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Bristol Myers Squibb Co. (NYSE:BMY)

Q2 FY08 Earnings Call

July 24, 2008, 10:30 PM ET

Executives

John Elicker - VP of IR

Analysts

Tim Anderson - Sanford C. Bernstein & Co

Roopesh Patel - UBS

Barbara A. Ryan - Deutsche Bank

David Risinger - Merrill Lynch

Chris Shott - JPMorgan

Catherine Arnold - Credit Suisse

Steve Scala - Cowen & Company

Seamus Fernandez - Leerink Swann

John Boris - Citigroup

James M. Cornelius

- Chairman and CEO

Jean-Marc Huet - Sr. VP and CFO

Lamberto Andreotti - EVP and COO

Elliott Sigal - EVP, Chief Scientific Officer and President, R&D

Operator

Good day, and welcome to today's 2008 Second Quarter Earnings Release Conference Call. This call is being recorded. At this time, I would like to turn the call over to Mr. John Elicker, Vice President of Investor Relations. Please go ahead sir.

John Elicker - Vice President of Investor Relations

Okay. Thanks Anthony, and good morning everybody. Thanks for joining us. We're here this morning to review our Q2 results. You have seen our release and associated financial information out at about 7:30 this morning. It's also posted on our website.

Joining me on the call today are Jim Cornelius, our Chairman and Chief Executive Officer; Jean-Marc Huet, our Chief Financial Officer; Elliott Sigal, our Chief Scientific Officer and Lamberto Andreotti, our Chief Operating Officer. Jim and Jean-Marc will have prepared comments and Elliot and Lamberto are here to join us for Q&A. So before we get started, let me just cover the legal requirements. During this call, we will make statements about the company's future plans and prospects, including statements about our financial position, business strategy, research pipeline concerning product development and product potential that constitute forward-looking statements for purposes of the Safe Harbor Provisions under the Private Securities Litigation Reform Act of 1995.

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 most recent Annual Report on Form 10-K, periodic reports on 10-Q and current reports on Form 8-K. These documents are available from the SEC, Bristol-Myers website or the BMS Investor Relations.

In addition, any forward-looking statements represent our estimates only as of today and should not be relied upon as representing our estimates as of any subsequent date, while we may elect to update forward-looking statements some point in the future. We disclaim any obligation to do so even if our estimates change. Jim?

James M. Cornelius - Chairman and Chief Executive Officer

Thanks John, good morning everyone. We're glad you could join us today. In the next few minutes, I will update you briefly on our financial performance in the quarter and our progress against our strategy.

Overall, I'm pleased with how we're delivering on our commitments. We are making measurable strides against the strategy we outlined for Investors late last year, both investing in our future through business development activities like accruals and strategically lowering cost for clear up of the 2012, '13 timeframe. In the near term, we are in the midst of sustained earnings growth we forecasted in December. Our financial performance hit both the top and bottom lines continuing to be very strong in the second quarter.

Revenue grew 16% over the second quarter of 2007. This growth was driven by the strong overall performance of our pharmaceutical business, including our medicines for cancer, heart disease, viruses, mental illness and rheumatoid arthritis. We closed the second quarter, GAAP EPS from continuing operations of $0.36 a share, up 20% from last year. Non-GAAP earnings per share growth from continuing operations was $0.43 a share, up 39% from 2007 with the help of the tax refund. In the U.S., pharmaceutical sales increased 17% to $2.6 billion in the second quarter compared to the same period in 2007.

Internationally, sales increased 15% to $1.9 billion in the second quarter with foreign exchange rates helping the revenue growth. With good sales execution, the product portfolio is performing nicely, particularly ABILIFY, which grew worldwide. Private sales increased in the U.S., where we also had strong results from our HIV and hepatitis portfolio. Overseas recently launched products such as Baraclude and Sprycel grew substantially.

The strength in our top line also reflects good sign. Our R&D team has been hard at work to achieve additional and extended indications in our product cycle. And commercially, we are seeing disciplined execution in the marketplace. We've also made a conscious decision for further investments behind the right brand. As evidenced by the 19% increase in Q2, advertising and promotion spend particularly in the U.S. We'll continue that trend into the second half of the year. As we are growing the top line, we've also become more profitable, which you can see from our non-GAAP net income margin. This measure increased approximately 300 basis points in the quarter compared to the same period last year. Our margin improvement is kind of the progress we've made against the $1.5 billion in productivity initiatives, we first announced in December.

I'm glad to say, we're well on track to achieve our goals with these initiatives. We are also able to reaffirm guidance for 2008, without ConvaTec results. On a GAAP basis, we expect fully diluted earnings per share from continuing operations to be between $1.36 and $1.46 per share and on a non-GAAP basis to be between $1.60 and $1.70 earnings per share.

It's important to note that ConvaTec's after-tax earnings contribution last year was approximately $0.12 per share. Over the next three years, we're also confirming our non-GAAP EPS from continuing operations to grow at least 15% compound annual growth rate from the 2007 base again without rebasing for ConvaTec. On the scientific front, we're steadily advancing our pipeline owed to the milestones of our current portfolio as well as to business development strategy.

We're pleased with the recent regulatory submissions in the U.S. and Europe of our diabetes medicine saxagliptin, which we plan to market as Onglyza. We also saw encouraging data coming out of two medical conferences. At ADA in June, we presented data in both of our late-stage diabetes compounds Onglyza and dapagliflozin showing further evidence that these medicines can help control diabetes.

At ASCO last month, we saw important data demonstrating ERBITUX's potential benefits in treating lung cancer. And for the first time, new data for SPRYCEL in prostrate cancer. Coming up in September. We are excited about Phase III Onglyza data, we expect to share the European Association for the study of diabetes at Rome. The scientific progress we're making internally is being complemented by our business development strategies. We're honing in on potential acquisitions and alliances that can make us competitive in the therapeutic clusters we work.

Along these lines, we agreed in May with KAI Pharmaceuticals to develop and commercialize a novel acute heart-attack medicine, which we think will be a positive addition to our CV portfolio. In June, we completed the acquisition of Kosan Biosciences, cancer therapeutics company for a $190 million. From Kosan, we've acquired a library of novel compounds, including an Hsp90 inhibitor at Phase III and in microtubule stabilizer program we think may have application in Alzheimer's disease. As we continue to plan for our future, we're taking definitive actions now to manage our cost in light of the challenges facing the entire industry and managing our cost proactively. Even though we expect to continue in a period of sales growth for some time.

We have begun our second wave of productivity initiatives, which will result in another billion of cost savings by 2012. We have already commissioned several teams to execute against some projects we've identified. We will provide you with updates on this second wave of productivity by year-end. This comes as part of our plan to maximize growth opportunities through 2011, and improve our earnings base in 2012-13. A few weeks ago the management council and I met with the top 200 global executives of the company for a couple of days to take the pulse of our strategic execution. I came away with a feeling newly energized and confident that we are making excellent progress against our goals and our corporate culture is shifting to become more agile, entrepreneurial and accountable.

Now I'd like to turn to Jean-Marc Huet, our CFO.

Jean-Marc Huet - Senior Vice President and Chief Financial Officer

Thank you very much, Jim. So, what I would like to do is first review the Q2 results, and guidance and then we can open up for Q&A thereafter. So, let me first start with revenues. Our total sales from continuing operations were up 16%, please note that this excludes ConvaTec, which we are reporting now as a discontinued operation.

Importantly, our underlying sales growth was very strong at 11% in Q2. If we segment sales, 5% came from FX, 4% from price and 7% from volumes. Our most important division pharmaceuticals, sales were up 16%, which includes a 5% favorable impact from foreign exchange. We had broad based growth in Q2 across the portfolio driven by important products such as PLAVIX and ABILIFY as well BARACLUDE and the rest of our virology business. ERBITUX and some of our newer products including ORENCIA as well as SPRYCEL.

If I just go through the different categories, starting off with cardiovascular. U.S. PLAVIX sales were up 19% in Q2. This is the last quarter where we see a positive impact from ERBITUX that impacted Q2 of last year. Neuroscience, ABILIFY was up 28% globally and 25% in the U.S. 19% prescription growth in U.S. which reflect execution against the opportunities in bipolar and the new major depressive disorder indication supported by a strong DTC campaign launched at the back end of last year. Growth in Europe was also very strong at 39% supported by the new bipolar indication.

Turning to virology, Reyataz was up 28% globally including 13% U.S. TRx growth. SUSTIVA Franchise, sales were up by 21% globally behind the strong performance of ATRIPLA. Please take note that the U.S. sales for HIV are somewhat flat versus Q1. This was driven by the timing of ADAP purchases that took place at the beginning of the year. Also importantly within our virology franchise, with the sales of BARACLUDE which was $136 million with over $100 million outside the United States. This is becoming an increasingly global product, up 131% versus where we were last year.

Immunology, ORENCIA sales were at a $106 million, up 22% compared to Q1, which is a reflection of our increased execution capabilities over the last six-months. U.S. sales have accelerated, up 19% compared to the first quarter of 2008. We're making good progress in the U.S. and share of [inaudible] biologic and first line patients.

Turning over to oncology. ERBITUX sales were $196 million, up 21% from Q2 of last year. Global SPRYCEL sales were at $76 million up 15%, now I'm comparing with Q1 of this year with strong growth in Europe. IXEMPRA launched in the U.S. at the back end of last year generated sales of around $25 million. Our other division is Mead Johnson as you know increased 17% or 12% were you to take out the favorable impact from foreign exchange out, amounting to sales of around 728 million. So in summary, quality revenue growth in each business and each geography and the U.S. standing out with particularly strong growth at plus 17%.

Now turning over to expenses. If I compare to the second quarter of last year and excluding specified items, gross margin increased 20 basis points to 69% compared to the same period last year. This is driven by favorable mix in the pharmaceutical business and manufacturing cost improvements, partially offset by a lower margin growth in our Mead Johnson business. Compared to the first quarter of this year, and again excluding specified items, gross margins in our pharmaceutical business were at 70.7%, up 80 basis points, and Mead Johnson was at 63.2%, down 110 basis points from Q1.

Now turning to some of the other elements of cost. If I again exclude specified items, marketing selling and administration increased 3.6%. Importantly, MS&A is down 1% if you take out the impact of FX. This is as a result of our productivity efforts. And as Jim mentioned, this was launched at the back end of last year and we are seeing it through gross margin as well as these line items and specifically G&A which was down high single-digit, the results already of our productivity initiative.

Advertising and promotion increased 19%, but if you exclude 5% FX, approximately 14%. This increase in A&P reflects the investments that we've decided to put behind ABILIFY as well as ORENCIA, and the spending behind the launch of IXEMPRA. This trend is going to continue in the second half of 2008 as we are investing in revenue growth opportunities.

Now turning to R&D. Again, excluding specified items, this increased 8% to $795 million. This is a reflection of higher development spending as well as a 2% impact from foreign exchange. Our guidance for R&D is unchanged, but I should take note that it includes the R&D spend associated with the Kosan acquisition and licensing agreement with KAI.

Turning to our tax line. The effective tax rate from continuing operations before minority interest and income taxes and excluding specified items was 20.9%. As I go through the P&L, there are one or two so called one-off items, two of which are of note. Firstly, within the tax line $0.04 in favorability from audit settlements that took place relating to 2002, 2003. This release was built into our original guidance and expected in the second half of the year originally. Our full-year guidance remains approximately 24% and assumes the R&D tax credit is approved which will most likely be in the fourth quarter of this year. The second one-off of not and partially offsetting this tax favorability is the $0.01 adverse impact from ImClone's write down of option rate securities which affected the income stream which we received as a shareholder in that company.

Now turning to cash flow from operations, which will continue to be an area of increasing focus in the future, this amounted to $1.1 billion. We had some improvements in working capital and this will be an area of more focus in the future. Net debt decreased by just less than $400 million from the end of Q1 2008. So, in general we had strong sales, improved gross margin and effective expense management that has driven the improvements in pretax and net margins. Non-GAAP EPS from continuing operations grew 39% to $0.43 from $0.31 in Q2 last year. GAAP EPS from continuing operations at $0.36 due to specified items. Specified items totaled $173 million for the quarter. Over this, around $109 million was related to the productivity initiative.

Importantly and as Jim mentioned, we have identified an additional $1 billion in cost savings opportunities. This is to improve our base earnings in 2012 and 2013. Based on our experience and the success that we've had so far as demonstrated in our P&L for the first half of this year against our $1.5 billion target, we are confident in our ability to deliver this additional $1 billion. This $1 billion is a reflection firstly of our success to-date with productivity. And secondly and importantly, our decision today to strengthen our earnings base in 2012 and 2013. This coupled with our current growth trajectory and exciting pipeline will make us a stronger company in 2012 and 2013. The full reconciliation of GAAP to non-GAAP EPS adjusted to ConvaTec is posted on our website.

Now, let me turn to guidance. We are confirming our full-year 2008 GAAP and non-GAAP guidance. Our non-GAAP guidance remains 160 to 170. This does not include any contribution from ConvaTec now classified as a discontinued operation for the full year. The only change in our line item guidance is advertising and promotion, which we expect to increase in the high single-digit range. Based on our strong revenue performance during the first half, we have decided to increase our investments in key products, such as ABILIFY and ORENCIA. We are looking to maintain our current sales trend and are investing with an eye towards revenue opportunities in 2009.

As Jim mentioned, we are also confirming our three-year minimum 2008 to 2010 15% EPS compound annual growth on a non-GAAP basis without re-basing 2007 for ConvaTec. So in summary, our second quarter underlying operating performance was strong. We saw double-digit sales and non-GAAP earnings growth along with improved gross and pre-tax margins. The company has entered into a period where we expect continued growth and improved operating leverage based on product mix and our productivity initiative.

Our strategic view of the company looks at three distinct phases. The first phase is the current period of sales and earnings growth through 2011 and execution is key in delivering. We must continue to focus on the top line, while delivering on our $1.4 billion... $1.5 billion productivity initiative. The strength of our business is reflected in our guidance of 2008 and our outlook through 2010.

The second phase is focused on improving the base business in 2012 and 2013 when we lose exclusivity on some of our key products. Our next wave of productivity, the additional $1 billion in productivity as Jim mentioned, demonstrates our commitment to date to deliver on our growth outlook and improve the base business in this timeframe i.e. 2012 and 2013. Important areas of savings will be headcount related, savings and procurement and the streamlining of various operations, as we become a biopharma business. This initiative should be complete in 2012. We will be able to provide more details on the savings as well as related charges later this year.

We focused and we will continue to do so on the growth of our currently marketed and potential new product launches that contributes, and we'll also look for contributions form potential business development opportunities. The third phase is a second period of growth coming out of 2013 driven by our current pipeline assets, as well as externally developed assets that are part of our "String of Pearls" strategy. As demonstrated today by Saksa [ph], as well as other recent developments and our recent acquisition, of course. Thank you.

John Elicker - Vice President of Investor Relations

Thanks, Jean-Marc. And Anthony, I think we are ready to go to questions now.

Question and Answer

Operator

Thank you. The question-and-answer session will be conducted electronically. [Operator Instructions]. And we'll take our first question from Tim Anderson of Sanford C. Bernstein & Co.

Tim Anderson - Sanford C. Bernstein & Co

ORENCIA, that seems to be ramping nicely. Can you describe how that product is being used at present in terms of things like first-line setting versus refractory setting, any sort of off-label use or anything like that? And then can you provide development timelines for the sub key formulation, when could that conceivably make it to market, and also the development timelines for the lupus indication?

Lamberto Andreotti - Executive Vice President and Chief Operating Officer

Yes. Let me… this is Lamberto. So let me summarize where we are with ORENCIA in the U.S. Q2 sales were 87 million and this is 64% above last year. And where we are focused is we're focused on increasing our penetration rate in the biologic night patient population by positioning ORENCIA as the IV biological choice. And focusing patients on the efficacy and durability of response over the time of this product. Now, what we have is we have a share, these are data of Q1 '08, we don't have Q2 yet. And we have a new to biologic patient share of 7.5%, and this is up from where were in Q4, we were at 6.5%. And what we see, we measure a number of things of ORENCIA versus REMICADE, and in all this metrics we are improving our ratios then we're improving our performance, relative performance to [inaudible]. So what we're doing is we're solidifying the use in second and third line and increasing our first line use of the product. You know that recently the FDA has removed the requirement that patients must first fail at least one DMARD before initiating therapy with ORENCIA. And this obviously helped us simplify our metrics to both physicians and patients. The same label change broadened the adult indication and at this point, ORENCIA can be prescribed in old patients with moderate to severe array regardless of prior treatment received. So we have a much wider possibility of using ORENCIA and we have a product that is now supported by more data and a better label. And we are taking advantage of all this.

Elliott Sigal - Executive Vice President, Chief Scientific Officer and President, R&D

Tim this is Elliott Sigal. Your question was regarding our lifecycle management program, which continues very intensely, specifically with regard to subcutaneous formulation. Our pivotal trial has been initiated with regulatory feedback both from the FDA and the CHMP. And we expect to have Phase III data in 2009. The dosing frequency will be once a week and that enrollment is progressing. With regard to development this year, Lamberto mentioned the expansion of the label, which I think is very important. That came with our approval in juvenile rheumatoid arthritis. We recently reported Phase II data that was very exciting in terms of the prevention of the development of rheumatoid arthritis. We support our belief and the science, that we can have an impact in earlier forms of disease. We will have one-year data in early rheumatoid arthritis that is the methotrexate naive population to be presented SCACR [ph]. At that time , we will present the Lupus data, the Phase II exploratory study. This is generalized that is non-Lupus Nephritis. That registrational program in Lupus Nephritis, a two, three program are continued. And we are also continuing our program in ulcerative colitis and Crohn's disease.

John Elicker - Vice President of Investor Relations

Thanks Tim. Anthony, can we go to the next question.

Operator

We will take our next question from Roopesh Patel with UBS.

Roopesh Patel - UBS

Thank you very much. In the context of the $2.5 billion in cost savings programs that have been announced so far. My estimate, that's worth roughly about $0.95 in EPS. And in that context, I was wondering if you can provide us with a rough sense of what the potential EPS hit will be related to the loss of PLAVIX and ABILIFY in the 2012, 2013 timeframe? Alternatively, what do you expect the operating margins of the company to look like post the loss of ABILIFY and PLAVIX? Thank you

James M. Cornelius - Chairman and Chief Executive Officer

Well, maybe an answer to the question which doesn't directly answer your question is the following. If you look at the $1.5 billion that we announced in December of last year. That provided us with the comfort that we could continue our trajectory of 15% EPS growth until 2010. The additional $1 billion that we have announced today is very much focused on 2012 and 2013. So one needs to differentiate the $1.5 billion which really contributes to our time trajectory and the 1 billion which is very much a strategic message, that we today are approaching and making move to tackle what one calls the cliff year 2012 and 2013, and that is driven by the loss of exclusivity of some of our products. So, that's basically how we strategically look at the $1.5 billion and $1 billion. We will not give comments in terms of financial impacts in those years.

John Elicker - Vice President of Investor Relations

Thanks Roopesh. Can we go to the next question, Anthony.

Operator

We will take the next question from John Voris [ph] with Citi.

Unidentified Analyst

Hi, thanks for taking my question. Question for James Cornelius... just have to do with... the growth trajectory that you have suppressed the line here going forward. You find it where that you have a 15% growth that is paying a 5.5% dividend and especially in light of your appetite for M&A and especially the tracking of 15% growth to growth investors things that you are kind of at a hybrid period within your evolution here Jim. So I guess the question really has to do with your commitment to the dividend in light of your search for additional assets that can keep you growing on that trajectory, in fact selling some of that pack cliff? Thanks.

James M. Cornelius - Chairman and Chief Executive Officer

Well, I do feel like a hybrid, we're both growing and returning a significant cash dividend to our shareholders. I think we believe and our shareholders believe that's an important part of total shareholder return and we are committed to it. The string of payrolls [ph], execution is dependent on receiving the proceeds from common deck, we're quite optimistic with EU regulatory approval that's been received as early as August. We will have those proceeds and we will be in a very, very strong cash position in the middle of this year to go forward.

Unidentified Company Representative

Thanks John. And can we go to the next question, please.

Operator

We will take our next question from Barbara Ryan with Deutsche Bank.

Barbara A. Ryan - Deutsche Bank

Good morning. Thank you very much. The question really relates to the guidance for the CAGR being maintained through 2010 at 15%, which obviously is put out there prior to the news about PLAVIX potentially facing generic competition outside the U.S. and today's announcement of an incremental $1 billion from productivity initiatives obviously looks to be focused out on a longer-term basis. So can you just share with us maybe an update of what you know about the situation which is like to have in Germany and then other European markets? And what kind of assumptions you are making relative to having generic competition on the market outside the U.S. and what kind of penetration that may get over the course of the next couple of years? Thanks.

Lamberto Andreotti - Executive Vice President and Chief Operating Officer

Yes, Barbara, this is Lamberto, the...

Barbara A. Ryan - Deutsche Bank

Good morning.

Lamberto Andreotti - Executive Vice President and Chief Operating Officer

Good morning. Obviously, the biggest chunk of our PLAVIX sales are in the U.S. but that doesn't mean that we are not concerned about certain evolutions in Europe. In May, the German FDA, the German health authority gave marketing authorization to a company called Yenk [ph] Pharmaceuticals for a product that is based on [inaudible] then one we have in the markets in the U.S. and European and elsewhere. We took legal action and that legal action was based on the grounds that our... that Yenk marketing authorization was relying on data that was originated by Sanofi and DNS that came from out dose and were protected on the hour data exclusivity provision through July 15th of 2008. And as a result that marketing authorization in Germany was suspended as of today is suspended. Now they... this company Yenk Pharmaceuticals and its marketing partners have taken legal action, these legal action are still open and we cannot predict it. It is difficult to predict when the local court will rule in this matter. Now I think we're still very strong about our legal position, about the efforts as a mission by that company and the subsequent approval by the German authorities. That doesn't mean that we these regard the possibility of others, submitting files in Europe or the same company resubmitting files or getting something out of the German court. Just to clarify things. Our data exclusivity is filed on July 15th in the European Union. We have a pattern in most European countries. By most I mean all major European countries, excluding Spain and some smaller countries. We had a pattern that [inaudible] until 2015. So, we may have in certain countries that where we do not have that pattern, generic application and generic competition and speaking about Spain and the other minor countries for the same source. There might be applications by others also in our core countries for different stall and it is not up to us to decide what the different health authorities should say about the applications of related to this other stalls and the evidence that is submitted in the regulatory applications. So long story short is an open question. We are taking all necessary actions to react legally where we can and where we must. And we're taking all actions to deal away the possible commercial impact country-by-country and mitigating actions where necessary. We're working very closely with Sanofi-aventis in all these [inaudible].

James M. Cornelius - Chairman and Chief Executive Officer

Maybe just to finally add-on to Lamberto's point there is, in this type of situation, where there is some uncertainty you can assume that we are building in general contingency plans and making sure that we're agile in terms of preparing about these types of situations today rather than tomorrow.

John Elicker - Vice President of Investor Relations

Thanks Barbara. Anthony can we go to the next question please?

Operator

Will go next to David Risinger with Merrill Lynch.

David Risinger - Merrill Lynch

Yes. Thanks very much. With respect to your cost reduction initiative, Bristol is obviously hard at work to reduce the cost that you've outlined, but you obviously also have to reinvest in growing the business. Is there any way to provide some color on the outlook for absolute cost and frame, how you think absolute cost levels of the company will trend over time? Thank you.

James M. Cornelius - Chairman and Chief Executive Officer

I think that's actually a question, which is difficult to answer, because I just go back to our EPS guidance of 15%. What you're seeing, if you look at our P&L is that, we are investing more in advertising and promotion. This has taken place in the last six months and this will continue in the next six months and what we are seeing is that the DTC campaigns coupled with improved execution, we are improving the revenue potential, as we're reinvesting in this type of line item. I will also say that at the same time, we are trying to keep marketing, selling and administration flat and so what you see is that that our G&A is down, and that contributes... partially offsets any increases be it either in sales distribution, as well as, advertising and promotion. So what we are trying to do is, we're trying to finance some of the reinvestment in to advertising and promotion by being very strict on the cost containment side.

Lamberto Andreotti - Executive Vice President and Chief Operating Officer

And we also have a pretty disciplined exercise of allocating resources from the more mature brand and the established product into the new product. It is thought that our productivity transformation we have started applying this. And therefore we're finding resources for the new launches by cutting expenses and investments behind the product that are more established in the market.

John Elicker - Vice President of Investor Relations

Thanks David. Can we go to the next question Anthony please?

Operator

Next we will go to Chris Shott JPMorgan.

Chris Shott - JPMorgan

Great. Thank you. Just two quick questions. First, timing of Belatacept in terms of your filing expectations and when we would expect to see Phase III data presentation. And then quickly on saxagliptin and the SGLT2 program, just any takeaways from the recent FDA diabetes panel for your clinical development programs there? Thank you.

James M. Cornelius - Chairman and Chief Executive Officer

Yes, thank you Chris. We have two important Phase III studies on Belatacept which is a compound that is rationally designed on the foundation of ORENCIA, but specifically appears to perform very well in preventing transplant rejection. And as an immunosuppressant, we think the unmet need in this area is to replace cyclosporine, because despite the advances in utilizing that medicine, there are drawbacks that need to be addressed in terms of deteriorating graft function of the renal transplanted kidney as well as cardiovascular complications. These Phase III data will mature this year. We plan on presenting this in May of '09. And when we review the Phase III data, we will be giving more of an update on our filing strategy.

With regards to saxagliptin [ph], this is an exciting new mechanism. We did present some Phase IIb data, of course at the ADA. That was the basis upon which we and our partner AstraZeneca put this program into the late stage Phase III, we have a very exciting, a comprehensive Phase III program. We've been working with the agency in all aspects on how to clearly define the safety and efficacy and advantages of this compound. Among the advantages are not only Glycine that controls, that is independent of the insulin pathway altogether, but also the fact that through caloric loss that this induces there appears to be the potential of weight loss.

The advisory committee of course was very interesting, we all agree that our number one obligation is to provide information to make an important decision about the safety and efficacy of the innovative drugs. We are waiting for the advice and guidance that we'll eliminate from that. And as we have in the past continue to collaborate with the agency with regard to requirements and that we have plenty of time to incorporate in this program any new guidance that would come out. And as we have in all our programs such as ABILIFY, BARACLUDE and ORENCIA we are committed to studying after approval to really inform in wider and wider populations with the ongoing estimate of benefiting risk.

Today we're very excited about saxagliptin's progress in this field, we were able to submit the application not only in the U.S. but in Europe and we're working specifically with our partner AstraZeneca, we feel we have a very comprehensive program and this is very good clinical data and perhaps Lamberto will say something about our plans in our partnership.

Lamberto Andreotti - Executive Vice President and Chief Operating Officer

Obviously we're very happy of this filing in both the U.S. and EU. In the EU we are originally planning for a later filing. So we're happy to have an earlier filing and the good work with AstraZeneca is taking place also in my shop in all countries of world we're already interacting with them, I'm preparing very detailed plan for the launch of [inaudible] when we... if and when get an approval. This will be an interesting launch, I think we have an important profile that is developing for the product. We are looking to presenting the data at the EADS meeting after the summer and obviously we're already working on that data and profiling the product and defining the action, prelaunch and after launch.

John Elicker - Vice President of Investor Relations

Thanks, Chris. Can we go to the next question if you have any please?

Operator

We'll take our next question from Catherine Arnold with Credit Suisse.

Catherine Arnold - Credit Suisse

Thanks a lot. I have some questions regarding dynamics, and PLAVIX growth outlook, as I look at the product performance, it seems that it sort of settled out sequentially in terms of mid single-digit growth, and that is actually close to what some of the U.S. pricing audits would suggest, the actions that you're taking in the U.S. And I am wondering could you comment is there sequential volume growth left in the U.S. and if so, did the pricing audits obviously are completing, because there is rebating or stocking effects that have impacted the growth, and if volume growth is underlying a result, is this coming primarily from new patients or longer duration of therapy? And then lastly, we've heard from some of the stent folks this quarter, that the penetration of drug-eluting stents are showing early signs of recovery, and I'm wondering if that's impacted your results, and if you anticipate this to be noteworthy dynamics over the next 12 months?

Lamberto Andreotti - Executive Vice President and Chief Operating Officer

Yes. I think that PLAVIX is that we have stopped looking at the IMS data or at least we don't look at IMS data as intensively as we in the past because there are a inaccuracies that IMS itself acknowledges when they think about the PLAVIX. So, we're focusing more on other sources and including looking at our net base. So if you take the Q2 UNS phase of PLAVIX they were 19% in the U.S. So the 19% versus previous year. If you eliminate the effect of the Apotex... of Apotex last year in Q2 '07, we are at 12%. So this... in that 12% there is solid volume growth, not only prices. And what we see is that the market dynamics that evolved in an interesting way. New patients that had been declining in 2007 is stabilized now, and this is due to the fact that stent procedures have stabilized after the decline of 2007. So, we still get new patients from that segment of the market and that segment of the market is stabilizing as opposed to declining last year. Then we have all the other indications of PLAVIX which IACS Medical, which is PAD and both the indication in our opinion will generate additional growth opportunity for this product, to give our PAD and polyvascular treatment. This combined way of increased [inaudible] therapy, give us the possibility of maintaining at first a positive view of PLAVIX in the future.

John Elicker - Vice President of Investor Relations

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

Operator

Next. We'll go to Steve Scala with Cowen & Company.

Steve Scala - Cowen & Company

Well. Thank you. You very nicely addressed the PLAVIX yield situation I'd like to ask a specific follow-up question, [inaudible] said last week that the injunction in Germany does not apply to other countries. Is this consistent with your view that injunction does not apply to other countries and then relatively foreign PLAVIX sales were up only $6 million year-over-year. In the second quarter, I realized it's a small base, but was there destocking in Europe ahead of possible generics? Thank you.

Lamberto Andreotti - Executive Vice President and Chief Operating Officer

Let me start from the second question and then I will move to the first and I'm not allowed here, so I will apologize for probably not being fully accurate. But on the first one, you may remember that we book only a small portion of the international sales of PLAVIX. We book the full sales of PLAVIX in the U.S., Canada and other few countries. And the sales in Europe only in the markets where we co-market with Sanofi-Aventis. In the rest of the world, outside the U.S. and Canada it is Sanofi-Aventis to book this PLAVIX sale and therefore our $6 million is not very, very indicative of the overall performance of PLAVIX outside of the United States. The legal situation in Europe obviously the German court can only rule on a German application and therefore what the German court has ruled about or we'll rule about will only apply to the German application. On the other hand we're not aware of any approval but we're granted by any other authorities outside of Germany and therefore there is no cause that should rule outside of German yet because there has not been any action yet on the submission by [inaudible].

John Elicker - Vice President of Investor Relations

Thanks, Steve. Can we go on to the next question Anthony?

Operator

We will take our next question from Seamus Fernandez with Leerink Swann.

Seamus Fernandez - Leerink Swann

Thanks very much. I was just hoping that we could get a little bit of an update on the nutritional business and the plan for the nutritional business in the second half of 2008 and 2009 and also if you can help me better understand what happened in the nutritional business in United States where the good year-over-year growth certainly appeared to slow down fairly substantially? Thank you.

James M. Cornelius - Chairman and Chief Executive Officer

Yes, so let me just take Mead Johnson in its totality. What we're seeing in the Mead Johnson businesses is some very exciting growth which is driven by price and volume outside the United States. And we have some very important markets in the Far East which have been performing very, very well. Recently just now making a comment on our U.S. business and again a quarter is only a quarter, it's three months. We have seen some impact of pricing and as a result less volume and there has been some market share gains by one or two of the private label players over the last three to six months. So we had made a concerted effort to increase prices and one of the reasons to do that was to cover increasing commodity costs as you know, dairy and other prices have actually had quite a rise although they are coming down over the last three to six months. And so that was the strategic reason behind our price increase, but that did as a result given that it's a consumer business have some impact on volume and gave some share to the private label competition. Lamberto anything to add.

Lamberto Andreotti - Executive Vice President and Chief Operating Officer

Yes. We can add that obviously we're very [inaudible] evolution of sales of Mead Johnson outside of the U.S. but as far as the U.S. is concerned we've also identified where we're losing market share without entering into many detail the identification of where we are losing market share is now prompting a clear action to keep consumer on our own products rather than switching to cheaper competitors and this is something that is ongoing and our [inaudible] team is working very actively at it.

James M. Cornelius - Chairman and Chief Executive Officer

So overall the business is performing well on the top line as well as the bottom line and we're very much on track to file the registration statement prior to year-end in advance of the IPO, which is expected to be between 10% to 20% of the company?

Seamus Fernandez - Leerink Swann

Great.

John Elicker - Vice President of Investor Relations

Thanks James. Anthony I think we have time for two more questions.

Operator

We will take our next question from Tim Anderson with Stanford Bernstein.

Tim Anderson - Sanford C. Bernstein & Co

Thank you. ABILIFY has seen a sharp uptick since the start of the year and I'm wondering how much of that is due to the... due to pressuring indication versus something like the DTC campaign that I think you are running for other indications? And then Razetop [ph] has sales internationally and second quarter looked very strong. Was there some sort of stocking for the product or is that just the underlying run rate?

Lamberto Andreotti - Executive Vice President and Chief Operating Officer

Let me start with Razetop. No, there is no... stocking Razetop is going extremely well everywhere. This is a strong product and we are very happy of its performance worldwide. Its probably one of the most... I am going to say most global product that we have. You must also remember that, in Europe we had recently the inclusion of naive patients in our label. This is very important for the first time ever that we got where a possibility of promoting and based on the label, the using naive patients that obviously this did... there is an opportunity to our European team to work already at that, that include European prescribers to use it. As far as ABILIFY is concerned is, I'm very glad to say that there is a lot of elements that are supporting the growth for ABILIFY. So it's not just with one DTC campaign or one additional indication. First of all, there is a lot of good clinical data across all the indications of these products and secondly, is a very strong, very effective execution of our plan by our sales, marketing and medical team. We are making aggressive efforts in all areas of our marketing strategy including DTC and the results of DTC campaign obviously are important and obviously are very visible. And then there is a newly approved major depressive disorder indication that is important. This is the first time that a product like ABILIFY is approved for indication like that. I think that if your think of ABILIFY as a product we have a low rate of sedation and then a good weight control and a good weight lipid profile. You understand that this is a product that can be interesting for patients effected with aberration for their prescribers. What we see we have started... we launched 24 weeks ago, so we see that an increased awareness of this indication and an increasing intend to prescribe. We have increased our, we've redeployed our sales force, so we have added to our traditional target, 15,000 additional prescribers. Approximately 8,000 of the 15,000 are high potential depression primary care physician. So we've reached... we are reaching more doctors on this indication. And recently, we have agreed with [inaudible] to add another 10,000 to 12,000 primary care physician to our global target by using approximately 70 rest, will contribute to the overall stuff. Summary, good story for ABILIFY, many elements of success then in all three indications and the confidence that we can continue to support the product aggressively with good and diversified marketing activities.

Elliott Sigal - Executive Vice President, Chief Scientific Officer and President, R&D

Tim, I will just add. This is Elliott that we continued to get robust and strong clinical data from the very extensive lifecycle program. We have matured two Phase III programs in Autism that are being reviewed and are very encouraging and we expect to make a filing decision within the next six months for this extended indication.

John Elicker - Vice President of Investor Relations

Thanks Tim. Anthony, can we go to our last question, please.

Operator

We will now take our final question from John Boris with Citi.

John Boris - Citigroup

Thanks for taking the follow-up. Question related to PLAVIX for Lamberto and Elliott. Just wondering Lamberto in your plans for PLAVIX are you assuming a launch of Prozagril [ph] here in the back half, is that taking into account your plan and how prepared are you for competing at least in the Cath Lab against the data that's... that I think Eli Lilly would have and the part for Elliott has to do with the OASIS-7 current trial? Has it been fully enrolled and when can we expect to see results, it seems that there would be a pretty important trial for the sale force to have in the hospital segment. So any update there would be helpful. Thanks.

Lamberto Andreotti - Executive Vice President and Chief Operating Officer

Yes. Thank you. I like this question because I love to answer it. This is... the way I see it if and when approved probably at this point will be a niche product. But if it gets approved we are ready to compete with it and in fact we have been ready for sometime now. Why I say that it's a niche product? Well, the strength and study which possibly we are basing the application is going to what was only on that small patient population and that patient population represents approximately 15% of our PLAVIX sale. On top of this there are three important subgroup of patients in the [inaudible] study that seem to derive either net harm or no clinical... net clinical benefit from Prozagril that means that Prozagril, if approved will compete on a limited number of patients and we've different profile than the one we have. So we have one product that is one dose or all indications without patient exclusion, widely study, much broader label and therefore yet we will... we are ready to compete in the Cath Lab if Prozagril is approved, we'll increase our hospital sales forces both ourself and Sanofi Aventis. We are using a lot of time on our medical field organization to focus on ensuring that the PLAVIX data and important real world information on the [inaudible] disseminated to the medical community. We are ready there, but we continue to work behind PLAVIX for all the indications I indicated before and we are very confident that we will continue to see important results from that. Now you want to speak about current.

James M. Cornelius - Chairman and Chief Executive Officer

Yes, John you mentioned on the OSS our current trial which is our high loading dose trial of PLAVIX, this will be an important information that also tracks with guidelines, that stress the early administration of this agent not to wait until the patient is on the table. And I think this information should be available in March. Our outside investigators did announce recently that because of the low events rate, which I think is good news for patients undergoing those treatments. The low event rate we've increased our enrollments and that has been progressing well and hopefully the data will be presented at a major conference in the first quarter. Let me use that opportunity to reiterate there will be a continuing news flow from our clinical programs to support our marketed products as well as our development product. We've mentioned in the past and I reiterate the complete profile effects of glisten [ph] will be much more visible but with multiple Phase III programs being described at the European meeting for diabetes in September. Now, this is the add-on to the [inaudible] the add-on to the TVDs and an initial combo with metformin. So in addition to the prior Phase III programs that have been announced you'll see the entire profile there. We also have some data that will be maturing Phase II data with apixaban on acute coronary syndrome and this will be presented at hopefully in September at the European Society for cardiology and that it will be a very important indicator for some increased opportunity, very high value opportunity for apixaban. As we said before, Phase III data on the orthopedic indications will be presented in December at the ASH Meeting. I'd like to call your attention though to the fact we haven't talked much about our clinical-stage Alzheimer's program and this week, at the international Alzheimer's conference in Chicago, we have two oral presentations, one in the heart topic session and one on Sunday . The one on Sunday is the presentation of a microtubule stabilizer that has strong proof-of-concept pre-clinically for interrupting with the tow pathway and presumably the path of physiology of Alzheimer's. That results from a collaboration we've had with the Mayo Clinic and also involved important clinical compound that we've recently acquired through Kosan along with the back ups in that program. In the hot topics section on Wednesday, we have the first data presented in human [inaudible] program we've been after a very selective compound that does decrease cerebral spinal fluid, a data measurement that saves the tolerable doses and that will be presented at the hot topics section on Wednesday.

John Elicker - Vice President of Investor Relations

Thanks, John. And thanks everybody for your timing, your questions. For some final comments I would like to turn it back to Jim.

James M. Cornelius - Chairman and Chief Executive Officer

Thanks, John. Again it was a great quarter. It was the best since I've been here. Operationally, our strong financial performance was led most importantly by double-digit sales growth. As Elliot had just commented and previously in the Q&A session, our clinical science is moving steadily forward due to regular progression of our portfolio and is being complemented by business development strategy. Based on the success we've had with the first 1.5 billion productivity initiative, we are about to execute another billion of productivity with our long-term future in mind. And finally, I believe we are well on our way being a leading next generation biopharma company. Thanks very much for your attendance.

Operator

That does conclude today's teleconference. Thank you for your participation. You may now disconnect your lines.

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Source: Bristol-Myers Squibb Co. Q2 2008 Earnings Call Transcript

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