John E. Elicker - Senior Vice President, Public Affairs & Investor Relations Giovanni Caforio - Chief Executive Officer & Director Charles A. Bancroft - Executive Vice President and Chief Financial Officer Murdo Gordon - Senior Vice President & Head-Worldwide Markets Francis M. Cuss - Chief Scientific Officer & Executive VP.

Mark Schoenebaum - Evercore Seamus Fernandez - Leerink Partners LLC Christopher T. Schott - JPMorgan Securities LLC Timothy M. Anderson - Sanford C. Bernstein & Co. LLC Jami Rubin - Goldman Sachs & Co. David R. Risinger - Morgan Stanley & Co. LLC Gregg Gilbert - Deutsche Bank Securities, Inc. Vamil K.

Divan - Credit Suisse Securities (USA) LLC (Broker) Alex Arfaei - BMO Capital Markets (United States) John T. Boris - SunTrust Robinson Humphrey, Inc. Steve M. Scala - Cowen & Co. LLC Colin N. Bristow - Bank of America Merrill Lynch.

Good morning, my name is Jonathan, and I will be your conference operator today. At this time I would like to welcome everyone to the Bristol-Myers 2015 third quarter results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Thank you. Mr.

John Elicker, Vice President of Investor Relations and Public Affairs, you may begin your conference..

During the call we will make statements about the company's future plans and prospects that constitute forward-looking statements. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the company's SEC filings.

These forward-looking statements represent our estimates as of today and should not be relied upon as representing our estimates as of any subsequent date. We specifically disclaim any obligation to update forward-looking statements, even if our estimates change.

During the call we'll also discuss non-GAAP financial measures adjusted to exclude certain specified items. Reconciliations of these non-GAAP financial measures to the most comparable GAAP measures are available on our website.

Giovanni?.

Thank you, John. Good morning, everyone. Last quarter I spoke to you about the promise of our exciting new chapter and the potential for sustained growth, the tremendous opportunity we have to lead in I-O and transform the way cancer is treated, and our strategy to strengthen and expand our diversified portfolio of specialty medicines.

During the third quarter, we made important progress across the board. It was a very good quarter. Business performance was strong. We had significant clinical and regulatory successes, and we recently announced two business development deals. Regarding performance, we had $4.1 billion in sales, a 4% year-over-year increase.

Opdivo and Eliquis, our key growth drivers, showed strong demand in the market. Opdivo sales were just over $300 million, reflecting a strong uptake in squamous lung cancer and melanoma, particularly in the U.S., but also in Germany.

Following the recent approval of non-squamous, non-small cell lung cancer based on the 057 study, we now expect to be in an even more competitive position in the U.S. Eliquis prescription trends continue to be very positive, and we remain encouraged by what we are seeing in our key markets.

And it was also a very good quarter for our other marketed products, namely our hepatitis C franchise, despite the increasingly competitive hep C landscape, as well as Orencia and Sprycel. Regarding clinical and regulatory milestones, we also had a very strong quarter, most notably with respect to I-O.

Specifically, we continue to improve on our competitive position in lung cancer. Opdivo just received another early FDA approval, expanding the label to now include non-squamous, non-small cell lung cancer.

We have a very strong label with a demonstrated overall survival benefit in a broad population, regardless of PD-L1 expression and no requirement for PD-L1 biomarker testing. In first line, we presented promising data on the Opdivo plus Yervoy combination regimen at World Lung.

Based on our data, we feel confident in our first-line strategy, with ongoing trials for PD-L1 expressors while we are finalizing our plans for PD-L1 nonexpressors. In melanoma, we are very pleased to have received U.S. approval for our Opdivo plus Yervoy regimen, making it the first I-O combination therapy to be approved for any type of cancer.

And with renal cell carcinoma, as you will recall, we announced in July that the 025 study was stopped early, the fourth such announcement we've been able to make with Opdivo, something for which I am very proud.

A few weeks ago at ESMO, we presented important data from that Phase 3 study, which demonstrated superior overall survival for Opdivo versus standard of care in advanced or metastatic RCC.

The FDA recently granted breakthrough therapy designation to Opdivo for this potential indication, and we are working are regulators and anticipate filing in the U.S. and the EU by the end of the year. And lastly, our application for elotuzumab for multiple myeloma was accepted by the FDA for priority review with a PDUFA date of February 29.

This followed a similar action by the European Medicines Agency, which granted elotuzumab accelerated assessment. Given all the progress we made immuno-oncology during the quarter – clinical, regulatory, and commercial – it is clear to me that we are rapidly changing the standard of care across multiple cancers.

We are strengthening our leadership position, and we are successfully growing our business. With respect to business development, we continue to invest in building a diversified pipeline, within I-O and beyond. Recently we signed agreements to license or acquire exciting programs in I-O and fibrosis.

Going forward, I expect we will continue to expand our portfolio to strengthen our leadership position in I-O and also to enhance our non-oncology businesses. Charlie will elaborate further on our business performance and business development in his prepared remarks.

Again, I am very pleased with our third quarter results and continue to feel good about where we are and where we are headed. We have an established, proven strategy. Our performance across the company, from commercial through R&D, is strong. And we are making the investments necessary to deliver on the promise of our exciting portfolio.

We are entering our exciting next chapter from a position of strength and with a great deal of optimism. And with that, I will turn the floor over to Charlie. Thank you..

Thank you, Giovanni, and good morning, everyone. As Giovanni just mentioned, we had a very good quarter, driven by strong sales growth of 4% or 11% excluding the impact of foreign exchange. Overall, FX had a negative impact on EPS of approximately $0.05. Let me provide a few highlights. Opdivo sales were $305 million for the quarter.

In second-line lung cancer, Opdivo has quickly become the standard of care. Roughly 75% of new squamous patients are being treated with Opdivo, and physicians are also prescribing Opdivo in the non-squamous setting, given the updated NCCN guidelines in June.

With the recent FDA approval in non-squamous and no biomarker testing requirement, we believe Opdivo is in a very strong competitive position in all second-line lung patients. In melanoma, we are beginning to see usage in combination and expect our competitive position to be strengthened with the expected upcoming approvals for studies 066 and 067.

Importantly, access continues to be very strong, as we have nearly 100% coverage for Opdivo in the U.S. Internationally, Opdivo has now been approved in over 38 countries. In Europe, we have approval for both first- and second-line melanoma and squamous lung cancer.

Our trends in Germany are strong, and we are working through the reimbursement process for most other EU countries. Yervoy sales were $240 million in the third quarter. As we've discussed, we continue to see an impact of the PD-1 in melanoma in both the U.S. and EU.

We do believe Yervoy will play an important role in combination with Opdivo going forward, not only in melanoma but potentially in many tumors, including lung and renal. Over time we expect the regimen, once launched around the world, will allow the Yervoy business to stabilize.

Eliquis sales were $466 million, up 7% sequentially from the second quarter. Prescription trends remain strong, both in the U.S. and internationally. U.S. TRx growth was up over 18% versus prior quarter, although sales were flat. This was primarily due to the impact of the Medicare coverage gap, or donut hole, which kicks in around this time of the year.

We continue to be encouraged by very strong new-to-brand prescription trends with both cardiologists and primary care physicians. Hep C sales were very strong for the quarter at just over $400 million. During the quarter, we launched Daklinza in the U.S. for combination use in genotype 3 patients and recorded $111 million in sales.

While the trends are early, our sales in the quarter reflect strong demand, VA purchases, and some inventory stocking. We have also filed additional indications for HIV co-infected, cirrhotic, and post-transplant patients.

Our business in Japan continued to do reasonably well in the quarter, but we do see an increasingly competitive landscape there, which will impact our business going forward. Now, let me highlight a couple of items from our non-GAAP P&L.

Gross margin was unfavorable 180 basis points compared to prior year, primarily due to manufacturing variances, the contractual expiration of Abilify in the U.S. earlier this year, and higher sales of Eliquis. These negative impacts were partially offset by higher sales of Opdivo and hep C.

Compared with our second quarter, gross margin is down 290 basis points. Recall that last quarter we recognized previously deferred hep C sales in France and had roughly one month of Abilify sales. Overall, operating expenses were higher than last year, as we are seeing the impact from the incremental investments we mentioned last quarter.

These initiatives in commercial, medical, and R&D, primarily behind Opdivo and Eliquis, are continuing into Q4 and 2016. Our tax rate for the quarter is in line with last year, and on a quarterly basis will fluctuate based on earnings mix. Our Q3 rate does not include the R&D tax credit, which has yet to be passed by Congress.

Moving to business development, we have recently executed against two early-stage opportunities which served to strengthen our pipeline.

In fibrosis, we acquired an exclusive option to the worldwide rights of Promedior's lead asset, which is being studied in two orphan fibrotic diseases, myelofibrosis and idiopathic pulmonary fibrosis, with the potential to prevent and possibly reverse fibrosis. In oncology, we licensed worldwide rights to a CSF1R antibody from Five Prime.

This agreement expands our existing collaboration and further supports our early-stage I-O development strategy of targeting the tumor microenvironment. Now, let me provide some comments on our revised guidance.

We have increased our guidance range for both revenues and EPS due to strong sales trends, primarily from Opdivo, Eliquis, and hep C that have exceeded our expectations. For tax, we expect an effective rate of 20% due to earnings mix. As Giovanni mentioned, we remain very confident in the growth opportunity of the company.

Over the next several years, we see meaningful growth from our portfolio, which will disproportionately come from Opdivo and Eliquis. And as previously discussed, we are making strategic investments to support these important growth products.

To conclude, we are very encouraged by our continued good clinical results, regulatory approvals, and strong underlying sales trends and metrics from our key brands that are important to our future growth outlook. We would now be happy to address your questions..

Jonathan, I think we're ready to go to the Q&A. And just as a reminder for everybody, in addition to Giovanni and Charlie, Francis and Murdo are here to answer any questions you might have.

Jonathan?.

And your first question comes from Mark Schoenebaum with Evercore ISI. Please go ahead..

Guys, thanks a lot for taking the question, and congrats on nice Opdivo sales. Yervoy's obviously declining. I was just wondering if you could, at least qualitatively, describe just kind of where you think that will bottom.

Obviously, it should begin to pick up once the combination – if and when the combination of Yervoy and NIVO become standard of care in melanoma. Maybe you could help us understand how long you think that will take to happen.

Is that going to require a lot of physician education, or is that adoption going to be quite rapid, and thus stabilize or grow Yervoy from here? And then, on hep C – maybe you said this on the call, but I'm sorry, John, if I missed this – but did you guys actually break out specifically, sales in the EU and Japan? Japan I'm the most – I'm interested in, if possible.

And then, when will you have the next data update on the Yervoy plus NIVO combo in lung? Thank you..

Yes, hi, Mark. It's Murdo here. Thanks for the question. Yeah, you're right in your observation. Yervoy is obviously seeing some pressure from the rapid uptake of the PD-1 entrants into the melanoma marketplace. And Yervoy monotherapy in front line has decreased.

We're obviously very happy about the recent approval of the regimen by the FDA, and we are fully promoting that regimen now. So in the U.S., I think we'll see some stabilization of Yervoy between now and the end of the year. It's obviously a very early launch, so we don't have historical trends.

We have seen some early uptake of the regimen already in the market, and in fact, about 10% to 15% of new patients are actually receiving the regimen. So that's a good signal that there's already good demand in the market. And we're hearing positive things from community oncologists about their interest in using the regimen as well.

I think, when we go outside of the U.S., it's going to obviously take a little longer, because it'll take time to secure reimbursement. So I would expect Yervoy to continue to be under some pressure ex-U.S. On hepatitis C, the Japan sales, I'll turn it over to Charlie. He can break that out for you..

Yeah, so in Japan, the sales were $175 million. And that's down from about $235 million, if I recall, in the second quarter. For Europe, the sales were roughly $75 million..

Good morning, Mark. So, let me say that the 227 study is recruiting. We've added now a chemotherapy arm to the nonexpressors, and there'll be different chemo combinations, depending on histology and the geography, either Opdivo plus pemetrexed in the platinum doublet, or Opdivo plus gemcitabine in the platinum doublet.

And in the study, Opdivo and chemo will be dosed concurrently. You'll see this amendment posted to ClinTrials.gov shortly, but of course we'll be updating you next year on the progress of the 012 combination studies as they become available..

Okay, Jonathan, can we go to the next question, please?.

Your next question comes from Seamus Fernandez with Leerink. Please go ahead..

Oh, thanks for the question. So just a couple of quick things. Can you guys update us, maybe a little bit, when we might see, first off, the updates in terms of other combinations that you're developing in I-O? I think previously, you had said that you would have data in-house from some of these other – the early combinations, early next year.

The second question is just on specifically, when might we see data coming from other parts of your pipeline and the non-I-O parts of your pipeline? Or when would you hope to reveal some of that? And then the final question:.

Just in terms of the recent NCCN guideline update, can you just lay out for us the importance of the NCCN guideline updates relative to the label, as well as reimbursements, and maybe just give us – can you give us a sense of how that might improve reimbursement rejections, if there are any, or if you see upside from that update? Thanks..

Good morning, Seamus. So let me confirm, we will be getting data from some of the exploratory programs in-house by the end of this year and early next year. And we'll be presenting that data, at least on some of those assets, in 2016.

As far as the rest of the non-I-O portfolio, we are looking to see some preliminary data in the second half of next year potentially. Does depend a little bit on the different programs, but we're hopeful to see some there. (19:29).

And, Seamus, this is Giovanni. Just on the I-O portfolio and specifically with respect to the early portfolio, to add on what Francis was saying, it's clearly – it is clear to us that we are in a leadership position in immuno-oncology.

It is also clear that we have a very strong belief in the potential of the combination of Opdivo and Yervoy, and we are doing the studies you're aware of in melanoma, lung cancer, renal cell, but it is also a very important priority for us to continue to advance the rest of our portfolio, look at new mechanisms of action, potentially new combinations.

It's a priority for us, and you will continue to see that as the new data emerges, because while we've made a lot of progress, we're clearly focused on continuing to innovate in this space..

Yeah, thanks, Seamus, for the question on NCCN guidelines.

This was a fairly significant update because it now affirms, with overall survival data for Opdivo, we've been able to establish a category 1 recommend in front-line metastatic melanoma and in second-line non-small cell lung cancer, both in squamous and now in non-squamous, regardless of PD-L1 status.

So for prescribers out there, it's a really clear update that they can use Opdivo without any requirement to having a test result for reimbursement. So we're feeling very good about that.

I think that that will help build confidence for prescribers and for patients alike, that reimbursement will indeed be appropriate for Opdivo in an all-comer patient population in lung. We also – just as a reminder, we continue to have Yervoy plus Opdivo as a category 2A recommendation in first and second line as the regimen in melanoma..

Jonathan, can we go to the next question, please?.

Your next question comes from Chris Schott with JPMorgan. Please go ahead..

Thanks for the question. Just I guess building off the second-line lung dynamics (21:46) out here, your competitor has talked about an expanded use of diagnostics (21:55) over time. I guess what role do you see for diagnostics? My second was on (21:59).

Where are we right now with share there, and do you believe you'll be able to get that type penetration (22:04) as quickly as you did in the squam market? And then a final quick one is on the expense (22:13) going forward.

Should we think about significant further step up in expenses going forward, or do these 3Q levels reflect the incremental investment that you're putting behind your growth franchises? Thanks very much..

Okay, Chris, you were breaking up a little, so I apologize if I don't catch all of your questions, but I think you had three things in there.

You were asking us about what do we think the diagnostic dynamic's is going to be in the market, what is happening with non-squamous uptake, and lastly what should we be thinking about expenses going forward, which I'll turn over to Charlie. I'll take a stab at the first two.

You know, it's really interesting, in second-line lung, the good news is physicians can use Opdivo in an all-comer patient population, according to our label across non-squamous and squamous. So really the testing for Opdivo is to better inform a physician-patient dialogue on what expectations should be around response to Opdivo.

But the good news is you don't have to wait for that test result before treating a patient, and you don't have to inform a patient that they might not be eligible for treatment. And, as I mentioned before to the previous question, the prescriber can feel confident that they'll be reimbursed for the product across a broad range of patients.

So we think that in second line having a broad all-comer label is definitely an advantage. Now, I do think testing will evolve over time, but I think the ideal time to test for PD-L1 expression is going to be when tissue is taken at time of diagnosis when other things like EGFR and ALK are ascertained.

So in second line oftentimes there's no tissue available, and it's very difficult to get test results. In front line, more likely, so I think that's where it'll evolve, and it'll take time to see how that changes in the market.

With respect to our performance in non-squamous, obviously it's a very recent event, so we have been promoting for just a few days now.

But previous to our approval, there was some uptake in non-squamous, and at this point in time, we're probably – and this is an estimate – we're probably in the range of about 30% to 35% of new patients receiving Opdivo in non-squamous second-line non-small cell lung cancer. I'll turn it over to Charlie..

Yeah, thanks, Chris. Yeah, we've been talking about, given our growth potential, particularly in Opdivo and Eliquis, that we need to make strategic investments to really leverage our position of strength. And with that you started to see some of the increase in expenses in the third quarter.

And you'll see additional increase in absolute terms as we get into the fourth quarter. There is some level of seasonality and timing of expenses, as we think about the fourth quarter, so I wouldn't view that as the run rate as we think about 2016.

And, of course, we look across the entire business as we think about where can we up-invest, but also where can we reallocate expenses. And, as you can appreciate, it's too early to be thinking about giving some sort of guidance for 2016..

And, Chris, this is Giovanni. From my perspective, when you look at the results of Q3, there's really strong trends in terms of revenues and top line growth for the key growth drivers. I think that speaks to the strength of commercial execution.

And it really validates the strategy to strategically invest in the business in order to accelerate the right trends going into 2016, as we start what we've called our new chapter of growth..

Thanks, Jonathan.

Can we go to the next question, please?.

Your next question comes from Tim Anderson with Bernstein. Please go ahead..

Just off-label use of Keytruda at the moment, not that you're promoting it that way, but we've seen data from one treatment center that said that almost 30% of use was actually in renal, which I'm sure can't be reflective of the national average.

But what percent is currently being used outside of those two indications?.

So we'll let Murdo comment on anything related to Opdivo. But we'll leave Keytruda to the other company, Tim.

Murdo?.

Yeah, Tim, so I think it's hard to fix a number in terms of physicians who prefer testing over those who are agnostic to testing.

I think what we're seeing is, in an academic institutional setting, where reference labs have had our antibody for some time now, there are definitely more tests – there's more testing in the institutional setting so that the physician can ascertain what the likelihood of a response will be.

I think in the community, it's much less frequent and that will obviously change, as I said, earlier but it's the minority of physicians who are aware and understand how to do the testing.

Given that we've been out promoting in the squamous histology for some time with no required testing, clearly they're a bit confused now as to why all the sudden there's a requirement to test from other PD-L1 inhibitors. And of course we're reinforcing that there's no requirement to test with Opdivo across non-squamous and squamous.

When it comes to off-label use, in terms of renal indication, we're not really tracking that right now in a large extent. We look at it, obviously; we look at all of our use. But most of our use to date can be explained by the melanoma indications and our lung indications.

We did – as I mentioned, we did see off-label non-squamous lung use prior to the approval recently..

And with respect to – this is Giovanni – with respect to your question regarding Europe, at this point, obviously, we are approved for melanoma and the squamous setting, and we have not seen indication of a restriction based on testing for PD-L1 expression levels.

But obviously there is no data that would support that restriction, given our currently approved indications in Europe..

Jonathan, can we go to the next question, please?.

Your next question is from the line of Jami Rubin from Goldman Sachs. Please go ahead..

Thank you. Question for you first, Charlie, on operating margin leverage. On the last earnings call, you obviously signaled increased levels of spending and sort of threw cold water on the operating margin leverage story. Now we're seeing those increased levels of spend, but also greater-than-expected revenues coming through.

So can you give us a little bit more color on when we can expect to see a greater magnitude of operating margin leverage? Are we going to start to see that in 2016, say, second half? Or do we have to wait until 2017 and beyond? If you can just give a little bit more color around that.

And, Francis, for you, what are the key pivotal trials that you expect to see next year in terms of either reaching information at your interim analysis or when the trials conclude? But what are the additional tumor types that you expect to see reading out next year? Thanks very much..

Hi, Jami, this is Charlie. I'll answer your cold-water question first. Operating leverage for us as we think about 2016 and beyond will start happening in probably the 2017 period. We haven't finalized our budgets and our plans.

But we expect – and we did say this on the last call – meaningful expansion as we get back towards the back half of this decade. So we'll continue to update you as we give guidance for 2016, and then we can think about it further. But we do expect significant expansion towards the latter part of this decade..

Coming out of 2016 and going into 2017, we do expect leverage to begin to appear and become very meaningful..

Good afternoon, Jami. It's Francis. So, as you recall, we presented encouraging data in new tumors at ASCO, such as hepatocellular carcinoma, small-cell lung cancer, and glioblastoma, and all of these could be firsts for BMS going forward.

So, in addition to the nine to 10 positive registration studies we've had in the last 12 months, as you know, we've got 25 ongoing planned registration trials. And before the end of 2016, we could potentially see registrational data for head and neck, for Hodgkin's lymphoma, for non-Hodgkin's lymphoma, or for bladder. Thank you..

Jonathan, can we go to the next question, please?.

Your next question comes from David Risinger with Morgan Stanley. Please go ahead..

Yeah, thanks very much. I have two questions. First, with respect to renal cell carcinoma, obviously the data was very impressive and you've filed it for approval.

But just wondering if you can provide a framework for NCCN guideline update potential and timing? And then, second, with respect to the EU, could you just walk us through key events to watch for Opdivo and lung cancer over the next year? What we should think about in terms of timing for an approval in non-squamous, non-small cell lung cancer, and the rollout in the EU of that indication?.

David, this is Giovanni. Let me just take your first question on renal and just confirm, as we said in our remarks, we are working with regulators to complete those findings in Europe and the U.S. by the end of the year. We don't have an update on NCCN.

And the only thing I can say is that, on both the regulatory front and NCCN guidelines, we've seen in the past that those updates are made rapidly when they're as compelling as you just mentioned. And I'll ask Francis to comment on lung in the European Union..

Yeah. Good afternoon, David. Just – I'm not going to go into detail about our regulatory interactions in Europe, but they have always been very good with the regulators there. And we would expect to see some action next year on non-small cell lung cancer approval. Thank you..

Jonathan, can we go to the next question, please?.

Your next question comes from Andrew Baum with Citi. Please go ahead. Andrew Baum with Citi, your line is open..

Okay, Jonathan, maybe we can go to the next one..

Your next question comes from Gregg Gilbert with Deutsche Bank. Please go ahead..

Yes, hi, good morning. A couple.

First on Eliquis, Charlie, any inventory changes or rebating changes that affected Eliquis sales in the quarter versus the second quarter level on net revenue? Secondly, on Opdivo, do you expect share to go up in monotherapy in melanoma, given that docs may want to add Yervoy later and want to start with the mono agent that has the combo data? And lastly, for Giovanni, you talked, when you took over the CEO seat, that you wanted to win in I-O, and certainly help diversify the company.

You made some comments about diversification earlier via the pipeline. I was curious if you're focused at all, maybe for Charlie too, on any efforts to diversify with commercial stage assets, or is it really a pipeline-driven phenomenon? Thanks..

Yeah, thanks, Gregg. This is Charlie. I'll handle your question on Eliquis. And I did mention this in my remarks, that in the U.S., TRx growth was up actually 18% sequentially versus Q2. What we saw, though, is relatively flat sales, and that's because of the impact of the Medicare coverage gap, or what's infamously known as the donut hole.

So that suppressed overall sales, but still strong prescription growth, and strong sequential growth..

Yeah, we had a little bit of inventory workdown on Eliquis in the quarter. It's about two-thirds of the change is about what Charlie mentioned, the coverage gap effect, and then one-third would have been inventory workdown.

When you think about Opdivo monotherapy, it's actually a really good question, Gregg, because what we are hearing from our customers is, the fact that we have two immune checkpoint inhibitors in our portfolio has obviously very real potential benefits for them, but even for patients, once a patient enrolls in our patient assistance program for either drug, they are no longer required to re-enroll for assistance with the mixed drug.

So, as you highlighted, a physician may decide to use Opdivo versus other PD-1 options in front line, because they know if they do progress, they don't have to fill out any additional paperwork or reapply for patient assistance when they get a patient on Yervoy. And it's a real convenience factor for physicians and patients.

And obviously, if they are going to use the two in combination, then they only need to familiarize themselves with one PD-1 inhibitor in that setting as well. So, thanks for that question..

And, Gregg, with respect to your question on the two imperatives, I'm optimistic, and I feel that we are continuing to make great progress on both fronts in terms of winning in immuno-oncology. Our leadership position in this field has strengthened coming out of the third quarter. And in terms of diversifying, that continues to be a priority for us.

And in terms of diversification, it's both within immuno-oncology, and that's really the discussion we had earlier about investing in new mechanisms of action and advancing the early immuno-oncology pipeline, and then obviously, outside of immuno-oncology.

You've heard about at least one of our business development deals in the quarter, and how the rest of the pipeline is moving forward. Our business development strategy is really agnostic with respect to pipeline versus marketed assets.

Obviously, there are fewer late-stage or marketed assets available, particularly given our focus on truly differentiated medicines. But we are looking at both, and obviously it is likely that we will continue to do more pipeline deals, just because of the nature of our business..

Jonathan, can we go to the next question, please?.

Your next question comes from Vamil Divan with Credit Suisse. Please go ahead..

Great, thanks so much for taking my questions. So just two. First one around the topic of price, where obviously there's been a lot of discussion in the media, just – my question really is you guys, obviously, as you mentioned, had the first approved combination now, and we know how you priced that one.

Just the feedback that you're receiving or of any pushback, just given how you've priced that relative to the monotherapies would be interesting to hear now that it's been a few weeks. And second one, one product that I think doesn't get discussed as much is elotuzumab, and you talked about the therapy (39:47) that's ongoing there.

Can you maybe just sort of frame the market opportunity there? I think people realize it's a big market, but also pretty crowded, and it hasn't shown much impact in terms of – as a monotherapy agent. So how do you see the commercial potential for that product? Thanks..

Vamil, thanks for the question. Let me start on pricing, and then Murdo will comment on elotuzumab market opportunity. So first, clearly there is a lot of discussion about pricing and pricing of specialty medicines specifically.

The way we think about it at BMS is that we are developing truly innovative medicines that offer significant value to patients. And we are also strengthening and continuing to strengthen globally the reach and the characteristics of our reimbursement support and access assistance programs.

With respect to the combo, specifically, the value that the combination of Opdivo and Yervoy offers for patients with melanoma is very significant. And payers are responding positively to the 60% response rate, to 17% complete response, to the durability of the response, and we have really not seen significant objections to date.

Remember that during the phase in which the two products are used together, the cost of therapy during that induction phase is only 6% higher than Opdivo monotherapy. And only the patients that continue on a monotherapy regimen with Opdivo after the combo period clearly continue to incur incremental costs.

But those patients are typically patients that would respond, and given the durability of response with Opdivo, the value is highest at that point. So I think that message is resonating really well..

(41:50) Thanks, Vamil. On elotuzumab, we really have an interesting opportunity with elotuzumab. Obviously, with our first indication in relapsed/refractory, when we receive it from the FDA, we have an opportunity in a smaller percentage of the market, but still a very significant opportunity. It's a large market.

We have also prepared commercially for launch in the near future, so we have, as you'll recall, transitioned our commercial activities on Erbitux back to Lilly, and now we have a dedicated hematology field organization to be able to focus on customers that prescribe implicitly, (42:35) which is a really nice fit for us with our Sprycel business.

So we're excited about it. I also like that we've got a very nice lifecycle plan with that product, and we're hopeful that we're successful in front-line data, which will come out later next year with our ongoing ELOQUENT-1 trial..

Thanks, Jonathan, could we go to the next question, please?.

Your next question comes from Alex Arfaei with BMO Capital Markets. Please go ahead..

Good morning, and thank you for taking the questions. Most of my questions have been answered. I have one on Sprycel, actually. It doesn't get as much attention. Obviously, a significant product for you. Our understanding is that it will face generic competition from Gleevec next year. So if you could comment on how we should think about the impact there.

Thank you..

Yeah, thanks, Alex. Glad you mentioned Sprysel. We're having very good success Sprycel worldwide, growing rapidly in front-line share. We've done a really nice job, I think, in the U.S. and ex-U.S., in becoming a much more front-line, first-choice product. With the advent of generic Gleevec, we're definitely going to see some pressure in the U.S.

and some markets ex-U.S. We're already seeing that in some locations like Canada, but I think given the strength of the share evolution in front line, we're going to be able to weather that quite well.

Obviously, we're also focused on the ability for the oncologist or hematologist to test patients for depth of molecular response within the first three months, which should allow us to be able to use very rapid second line penetration in that market. And I think that will be important to continue to have good Sprycel growth long term..

Jonathan, could we go to the next question, please?.

Your next question comes from John Boris with SunTrust. Please go ahead..

Thanks for taking the questions, and congratulations on the quarter. For Giovanni and Francis, you do mention that you want to dominate to a great degree through the new mechanisms of action in the I-O space.

Can you maybe help us understand when we might begin to see some additional data on the anti-LAG-3, anti-KIR, anti-CD137? And I think there was also commentary out in Denver about other mechanisms potentially going into the clinics, so just some commentary on the strategy there.

Secondly on Eliquis, new-to-brand share or percent of sales coming from cardiologists versus primary care? And then on ASH, anything you want to focus us on, relative to what we should be looking at, at ASH in your portfolio?.

Yeah. John, let me just start on leadership in immuno-oncology and Francis will elaborate further; then Murdo will talk about Eliquis. So, from my perspective, we clearly are the leaders in this field.

The field of immuno-oncology is moving probably faster than all of us had expected, in terms of the strength of the activity we are seeing in tumors and the number of tumors in which immuno-oncology is active.

And we are working in order to maintain and strengthen our leadership position by growing and expanding our development programs into new tumors, but also continuing to lead in terms of understanding the potential role of combinations in increasing response rates and improving the impact on survival.

And our goal, as we've stated before, has been to replace chemotherapy. We believe that combo I-O therapies are best positioned to do that.

We have the most advanced data set with Yervoy/Opdivo combinations and, obviously, we are not sort of resting on our current position, but we are continuing to advance new mechanisms of action into the clinic, because we want to continue to innovate.

And that's what we mean when we define maintaining and strengthening our leadership position in immuno-oncology..

Thanks, John, good afternoon. So let me give you a little more color here.

So as well as our major focus on checkpoint inhibitors such as Opdivo, Yervoy, anti-LAG-3, and urelumab, we're also interested in other potentially complementary approaches to reverse tumor-induced immunosuppression in the tumor microenvironment, but also directly stimulate the immune system.

So – but just to say – so generating optimal T cell responses may also require T cell receptor activation plus co-stimulation, as you know, which then can be provided through ligation of the TNF receptor family members, including anti-GITR, which has just gone into the clinic for us, OX40, which we expect to bring into the clinic next year.

And of course, urelumab, which is already under way. As far as the tumor microenvironment, we're actually very excited about the progress of IDO, that program we acquired from Flexus, and we're on track to have that lead molecule enter the clinic next year.

Additionally, as you recall, we have the TGF-beta program from Rigel, which is still preclinical, and then internally discovered anti-CD73 molecule, which we hope to be in the clinic before the end of next year, too.

And of course, with the recent announcement of the Five Prime licensing deal, we also have a CSF1R in phase run, (48:32) which is in combination with Opdivo, and we're very pleased with how that trial is progressing also. So, let me just sum up.

We have a number of exploratory clinical studies in addition to checkpoint inhibitors, as well as other complementary nonredundant approaches to PD-1 inhibition. We will be getting data at the end of this year and through next year, and depending on the data and the timing, we will be presenting some of that next year. Thanks..

And John, to your question on Eliquis, we've enjoyed a historically very strong performance in cardiology. We currently have around a 50% share of new-to-brand patients in atrial fibrillation and VTE treatment patient populations.

And then in primary care, we have about a 40% market share in those same two indications, so we are already the most prescribed, in new patients, novel oral anticoagulant in cardiology, and we intend to become the number one novel oral anticoagulant in primary care..

Yeah John, I think with ASH, you could expect to see some updated data on elotuzumab from the ELOQUENT-2 data. And I believe we're going to have some updates to the data presented last year at ASH for Opdivo in Hodgkin's and non-Hodgkin's lymphoma.

Can we go to the next question, please, Jonathan?.

Your next question comes from Steve Scala with Cowen. Please go ahead..

Thank you, I have three questions. First, CheckMate 017 and 057 both stopped early, whereas KEYNOTE-010 went to its completion.

Do you think this is likely attributed to a KEYNOTE-010 trial design that benefited from learnings from other studies? Or should we think more broadly than that? I'm sure you have thought about it, so I'd be interested in anything that crossed your mind on that topic. Secondly, Merck claims to have 70% share of melanoma with PD-1.

To what do you attribute this dominant share? Is it the first-mover advantage, is it the Q3 week versus the Q2 week dosing, or is it something else? And then lastly, I could be wrong, but I think the last cut of CheckMate 012 data presented was from about a year ago.

Maybe based on data that you have internally, I'd be curious if the NIVO-chemo combo arm continues to demonstrate an undifferentiated tail response? Thank you..

Good afternoon, Steve. So, let me say, we obviously know very little about the overall survival data for Keytruda, and we'll obviously look forward to seeing the full results when they're published. But let me tell you what we do know. We do know that Opdivo has a clear overall survival benefit, and a benefit in a broad population.

As a result, it's got the broadest label and, as you know, it's indicated for previously treated patients, both squamous and non-squamous, regardless of PD-L1 expression. And as Murdo said, there's no need therefore to test. Now, in both CheckMate 017 and CheckMate 057, Opdivo demonstrated PFS benefit versus docetaxel.

And, in CheckMate 017, the benefit was seen in both PD-L1 positive and negative patients. And in CheckMate 057, the benefit was statistically significant at all levels of PD-L1 expression, including greater than 1%, not just 50%. So I'm very clear in my own mind about the strength of the Opdivo data.

And obviously we'll be able to comment – you'll be able to see when you see the Keytruda data. I don't have an update on the chemotherapy data from 012 in combination with Opdivo. But what I would say is we are going forward with a number of approaches in addition to the I-O combination of Opdivo/Yervoy regimen.

So we've got the large, well-controlled study 227. We are looking at novel dosing with chemo in terms of priming and shorter-term disease control. We have collaborations with Novartis and Celgene looking at chemotherapy and targeted therapy.

And we've also initiated a multiarm study, which is CheckMate 370, which is looking at Opdivo primarily in the community setting, (53:28) chemotherapy with (53:30) first line treatment, either alone or in combination with standard-of-care chemotherapies in advanced non-small cell lung cancer.

So, based on all of this, we're confident in our approach to exploring a broad lung approach, but also exploring the role of chemotherapy combinations in first-line lung..

Yeah, and I think, Steve, you had a question regarding the 70% number that was put out during the Merck call this morning. I believe that was a 70% share of PD-1 monotherapy in melanoma. And I think if you look at overall share of melanoma, Opdivo to Keytruda, whether it's used in monotherapy or a regimen, we're roughly a 50/50 share.

I think we're 49%; they might be a little higher. So Opdivo has caught up quickly. I think with the regimen indication, that dynamic is still very much in play, and I think we'll see some increased usage of regimen in the market, which will further drive Opdivo share. I think the only other thing is to – whether or not this is a function of dose.

I think it's more a function of the early-mover advantage, as you described. We're seeing that, in the market, our promotion is going well. We have the largest share voice in melanoma, and with the advent of the regimen approval, we'll be promoting that fully and expect to continue to evolve in total I-O share of melanoma..

Thanks. Jonathan, I think we have time for just one more question..

And your final question comes from the line of Colin Bristow with Bank of America Merrill Lynch. Please go ahead..

Hey, guys, thanks for squeezing me in. So just a quick one to build on the business development comments. You've been doing a great job at continuing to build your I-O pipeline via BD.

Could you comment on your level of interest in cellular therapeutics, given this is one area you're currently not in? And then, just on your initial comments on diversifying, should we expect a shift from I-O focused deals to other therapeutic areas? And, if so, what would those therapeutic areas be? And then, just lastly on your HIV pipeline, could you just provide some color on your attachment and your maturation inhibitors and the potential you see there, given this is a disease you clearly have great experience in? Thanks..

Good afternoon, Colin. So let me start with BD. Clearly, we've always seen BD as very important to complement our internally discovered efforts, and as you've seen in the last quarter, we've expanded our portfolio both in I-O and in – outside of I-O.

And I would just comment, again, on the – I've talked about the CSF1R collaboration – sorry, the licensing – with Five Prime, but the fibrosis side is very important, too. And, just to give you a bit more color, we gained the worldwide rights to PRM-151, which is a recombinant form of a human pentraxin-2 protein.

Now, this is in Phase 2 development, as you heard, for the treatments of IPF and myelofibrosis. Now, what particularly struck us about the early data, which is continuing to develop in myelofibrosis, that it suggests that pentraxin-2 may be able to reverse the fibrotic process and improve the downstream events, not just stop the progression.

So pentraxin-2 clearly complements our growing early-stage fibrosis portfolio. And it becomes very exciting if the early data is confirmed and have the potential to be transformational in multiple fibrotic diseases. As far as HIV, we're continuing to bring forward two novel, potentially first-in-class compounds.

The attachment inhibitor has moved into Phase 3. As you saw recently, we've had some good Phase 2 data with the maturation inhibitor, the first in salvage therapy and, of course, the second a possibility for fixed-dose combinations. So we think there's considerable value in both those assets, even in a very mature area like HIV..

Let me just – Colin, let me just – before I close, make a couple of comments on business development. So first of all, both areas, immuno-oncology and other therapeutic areas, will continue to be important internally and in terms of business development.

And, as we've done when we have moved from our focus on checkpoint inhibitors into the tumor microenvironment, we will continue to look at how the science evolves in other areas within immuno-oncology.

And when we see technologies or programs that are interesting and relevant to our program, we will continue to focus on business development in immuno-oncology.

With respect to the other therapeutic areas, they remain the ones we've discussed before with immuno-science, cardiovascular medicines, fibrosis, and genetically defined diseases as areas where our science can be complemented by business development activities. And I don't expect that to change going forward..

So let me just close. Thank you all for participating in the call. And reiterate that, again, we had a very strong quarter. Our performance was strong from a commercial perspective. Our clinical and regulatory developments were very significant.

And we are optimistic as we're moving forward into our exciting new chapter of sustained growth in a position of strength. Thanks, everyone. Have a good day..

Thanks, everybody. As always, Randy, Bill, and I will be available for any follow-ups you have..

Ladies and gentlemen, this concludes today's conference call. You may now disconnect..