Bristol-Myers Squibb Company Q2 2009 Earnings Call Transcript

| About: Bristol-Myers Squibb (BMY)
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Bristol-Myers Squibb Company (NYSE:BMY) Q2 2009 Earnings Call Transcript July 23, 2009 10:30 AM ET


John Elicker – VP, IR

Jim Cornelius – Chairman and CEO

Lamberto Andreotti – President and COO

Elliott Sigal – EVP and Chief Scientific Officer

Jean-Marc Huet – EVP and CFO


Jami Rubin Goldman Sachs

John Boris – Citigroup

David Reisinger – Morgan Stanley

Catherine Arnold – Credit Suisse

Tony Butler Barclays Capital

Steve Scala Cowen

Steve Patrick – UBS

Chris Schott – J.P. Morgan

Tim Anderson – Sanford Bernstein


Good day and welcome to today’s Bristol-Myers Squibb second quarter 2009 earnings release conference call. (Operator instructions) At this time, I would like to turn the call over to Mr. John Elicker, Vice President of Investor Relations. Please go ahead Mr. Elicker.

John Elicker

Thanks Lisa, and good morning everybody and thanks for joining us. We are here this morning to discuss both our Q2 release and the announced planned acquisition of Medarex that you saw last night and this morning. I will make just a quick comment before we get started on logistics. For this call, we do have a slide that is available on our website and you can also access it through the web cast if you would like to follow along.

With me this morning are Jim Cornelius, our Chairman and Chief Executive Officer; Lamberto Andreotti, our President; Elliott Sigal, our Chief Scientific Officer; and Jean-Marc Huet, our Chief Financial Officer. Jim, Lamberto, Elliott, and Jean-Marc will all have prepared remarks, and then we will go to your Q&A.

So let me take care of the legal requirements first. During the 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 Form 10-Q, and the current reports on Form 8-K. These documents are available from the SEC, Bristol-Myers Squibb website, or from 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 at some point in the future, we specifically disclaim any obligation to do so even if our estimates change. Jim.

Jim Cornelius

Thanks John. Thanks everyone for joining us this morning. Yesterday was a very busy and important day for Bristol-Myers Squibb, and so to characterize as chairman and CEO was one of executional excellence. I want to extend my congratulations to all of the BMS colleagues that have worked both on the results of the second quarter, and the Medarex acquisition, particularly those sitting around the table with me this morning.

At BMS to add one other thing that Institutional Investor magazine has picked our own John Elicker as the very best investor relations guy in the industry. So John congratulations. Keep up the good work.

I'm going to be directing my comments to slide three in that deck. It is a very small number at the bottom of the page, but depicts the way we think of BMS over the next 10 years. We just completed in June a ten-year strategic review with our board of directors, essentially in this format. There are three distinct stages. Stage one, the growth that we are currently experiencing that we characterize as 15% earnings per share growth from the 2007 base. That is the post-Plavix patent expiration stage, 2012 to 2014, where we have mitigated that as best we can with the Abilify extension, and thus now provide us a plateau in earnings, but really a platform for growth.

And then finally stage three where acquisitions such as the Medarex acquisition will have a significant impact. So for stage one, we had another excellent quarter both operationally and strategically. We continue to deliver on our commitments, and we're executing against our strategy in a co-ordinated way to becoming a stronger, leaner and more effective company in both near-term, medium-term, and long-term.

As you saw in the quarter and Lamberto will expound on, we continue to deliver strong sales in our BioPharma business. It is driving broad-based top line growth across almost all products and geographies. Our ability to manage costs continued to deliver operating leverage as non-GAAP earnings per share grew 30%. We remain in an overall strong financial position with $9.1 billion of total cash and marketable securities, but subtracting our debt $2.7 billion and what we call our net cash.

This certainly gives us the flexibility to continue executing on our strategy. This is a very welcome contrast from our debt position of 18 months ago. And as a result of our continued strong performance, we were able to raise, as you know, our non-GAAP EPS guidance to a new range of $1.95 to $2.05 dollars up from the old $1.85 to $2.00.

The quarter also brought important strategic developments that show how we are strengthening the platform for growth in the 2012 to 2014 timeframe as I outlined earlier. We have extended a very successful collaboration with Otsuka on Abilify, and as a result our outlook for 2013 is much improved.

As you are seeing in the P&L statement, we are continuing to make progress with our productivity initiatives. We are fully prepared for a decision on Onglyza, and hopeful that we will launch this important diabetes medicine soon. We expect that Onglyza will be an important contributor in stage II and beyond.

Also in the quarter, we announced important clinical data for three of our late stage assets. As we said before, the String of Pearls is an important part of our business development strategy to deliver sustainable long-term growth. Just yesterday as you know we announced the Medarex acquisition that potentially helps position us for meaningful growth in stage III beginning in the year 2014. This deal is expected to give us increased leadership in the area of biologics, which is a key component of our BioPharma strategy.

It vastly expands the scope of our pipeline in oncology and immunology, and it gives us full control of Ipilimumab, our promising late stage cancer biologic. I have asked Lamberto and Elliot to take you through some of the specifics of this planned acquisition, and what it means to our growth profile, our leadership position in biologics and our pipeline.

And then Lamberto and Jean-Marc will lead the discussion on the quarter. Afterwards we will be available as usual to answer your questions. Lamberto.

Lamberto Andreotti

Yes. Thank you Jim. Jim already said that the acquisition of Medarex is a great example of how the execution of our String of Pearls strategy puts us in an excellent position to project growth also over the long term after the loss of exclusivity of Plavix and Avapro.

We have had a very productive collaboration on Medarex since 2005, and we're optimistic about the strategic and research opportunities that this acquisition of Medarex offers. Let us get into some of the details listed on slide number four. And we have said many times, one of our strategic goals has been to expand our leadership in biologic. And this acquisition of Medarex significantly accelerates our leadership position in this area by bringing us both new assets and additional capabilities.

Medarex has discovered technologies that do not have to be proven as they have already been validated both in their own portfolio as well as in collaborations with other companies. In addition to the discovery technology platform, there are 10 clinical and 16 preclinical programs that add value to our biologics portfolio, especially in the key areas of oncology and immunology.

And importantly we gain full ownership and rights to Ipilimumab the product that we have partnered on since 2005. We hope to have important phase 3 data on this product on this compound by the first half of next year, and pending the results of this study we could potentially submit the Ipilimumab filing to the regulatory authorities next year, in 2010.

Ipilimumab is promising, but Medarex offers much more than Ipilimumab. As I mentioned by acquiring Medarex, we have also vastly expanded the scope of our immunology and oncology portfolio with a total 26 additional assets. In addition Medarex brings to this a growing stream of royalties from three approved products, which were discovered through its UltiMAb technology platform.

This acquisition causes some near-term dilutions, but despite the dilution and thanks to our successful performance, we've been able to maintain our outlook for 2010 and 2011, and we're excited about the potential accretion in the longer term. Finally, our financial strength allows us to complete this deal while maintaining the flexibility to continue executing on our String of Pearls strategy. After Medarex, we plan to continue buying additional products and additional companies.

If you move now to slide five, Bristol-Myers Squibb, our company, with the addition of Medarex creates a powerhouse that is set up for leadership in biologics, across the spectrum of discovery, development, manufacturing and commercialization. Medarex productive and proven antibody discovery capabilities and their laboratory facilities on the west coast accelerate and complement the work we have already begun internally, and through the acquisition of Adnexus and our collaboration with Domantis.

Together with Medarex, we now also have a much stronger and broader biologics development pipeline, particularly in immunology and oncology. Besides Ipilimumab, we have a number of biologic assets in our late stage pipeline including Belatacept for solid organ transplant. We are hopeful that all these assets will reach successfully the market, where we already have Erbitux for cancer and Orencia for rheumatoid arthritis.

Manufacturing is a key element of our biologics strategy, which is why we have invested heavily in the new facility we are building in Devens, Massachusetts, and we also continue to operate a development and manufacturing facility in Syracuse, New York, and work with a number of qualified third-party manufacturers.

Medarex has unique pharmaceutical development capabilities through this effort. Elliot can now talk about the impact of this acquisition on our pipeline and will give us some details -- will give you some details about Ipilimumab. Elliot.

Elliott Sigal

Thank you Lamberto. Now that Jim and Lamberto have described the rationale for the planned acquisition and how it positions us to become a leader in biologics, I would like to talk about how the Medarex research and development capabilities and assets will significantly enhance our efforts in biologics, and in particular in the important areas of immunology and oncology.

In addition, I would like to discuss some detail about where we are with Ipilimumab. Turning to the pipeline with reference to slide six, you can see that this acquisition will have a very significant impact on our clinical development pipeline, as it will double the proportion of biologics in the pipeline from 17% to 35%. As we have indicated in the past, we believe there are many advantages to having a portfolio balanced with both small molecules and biologics.

It provides us with the flexibility to choose the right approach for a given target and biologics also tend to have a higher success rate through development as well as the potential to be developed for many different indications. In addition to Ipilimumab, which I will reference shortly, the Medarex pipeline has 10 compounds in clinical developments of which seven are unencumbered.

Beyond the numbers, the Medarex pipeline also enhances our pipeline with a number of attractive compounds particularly in the immuno-oncology and autoimmune diseases. Some of these disease targets include inflammatory bowel disease, rheumatoid arthritis, lupus, and solid tumors and hematologic [ph] malignancies.

Behind this clinical pipeline are an additional 16 preclinical assets, which are expected to generate 1 to 2 IND candidates annually in both immunology and oncology. Finally, Medarex has built a proven and highly valued technology platform called UltiMAb that produces highly-affinity fully-human antibodies. Three approved products developed by other companies already utilize this technology, generating royalty streams.

While there are an additional two other candidates derived from UltiMAb awaiting approval and at least 30 other compounds in various phases of development in the industry. But in addition to Medarex’s human antibody technology, it also has a proprietary antibody drug conjugate platform to develop potentially significant antibody cytotoxic therapies for use in oncology. These may result in novel targeted cancer therapeutics.

Combined with our prior acquisition of Adnexus, we will have a very strong biologics discovery engine, which will leverage multiple distinct technologies.

Now referring to slide seven, let me talk about Ipilimumab. As many of you know, Ipilimumab is a fully human monoclonal antibody that binds to CTLA-4, which is a molecule on T-lymphocytes. And that molecule plays a critical role in regulating naturally immune responses.

Blockage of CTLA-4 by Ipilimumab sustains an active immune response, and therefore stimulates immune mediated attack on cancer cells. We established collaboration on this molecule with Medarex back in 2005. The clinical program for Ipilimumab to date in patients with previously treated metastatic melanoma has demonstrated clear anti-tumor activity, unique instances of delayed disease progression, and prolonged responses to treatment with a manageable safety profile.

In addition, survival across the Phase 2 studies has been encouraging and consistent with a median range of 10 to 15 months with 50% of patients alive at one year. More recently, updated 24-month survival results presented at ASCO this year from follow-up extensions of our Phase 2 trail, show that the two-year survival rate range from 30% to 42% in patients who received Ipilimumab, compared to historical controls this is encouraging.

But a randomized Phase 3 trail is ongoing, and this is designed to evaluate the efficacy of Ipilimumab in combination with dacarbazine a chemotherapeutic agent versus that chemotherapeutic agent alone in patients with untreated and unresectable stage III or stage IV melanoma. The primary endpoint is overall survival. Results of this event driven trial are expected in the first half of 2010.

A potential submission for melanoma could include survival data from patients in the Phase 2 second line study and the randomized Phase 3 first line trial. We also believe that Ipilimumab may have utility in other areas of oncology, and additional ongoing studies include a Phase 3 study in adjuvant treatment of melanoma, a Phase 3 study in prostate cancer, and a Phase 2 study in lung cancer.

We are certainly excited by the potential we see for Ipilimumab and with the planned acquisition of Medarex, for we will have full control of the development and commercialization of this product and full access to the important discovery and development technology.

In summary, this transaction is expected to greatly strengthen our position in immuno-oncology, increase our biologics clinical portfolio in both autoimmune diseases and oncology and provide technology platforms and a research engine for the future.

Now I would like to turn things over to Jean-Marc.

Lamberto Andreotti

Well in fact this is Lamberto. I will step in with a couple of comments before Jean-Marc gives you the details of our results for the quarter. And we are moving from discussion of Medarex now to discussion of our quarter results. And I'm speaking about slide eight now.

As Jim said before we're very, very excited about the excellent results in the second quarter. I'm particularly proud of the broad-based top line growth that has been achieved while effectively managing costs. Many of our key products, Plavix, Abilify, Sustiva and (inaudible) franchise, Orencia and sprycel delivered meaningful double-digit sales growth in this quarter.

This is through not only to a great portfolio but also through the very effective organization we operate. As Jean already said, the improvements in our top line have not jeopardized the rest of our P&L. On the contrary, our strong operating leverage reflected in the non-GAAP EPS growth of 30% demonstrate our continued success in focusing on cost.

For the past two years, we have been very disciplined in executing against our productivity goals and moving to a culture of continuous productivity. It is clear that we have established a successful new way of doing business that has been yielding results with our currently marketed medicines, and we expect to put the same formula to work in upcoming years as we prepare for six potential new product launches between now and 2012.

We are also making the most of our financial assets as well by improving the way we handle working capital and capital expenditures. The entire company is involved in this effort, which has led to significant improvements in our cash flow. Now Jean-Marc will provide additional details on the second quarter. Jean-Marc.

Jean-Marc Huet

Lamberto, thank you very much. If we can now turn to page 9, which is titled Q2 continued high-quality sales growth. So we will now review our Q2 results before taking all of your questions.

So turning to revenues. You have seen our overall results from the press release as well as the comments made by Lamberto and those reflect the contribution of Mead Johnson. I would like to now discuss in the next several slides our BioPharma performance specifically as that represents the lion's share of the company and is the primary focus of management.

In summary, we had high-quality sales growth in biopharmaceuticals, up 4% in Q2 or plus 9.5% excluding foreign exchange. This is a continuing trend building on the first quarter of this year, where we grew sales at 8%, which you can see on the left-hand side of the slide. This is ex-Foreign exchange, as well as the full-year results for 2008, where sales grew at 13% or excluding FX and after-tax 9%.

Our second quarter 2009 net sales include a negative impact from foreign exchange of 5%, a positive impact of 4% from price, and importantly a plus 5% increase in volume. This you see on the right-hand side of the slide.

Now turning to slide 10. We had broad-based sales growth in the quarter. Most of our key products saw double-digit growth in Q2. If you consider the performance of our portfolio, excluding Plavix and Avapro, which as you know lose exclusivity in the 2012 time period, we still achieved sales growth in the very high single digits excluding FX.

This was accomplished despite continued simplification of our business through deletion of several mature brands and divestiture of assets. Our US biopharmaceutical business particularly strong at plus 13%. Now let me just turn to our therapeutic areas.

Firstly cardiovascular, globally Plavix sales were up 12% excluding foreign exchange. US sales grew at 15% driven by good volume growth in our stroke and PAD businesses. We are pleased to see this growth as we face competition in Europe and the US. And we are well prepared to continue our leadership with Plavix in a broad spectrum of indications.

Turning to neuroscience, Abilify very strong, up 26% globally ex-FX and 29% in the US. Abilify is the fastest growing atypical in both NRx and TRx. The 29% US net sales growth reflects the execution against the opportunities in bipolar and the new major depressive disorder indication supported by a strong DTC campaign. The growth in Europe also very strong was supported by the bipolar indication launched in the middle of last year.

Now let us turn to our virology franchise. Reyataz sales growth was steady at 2% globally or 10% if you exclude the impact of foreign exchange. Reyataz was negatively impacted in the US compared to the first quarter of 2009 and this is due to the timing of ADAP purchases in the first quarter.

Sustiva franchise sales were up 11% globally or 18% ex-FX behind the strong performance of Atripla [ph]. Baraclude sales were at $179 million or plus 41%, excluding FX. Baraclude has achieved or is approaching leadership in places like China, Japan and Turkey.

Now turning to immunology, Orencia sales were at $148 million or plus 48% excluding the impact of foreign exchange. In the US, Orencia sales grew 33% as we worked towards becoming the first line biologic of choice. The total number of patients on Orencia has held up relatively better than the overall market. The total number of patients grew 27% versus Q2 2008 and 2% versus Q1 of this year.

Now coming to oncology, Erbitux sales were at $173 million, down 12% due to lower sales in later lines of treatment for colorectal cancer. We do see the first signs of the business somewhat stabilizing with sequential quarterly growth, although monitoring performance over the coming quarters will be important.

Global Sprycel sales were at $107 million with very strong growth in US and Europe. Let me now just turn to slide 11. Very importantly when looking at the BioPharma business and the same holds for the overall organization, our gross margins were significantly up if you compare with the same period last year.

Gross margins in the BioPharma business increased 410 basis points up to 74.2% compared to the second quarter of 2008. Foreign exchange, but importantly favorable product mix, pricing, savings from productivity initiatives, and manufacturing cost improvements all contributed to this important growth in gross margins.

If you look on the right-hand side of this page 11, you will see that our pre-tax BioPharma margins were up nearly 8%, to be exact 770 basis points versus a year ago. With continued strong sales and a focus on expense management our BioPharma pre-tax earnings were up 46% for Q2.

Let me now turn to slide 12, which is entitled Q2 reduced SG&A and continued R&D investments. We reduced our BioPharma SG&A as a percentage of sales by 380 basis points from 29.4% in Q2 2008 to 25.6% in the second quarter of this year. This represents a decrease of 380 basis points. This is primarily driven by significant progress in reducing our overall G&A expense. We have made steady progress in this area since 2007, when our SG&A as a percentage of sales was in the low 33% to 34% range as a total company.

At the same time, we are maintaining our R&D spend. Excluding specified items, research and development expenses remained flat at $800 million or up 3% if you exclude the impact of foreign exchange. Our productivity initiatives allow the flexibility to fund R&D and simultaneously integrate key business development opportunities such as Medarex.

Turning to slide 13, which is entitled further strengthened financial flexibility. Not only has the performance been impressive in the second quarter, but I'm pleased to see the benefit from the organization’s overall focus on cash flow. In 18 months, we have gone from a net debt position to a net cash position and that you see on the left side of the slide.

As of June 30th, we are in a net cash position of $2.7 billion and that has increased about $300 million since the end of the first quarter of 2009. We have increased this cash position over the past quarter even with our dividend payment of $600 million, and a payment of $400 million to Otsuka as part of our extension of our Abilify agreement.

Our trade working capital, which you see on the right-hand side of the slide as a percentage of sales has decreased from 17% at the end of 2007 to around 11% at the end of the second quarter of 2009. This 6% reduction between 17% and 11% equates to a release of capital of well over $1 billion over this timeframe. Even with the planned Medarex acquisition, we remain in a very strong position to pursue business development opportunities from a balance sheet perspective.

Let me now turn to page 14. 2009 financial guidance. We are raising today of non-GAAP EPS guidance from $1.85 to $2.00 to $1.95 to $2.05. Where is this coming from? We expect gross margins to improve about 200 basis points versus last year, and this is based on mix and productivity improvements. We expect indeed the margins to remain at the first half levels throughout the rest of the year. We also expect our effective tax rate to be around 25% versus 24% and this is driven by pre-tax mix.

Our non-GAAP guidance for 2009 includes the potential dilutive impact of Medarex, which could be in the range of between $0.02 to $0.03 for 2009. We are also refining our GAAP EPS guidance from $1.58 to $1.73 to a new range of $1.58, which doesn’t change but a reduced number of $1.68.

We're also today confirming our 3-year minimum 2007 to 2010 15% EPS compound annual growth rate on a non-GAAP basis. This includes the estimated dilutive impact of Medarex in 2010, which we estimate to be in the range of between $0.07 and $0.09. We are maintaining our guidance of a minimum of 15% growth rate, while absorbing as you will recall the following. Firstly, the dilution attributable to ConvaTec, secondly the impact of the partial IPO of Mead Johnson, as you know we sold 17% in February this year. Thirdly, the planned acquisition of Medarex. Fourthly, the R&D spend for the other seven Pearls that we have either acquired or licensed since 2007, and lastly the dilution attributable to the extension of the Otsuka agreement.

The fact that we continue to deliver given these factors clearly demonstrates the growth phase that we are in today as mentioned by Jim on his first slide. And while we are very focused on the global economic climate as part of our risk management, we have seen little to no impact from the recession upon our portfolio of medicines, but we will continue to watch this very carefully.

The second quarter performance was excellent by any measure, excellent sales growth, improved gross and pre-tax margins resulted in a 30% increase in non-GAAP earnings per share. Operationally, financially and strategically we are accelerating our transition into a next generation BioPharma leader.

Thank you very much and now I turn it to John.

John Elicker

Thanks Jean-Marc, and thanks everybody for listening. Lisa, I think we are ready to go to Q&A now.

Question-and-Answer Session


Thank you. (Operator instructions) Our first question comes from Mr. Jami Rubin with Goldman Sachs.

Jami Rubin - Goldman Sachs

Hi. Mrs. Jami Rubin. Anyway, very good quarter. I wanted to ask you Jim as long as we have you on the call to talk sort of big picture strategically. Now that you have made the Medarex acquisition, I'm wondering if you can talk about other areas that might be of interest. Does this fulfill the requirements for the oncology phase for Bristol, and what other areas or therapeutic categories would interest you and also on the Medarex deal, can you share with us what the royalty payments are for Simponi, Stelara, and the third product? And then I just wanted to switch gears for a second on Plavix in Europe, we understand that Plavix, generic Plavix was approved by the CPMP [ph] and if you could sort of just give us a sense for what's happening in Europe with generic Plavix. I know it's now just in Germany but if you anticipate that it spreads and how we should think about that going forward. Thanks.

Jim Cornelius

Okay, Jami thank you for that expansive set of questions, let me try and address strategically what again the String of Pearls means for us. First of all, I think in this quarter and our net cash position indicates we are not done with the String of Pearls. I think our interest in the various therapeutic classes remains the same and after celebrating yesterday, we will today off but we will start tomorrow on looking for other pearls. The second part was on Medarex. All right, the royalty we will pass that to Lamberto.

Lamberto Andreotti

Okay, yes, as far as I remember the royalties that Medarex gets from third parties are in the low-single digits. You also asked about situation of Plavix in the EU and the pretty complex situation with generic competitors being approved or being reduced. Let me start with Germany. There is still one (inaudible) that was launched in August 2008 and it is marketed by two generic companies of Germany, Ratiopharm and (inaudible).

(inaudible) is indicated in a limited number of indications that are present more or less half of the clopidogrel sales or (inaudible) in Germany and as far as I know by May 2009 they have taken about 30% -- 34% of market share in units from us and Sanofi. There are a number of generic marketing authorization applications that got THMP opinion recently. Some did opt for full clopidogrel indication. Some of these are only for the (inaudible) indication.

We are anticipating that European marketing authorization decision will occur by the end of July, August and therefore we are planning for additional generic launches in the second half of 2009. Some of these applications have been for clopidogrel basilate as those that were filed and approved in Germany, and some are for the same sold that we have in the market and for which we have a composition on master patent in the top five countries with the exception of Spain. Now both Sanofi and Bristol-Myers Squibb will continue to monitor this situation very carefully.

We are continuing to have all possible efforts to have our intellectual property respected and we will -- we are adjusting our plans according to how the situation evolves. Let me add a comment that this very important. We are very excited by the possibility that Onglyza will become approved in the European Union by the end of the year, because even if the generic competition on Plavix becomes more aggressive. Well, we will have a very important new product on which to focus efforts of our (inaudible) infrastructure in Europe. That is a very powerful infrastructure, but we have a product Onglyza, and even though we're not giving up on Plavix we are very excited of having that structure supporting Onglyza now.

John Elicker

Thanks Jamie. Lisa can we go to the next question please.


Our next question is from John Boris from Citigroup.

John Boris - Citigroup

Thanks for taking the questions and congratulations on the quarter. Question for Jim, especially in light of the completion of the 10-year strategic review, and in light of your statement in your press release that you expect the outlook for 2013 to be much improved if we just go back to the three stages that you outlined Jim and if you can just maybe talk very broadly about stage one, you still have another 2, 2.5 years to take cost out of the cost structure.

How much room is there to continue to take productivity and cost saving initiatives to drive performance on the operations. On the second phase, you do have a lot -- greater visibility on the pipeline, most notably on Onglyza, Belatacept, Ipilimumab potentially before the end of this year, (inaudible) little bit later but if you un-risk adjust those assets and think about the growth that they could possibly afford going forward, how do you then look at Stage III then, maybe very topically about acceleration of growth and then Jean-Marc from a modeling standpoint, I know you can't go into detail but how should we be thinking about the P&L components because it does seem as though the BioPharma strategy is going to much greater biologics shift or percent of revenue that could be coming from the operations and how should we be thinking about that from a tax standpoint, gross margin standpoint, (inaudible) standpoint, et cetera, thanks.

Jim Cornelius

Well, let me start, this is Jim Cornelius on stage I. If you go back to the base year 2007, I think we felt there was enough potential in productivity that we could stand by a 15% bottom line compounded annual growth rate at least through 2010, and since that time we have divested assets that we owned back in 2007. As Jean-Marc pointed out, we only own 83% now of Lead Johnson. We are going to swallow the minor dilution from Medarex here in the latter half of 2009 and still reiterate that growth rate.

I think the momentum in the business suggests 2011 should be lumped into that growth year. We're feeling much better about that and I'll boot the second part of your question to Elliot. We do have six new products that we shared with the board, but probable of them using the success rates that are historic in our industry. On the other hand, we have an above average -- above industry average track record in terms of success rates and we're obviously hoping someday to have all six, but I turn it to Elliot.

Elliott Sigal

Yes, thank you Jim and Lamberto will add to this. John, this is a very exciting portfolio. It is my job to bring things forward but to constantly risk adjust and to be cognizant of the competitive and regulatory environment. We are getting very excited about the near term drugs that you've mentioned and working very closely with our commercial colleagues in preparing the market, understanding the market, and I think I am more excited about these six products this year than last year, each and every one of them.

At the same time, the String of Pearls strategy allows us to build upon this now platform of growth in stage II and to increase our probability and confidence in the slope of the return to growth in stage III, and therefore each stage has a very specific strategy of adding pipeline that could mature at those stages or earnings that can contribute to those stages and I would say that would continue.

Lamberto Andreotti

Yes, this is Lamberto. I'd like to add a couple of comments both on stage I and stage III. Let me start with stage III. Obviously in the days when we all dream, and it's not many days as we spend dreaming, we think of what is the future of Bristol-Myers Squibb with all those products released and delivering the highest scale, and the picture is absolutely very bright. In the normal days, we focus more on risk-adjusted projections and we are convinced that we have six good assets also at risk-adjusted level and we are building plants to be ready to launch (inaudible) in the most effective way.

Looking both at stage III and stage I now, we felt it is very important that we share with you the fact that we continue to look at expenses, expense management is part of our daily life, but also we are focusing more and more also given our recent results on top line growth. So it is a combination of the two that we are focusing upon and I think we have the credibility now or the results of last year's to support this belief that we can deliver a good sales or top line growth in the next few years. Look at how Sprycel is doing in the marketplace, how we are gaining market share and how comparatively to the other product that is alternative to Glivec, we have (inaudible) in the marketplace.

Look at how Orencia after a bumpy start is delivering, et cetera, et cetera. I think we can continue to be optimist about how we can deliver top line growth.

Jean-Marc Huet

So maybe just a compliment that Lamberto was just talking about stage I and stage III, just to come to stage II. This is something which continues to obviously be of important focus as we focus on improving the base earnings in that period of time. Just as a reminder, we extended the Abilify contract, which will contribute a minimum of $0.30 in 2013, 2014 and just to repeat what Jim and Lamberto said, productivity is becoming continuous improvement. This is something which is becoming more and more part of our DNA. So rather than as a discrete project, this is now becoming part of our process.

So we will improve the cost efficiencies of our business in stage I and stage II as well as stage III, and lastly to Lamberto's point, superior execution in stage I, we will demonstrate that in stage II in all of our products outside Plavix and Avapro and as I mentioned in my remarks, the part of the business excluding Plavix and Avapro continues to grow and we will be focused on the growth of our in-line products as well as what Elliott mentioned those six products hopeful to come.

On your last point on modeling, that can be a very detailed answer but let me just give you broadly, I think that we are much more focused today not only on the short but also the mid and the long-term performance. Our business does change over time if you look at gross margin and the way we will account for Onglyza going forward. Most importantly, if you just look on a pretax basis, we have different levers to drive that pretax earnings growth in stage one and hopefully really create that platform as we improve our business to be well positioned for stage III in 2014 thereafter. When it comes to more details, I'd be more than happy to take that off-line.

John Elicker

Thanks John. Lisa, can we go to the next question.


Our next question is from David Reisinger with Morgan Stanley. Go ahead please.

David Reisinger – Morgan Stanley

Yes, thanks very much. I have a couple of questions. First of all, with respect to Ipilimumab, could you just discuss your level of confidence in positive overall survival data and melanoma this coming winter? Second, regarding Belatacept just wondering if you filed for priority review and also wondering when you'll make public the two-year survival data and then finally other numbers. For the assumptions made in the calculation of $0.07 to $0.09 of dilution in 2010 for the deal, can you just discuss whether you are assuming any rationalization of costs, whether you're assuming any reinvestment and provide any perspective on amortization? Thanks.

Elliott Sigal

Yes David, this Elliot. You had a question on both Ipilimumab and Belatacept. So let me just step back and say that Ipilimumab is targeting areas of significant unmet medical need, metastatic melanoma is a near fatal diagnosis, most of the time. There are 140,000 cases diagnosed annually worldwide with 37,000 deaths. People have tried for years to modify this horrific course of this particular disease. The excitement that Ipilimumab it is a novel approach to have the body's own immune system help out in the fight against cancers and with regard to confidence of survival in the overall study, we are very encouraged by the survival figures in phase 2, but that is phase 2 data, and we must await phase 3 data to completely answer your question, but I would say that if there was one sleeper in the pipeline as I talk to people over the last year because of the developing data and my contact with physicians and the programs that we have it would be probably Ipilimumab. There has been some new data out on immunotherapy as you know from ASCO with other molecules that give us some confidence that we are in the right area.

This is high risk, but high reward. Let me say that Ipilimumab data could come out in phase 3 metastatic melanoma first line, sometime early next year. We also have as I mentioned a phase 2 study in the lung cancer around that time. We also have another phase 3 study using a lower dose of Ipilimumab in conjunction with a vaccine, and that's significant because we, as you know, are looking at Ipilimumab as the backbone of immunotherapy to be added to a variety of agents that could be chemotherapeutic agents, they could be a variety of vaccines that are tumor specific and being developed by other people.

So that's a very extensive program. Now with Medarex we have different targets in the area of immuno-oncology, one in phase 2 and one earlier in clinical studies. So this is going to be an exciting time and we all await the phase 3 data coming. With regard to Belatacept, you asked for an update of our regulatory strategy, and we typically announce the filing when the filing is done by the FDA, and that is the actual filing but we did as we promised to submit on June 30th, a complete application and we are very excited about that we've been collaborating in terms of its content very carefully with the agency to answer any questions that could arise in the evaluation of this novel approach to organ transplantations, and we would expect to hear within about 70 days of the June 30th date whether the FDA makes the decision to file and to treat this as a priority review.

Those are both their decisions. We do have two-year data that will be available and we hope to be presenting that in next year's American transplant conference. Now, just coming to your point on dilution David, a couple of points first just as a reminder for everybody is that when we reiterate today our 15% minimum guidance it includes the dilution of Medarex between $0.07 to $0.09. Second point, just before coming to your specific question, if you just look at the dilution, it's obviously more important in the next coming years, more or less neutral in what we call stage II and then hopefully very accretive thereafter.

So the dilution profile really fits with our growth of stage I, platform for growth in stage II, return to growth in stage III. Thirdly, but specific to your question on the $0.07 to $0.09 dilution, obviously we make assumptions, nothing is ever given, and we always work to minimize the impacts of dilution, but let me just make the points that what has impressed us and we have had this collaboration since 2005 are the people, the assets, and the capabilities of this business, and so we have taken this very much into account when assessing the diluted impact of the business. This is not just a cost driven deal. Yes there will be synergies and some of them are important given the fact that it is a publicly holding [ph] company and will not -- driven by us closing that deal obviously and that's the background to the $0.07 to $0.09.

John Elicker

Lisa can we go to the next question.


And our next question is from Catherine Arnold with Credit Suisse. Go ahead please.

Catherine Arnold – Credit Suisse

Sure. Thank you and good morning. I wanted to ask Jim a question about how stringent you are on the absolute price per pearl, if you will. You've been quoted in the media of saying about $2 billion would be right and obviously (inaudible) for that but if you had conviction on the sort of assets that were two or three times that price, would you be willing to do that, and then I also wanted to just check in on the risk of an unsolicited bid on Medarex. Is there a breakup fee and remind me what the change of control provisions are for the long-standing agreement that you had? Thanks.

Jim Cornelius

Okay, String of Pearls is an answer to question about what our appetite was and based on the screen and the kinds of things we are looking at, the plus or minus $2 billion acquisition price for us is digestible. I said earlier today, we will continue to look things that are 3 or 4 times the size of that. I think we would have to find extreme value in there but I wouldn't rule that out.

Our cash position obviously continues to impress me that some combination of the working capital, the productivity, we are generating significant amounts of cash and have the financial flexibility to do many, many things that we could not do two, three years ago. So I look to the science side of the organization to bring these ideas in. We unleash a very talented legal and business development group to do the due diligence. We calculate what we think a fair price is and then we negotiate very hard with the target, and the fact that this one at $2.4 billion gross minus their cash into the $2.1 billion range is exactly what I was talking about.

Lamberto Andreotti

Catherine, we take comfort and just you know on the line that this is a transaction on both sides unanimously approved, which obviously gives a sense of comfort we have in the contract only that the standard empty solicitation type measures within the contracting including the breakup fee, and I think the breakup fee is at approximately 3% or so which obviously is money, but if someone will ever to really want to buy the asset, I'm not sure if that would be a sufficient deterrent, but we do have all the standard anti-takeover clauses. No changing control, excuse me, if the partnership survives, yes.

John Elicker

Thanks. Lisa can we go to the next question.


Our next question is from Tony Butler with Barclays Capital. Go ahead please.

Tony Butler - Barclays Capital

Yes, thanks very much. Do you need to increase your investment, assuming an Onglyza launch soon or is there a need for additional assets or is that complete second, given (inaudible) outright approval. Do you need to increase your investments there with respect to Plavix, and then finally Elliott, would you care to comment on the potential data for Effient [ph], and if in fact that might be sometime in the future a competitor in the ACS world, thanks.

Jim Cornelius

Let me take the two questions that are related to Plavix given the new competition on Onglyza. First of all, we are geared up to launch Onglyza in both the US and the European Union, and some other countries including Mexico. We have a full plan agreed upon with AstraZeneca. We will have sufficient funds and resources available for this launch. The question -- obviously our projections for next year and beyond include all the resources that are needed for a very effective launch of this asset. Therefore, nothing comes as a surprise, I mean the launch doesn’t come as a surprise, but comes as something that we have planned and we have resources adequately.

As far as Plavix is concerned and (inaudible) we continue to be behind Plavix and we don't think we need to put more or less resources behind Plavix because of the imminent launch of (inaudible). The -- as a reminder I think (inaudible) Plavix is indicated for a much broader population of patients than Effient. We have the full spectrum of ICS, we have recent MI, we have recent ischemic stroke and established PAD. So we are dealing with a product that is looking at a much broader market than the one that Lilly and Daiichi Sankyo will -- can focus upon and I don't go into any other comments about Effient. They are labeled. They have black box but we feel very confident about Plavix and we continue to have adequate resources of all types behind Plavix itself.

Elliott Sigal

Tony, this is Elliot, just very briefly you asked about the AstraZeneca antiplatelet compound. The full results we are looking for seeing, we haven't seen. There'll be discussion of their trial platelet presented in the European conference I believe at the end of August this year. At that time, we'll have a better understanding of that safety and efficacy profile.

John Elicker

Lisa, can we go to the next question.


Next question is from Steve Scala with Cowen. Go ahead please.

Steve Scala - Cowen

Thank you. I have two questions for Dr. Sigal. First, do you believe Plavix's current oasis 7 data will prove to be an important and powerful clinical finding and marketing tool or not an important addition to Plavix's data package, particularly as it relates to possible competition, and secondly why are you conducting a modified release study of Apixaban. Is this to achieve once-daily dosing or is it to circumvent an adverse PK issue? Thank you.

Elliott Sigal

Yes, thank you Steve. The oasis trial will be presented later this year evaluating the 300 mg versus 600 mg dose. I think it is very important information because it has been our hypothesis that the 600 mg dose, given early could well improve the acute event rate, where you really see a lot of the events, even a lot of the events increased anticoagulation accomplished by Prasugrel [ph].

I think it is an important addition to the armamentarium of Plavix because a lot of people have gone to the 600 mg dose, and I think it's always important to update our label to optimize the use of our medicines with patients. So I believe this will be a very good information and we both clinically and commercially are awaiting to review that data. The modified release program on Apixaban is our effort to see if we can increase the half life of Apixaban to an area that we're comfortable could be administered once a day. You know, our current half life is about 12 to 14 hours. We have got an efficacy on once a day. We believe in the philosophy with this compound of twice a day to achieve the benefit risk. We're not trying to avoid something. We are trying to improve on the next generation effort in factor (inaudible).

John Elicker

Lisa, can we go to the next question please.


The next question is from Steve Patrick [ph] with UBS. Go ahead please.

Steve Patrick – UBS

I think you actually have a few questions. First one for Jim. Jim, if I look into your portfolio the one obvious missing asset is the vaccine franchise. Is that an area of interest for Bristol and should we expect any strategic moves there?

Jim Cornelius

Currently that's not in our 10 disease states and I honestly don't see anything on the near-term horizon that would take us in that direction. We are more than busy with the areas that we have identified as focus areas.

Steve Patrick – UBS

Great thanks.


Our next question is from Chris Schott with J.P. Morgan. Go ahead please.

John Elicker

Sorry, Patrick [ph], I guess we lost you, but we are kind of running close on time. We've been on for a little over an hour. So I think we have time for two more questions Lisa. Go ahead Chris.

Chris Schott - J.P. Morgan

Great. Thanks. Just a couple of quick questions here, moving on gross margin first, can you give us a little more granularity on the impact that productivity mix and FX had on that roughly 400 basis points year-over-year gain that we saw, and then wondering if you can update us on how far at this point you are through your manufacturing restructuring and facility consolidation and then quickly on Belatacept, as it relates to safety, can you let us get a little more comfortably with the PTLD seen with the product and the Epstein-Barr negative patients had a particularly strong signal but seems like we also saw marginally higher rates in other patients as well and just any color you might have on that would be great? Thanks.

Jim Cornelius

Let me take the first one on gross margin. If you look at our guidance of the year we have a gross margin improvement of 200 basis points. Otherwise, if you look at our gross margins for the first half of this year, we expect them to be rather comparable for the entire year, so also for the second half of the year. Where are the improvements coming from? They're coming from product mix. We have in our portfolio some high margin businesses, which are growing at a very high rate. There is obviously pricing but whenever we speak about pricing, we go to the breakdown of our revenues and I'm always enthused to see good volume increases in our business, but anyway it's product mix, pricing, as well as savings that we have from productivity, and they are more important today than they were a year ago.

If you look also at our overall gross margin, not BioPharma, we've also been helped by Mead Johnson’s gross margin which also improved very significantly over the last 3 to 4 quarters, and lastly there has been a positive impact of FX in the first half of the year. We do not expect that to be positive in the second half of the year, but yet we think that first half and the second half margins will be quite similar. If you go to manufacturing, restructuring, and Lamberto you want to add on just very briefly. We are very much on track when it comes to our timing of going from 27 to 11 manufacturing sites by 2011.

Lamberto Andreotti

Yes, we were at 27 BioPharma, biopharmaceutical plants in December 2007. In the meantime, since then we have closed or divested 6 sites, we have three more, but we announced the intention divesting or closing. So we are really in an advanced stage of implementation of that plan and which puts us probably in one of the bad positions in the industry in terms of rationalization or rationalize or rational manufacturing methods. We have come to concomitant rationalization of our portfolio. You read about products, all the products that we are divesting to other companies, and our idea is to continue to focus on selective products manufactured in selected very high-tech plants, and we are going in that direction and we can consider ourselves a leader in the industry from that point of view or also from that point of view.

Elliott Sigal

Chris, this is Elliott. You asked a question about post transplant lymphoproliferative disorder or PTLD which is the name given to a group of white cell proliferations including lymphomas in immunocompromised hosts following organ transplant. In most cases, PTLD as you noted is associated with Epstein-Barr Virus or EBV infection of B cells, either as a consequence of reactivation of the virus post transplant in the setting of immunosuppression of any type or from primary post transplant infection of the virus and the estimated rate in transplant patients ranges from half a percent to about a percent.

Now we are bringing forward a novel immunosuppressant with what we believe are clear benefits needed in the field, but as any immunosuppressant carries a normal risk that they want to be very careful at properly characterizing and mitigating, and one of them is PTLD. We have had a higher incidence of PTLD in the program compared to cyclosporine but not an unusually high incidence overall.

I'm specifically focused on the location of some of the PTLD and that is on the brain and we are working closely with the agency and our risk mitigation plan so that we can bring forward an option for patients that have transplant that have the needed benefit of better kidney function. Perhaps the ability to be able to form -- to perform more kidney transplantations for the people that are waiting and that's why we did the trial on the higher risk donors, and also to avoid the nephrotoxic effects of the gold therapy, the calcineurin inhibitors though that include increasing risk of cardiovascular metabolic profile that we don't see with bullatacin.

John Elicker

Thanks. Lisa can we go to our next question please, Lisa.


Yes. (Operator instructions) Our next question is from Mr. Tim Anderson with Sanford Bernstein. Go ahead please.

Tim Anderson – Sanford Bernstein

Thank you, just going back to foreign-exchange. Can you just specifically quantify how much of that 410 basis point change was FX and that may be a question for Jim. Wondering when you might extend your long-term earning guidance range beyond 2010 because the 2007 to 2010 timeframe is starting to move into the rearview mirror and I think investors you know would appreciate clarity on your expectations for growth, specific expectations for growth as you get into that stage too.

Jean-Marc Huet

So if you just take the question on FX Tim, the improvement of gross margin I would say FX accounts for less than a quarter of that improvement.

Jim Cornelius

And on the question of longer-term guidance as I said we've just completed successfully a ten-year review with the Board of Directors. I think we are getting more comfortable with the directionality of the business in the various stages. You know, by the end of the year we'll have more to say about next year and then you know, shortly thereafter we'll have to decide whether we go into long-term guidance again.

The original 15% compounded annual growth rate was predicated on a very important series of waves of productivity that is now into the Bristol-Myers Squibb culture. We will have to factor that in given what we see on these potential 6 new products and we will get back to you.

Tim Anderson – Sanford Bernstein

Thank you.

John Elicker

Thanks Tim, and thanks everybody for your questions. Let me just ask Jim to close out with a few summary remarks.

Jim Cornelius

I think I can summarize very quickly. The numbers speak for themselves. On the short-term productivity is carrying us in terms of these absolutely fantastic margin improvements. My guess is that on many financial measures these are industry best in terms of the second quarter of 2009, and we are very optimistic about closing on Medarex and taking full advantage of the people scientific knowledge and very interesting biologics pipeline they have.

Thank you very much for your attention today.

John Elicker

Thanks everybody.


This does conclude today’s conference call. Thank you for your participation.

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