Bristol-Myers Squibb Company (BMY) Management Presents at Barclays 2019 Global Healthcare Conference Call (Transcript)

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Bristol-Myers Squibb Company (NYSE:BMY) Barclays 2019 Global Healthcare Conference Call March 13, 2019 12:30 PM ET

Company Participants

Charles Bancroft - CFO

Conference Call Participants

Geoff Meacham - Barclays

Geoff Meacham

Okay. Welcome to a special afternoon lunch session. I'm Geoff Meacham, I'm Senior Biopharma analyst here in Olivia for my teams on stage with me. We're excited to have Bristol and up on stage with me is Charlie Bancroft, CFO, and John Elicker from the IR team. So maybe let's start with Charlie just kind of with your perspective of actually the topic is the Celgene deal. Maybe just give us kind of your perspective kind of what your push is and pulls your hearing from investors and then we can have a follow-up.

Charles Bancroft

Okay. Awesome. So, good afternoon, everyone. It's happy to be here. Thanks for inviting us, Geoff. So, we're very excited about this Celgene deal. If you look at it from both a strategic perspective of the complimentary nature of the two portfolios, Celgene being very strong and hematological malignancies and Bristol Myers Squibb in solid tumors, we bring two oncology franchises together to create the leading franchise. We had immunology pipeline assets as well as inline brand. And we bring the number one cardiovascular franchise to the equation. And if you look at it from a financial standpoint, from a pure valuation perspective, if you take the inline brand plus the synergies, you get to $55 billion of inline brand and have relatively conservative basis that roughly low 20s of synergies. It gets you to where you have a lot of optionality in the pipeline and Celgene brands five late-stage programs, over 20 Phase I, Phase II programs and a cell therapy platform and a protein homeostasis platform. So, from a strategic and financial standpoint, a lot of optionality, a lot of upside potential. And quite frankly, it sets up Bristol-Myers from a standalone basis in the combined company for the back half of next decade when we were going to lose Eliquis and Opdivo LOEs. And now we have a refreshed younger pipeline and sets us up really well from a sustainability standpoint.

To your question around some level of pushback, in last week we issued an investor presentation. Some of the pushback has been did you do this for a defensive perspective? And we've talked about it yesterday. Did you find it before our CEO talked yesterday that we haven't had any conversations with any other third-party regarding the transaction in 2018? And we had high-level discussions in 2017 but really nothing subsequent [ph] discussions, and so we feel that we're doing this really from a position of strength. If you look at our future prospects as it relates to our inline and the combination with Celgene, we think we're doing this in a position of strength. Some other pushback has been you had other options in which to look at. I would say the other options would have been the traditional string of pearls. And if you look at our investor presentation, we issued the amount of premiums that some of these deals have gone forward. If you look from 2018 to date, roughly 90% premium. If you look at the multiple of five years sales, it's like 10 times. So, if you look at the optionality that we got into Celgene pipeline, we played a significant discount for what I would call a bundled of string of pearls. So, we think that that action was a much more viable and much more straightforward and quite frankly I think to do one off deals and in a very competitive dynamic environment is more theoretical than being able to actually execute against that.

The other little bit of pushback is that the deal with -- really wasn't well thought through. You didn't spend enough time on diligence. And if you look again, ininvestor presentation, we were looking at Celgene for an extended period of time. We did a tremendous amount of public due diligence. We also did a significant amount of due diligence directly with Celgene and we were keeping our board informed every step of the way. So, we think that it was a very thorough process, well-thought-through, we looked at all different kinds of alternative opportunities and we feel that this was the absolute best thing for Bristol-Myers Squibb shareholders.

Question-and-Answer Session

Q - Geoff Meacham

And along those lines, Charlie, you guys had talked about going from a universe of 70 to say 20 potential candidates in a diligence process. And so it sounds like it was very methodical and multi-year and to me and a lot of the shareholders I talked to for first personal at Celgene, it sounds like Celgene inhibits it's own as a string of pearls with a lot of different -- brings a lot of options. For example, is cell therapy and new products and things like that. So maybe just help us -- give us a little bit more meat on the bone with respect to the prior process and kind of how you feel like this is the right one now.

Charles Bancroft

Yes, so, and I've been the CFM of -- this is my 10th year and every year we get asked about how do you think about business development? And I think we've been consistent throughout. We've said three things. We say that from a business development standpoint, it had to be strategically aligned to our therapeutic areas. And if you look at Celgene, it's 100% aligned to our therapeutic areas. Two, we said that the signs had to be compelling. We wanted to invest in areas of unmet medical need with high treatment effect. And if you look at the assets, both the five late-stage programs as well as a number of early assets, we think Celgene also brings that.

And then if you look at the third criteria that we've always had is what does it mean from a financial perspective? Are we going to increase shareholder value? And if you look at all the metrics that we've used, I think, and we were relatively conservative them, we feel that we bring a tremendous shareholder value to the equation. So, that's been the lens that we've looked through. We've always said that we've been agnostic the side. So it just so happens that you don't do any big deals. And this one happened, the stars sort of came into alignment, where it was the right price at the right time for Celgene. So, we did go through a process to look at a number of different deals from the traditional string of pearls to midsize companies to larger transactions. And if you go all the way back to 2017 where we were thinking about Celgene at that point, the stars just came into alignment where the price was right for us. There products going from 2017 to when we announced the deal, a number of Phase III programs were more mature. And we felt that that was the right time in which to execute against this deal.

Geoff Meacham

And then, 2019 is obviously a big year for you all in terms of high impact, you to read out to you of Checkmate 227, 9ER and then 9LA, which is now early 2020. Can you just give us -- how do you respond to people who push back on maybe the strategic rationale and more linked to those read outs than you would anticipate?

Charles Bancroft

Yes, well, firstly, maybe just to -- so everybody understands. So we have a number of readout and First-Line launch. So we have 227 Part 1a, which we'll read out in the next several months. We have Part 2, which is Opdivo and Chemo, which we've said we'll read out mid-year. And then we have 9LA, which is two cycles of Chemo plus Opdivo, Yervoy concomitantly, which we'll read out in 2020. So, we don't have a particular view that those trials aren't going to be successful, but we're not on a lung company. And if you look at our proxy and you look at the number of -- if you look how we modeled ourselves, we're very bullish on ourselves. And if you look, it's not just in lung but it's an adjuvant settings. We have a number of programs there, a number of settings in the metastatic area. And then we also have our Arctic too. So, we did this from a position of what we feel yes, we're a little bit late to first-line lung and mark has an advantage there. But we feel that we are doing this from a position of strength actually.

Geoff Meacham

And when you, when you look at the considerations for Celgene, and I agree with you, I mean to have six launches fit to [ph] apply from Celgene, it's unusual in our universe. Usually, it's sort of line extensions is kind of the norm. So six launches are -- they're not going to maximize by the time we get to the 2023 relevant erosion curve. But maybe just through trolley that the thought process of how you kind of balanced what is a great cash flow stream and prevalent today, but how that's going to moderate and decline pretty meaningful at that time you get the 2024 on the other side of that would be the impact factor from the launches.

Charles Bancroft

I think if you look at the combined company now out through now through 2025, we have top-line growth through that entire time period. In the very near term, it's really helped through Celgene. And then if in the back half of that it's really helped through Bristol-Myers Squibb, but in the combined company growth through 2025 when it period that we will start losing Eliquis and Opdivo. So again, as I said earlier, we have a refreshed younger portfolio at that particular time. How those trials will all read out including our own trials for Opdivo because a lot of -- we have over 20 life-cycle management trials reading out for Opdivo in that time period, we think sets us up well for the back half of next decade when we are going to lose two major products to LOE.

Geoff Meacham

Gotcha. Okay. And then the valuation considerations of the Revlimid erosion curve tends to be one of the topics was investors. Maybe just helps us with kind of how you vet that. I know Giovanni has said we took kind of consensus numbers in a more conservative case on that.

Charles Bancroft

So, let me explain how we sort of calibrate. And we think we were relatively conservative. And let me give you a sense of how we did. Well, firstly, even before we started talking to Celgene, we did public diligence on Revlimid and then the first part of diligence in talking with Celgene was on Revlimid IP. And then when we got into more broader diligence, the first thing we looked at again was rapping that IP because at the certainty of those cash flows were fundamental to our calculus and all of this. So, when you look at how we modeled it, we modeled it as sort of book ends going back to what Giovanni had mentioned before, which is consensus estimates today and then accurate scotch. And we think both of those are outliers and very low likelihood. And in between, there is a range of different scenarios, either the litigation pathway or settlement pathway. And no matter what scenario you take in between there, we bring value to shareholders. And that was fundamental to us as we thought about Revlimid. And if you look at our numbers in the S4s how we modeled Celgene sales were below consensus, were below Celgene and if you take the barest sell-side case on Revlimid, were below that. So we feel that we were appropriately cautious in doing a big deal like this and one of the big cash flow generators to pay down the debt was Revlimid that we wanted to make sure that we were able to effectively model multiple scenarios that still yielded shareholder value.

Geoff Meacham

And when you think about the combined company, post the close, there's a lot of pushes in polls with respect to debt pay down accretion pipeline expansion. If you had a sort of a pecking order of those strategic priorities, what was it?

Charles Bancroft

Yes, I think accretion is nice, but I want to be true to what I've always said. At the end of the day, we look for shareholder value. So, it's nice that the deal is -- it's really accretive. In the first year alone it's over 40% accretive. That is important. But I think value and how it was modeled out through our P&L and growth in our P&L was important. As far as debt pay down, we are taken on a fair amount of dead-end the transaction. So, even with that debt profile, we'll still maintain a strong investment credit rating? And that was important to us. So in the first couple of years, we're going to be very focused on debt pay down and our leverage ratios move from on a pro forma basis in 2020 and a half times by the time we get to 2023 less than one and a half times. So you can see a focus on debt pay down. But after a couple of years, two to three years, business development is so core to BMS standard and it's going to be core to the new company from a capital allocation standpoint. So you will see it again, very active in the BD front of course from debt pay down.

Geoff Meacham

I think one of the biggest questions that we get from investors is whether there has been some sort of plan B that's been brought forward to your own attention. You know, obviously to the best of your abilities, and I know you don't want to speculate, but given the pushback that you've received from some shareholders, have there been further conversation about potential plan B if ultimately Celgene gets voted down?

Charles Bancroft

Let me say first and foremost, I'm very optimistic about the vote and the vote being positive. But none the less, I guess there always is a possibility. Our plan B if you will, is no different than pre-searching. [ph] Like I said, if you look at the proxy and look how we valued ourselves, we looked at our size growth. We had a very strong stand-alone company. The fact that we're now combining with Celgene, it's just because that add even incrementally more shareholder value. So, I think we would be back to what we've historically done, which we've been very good at continuing to drive commercially. We have great commercial success. And if you look at our parenting and sales growth over the last five years, it's been phenomenal. We will continue to invest in clinical trials and we will continue to invest in business development. So that's great from standalone basis, but I think in the combined basis it's even a more stronger, more powerful company and sets us up for longterm sustainability.

Geoff Meacham

And, Charlie, when you look at the assets from the Celgene side [indiscernible] has a lot of optionality to it. It could be very meaningful drug. Just go down the list, BB 21, 21 amphetamine etcetera. So, maybe help us with kind of your looking at each one of those. You mentioned what Revlimid, taking a conservative case, the cell side case. Did you go through that same exercise looking at the Celgene assets that are near launch?

Charles Bancroft

Yes. It's always easier to model in-line brand that already has a fair amount of history and runaway. So, let me point that out. I think what we've said about the six launch brands, the five we're acquiring from Celgene plus our own tick two that are on a non-risk adjusted basis. So that assumes they launch at peak year sales we expected these $15 billion. Now, the way we model those, and let me just take the five Celgene brands, the way we model those is obviously we don't assume everything once. So we take what we call in the industry a risk adjustment because that's an appropriate way because you want to make sure that you're not over your skis [ph] from evaluation perspective. So we did take a haircut on all of those products. But if we wanted to tick down, to list up the five late-stage programs, if you look at luspatercept, which was the curtain raiser and Hash for anemia disorders, that's a best in class, first in class drug. And that has potential for a number of other indications as well. So that we feel very strongly about. And that I think they said was on track to be filed in April for driving mode is already, I think that one's been filed that one of the five launch brands, although it addresses the high unmet medical need with [indiscernible] failures and myelofibrosis has a huge unmet medical need because there's really nothing for patients today in that setting. But we don't think that's going to be a particularly big product.

And then if you look at ozanimod for remitting and relapsing multiple sclerosis that will have -- it's a selective 1T, we feel that we'll have it differentiated safety profile than current agents. Now, we still feel that will have cardiac monitoring because that's the kind of a class label today. And I think we've been relatively sort of down the middle of the road of what we realistically think we can get from sales there. But what I would say for ozanimod as well, they have two programs, Phase III programs that will read out in 2020, I mean IBD indications. And you see any increment that is ahead of any other S1P in the market. So, we feel that there's a lot of optionality as we think about IPD indication.

And then if you think of the two CAR-T programs, and I'll start with a JCAR-17 that's from the Gino [ph] acquisition and diffuse large B cell lymphomas, that will be a best in class product. If you look at the efficacy profile of that and if you looked very importantly at the safety profile because that has been a rate limiting the issue with the two current agency, as occured [indiscernible] and that the cytokine release from in those two agents is anywhere from 10 to 20%. If you look at JCAR-17 17, it's around 1%. So you have a CAR-T that has best in class that looks like right now, efficacy and safety profiles. So we're very bullish about that. The uptake in CAR-Ts has been a little bit slow because of reimbursement, the whole process around the supply chain. So in this case, we think being third to market is actually a good thing.

And then if you look at bb2121 BCMA targeted CAR-T, we feel that that has significant potential and that again will be a best in class and first in class asset.

Geoff Meacham

Great. And that one in particular I think is at least a year, year and a half ahead of anybody else. And refractory lymphoma.

Charles Bancroft

Yes.

Geoff Meacham

So, moving beyond that, and I think Giovanni talked about this last week at the cell side [ph] breakfast and you mentioned the 20 plus assets that are Phase I that are noble mechanism differentiated from both Bristol and from Celgene, but as a combined company, was there a lot of value placed on sort of the technology value from the cell therapy platform from Juno or these Phase I assets? Should investors look at that as true long-term upside or is there a sort of a placeholder up?

Charles Bancroft

There's always some value ascribed to an early pipeline. So when you think of Celgene alone may have -- I think it was 22 Phase I, Phase II programs. But if you think about the number of programs, they just have in BCMA, which isn't very exciting target for multiple Myeloma, they have multiple modalities in which to try to address that target. So they have to buy specific, they have an ADC, they have a cell mod in addition to the CAR-T and then they have a backup CAR-T even with the Juno acquisition. So, we feel that there's also a lot of optionality in what is now emerging as a very big target within and Multiple Myeloma. So the Phase I, Phase II, the one thing I've learned after 35 years in this industry, most of the things don't work. And the earlier they are, the less of a chance they have to make it. But because of the amount of substrate that they have and the exciting science addressing key target, we feel very strong. But again, we didn't put a lot of value behind those assets.

Geoff Meacham

And using sort of the Bristol R&D filter, do you feel like you can enhance a probability of success of some of the Celgene assets? I know you're going too from perhaps a regulatory and maybe a commercial standpoint or from a pure research standpoint for the early to mid-stage assets.

Charles Bancroft

I'm not a scientist, so I would hate to be so bold to say that we would -- I think on the development side, access side and things like that where we have strong capabilities, I would hope we could. I think that Celgene has done a good job in the cell mods space. And I would hope through the -- and we think through the acquisition of Juno in the June I was fine to sit in the CAR-T space there's a lot of expertise and capabilities in that space as well. But you would hope in the combined company, you just have that much more horsepower and quite frankly, you'll be able to attract even more scientists to the combined company given the compelling science that exists there.

Geoff Meacham

And this is something also Giovanni mentioned last week with respect to the relationships that Celgene has by doing so many BD deals and transactions. So this opens up new avenues and new relationships for Bristol. I imagine that's not had any consideration whatsoever in the deal.

Charles Bancroft

No. So, a lot of their BD collaborations and ownership structures that they have in options with different biotech companies, we really didn't put any value on that. So I think that's a good point, Geoff. That adds a lot more optionality towards the future. Now, most of those things are relatively early, but they will play out over time.

Geoff Meacham

Yes. And maybe switching gears to your Opdivo franchise, maybe just walk us through your strategies for the recycling and first-time lung. Have there been any conversations, regulatory agents between that withdrawal of the filing it and today?

Charles Bancroft

Yes. So, I can't comment on any interactions that we've had with the FDA but I think is fundamental to what was the TMB portion of 227, that's really going to be contingent on what the data that we see from 1a. So in that trial will be able to see the interplay between TMB and PDL-1 status. So, we look forward to that and that will be informative to the next steps in regard to the TMB portion of 227. I would say more broadly just on as you're bringing up Opdivo. I think one of the things that we're really excited about besides Opdivo in the metastatic setting and we have a frontline renal cell reading out at the back half of this year and gastric frontline. We have a really broad program in the adjuvant setting and if you look at the success that we've had in Adjuvant melanoma that we launched in the back half of 2017 and then expanded the patient pull from roughly 20% getting treated to over 70% now getting to the adjuvant setting, we have adjuvant trials that are going to read out in melanoma and bladder, esophageal cancer in 2020, we have renal cell and HCC reading out in 22 and then lung in 2023 and that's probably the leading Adjuvant sort of portfolio of any other companies. So, we're pretty excited about that opportunity as well beyond just the lung.

Geoff Meacham

Then going forward, do you have other mechanisms in place such as the nectar, the IoT mechanisms [indiscernible].

Charles Bancroft

Yes.

Geoff Meacham

And you mentioned just on the back of the deal with debt pay down and BD would sort of reemerge as a priority. I mean, is there a general timeframe you're thinking about as this two, three years close or is it more urgent than that? You have a lot to sift through first year?

Charles Bancroft

Yes, we have a lot of work. It's just looking at the combined portfolio and it's not just the combined portfolio of over 50 Phase I, Phase II and how did they work together but also as you were mentioned earlier, Geoff, the entirety of our BD relationships as well. I would say that in regard to debt pay down, I think -- and we've committed to this through the rating agencies than in the first two to three years, a heavy focus on debt pay down, but it doesn't mean we won't be doing science-based deal. And then posted some level of de-leveraging then we would be back in a more robust way into Business Development.

Geoff Meacham

Right. And now I think at the post-close of the transaction there's a discussion accelerated share repo. Maybe as that lower in the priority list after that's completed?

Charles Bancroft

Yes. I mean, obviously it will depend on the facts and circumstances when we close and board approval, but we've committed to a $5 million ASR post-close and quite frankly, in our debt raise that we will be doing post to shareholders we will include the $5 billion. So we're committed to doing that.

Geoff Meacham

Okay. Charlie, John, thank you very much.

Charles Bancroft

Very good. Thank you, Geoff.