Bristol-Myers Squibb Company (NYSE:BMY)

Stifel 2016 Health Care Conference

November 16, 2016 09:30 AM ET

Executives

Charles Bancroft - CFO

Analysts

Katherine Breedis - Stifel

Katherine Breedis

I'm Katherine Breedis, Stifel Major Pharma and Biotech Analyst. And I am delighted to have with us today, Charlie Bancroft, Chief Financial Officer of Bristol-Myers Group. We’re going to have a few moments for prepared comments and then we’re going to get into our fireside chat and of course want to make it very interactive for you as well, so we will have time at the end for some additional questions. All right great.

Charles Bancroft

Thanks Katherine and thanks for having me here and happy to be here to represent BMS. It's an exciting time for BMS. We just came off of our third quarter earnings call and we had a number of announcements. We had strong growth across our portfolio in particular our key brands in Opdivo, Yervoy, Eliquis, Orencia. We actually up guidance for the full year and full year year-over-year earnings growth is now for 2016 about 40%, biggest increase by per member since being with BMS and are being with BMS for long time.

We also announced the evolution of our operating model, and the main focus here is really to be more competitive by focusing on those areas, that drive the greater side of BMS, and we’ve done it across all the major areas of our business. We've done it across commercial where we're focusing on the key brands and the key geographies that we think can drive sustainable growth. Even in R&D where we think we still need to have incremental investments to make sure we have a sustainable pipeline. But at the same time, we’re improving capabilities to adopt for speed, flexibility and really adoptability to environment in which we operate.

And then even in our manufacturing, we're evolving that to be more aligned with our biologics portfolio, which now makes up about 75% of our debt. And in the G&A function, we’re streamlining those to make sure that they are aligned with the key business parties of our company. And at the end, we expect that that will have impact on our operating expenses between 2016 and 2020, to hold roughly flat. But more importantly, we feel that it's going to make up the more nimble company that will provide for ability to deliver, not only short-term growth but long term growth as well.

We also in the quarter announced the results of our 026 frontline lung study, that wasn’t successful. And although that was very disappointing to us as it was to a lot of our investors, it really doesn't change our strategy at all. We have the broad and promising I-O development program. We feel that combinations will play a significant role in the market place and study 227 has a potential to provide significant promise to lung patients, cancer patients. And in our view and our collective view of the Company, it’s just a really exciting time to be at BMS when we think about all of the growth prospects that in front of us. This chair is kind of comfy.

Katherine Breedis

Thank you. Yes, we aim to please, Charlie. We’re thrilled to have you here. And I’m excited especially because I do you want to learn more about operating plan, having come most recently out of major pharma. I appreciate how challenging it is to implement something like that and I admire BMS for taking a leadership position in that regard. And this is not the first time we've seen you to take a leadership position in new business model.

But may be just for a couple of quick thoughts since we're right out of the election, I’m curious from your prospective, how we’re looking for pharma in the coming year ahead. I don’t think anyone expected the results that we've seen, but maybe that sets us more favorable tone in terms of the pricing cause. What were your general thoughts with respect to the outcome the election and thoughts potentially on the agenda for price reform or repatriation cash received, et cetera?

Katherine Breedis

I mean, it's hard to know how candidate Trump will actually be President Trump, so we'll see how that plays out. So, there is a lot of speculation of what that could potentially mean particularly for the Affordable Care Act under their VTO and replace. That's probably a little bit more tricky to implement rather than to say. But we'll see how that evolves and how that evolves every time, so it's hard to speculate the exact impact that may have depending upon how it actually gets implemented and the timing in which that gets implemented.

In regards to repatriation, in general, we view that as a positive thing if it does happen and I think it's important to put in context, U.S. based most pharma multinational because by and large all of us have, our U.S. headquarters in the U.S. by definition we have our R&D by and large in the U.S. and we pay our dividends out of the U.S. So there is an imbalance of how where we earn and where we spend our money. So although, we have $8.6 billion at the end of the quarter only about 1.1 billion is in the U.S. and the rest is internationally, and it's overtime we just borrow more in the U.S. We have $6.8 billion of debt and almost all of that is in the U.S, so you see this imbalance.

Now, having said that, we have today a lot of financial flexibility, so having more cash in Europe is a real positive, don’t get me wrong, but it's not like that stopped us from doing all those things that we want to do from a capital allocation standpoint. We have a very strong credit rating. We just announced a share of buyback program and we continue to do business development at a very brisk pace and most of that is also in the U.S., and we think about the utility and use of cash.

So depending upon, how the rules are actually implemented and what does it mean and what are the economics of it and is it permanent or is it temporary? A onetime off event, but we took advantage of the HIA back in 2005, and we've brought money back at that point, and we would expect that it's all the economic and expense, we would do the same. And that would provide us with more financial flexibility.

Katherine Breedis

And with that added cash and I know BMS has always had a very strong string of pearls business development strategy through in licensing acquisitions would -- how do you think about prioritizing use of that cash? Would it be more towards business development, more towards capital expenditures, shareholder purchase? I mean overall thing that you put on the clinical for the coming years, but I am just curious how you think about the different ways of applying that capital?

Charles Bancroft

Yes, so at highest level, we invest our capital in the business and we are very stewards of that and very sort of aligned to how do we get return from that investment in very focused way? So that's first and foremost. We also have been very committed to the dividend. We've had seven straight years of increases in our dividend, and we've had share buyback in the past, and we just announced one recently so that's another opportunity. As far as capital historically we've invested about $500 million in capital.

This year we're peaking at about $1.2 billion because we're building a new plant and some new facilities. We expect those would get to the back half of this decade that will take off to more normal. But we don’t feel capital constrained today, so I don't think having that additional cash necessarily make us do think we wouldn't have done otherwise and particularly to your question about BD. BD is fundamental to all of the pharmaceutical companies business model the large pharma, no one can invent everything internally as you know, so we have a balanced approach to say the internal innovation as well as making sure that our eyes are wide open to external innovation.

And we look at it across, is it strategically aligned to our therapeutic areas? Is the science compelling? And will it be ultimately unambiguous to payers that with value? And then of course the economics have to make sense. So, we haven’t changed our BD strategy, we've been productive -- we've been predominantly in the earlier stage. So, we think that’s probably where the greatest return is, although, they are more risky most things in our industry failed. So there is -- but when you think about deploying capital and the opportunity to have something been successful and in our very core therapeutic areas, we have deep capabilities, deep understanding. We feel that that’s a rest of the future success. It doesn’t mean we wouldn’t do larger M&A, but it have to meet all of the parameters I mentioned.

Katherine Breedis

And I think from the competitive landscape standpoint when I've looked at that business model, I found it as a way that perhaps you are thinking about de-risking an asset that you go in early we have been in licensing or maybe even by way of investment. And then if the asset de-risk and you acquire that target company, and to way as I think looking at the as you point out that risking us in early stage asset in a balanced approach?

Charles Bancroft

I mean a great example and probably the shining star example is Medarex, which we had a collaboration initially and then in 2009, we bought Medarex and that’s been a huge boost to us as we think about the investment in immuno-oncology.

Katherine Breedis

Great that’s great.

Charles Bancroft

So we have all kinds of deals from licensing to auction deals to acquisitions. We tend to follow what the other side wants and we feel that it's been an advantageous to us because we can't just go in their demand and try to impose your point of view. So, we are very collaborative around the deal, the deal structure, the framework. And right overtime if it's really fascinating time then we think it's going to yield even greater value than we think about it from an M&A perspective.

Katherine Breedis

That’s great. Well, maybe shifting gears to the operating model. I know that this was something you highlighted on the call. You just mentioned it in the opening remarks. It's not often that we see major pharma come out with this declaration about creating new operating model. And there is also a lot of doubles in the details, so as you think about some of those key points, how are you thinking for example you mentioned efforts to drive more focused investment in commercial opportunities against brands and markets? Are you employing different tools like I mean obviously look at traditional MPV [ph] and return on invested capital metrics? But are different ways that you are looking or different way that you are provoking that dialogue internally?

Charles Bancroft

Yes, so let me take one little step back and give the perspective for maybe not everyone who has followed BMS as closely. We have been real innovative in the business model all the up way back to 2007, when we were in more of a conglomerate company. We had a nutritional business, we had actually in wound care business, we had diagnostics medical imagining business, and we had 30 plants and we had 6500 SKUs, and we operated in that form of every geography. At that point we decided to become a very focused biopharma company sort of taking the best way to think pharma and the best of let's say biotech. And we sold the spun off and split off all of those other divisions just to become pure play biopharma, but we did more than that.

We went from 27 plants to 11. We cut our SKUs in half. We became much more nimble and focused as where we want to compete, so that’s the idea of focus and the narrative run and history has been a very successful playbook for us. In so much is even in 2014, we divested our diabetes business and up to that point in the pharma space, we know we were divesting products that had big growth potential that had IP protection. So we were able to divest the diabetes business for net some money upfront about 4 billion but also a lot of royalty. We got rid of a plant along the way in regard to that we're getting rid of more fixed infrastructure. And allowed us to really double then and focus on immuno-oncology, we think it is the greatest opportunity for growth as we think about the future.

So as we think about now moving forward to where we are today, we started working on how we think about reshaping the Company yet once again, even though we’re just biopharma. And the beauty of doing it where we started back early this year was we were in really position strength. It’s always better to do any kind of transformation when you have great growth prospect in front of you. And we still do irrespective of 026. So you free people’s mind when you have position strength because you don’t have short-term cost cutting issues that you’re reacting to some of that.

You’re really thinking longer term which we did, we said lets stretch our mind to what kind of company did we wanted to be in 2020 and unshackled ourselves from what we’re today. Because as much as we want to call ourselves biopharma, our portfolio is sort of biopharma, but our root we're 130-year-old company, our roots are in bigpharma, right. So how do we become that biopharma companies that we aspire now to be. So, it was with that mindset that position of strength that allowed it to really thing trough, what are the areas of focus do we really, what we think can drive value, and I mentioned it in my opening remarks, and that there is not of magic to it, of course.

Katherine Breedis

We all know the math even the number, how do you get the decision point, I guess as the question?

Charles Bancroft

Yes, exactly. So the math is generally fairly straightforward, it’s really, I think success breeds success. So, I think when we’ve done it before we know it works and we have a senior management team starting with Giovanni our CEO. So although, we have so much opportunity in front of us also than active organization to rethink to reimage the Company was actually quite often out, trace certain amount of influence stability, but people not sure what is it ultimately meaning for me.

And quite frankly even though we're 11 months on from when we started it, so today there is still something that we’re working through. What is it going to mean, we know exactly. We’ve implemented something already. For example integrated oncology and in that though we’re becoming much more of an oncology based and growth company, and traditional pharma companies have fairly development and handed after later development and that’s the very end stage, start talking to commercial and they do it on a product basis.

Now, we’re very interesting phenomena now where we have Opdivo and Yervoy in the market as marketed product. We also haven't been phase one. So I think the cost to continue is very unusual phenomena to have and then on top of that, we have eight other I-O agents that can be combined with potential Opdivo, maybe Opdivo and Yervoy. So, we have to rethink how do we actually sort of adjudicate that across the Company.

And so now we have it from early discovery, is now combined with later stage to discovery and they are partnered with our, what I would call our strategic commercial organization. So that continuum really that's understand of what’s the market opportunity, where do you want to follow the sign? How do we move things forward quickly? And in quite frankly, how do we sell quickly? And move the asset form in the right pace. So, I think that sort of is one example of something that was carrying out I think moved fair very quickly. As we think about resourcing our brands, the one thing about most transformation it's easy to say focus on the high priority.

And mostly companies can get that and go after mind around that and do it. The challenge is how we'd be super-disciplined on not doing the things that you said; we're going to focus on because you wind up during this with any spread between by other cost everything else. And you really don’t get that real focus that alignment across the organization, so we're also trying to makes sure that we have that discipline to its only investing in those things that we feel and we have real value overtime.

Katherine Breedis

Okay, I think it makes a lot of sense. The KOLs we talked you say, if you were to think about running a study in every I-O combination, you could think of you wouldn’t have enough patients?

Charles Bancroft

Even don’t have enough money.

Katherine Breedis

Not true. But I think that's certainly makes a lot of sense. When you think about the R&D model and how that applies to becoming a more agile organization, what I think that there is traditionally a very rigorous governance overseeing all decisions making within R&D. You have often times timeline between the start off additional studies? Getting of studies can create huge gaps and add to late delays, not as delays, but also in efficiencies getting to market rates. When do you for example decide to start the API campaign? Those kinds of questions often add to increasing cycle time in R&D, but trying to bring products to registration. So, how do you think about ways to refine that and become more agile? Is it changing the governance structure, the decision making, the getting of decisions, running more things in parallel? What kinds of things are you thinking about?

Charles Bancroft

There is a number of things there in that question. There is an element of governance and how do align decision making much closer to the top, but not just beyond the organization, but management. And making sure that we're allocating our resources to those transformational medicines that are going to have a high impact, and we've been really good stewards across our portfolio overtime. We are one of the first companies to get out of neuroscience because of the cost and uncertainty. We got out of diabetes just because as I mentioned early because we thought that there is better opportunities elsewhere.

We got out of our late-stage development and early discovery of neurology. We sold part of it to later stage programs and the early stage to be. So we have a history of really working through our portfolio and the R&D organization, if they're acting each even like scientist, they will act like scientist. If you treat them like business partners, they understand that we don’t have unlimited resources. We do have to focus on the highest priority item and we do have to make sure that where we don’t see that these clients; the underlying client isn't compelling enough.

We have to be disciplined enough to say we're going to stop and we did that. We had a partnership with [Indiscernible] and we didn’t see that product -- now again those helped may work out at the end, but we do think that BMS is going to be differentiated in that for us in RA [ph]. So we round up giving it back, so there are numerous examples and a lot of disciplines within new organization. I do think governance also appraised a key role. I would say from a pharma company as it related to clinical trials and fees, it's not so much about API in the whole scheme of things that cost of that is because it's….

Katherine Breedis

For a major pharma company it's not getting…

Charles Bancroft

It's not.

Katherine Breedis

It's not a big investment.

Charles Bancroft

No, we're always asking and having the one back again during the clinical trials that large, so that’s not necessarily big expense. I think there is two things that really maybe three is you have to have designed the protocol and really understood well. Again goes back to making sure that from early to late through commercial, you understand what you are trying to get at the end. So designing that protocol because changes in the protocol create multiple delays, so I think that first and foremost -- and secondly, I think the recruitment, understanding where the patients are.

In oncology, it's relatively easy, it’s a series of unmet need and people are dying. So, there is as much greater opportunity to source patients and source patient quickly. That’s not true across every therapeutic area. So you have to have really good understanding of where the patient, what are the clinicians that actually can recruit patient. And then how do you get them recruited quickly, that’s another area to real opportunity. And sometimes, it's also an element of risk and risk is how fast do want to move, is that worth moving quicker than not. So, I think it's all within that continuum where you can find real value and the ability to move quicker.

Katherine Breedis

And are you finding -- just came off of that point, the cycle time for enrollment is in anyway pressured because you now have two while you had one, now you got two checkpoint inhibitors competing for those same patients. That’s only going to increase as others come to market with other combinations and certainly by tumor type it's just more competition. And then obviously the different lines of therapy et cetera, but it becomes very complex to think about managing CRBs [ph] within organizations, managing where you go to how you think about enrollment cycle time?

Charles Bancroft

Yes, it is and because it's not just about Merck and Roche, there is a number of others even Pfizer. And a number of companies -- there is a number of companies in the I-O state, I think being leaders and then you know oncology one of the leader in your access to the KOLs through the clinicians, your relationship matters a lot. So, that’s a strategic advantage that the large players in particularly early players like us in immuno-oncology have within the market place.

I would say also when you think about the standard of care and what we are doing in immuno-oncology, we are changing the treatment of cancer. But still we are not curing our patients; it's not like what really have done with appetite of things. So, there is still headroom to continue to evolve opportunities for patients for long-term survival. And so, I think with the promise of that in our earlier portfolio, I think that also provides with the ability to recruit patient. But it is something that we always concerned about something that we continue to monitor in the marketplace.

Katherine Breedis

And there is obviously very -- it seems to be anyway, very good patient awareness of Opdivo, these has been a DTC campaign which you actually don't see in oncology. I know BMS is one of the first companies is to develop that strategy successfully with went on strong for example at the start.

Charles Bancroft

It's going way back, yes.

Katherine Breedis

Going way back, I remember. But I guess is a takeaway than if you are not seeing any delay in terms of your enrollment cycle time that it is still business as usual, are you feeling any challenge with that?

Charles Bancroft

I would say today we are not seeing any issue with regarding to recruit based upon some factors I just mentioned.

Katherine Breedis

That’s great. In terms of the quick heal decision you mentioned that is way back, also been one of the key objectives of your peer, big pharma companies to redeploy capital. And if it’s not going to work, don’t continue to prosecute to the next mile stone. How you thought about changing the mentality within the organization to do that because many in R&D are incented to deliver to a certain milestone and try to prosecute something to the point where they fully vetted out as opposed to maybe get into that quickly?

Charles Bancroft

It’s not easy and it’s quite hard to deploy. I think the advantage that we have is that we’re not spread out amongst so many therapeutic area; and so within each of our therapeutic areas whether it’s immuno-oncology, oncology, whether it’s fibrosis whether it’s immunoscience or whether it's cardiovascular, we have a number of different countdown. So if something doesn't work and remember most things don’t. So, it’s not like people don’t understand that. So the ability to shift gears and move people from one asset to another and then move on something else, in their area, domain area of expertise is also a benefit.

And if you spread out across way to many therapeutic areas, people may not have enough substrate to feel that they can move onto another opportunity and then feel more tied to their particular asset. My guess is that we have a long history of reallocating resources across our portfolio, and we work really well with the scientific organization to train them on the business aspect of being in pharma, because they have to understand that resources aren’t free. We don’t have unlimited resources, and we do have to go active those that provide the most compelling opportunity for patients because then it makes it easier when we think about it from a payer prospective.

Katherine Breedis

And how do you even thing about trade off within the organization for these assets may actually produce data, so typical governance you'd have data readout and then it will be evaluated and some would give thumbs up and some may give thumbs down, some may see we do more data. And at the same time maybe you have a compelling business development opportunity that you’re looking that may also be in need of resources, if you were to bring that in house. How do you think about that, that dialog and getting that to the right vision?

Charles Bancroft

Again not easy particularly when, and some more obvious, somewhat that’s in the compelling category. And it’s really innovative transformation medicine and then some of them it's very much you need to late to the game. And we try to really shift to the transformational, so we don’t get into this where we have to make this. Invariably when data read down, you then have to make a decision. And I think that’s where, if you have all the right people in the room, so it’s not just the people working on the asset. And for example our portfolio strategy committee, which is chaired by our CSO also many times when there is big decision particularly as we move something into Phase 3, our CEO and sometimes even I attend those sessions.

So there is real good understanding from the scientist and from the development and also from the commercial organization, because that’s where ultimately that products are going to exist and we have to be able to feel that. Like I mentioned earlier that the clarity to payers, that this is transformational medicine. It’s worth paying for and that we’re late to the game because there are not four to five other companies already in front of us with the similar type of asset. So after we’ve done a great job of carrying our portfolio that we feel we only have transformational in that, now that’s higher risk but also higher reward.

Katherine Breedis

Now certainly being first in class and you are in.

Charles Bancroft

So again, I think it's really having that mindset, not just with the CFO, but down to be R&D organization. And we've done a good job and we're not like a massively big company, right. We're able to I sit right next to CSO.

Katherine Breedis

It's related to the credit because I think BMS is among the first of the major pharma companies, so we're really focusing on those growth markets and refined the business model. And to your point with diabetes certainly that marketplace has changed since you first enter that market and started developing assets in that space, the pricing environments become much more difficult, so the decision to exit since you follow along and hand-in-hand with where the market is gone.

Charles Bancroft

Organization has seen many-many examples of what we've done with many different assets, so there is no place for people to hide and people to hold on to asset, so again it's part of science but little bit of volume as well.

Katherine Breedis

And how do you think about the approach for market access, we just had a panel of consultants in pricing and market access to major pharma. And they've said that in many companies there isn’t an integrated way of thinking between commercial, market access and R&D. Obviously, there is a leadership position in immuno-oncology maybe that's less of the challenge for BMS, but how do you think about getting the market access planning to the table in that continuum of R&D development?

Charles Bancroft

Yes, so and there is number of things. First of all market access is predominant part of our thinking because it's outside and if you don’t have the product to sell. Again the more compelling and transformational the asset is, the easier it is. I recall our regulatory group sort of saying wow this has been great. Opdivo, we've never done regulatory submissions and approved faster in Opdivo. And they think there is lot of credit.

So it's a product deserves a lot of credit. Right, so the more you can focus on transformational medicines, everything become a lot easier. But going back to my comments earlier on integrated oncology, part of that organization, part of the strategic commercial organization, which is not the commercial organization that drives sales within the market, but it's more as a corporate function also has strategic access price in an access going there.

Access at the end of the day is local and it's within the market as you are dealing with the local government authorities. But how we think about it? How you price for value? How you think about value? What's the competition doing? Where is the science revolving? All of that is taking into consideration early and again that helps us. To your earlier question think through, what assets do we really want to pull through the portfolio? So it's all.

Katherine Breedis

That's great to hear. In terms of the manufacturing adjustment, you mentioned also in this operating plans strategy that you will be expanding you manufacturing capabilities in biologics. We know there is 75% of your business is biologics today. Where do you stand in terms in terms of your, I guess, percent capacity elevation today? Where are you looking to take that forward?

Charles Bancroft

So, no one could have predicted the rapid regulatory approval and speed of uptake in immune-oncology, we did it. But at the same time from the manufacturing capacity standpoint, we always planned and always because it's important for patients and it's also important for our education plan to what we call our high case. So, we have our base case but then we have our high case. And our high case allows us to particularly as products are new in commercial markets to provide for that level of variability that you ultimately have in the case of I-Os it's been on the upside, so that’s a positive. But we have our own internal network of biologics capacity and we also use CMOs and that's one drug, supplying drug product.

We have a facility that we built a number of used, but actually on backs of getting the repatriation back in 2005, a biologic facility in Devens, Massachusetts, and that is a very big site for us. We also announced at the end of last year building a new biologic facility an additional one improves [Indiscernible]. And that will come online towards the end of '19 early in 2020. And then, we used a number of different CMOs, so we feel very comfortable with our ability to supply to market. But part of what we are trying in the transformation, to go back to your question is making sure that the manufacturing organization is organized around biologics to end-to-end.

So from the very beginning all the way through and to supplying products is organized around biologic and then we have our small molecules, which by and larger becoming less and less important for us. When you think about the only growth product that we have and that’s a small molecule is really Eliquis and to some degree right sized. But you can see that buying they are going to -- when HIV goes generic at the end of '17 both Reyataz and Sustiva and then hepatitis C has been like a rollercoaster who's gone up and we've gone down with the advent of [Indiscernible]. We have to rethink what's the role of small molecule within our network. And that’s part of our how we think about the evolution of our operating model as well.

Katherine Breedis

So what extent you rely CMOs? How much of their capacity of CMOs?

Charles Bancroft

I don’t know the exact percentage. I don’t know, but right now for Opdivo we do rely on third-party as well as internally once we do predominantly ourselves as well as Yervoy.

Katherine Breedis

Great and one of other things touching on guidance, you have brought that up. It's would you think about big pharma as whole you really see three guidance raises and period of less than 10 months and it's been quite a year despite some of the headlines that we have I guess market as reacted to with respect to CheckMate-026. How do you think about where you stand in terms of next year your given guidance, you said that operating expenses will be flat. This is quite early in the cycle beginning 2017 guidance. I am imagining that may have been a function of wanting to give investors more comfort with how you see the view ahead?

Charles Bancroft

Here, I mean, we typically end our planning process budget cycle this time anyway, so we were and think with our normal planning process, so that was just as a matter of course. We generally give guidance in January for the next year. We get to see the trends as we exit the year and new development and there are always things that are going on, and generally it's on the margin, it also change dramatically how we thought about it earlier in the cycle. But we were getting a lot of questions from investors of what's Opdivo was going to look like next, whatyou’re your earnings going to be like next year? And we thought again to be responsive to our investor base we felt that that it would be worthwhile to give them some perspective on how we see in the evolution of our company going into 2017. And we do see Opdivo growing both in the U.S. and internationally, and we do see overall top line growth, and we see eventually how this year ends and how it translates into next year’s earnings. But we thought it was again, but we try to be responsive to our shareholders and we thought that was worthwhile.

Katherine Breedis

In terms of latest metrics, in terms of market share with respect to Opdivo as well as PDL-1 expression testing, anything to add from what we're seeing?

Charles Bancroft

It’s still too early and it’s only been a few weeks since 024 in front line, so I think it's been approved and CheckMate from Roche just got approved roughly at the same time. So it’s really -- from a quantitative prospective, I can’t really say much. From a qualitative prospective, we will see an impact on our business in the second line setting. Merck will be in the front line. We do think given the label, they will be relegated to the 25% of patients that are expressing PDL-1 greater than 50%. That was clear on NCCN guideline, it's clear on the label and as clearly there is sort of from the payer standpoint, they like to keep people generally with in label. So our second line is across all PDL-1 expression as well as non-expression where most label and then second line is only for PDL-1 and positive.

I think Roche coming to market and those [Indiscernible] formidable competitor. Their label isn't any different than the Opdivo label, but we've been on the market for 18 months now. We have tremendous resources that we have put against this from both from a commercial standpoint both from a medical standpoint, both from pricing accessing and reversing it. KLO engagement. So although we will see an impact, we feel the future is beyond what we see today. Ultimately, we feel that in lung and many other tumors, it's going to be a combination market. So, we’re very excited about the prospect eventually to be bringing and hopefully we have optionality to bring that may be sooner than with originally thought. To bring 227 or bring to combination to market sooner, so that would be a big seminal thing because that would change the landscape in the front line lung setting.

Katherine Breedis

And when you do think that may -- how fast can you accelerate?

Charles Bancroft

We have opportunities depending upon how data readouts and discussions with the FDA, right. So, it’s all about data first and foremost and then how the data looks. So, we do have some optionality but we'll see how that evolves.

Katherine Breedis

I think we have time for one question in the audience, if anybody has question. Yes

Unidentified Company Representative

[Indiscernible]

Charles Bancroft

It’s a good question. All things being equal when you think about a pharma company, the only thing that’s really deterministic is LOE, right. Everything else is probabilistic. Will things work? We have some many different things in combination in early. Even in just the combination of Opdivo and Yervoy and even Opdivo along, so it's hard to know the portfolio will ultimately play out. And then we have our early stage what I'd call a non-oncology portfolio that will start coming into sharper focus in the next couple of years as well.

If more things worst then not then we will obviously have to reflect that in our operating expenses, so we are not going to be religious about it. I think it's sort of where you were alluding to all things been equal to way we see the probabilistic nature of our business, we expect the whole expenses flat. But we're not going to tap on the opportunity or that to grow the business just because we said something. We think the operating model changes that we've talked about allow us more flexibility from an operating expense standpoint, but we still have to maximize the opportunity not just in the short-term, but in the longer term.

Katherine Breedis

Great. Well, Charlie, thank you so much. It's really been a privilege to have you with us speaking on behalf of BMS.

Question-and-Answer Session

End of Q&A

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