John E. Elicker - Bristol-Myers Squibb Co. Giovanni Caforio - Bristol-Myers Squibb Co. Charles A. Bancroft - Bristol-Myers Squibb Co. Murdo Gordon - Bristol-Myers Squibb Co. Thomas J. Lynch, Jr., M.D. - Bristol-Myers Squibb Co..

Jason M. Gerberry - Bank of America Merrill Lynch Christopher Schott - JPMorgan Securities LLC Jami Rubin - Goldman Sachs & Co. LLC Umer Raffat - Evercore ISI Andrew S. Baum - Citigroup Global Markets Ltd. John T. Boris - SunTrust Robinson Humphrey, Inc. Geoffrey Meacham - Barclays Capital, Inc. Timothy Minton Anderson - Sanford C. Bernstein & Co.

LLC Matthew Phipps - William Blair & Co. LLC Gregg Gilbert - Deutsche Bank Securities, Inc. Vamil K. Divan - Credit Suisse Securities (USA) LLC David R. Risinger - Morgan Stanley & Co. LLC Steve Scala - Cowen & Co. LLC.

Good day, and welcome to the Bristol-Myers Squibb 2018 first quarter results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. John Elicker, Senior Vice President, Public Affairs and Investor Relations. Please go ahead, sir..

Thank you, Lauren, and good morning, everybody. Thanks for joining the call to discuss our Q1 results. With me this morning are Giovanni Caforio, Chief Executive Officer; Charlie Bancroft, Chief Financial Officer; Murdo Gordon, Chief Commercial Officer; and Tom Lynch, our Chief Scientific Officer.

Giovanni and Charlie will have prepared remarks and obviously Tom and Murdo will be here for the Q&A. Before I turn it over to Giovanni, let me read the Safe Harbor language. During this call we'll 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. The forward-looking statements represent our estimates as of today and should not be relied upon as representing our estimates as of any future date.

We specifically disclaim any obligation to update forward-looking statements even if our estimates change. We'll also be focusing our comments on our non-GAAP financial measures, which are adjusted to exclude certain specified items. Reconciliations of these non-GAAP measures to the most comparable GAAP measures are available on our website.

Giovanni?.

Thank you, John, and good morning, everyone. Today we reported a strong first quarter, and I'm proud of the performance across the company. We delivered superior commercial execution in a competitive environment, made progress against significant growth opportunities in oncology, and continued to strengthen our diversified pipeline.

First, let me discuss AACR, which was an important meeting that highlighted the rapidly advancing science in I-O, which was very good news for patients. I am proud of our teams and the important role we played in advancing the science with a new biomarker. I believe that personalized medicine will become increasingly important.

And TMB has a role to play in helping to identify patients who can benefit from I-O-based treatments. We see an important opportunity to deliver a chemo sparing option in a defined set of patients and are encouraged by the deep and durable responses seen in study CheckMate-227.

At the same time, I acknowledge the competitive dynamics coming out of AACR, which I'm sure we will discuss later. I'm also proud of our commercial and scientific results this quarter. As I've said before, Eliquis and Opdivo are key franchises for the company and continue to deliver strong performance.

Eliquis is well established as the leading NOAC and is now on track to overtake warfarin this year. Real world data is further characterizing the benefits of Eliquis. And we saw good results with ARISTOPHANES, a large real world study presented at ACC in March.

Opdivo delivered strong performance, maintaining leading shares across approved indications in melanoma, RCC, lung, and head and neck. Additionally, we are pleased with the launch trajectory in adjuvant melanoma and see continued growth for this indication going forward.

As I mentioned earlier this year, RCC is one of the significant billion-dollar-plus growth opportunities for Opdivo. And we are excited with the recent approval of Opdivo plus Yervoy in first-line RCC in the U.S. Anticipating this approval, the teams have been preparing and are ready to support a strong launch, building on our success in second line.

In addition, we secured FDA and EU approval for the four-week dosing regimen to improve convenience for patients using Opdivo. And we've seen significant interest in both academic settings and community oncologists.

We also received two Priority Reviews for Opdivo, as a third-line therapy for small cell lung cancer and in combination with Yervoy as a second-line treatment for adults with certain forms of metastatic colorectal cancer. These are important opportunities to potentially broaden the indications for Opdivo.

We continue to source the best science in oncology, both internally and externally. And we were active in strategic business development in the quarter. In oncology, our collaboration with Nektar adds a third validated I-O pathway that has demonstrated a clinical benefit for patients. We look forward to new data at ASCO on this promising agent.

There were many scientific updates in the quarter. And I know you have questions about the recent developments with IDO. Based on the Incyte announcement as well as data from our own IDO program, we are rationalizing our overall IDO program, ensuring we prioritize resources across the portfolio. We can answer specific questions during our Q&A.

We also advanced our diversification strategy in the quarter, with good progress in our pipeline. First, our TYK2 inhibitor is advancing towards registrational studies, and we are planning to present data in psoriasis later this year. We also announced an important collaboration with Janssen in the area of thrombosis.

We look forward to working with Janssen to develop and commercializing new treatments from thrombotic disease based on our growing understanding of Factor XIa.

In closing, the company had a strong quarter, where we delivered excellent commercial performance, broadened our Opdivo business, and brought forward innovative science that positions us well for the future.

I am confident in our strategy and the many significant growth opportunities we have with Eliquis and Opdivo, where we look forward to important data readouts from Phase III studies in lung, liver, gastric, and head and neck cancers in the next 12 to 18 months.

I'm also excited with the progress we are seeing across the disease areas in our pipeline, with important medicines advancing in development to support our long-term sustainable growth. Thank you. Now I'll turn it over to Charlie..

Good morning, everyone. As Giovanni just described, we delivered very strong financial results during the quarter, driven by robust performance across our key brands. Our prioritized brands were up 21%, driven by strong performance for Opdivo and Eliquis. In the quarter, we also had a 4% benefit on revenues due to foreign exchange.

Starting with our I-O franchise. As Giovanni mentioned, our commercial organization continues to execute at a high level in intensely competitive markets. During the quarter, sales of Opdivo were $1.5 billion, with growth driven by strong demand.

Sales also benefited by approximately $40 million from stocking due to the launch of the 240 mg vial in the U.S. While we continue to drive leading share across our key indication, we've also broadened our indication set, with second-line lung share remaining roughly stable, approximately 60% of U.S. sales now come from non-lung indications.

We are seeing rapid uptake in new indications, such as adjuvant melanoma and strong enthusiasm for the launch of Opdivo and low dose Yervoy in first-line renal cell. Outside the U.S., execution remains strong in markets such as Germany, France, Italy, and Japan.

At this point, we've reached reimbursement coverage for major indications in almost all key markets. We are well positioned to expand our indication set internationally with new potentials approval for adjuvant melanoma and first-line RCC.

With respect to Yervoy, as we discussed on our Q4 earnings call, we have seen pressure from the rapid uptake of Opdivo in adjuvant melanoma. Exiting the quarter, trends have begun to stabilize.

And the outlook for the back half of the year remains positive, with continued leadership of the combination in first-line metastatic melanoma and the first-line RCC launch with low dose Yervoy. Now turning to Eliquis, which delivered exceptional performance, as it further expanded its leadership position in the U.S.

with over 52% share of total prescriptions in the NOAC market. Sequential sales in the U.S. were driven by a 10% increase in total scripts and from the positive effects of the lower Medicare coverage gap when compared to Q4 of last year.

Internationally, Eliquis sales grew 54%, as it continues to be the number one NOAC among cardiologists across a growing number of markets around the world. Eliquis has become the foundational product for stroke reduction in AFib and its best-in-class clinical profile supported by real-world data positions it for sustained growth and leadership.

Based on current script trends, we expect Eliquis to surpass warfarin later this year in TRx, an important milestone. With respect to other products, Sprycel script trends remain steady despite competition from generic imatinib. Sales, however, were negatively impacted during the quarter by lower inventory and lower average net selling prices.

Now I'd like to highlight a few items from our non-GAAP P&L. In the quarter, gross margin was down approximately 460 basis points compared to the same time last year, primarily as a result of mix and to a lesser extent, foreign exchange.

With regard to expenses, we continue to drive efficiencies in MS&A while prioritizing our resources behind high value opportunities.

As we've discussed, we expected other income and expense to increase this year with a step-up in the AZ royalty rate, restructuring of non-Amylin royalties, and the recognition of net pension benefits now recorded in other income.

In regard to our tax rate, there are a few items that are affecting our rate for the quarter and the expected range of 17% to 18% for the year. First, we have favorable jurisdictional earnings mix. And under the new tax code, we are seeing a lower than expected impact of U.S.

taxes on foreign income as well as improved utilization of the Puerto Rico excise tax credit. Looking at the remainder of 2018 and into 2019, depending on mix and details on how the tax code evolves, it is possible that we could see slight additional rate improvement. We continue to take a balanced approach to capital allocation.

Business development remains a top priority, as does our commitment to our dividend. We executed multiple strategic transactions that have the potential to advance our I-O and non-I-O portfolio of innovative agents.

This includes a global clinical and commercial collaboration with Nektar as well as the collaboration with Illumina to develop and commercialize companion diagnostics for our oncology immunotherapies.

Outside of I-O, we are excited to advance our Factor XIa program with J&J, which has the potential to bring this innovative agent to patients with thrombotic conditions. I'll now provide some comments on guidance.

Based on our strong performance, the tailwind on sales from FX, and revised outlook on our tax rate, we are adjusting our non-GAAP EPS guidance range to $3.35 to $3.45. As always, this range assumes current foreign exchange rates.

To close, we had a very strong quarter, marked by excellent commercial execution across our portfolio, and we continue to prioritize our resources in areas that deliver value. Our business is well positioned, and we continue to see a number of opportunities to drive growth going forward. Now, I'll turn it back to John to start the Q&A..

Thanks, Charlie and Giovanni. Lauren, I think we're ready to go to the Q&A..

Thank you. We'll take our first question from Jason Gerberry with Bank of America..

Hey, good morning and thanks for taking my question, just two for me. First, just on Eliquis, obviously a strong quarter. And what we see in the market is about 2 percentage points of share conversion from warfarin every calendar quarter. So I'm just curious how you guys think about that trend.

Do you think about it as relatively linear? Do you think there are any kind of gating factors that could slow that trend downward? And then just my second question, as we head into ASCO, what should we expect in terms of the data of Opdivo-plus-chemo combination that you'll be presenting there? My understanding is that it's going to be descriptive analysis, not data that could enable you to at least file for approval on your chemo combo.

But any clarity would be helpful. Thanks..

Right. So, Jason, it's Murdo here. I'll answer your first question on Eliquis. We do see a fairly linear relationship on Eliquis prescription growth. We did see a bit of an uptick in the first quarter, related primarily to new access contracts and a strengthening of our U.S. access position.

But if I look at our NOAC TRx shares, we're running at a 52% share. But our NBRx share is higher, running at around 59.7%. So that gives you a leading indicator that we'll continue to be able to grow our total prescription share in a relatively linear fashion..

And to comment on your question more specifically regarding warfarin, I would echo Murdo's comments as well. And when you look at the progression of the total NOAC market in terms of penetration of the opportunity, we continue to see growth there.

And there as well, the NBRx's for NOACs in total are significantly higher than the TRx's for NOACs in total, which points to the opportunity for the market to continue to grow..

And, Jason, thanks for your question about ASCO. As you know, this is an extremely busy time in oncology.

And just coming off of AACR, where we were very happy to present our data from CheckMate-227, which we think not only was statistically significant but very clinically meaningful with deep and durable responses across the PDL-1 spectrum in a chemo sparing regimen, something that we felt we presented well and established a potential important therapy in lung cancer.

What are we going to see at ASCO as the next step? I think to say a couple things, first, you're going to see some data on the Ib portion of the trial, which is the PD-L1 negative patients.

And that will be the first chance really to begin to look at the I-O/I-O combination of Opdivo/Yervoy versus our chemo combo of Opdivo and chemotherapy in that setting, although it will be in mostly PD-L1 negatives. But it will be the first chance for us to get a sense of how TMB might work in this patient population.

We look forward to seeing what that data looks like at the ASCO meeting. I think also you'll see at ASCO some very interesting patient report outcomes data from the TMB population. Again, very eager to see what those show and if they can confirm many of the benefits that we believe are present in an I-O/I-O regimen.

There will be an update of data from Nektar, from our Nektar collaboration. Look forward to that. Plus we have a very interesting neo-adjuvant paper in merkel cell and some more data in breast cancer. So we expect a very vigorous and interesting ASCO meeting..

The only thing I would add is out of the AACR we saw a very nice increase in interest in TMB as a biomarker, having looked at recent market research from a number of community oncologists in the U.S. as well as academic oncologists. And the awareness of TMB has more than doubled to about half of physicians surveyed being aware.

And then what's also exciting for us is they see real utility in the biomarker, with the vast majority of physicians interested in understanding TMB status of patients for treatment decision making.

So as Tom said, having more descriptive data coming out at ASCO in other subpopulations of patients and including comparison to PD-1 plus chemo, I think it's going to continue to drive that interest in TMB..

Jason, thanks for the question.

Lauren, can we go to the next one?.

Our next question comes from Chris Schott with JPMorgan..

Great, thanks very much. Can you just elaborate a little bit more about Opdivo in second-line lung and how you're thinking about dynamics going forward here in light of the KEYNOTE-189 results? I think a lot of the Street is just trying to get their hands around what type of impact you're expecting, how quickly that impact could play through.

And then maybe the second piece of that question was on the new indications. It's obviously a bigger piece of the business right now.

But where do we stand with regards to adjuvant melanoma in terms of share? And then when we think about the launch dynamics around first-line renal, just talk a little bit there about how quick of uptake we should think relative to some of the prior indications you're seeing, et cetera, just as we try to balance those two dynamics against each other.

Thank you..

Great, Chris. Just on second-line lung, we've seen very stable shares there, around 40% of second-line I-O-eligible patient population. Obviously, there is a bit of a contraction of that pool of patients, given the presence of PD-1 monotherapy and PD-1 plus chemo as a result of the KEYNOTE-021G approval.

I think most of the expansion of that I-O treatment in the first-line population will impact the eligible pool in 2019. So I would expect our shares in second line to remain stable for this year. As we go though beyond second-line lung, and we look at the indication performance across the rest of Opdivo, it's really very strong.

I look at the Opdivo uptake in adjuvant. We're running between 40% and 50% share right now. It's been very good feedback. And I would say the addition of our Q 4-week dosing to that indication, I think is a very compelling treatment option for adjuvant setting in melanoma. And it's getting very, very good feedback in the early days of this launch.

Moving beyond adjuvant in metastatic melanoma, we continue to have strong shares with the combination. And we're actually seeing some uptick in our BRAF mutant population, which has been a difficult part of the segment of the market to penetrate, but that's looking better. In the renal launch, it's really early days. We just got our approval.

And of course, there was no update to the NCCN Guidelines, so we really are starting from a low NPS, a low off label baseline. So I would expect fairly rapid evolution there. I would also say that we continue to do well in second-line renal at between a 50% and 60% share in that tumor type.

So renal will become a very important tumor for us, given that we have strong overall survival data with Opdivo plus a low dose of Yervoy.

And just a little bit of a read-through on that for our first-line lung program is that we will generate a much broader experience base in the community oncology realm with about 80% of renal cell carcinoma treaters being first-line lung cancer treaters. So this is a pretty important and pretty strategic approval for us, but nonetheless, very good.

And our shares are stable and strong across the other indications that we have..

Thanks, Chris.

Can we go to the question, Lauren?.

We'll take our next question from Jami Rubin with Goldman Sachs..

Thank you. Giovanni, I have sort of a bigger picture question. Obviously post-AACR, the market reacted in such a way that I think was different from I think what you expected as you described the data from CheckMate-227. And I think investors are questioning sort of the overall growth profile of the company.

Can you sort of level set expectations on whether or not Bristol is still a growth story? And then maybe even more broadly, since it's I think still a bit unclear as to where Opdivo is going to be positioned in front-line lung, if it is – I think you believe there will be a place in the market for front-line lung, and we believe that as well.

But if not, can Opdivo still be a franchise that grows, even if you're not a major participant in the front-line lung market? And I understand there are going to be some near term disruptions due to the second-line share declining next year.

But overall, when you think about new indications, new tumor types, is this a franchise that can grow? Because I know the market is sort of debating that right now. Many assuming no growth. And then just my last question relates to operating expenses. I think about a year ago, you had guided to flat operating expenses.

You gave guidance for 2018, but beyond 2018. And I'm wondering if that's changed at all. Does it make sense to increase R&D expenses? How are you thinking about that? Thanks very much..

Sure. Jami, thank you. So let me cover the areas you asked about at a high level. First of all, as I've said in my remark, I acknowledge competitive dynamics in first-line lung cancer coming out of AACR. But I want to be very clear, I continue to see BMS as a growth company. And I do see Opdivo as a growth franchise. And let me tell you why.

With respect to the company, I would point to three areas. The first one is very strong commercial execution and performance of our leading franchises today.

The second point is the opportunity for growth coming from the opportunity for Eliquis to continue to advance its leading position in the marketplace and a number of short term important catalysts with Opdivo.

We mentioned before the number of clinical trials that we have, Phase III clinical trials running, and with potential readouts in the next 12 to 18 months, including hepatocellular carcinoma, gastric cancer, including small cell lung cancer, and head and neck cancer. These are all important events.

And then as we look at the medium and the long term, I'm quite excited that we have three agents now in our innovative medicines business, our TYK2 agent, for which we'll show psoriasis data later this year moving into Phase III; the FGF21 continuing to progress; and then the decision to move the Factor XIa together with Janssen into Phase II.

So when I look at the short term, the medium term, the long term, there are a number of really important catalysts in the company. Nothing really has changed as far as the way we think about OpEx and the continued commitment to the management on OpEx. And at the same time, the investment in R&D.

Let me ask Charlie to give you some more perspective about that..

Yeah. Thanks, Jami. I mean, as Giovanni said, strategically we continue to be committed to refocusing our resources on our highest priority opportunities. And if you look at last year and even this year's guidance, there's been really good management of our operating expenses with MS&A down, R&D up.

And at the same time, we continue to pursue opportunities to drive longer-term growth opportunities in recent deals like Nektar and last year, the Halozyme deal and many other BD opportunities that we have pursued. So strategically, we're very aligned of how we think about our commitment to really focus on those things that drive value..

Yeah. And, Jami, just to your question about the I-O franchise overall. I see really good expansion this year into the new indications that we've received. I really do feel that there will be a role to play, given the data that we're showing in first-line lung cancer.

We're hearing back from customers that the perception of Yervoy plus Opdivo having deep and durable responses, being a chemo sparing regimen, and just the ability to potentially improve the impact of these medicines on patients' lives in terms of side effects associated with therapy, those things are coming through from the early read, post the AACR.

Clearly it's going to be a challenge given the strength and position that our competitors will have, because they're a little earlier than we are. But I think the commercial and medical organizations of Bristol-Myers Squibb around the world have shown their ability to compete effectively, remain patient focused, and drive strong performance.

And I'm very proud of what they've done so far, and I remain very optimistic of what they can do in the future..

Thanks, Jami, for the question.

Lauren, can we go to next one, please?.

Our next question comes from Umer Raffat with Evercore..

Hi. Thanks so much for taking my question. I wanted to focus really on CheckMate-227 today.

And my first one is, do you think the duration of therapy – why do you think the duration of therapy has been so much less in your first-line lung studies versus Merck's? And do you think the use of RECIST for second scan confirmation has – instead of irRECIST has led to some of the duration differences we've seen? And finally, when I look at CheckMate-227 broadly, it seems like Yervoy drove most of the benefit in TMB positive patients.

And I wonder, have you or can you look at the Yervoy chemo Phase III trials you guys previously conducted in squams [squamous] to see if TMB was an important predictor in those trials as well? Thank you..

Umer, thank you for your question. I want to start of by addressing that and also alluding a little bit to some of – the point that Jami talked about earlier. I just want to emphasize that from an R&D standpoint how excited we are about the CheckMate-227 data.

As Murdo mentioned, we are seeing deep and durable responses that are across the entire PD-L1 spectrum, regardless of PL-D1 expression, not dependent upon histology, and is chemotherapy sparing. I also want to comment on something else that Murdo said, which is the importance of chemotherapy sparing from a patient perspective.

And I've been asked a lot of questions about this actually over the past two weeks.

And when you think about how long, how hard we've tried to find ways of reducing chemotherapy side effects – fatigue, neuropathy, anemia, nephropathy, cognitive impairment, nausea, vomiting – all of these side effects are gone when you don't have a chemotherapy based regimen.

So I think it's important to remember that there are things about a chemo-free regimen I think are really important. So the second question – the second part of this is really thinking about some of your points on CheckMate-227. And one is the duration of therapy.

And I did have the chance, Umer, to take a look at your note that you posted a couple days ago. And I think what – in looking at this, I believe that the duration of therapy is actually very, very similar between the two trials.

The reason being is that in the KEYNOTE-189 trial, duration of therapy was expressed as a mean exposure, a mean time of therapy. Whereas in our study, it was looked at a median. As you know, there's a difference. Mean is impacted by the long term folks, as oppposed to median, which is the 50% mark when looking at duration of therapy.

And when we look at our data for mean duration of therapy, it's nearly identical, 7.3 versus 7.6 months, something like that, very nearly identical to the Merck data. So I don't believe that there's a difference in duration of therapy.

In fact, when you look at the outcomes in the non-squamous patients, our median PFS compares very nicely at 8.5 months versus 7.7 months. And our one year overall survival in non-squamous also compares very nicely with what was seen in EMPOWER and what was seen in KEYNOTE-189.

You do mention the question of the RECIST criteria and that Merck used the immune-related RECIST criteria. We used the RECIST criteria. I would look at that as something which I think is highly unlikely to explain big differences in outcome, although it could explain very small and subtle changes I think. There's really no way to know that.

We are looking carefully at whether that could be one explanation for how data turns out. But it's not something that I think is likely to turn out to be a major explanatory factor.

And then finally on the question of Yervoy driving benefit, I think one of the things we feel really good about on the CheckMate-227 data is we think we have shown clear contribution of components. That both Opdivo and Yervoy are making a big difference in this setting. And I think the two drugs together are what's doing this.

You alluded to the fact that Yervoy was driving in the TMB positive. And I think that we certainly showed that in our data, and we also showed that this is true is across the PD-L1 spectrum of patients, both PD-L1 negative patients as well as patients who are PD-1 positive. So, thanks..

Thanks, Umer, for the question.

Lauren, can we go to the next one, please?.

Our next question comes from Andrew Baum with Citi..

We can't hear you, Andrew..

Mr. Baum, your line is open. Please check your mute function..

Hello?.

There you go. Andrew? Lauren, maybe we can go to the next question and if Andrew could log back in, we'll go right to....

Hello? Got it?.

There you go, Andrew..

You got me?.

Yeah..

So sorry about that. This is to Tom. How excited do you remain about CheckMate-9LA, given the backdrop of KEYNOTE-189? And some explicit questions on CheckMate-9LA.

Should we assume that you're going to be looking similar to CheckMate-227, PFS and TMB high and OS in PD-L1 expressors? Would you be losing blood or liquid TMB? Would you be looking – allowing archival samples? And then separately, you mentioned that you're going to be prioritizing other assets aside from IDO.

I think you used the word rationalization.

Will there be a write-down associated with that, given the acquisition or licensing?.

So, Andrew, thanks for your question. And let's start talking a little bit about CheckMate-9LA. And one of the things I've said for the past year that I've been talking with you guys is that I really believe you're going to see the lung cancer market continued to segment, and we've seen that over the past year.

We saw the establishment of PD-L1 as being an important biomarker in people who were very high, PD-L1 high groups. We certainly know the EGFR, ALK/ROS story very nicely. And I think now you're seeing TMB also playing an important role in this setting in terms of being able to guide a precision approach to personalized medicine that makes a difference.

So as part of that, I do believe the chemo combo will play a role. I think the data we saw from KEYNOTE-189 makes me even more encouraged for what we're going to see in CheckMate-9LA. And there are reasons to believe that the chemo combo could have benefits.

The idea that patients who are early progressors, patients who have visceral crisis, that might be a circumstance where giving some chemotherapy first could help stabilize the patient to allow a vigorous immune response that we see.

So from my perspective, I think the idea in CheckMate-9LA of two cycles of chemotherapy, which could minimize chemotherapy side effects, help with early progression, and still allow a vigorous immune response with what we believe is the best combination, the I-O/I-O combination of Opdivo/Yervoy, I think is a very attractive option in that setting.

Now we're not going to comment on the physical plan of CheckMate-9LA at this point. As you know, we have committed to collecting TMB in this patient population, and we look forward to seeing how TMB plays out in this patient population. We have announced that overall survival will be an important endpoint in CheckMate-9LA.

But as you know, we do have optionality regarding and around that statistical plan as we move forward. I think in light of your question about blood or liquid biopsies for TMB – or compared to biopsies with TMB, I think it's very timely.

I was extremely excited this morning to see the approval of the foundation liquid biopsy – not the approval – the fact that it was given a Priority Review designation – Breakthrough designation of the liquid biopsy. I think that's a really great finding, particularly if you're committed to personalized medicine.

It means that we're going to have eventually even more ways of assessing the genomics of a patient's cancer. So I look at that as being very positive. We have a number of efforts to begin to correlate what we see in blood and liquid TMB versus what we see in biopsy specimens.

I think I would be less than frank if I told you that that process was complete. I think that's an ongoing process as we begin to correlate this. But I have every reason to believe, Andrew, that it's going to move in the same direction in this setting.

Regarding archival samples, which was your last question for me, I think you're going to see the same – the patients will have samples within three months of diagnosis, which is similar to our other studies and most other studies now that are being done across the board. Regarding the capital question, I'll turn it to Charlie..

I think, Andrew, your question regarding was the Flexus IDO. We treated that as an asset purchase at the time. So there is no – anything on our balance sheet regarding Flexus..

Thanks, Andrew.

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

Our next question comes from John Boris with SunTrust..

Thanks for taking the questions, first one just for you, Tom, just very general high level on regulatory processes. One thing that we see happening quite frequently is a trial stops materially earlier, or you end up getting a Priority Review on an indication that the Street isn't anticipating or expecting.

So what's actually going on between DSMBs and regulatory authorities and companies that are leading to trials stopping early, approved early? Just some general comments on that. Second question just has to do with the market segmentation for Opdivo/Yervoy, U.S., ex-U.S., for Murdo. And then third question just has to do with Sprycel.

We saw some Tasigna weakness from Novartis. We saw Sprycel weakness. Is this because of potentially Gleevec being very inexpensive, leading to higher discounts and rebates on Sprycel? Thanks..

So, John, thanks for your question. I'll start off with the regulatory questions at this point. Again, just to point out that we presented data at AACR.

And most importantly, published this data in The New England Journal of Medicine, which we think is very strong, deep and durable responses, chemo sparing across the PD-L1 spectrum, and identifying really a new biomarker that helps advance the role of precision medicine. As you know, John, we don't comment on our interactions with the FDA.

We will certainly announce any acceptance of filings that occur for any assets that are in our portfolio. I think the other point you raised about DSMBs and regulatory interactions and stopping early, as you know, John, these are all event-driven processes. And I know you folks are often surprised when data comes out.

I can tell you the companies and the investigators are also surprised when the data comes out because we don't always know when the events are going to necessarily trigger data that justifies early stopping. So we obviously have in all of our trials, across our spectrum of studies, have DSMBs that are involved and early stopping rules.

When they're triggered, we will certainly announce those to the market because we think that that's important.

Murdo?.

Thank you, John. Just to address market segmentation, first off, in the U.S. by tumor type, what we're seeing is about 40% of our business coming from lung, the rest coming across our different tumors. For Yervoy, it's much smaller. Obviously it's off-label usage, so the vast majority of Yervoy is on-label in melanoma at roughly 85% to 90%.

Our European business segments a little bit differently. It's higher in lung at around 47% – 48% in lung for Opdivo. RCC is about 16% – 17%, and then the other indications play out.

And that's mostly a function of timing for competition in addition to the fact that there was no European approval for chemotherapy plus PD-1, so really a very good balance in business and really nice growth across European markets. And the one market that's a little bit different is Japan, because of our Ono partnership.

But we also have a gastric approval there, which is going very well. And we're seeing nice uptake in that indication. From a Sprycel perspective, it's really just a market volume story. There are a lot of – there's a reduction in overall prescription going in the market. Our shares, though, are stable at roughly 24% of the market.

And we continue to see good demand growth. There's really no significant dynamic between Gleevec or generic imatinib versus the second line. And of course we continue to lead in the branded component of the CML [chronic myeloid leukemia] market..

Thanks, John.

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

Our next question comes from Geoff Meacham with Barclays..

Hey, guys. Thanks a lot for the question. Just have a couple. Post-AACR, what differences have you guys seen or would you expect to see in the receptivity to TMB testing? And I'm talking between KOLs versus the community setting.

And does this differ, you think, versus European positions? And then on the CheckMate-227 filing, is there a follow-up period when you look at OS or say duration of response that would change your confidence in approvability? I know with -021G, data did in fact improve over time on OS. But CheckMate-227, obviously bigger and more mature relatively.

Thank you..

Yeah, thank you, Geoff. Just to your first question, post-AACR, I have to say I'm pleased with what we're hearing back from both academic and community oncologists. I referenced earlier in the call some market research that we got back in house. We've seen unaided awareness of TMB go from roughly 20% pre-AACR to roughly 50% post-AACR.

And that's on TMB as an emerging biomarker for non-small cell lung cancer. So that's a really good signal. So there was a lot of noise out of AACR that helped raise awareness of the importance of TMB. We drilled into understanding whether or not physicians believe that TMB is equally or as important as PD-L1.

And over 50% of physicians agreed that that was the case. So we're in good shape I think on the data attracting the interest of both academic oncologists and community oncologists as a useful biomarker for front-line lung. I think when you go internationally, we're seeing similar interest, more so there with the thought leader community.

But that is where the majority of patients are treated when you go internationally. They tend to be treated in a hospital setting with the exception perhaps of Japan and Germany. And what we're also doing internationally is we're working very actively in partnerships with the biomarker companies to make TMB testing widely available.

And each market is a little bit different. We work with the academic centers, who are already developing tests for TMB. And we obviously work with different commercial partners to do that as well. So I'm optimistic that TMB is starting to become much more interesting to the treating community..

So, Geoff, regarding your second question on the CheckMate-227 filing. Again, as we just mentioned to John, I'm not going to comment on the actual regulatory status. However, the second part of that – second part of your question I think is really important. And I would say that that really is the magic question that you just asked.

Because really that's what we're waiting for is, we shared with you at AACR our overall survival data. Okay? Which again, looks very promising. It's early, but it looks very promising. Now, when you couple that with the duration of response data that we showed, we haven't even hit our median duration of response.

And I like the way that curve looks in terms of duration of response. Now the real question is, does that increased duration of response correlate into improvements in overall survival? I hope it does. We don't know. That's why we do trials. If you knew the answer of a trial, you wouldn't do it. And you wouldn't do the trial.

So I eagerly await to see that data. But seeing that fact that we haven't hit the median duration of response, and seeing that particularly if you look in the nonsquamous patients, the one year survival mark for CheckMate-227, KEYNOTE-189, EMPOWER, all is about 70%.

If an I-O/I-O combination truly has better duration of response, as we have seen in other tumor types, then that could be encouraging. But again until we actually see the overall survival data, it's really just conjecture at this point. But thanks for the question..

Thanks, Geoff.

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

Our next question comes from Tim Anderson with Bernstein..

Thank you. The focus of a lot of folks is usually the battle between chemo combo and CTLA-4 combo. But Roche is trying to introduce bevacizumab or Avastin into the mix. And obviously they have data from their front-line trial.

So my question to you is, what's Bristol's view on the role of bevacizumab as a potential combination agent in something like front-line lung? Is that something that you guys are considering exploring? Do you think there's a valid mechanistic role to consider there? And the second question is – and I think you may have kind of answered this already, but just to clarify.

The trajectory of Opdivo, can you say with confidence that really there will be no periods in which there's any year-on-year or quarter-on-quarter declines when you think about all the pushes and pulls? Whether that's on a quarterly basis or an annual basis in 2018 and beyond?.

So, Tim, I'll start with the question about bevacizumab and then turn it over to Murdo. I'd say a couple things. First, bevacizumab plays a role in a small, increasingly small number of patients with lung cancer. I was intrigued by the data, the post-TKI data. Maybe that would have a role, the post-TKI setting. And eager to see how that pans out.

But I think that for the majority of patients, I haven't yet – I don't think we have a data set that's enough to be conclusive about what the role of bevacizumab would be in contributing to outcome for a more broad patient population.

Murdo?.

Yeah, I would just say that the usage there is very low today. And without being able to describe a very specific patient population, it seems to be benefiting disproportionately. I'm not hearing a lot of enthusiasm from treating physicians on that regimen..

Tim, obviously, we're not going to – and we don't provide guidance on individual brands quarterly or on a yearly basis. This is a large franchise, which is continuing to diversify with strong performance across many of its segments. And what I've discussed before is a couple of things. First of all, we do see Opdivo as a growing franchise.

And second, I acknowledge the competitive dynamics in first-line lung cancer. At the same time, we are very focused on a significant number of growth catalysts we have, including a large program in first-line lung cancer and a number of other tumors with a lot of data reading out in the next 12 to 18 months..

Thanks, Tim.

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

Our next question comes from Matt Phipps with William Blair..

Great, thanks for taking my questions. First, in the CheckMate-227 trial, there was about 60% – just under 60% of patients you had enough sample for TMB. Obviously, that was kind of looking back and happen to find the samples.

But what do you think is a realistic number for the patients who you can successfully get enough sample for TMB analysis?.

So, Matt, thanks for your question. I would say – and again, as you point out, the 60% that were valuable reflected patients where we weren't collecting it for TMB in that setting. So I think that we were actually very happy that we were able to get 60% rate in that setting.

I think when you start collecting prospectively, I think what you're seeing is, I think that numbers close to 85% to 90% are not unreasonable to expect that. And just think about how biomarkers have evolved. I mean just think about estrogen receptor or progesterone receptor.

I know – I don't want to sound old school on you, but if you go back to the days when we started looking at ER and PR, there were times when we wouldn't have sufficient breast cancer tissue to be able to determine ER/PR status.

And so as we understood how crucial that became in treating women's breast cancer, we made darn sure that we had enough tissue to be able to look at ER/PR. So I think that you're going to see docs, when they know that TMB is going to be evaluated, obtain slightly largely core biopsies.

And I think that the success rate of the test, between 85% and 90%, is not – I think that's achievable. Take a little time to get there, but I think it's achievable..

Thanks, Matt, for the question.

Can we go to the next one, please, Lauren?.

Our next question comes from Gregg Gilbert with Deutsche Bank..

Thanks. A couple for Murdo and one for Tom. Murdo, could you size the front-line RCC opportunity? And are there any barriers to rapid uptake you should let us know about? More broadly on I-O pricing, or PD-1 and I-O pricing, Murdo, can you confirm that there are no pricing pressures or cost-containment themes playing out in the U.S.

market in this space yet? And also comment on pricing dynamics in Europe and in Japan, since it's quite different there? And lastly, Tom, more broadly, since taking over the CSO role, you've had a lot of I-O questions to answer and I'm sure there will be more.

But can you talk more broadly about strategic – or strategies or priorities that you've changed in order to diversify the pipeline, while maximizing oncology at the same time? Thanks..

Thank you, Gregg. In the U.S., the front-line RCC treated patient population estimate is about 15,000 patients. In Europe, top five, also about 15,000. And in Japan, about 5,000. Those numbers are roughly double the size of the second-line population, given the volume of patients that will progress into second line.

And just one thing to remember on RCC is progression is a little bit slower. It's a slower moving malignancy, so it will take more time for patients to progress out of front-line treatment into second line. So the impact on our second-line Opdivo business because of our own indication in front line, will take a while to evolve.

Then on pricing, I think it's fair to say there's always pricing pressure in all markets. But I think we've been very successful in securing good access, as was mentioned earlier by Charlie, across all major international markets. There have been price effects in Japan that are unique to Japan.

But I would say overall, we have done a very strong job, and the teams in each of these markets, to establish the value of Opdivo and the value of Opdivo plus Yervoy. We received one of the fastest NICE approvals ever for our O plus Y [Opdivo plus Yervoy] indication in metastatic melanoma from the UK.

The other thing I would say is we've incorporated patient reported outcomes into our clinical trials. And you see that in our first-line RCC data set. I think that will help us significantly across Europe. And of course we would plan to do that in other trials going forward.

And last but not least, as you look at the evolution of our pipeline, clearly we're going to be working with payers around the world to find good solutions, good value based contracts that allow us to treat patients at an affordable level going forward..

And so, Gregg, just to get to your question about my perspective on the first year as CSO and how we work to diversify. When I came in last year, exactly a year ago on this call, I told you guys that we were going to focus on three areas.

I said we're going to focus on following the biology of cancer, we're going to focus on investing in translational medicine, and I told you we're going to deepen our data and analytics approach. And I think we've done all three of those things this year. And let's just focus on two of the areas.

The first is on what we've done in translational medicine. We brought in Saurabh Saha to lead our TM Group. And look what we've accomplished just in this first year.

The fact that we identified TMB as an important biomarker, and we're able to have the optionality and flexibility to be able to look at that in a large randomized trial and establish yet another biomarker in lung cancer, a very important accomplishment.

Second, the TM Group is working hard at looking at potential markers in immunoscience and inflammatory disease, in systemic lupus, and in nonalcoholic steatohepatitis. So the impact that TM has had on the company has been extraordinary in the first year. Second point, there's diversifying within I-O that I think is important.

I think there are lots of ways of diversification. One is diversifying within I-O. So what do I mean by that? Well, two important BD opportunities. The first was the acquisition of IFM and obtaining the NLRP3 molecule and the STING molecule, very exciting to see those move into clinical development.

And that resulted from the fact that our discovery team, led by Carl Decicco, looked at the innate immune system and figured that's an area we need to be in. And we again follow the biology to be able to deepen our portfolio as we move forward. Next is Nektar.

There are three validated I-O mechanisms that have been shown to improve survival in cancer, PD-1, CTLA-4, IL-2. Bristol-Myers now has all three of these in clinical development. And we could not be more proud of our relationship with Nektar and very eager to see what that data continues to evolve. But then there's also diversification outside of I-O.

And I think there are some great examples that Giovanni mentioned in his talk. And we've advanced this area in the past year, first, TYK2. TYK2 is a compound that has a very broad range of targets, multiple targets within the immune system.

And we've seen some very exciting data in rheumatology, in psoriasis that we look forward to seeing presented at an upcoming derm meeting. RORgamma t has been advanced as well as FGF21. And then you saw our relationship that was disclosed with Janssen.

I'm very excited about Factor XIa, a compound which could be even more effective than the Eliquis compound and other drugs that we have right now. Again, these drugs take a little bit longer time to develop. But again, I think it shows that we're positioned for continued drug development success in the years to come..

Thanks, Gregg.

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

We'll take our next question from Vamil Divan with Credit Suisse..

Hi, thanks for taking my questions. Just a couple things I want to get clarification on, non-CheckMate-227 related. So one, on the four-week dosing approvals in the U.S. and EU, it looks like it was a difference there, where the European Commission only approved F4, melanoma and renal, whereas the U.S. approval is much broader.

Maybe if you can, just talk about the differences between those two approvals. And then on the small-cell lung cancer side, it gets overlooked sometimes with all the focus on non-small-cell, but you mentioned the filing for Opdivo monotherapy was recently accepted.

But the press release didn't comment on the combination Opdivo/Yervoy, even though that was also in the CheckMate-032 study. So can you maybe just comment on where things stand on getting the combination potentially approved? Do we have to wait for the CheckMate-451 data, or is there something else that we're waiting for there? Thanks..

So thanks for your question. I'll approach the two questions. The first regarding the 4-week dosing, we're very happy about this because we think it gives doctors tremendous flexibility and patients flexibility as we move forward. And I think what you're seeing is we're very happy that in the U.S. that it's very broad.

And the fact that renal and melanoma were accomplished in Europe, we think is a real good start in that process. And we look forward to developing additional data as time moves forward. Regarding small-cell, you did notice that our filing was accepted for monotherapy.

We also have data coming out this year in earlier stages of small-cell, late this year, early next year, that we look forward to seeing, one in the maintenance setting and one in extensive stage disease up front. So we look forward to seeing that data evolve and our own small-cell also evolve.

And again, we continue to develop combination data in small-cell. It's just a little bit behind the non-small-cell in terms of the evolution of that data. But again, no lack of confidence that this could be an important pathway in small-cell as well..

And, Vamil, I would only add that there's very good interest in Europe as we've seen in the U.S. in having a 4-week dosing available. The two steps you have to take is you have to establish your flat dosing regimen, and then you establish the 4-week dosing. So that's why it's a little more staggered in Europe on some of those other indications.

But we anticipate being able to secure 4-week across the portfolio. So we're looking forward to that as a competitive advantage in the market..

Thanks. Lauren, I think we have time for two more questions..

Our next question comes from David Risinger with Morgan Stanley..

Thanks very much. So I have a few questions.

First, could you comment on whether CheckMate-227 can potentially yield statistically significant OS data in TMB high, or is that not possible to show any statistical significance, since in the hierarchal analysis, the first cut on PFS failed to show Opdivo monotherapy superiority? Second, with respect to chemo combo for Opdivo, so looking ahead.

Could you just provide some color on when we will see all comers' data for the chemo combo? Will that not be until the CheckMate-9LA disclosure next year? And then third, just a financial question, please.

With respect to the $371 million alliance partner revenue in the first quarter, what was the Keytruda component of that? And how should we think about the sequential step up from $371 million into the second quarter of this year? Thanks very much..

Tom?.

So, David, thank you for your questions. The first question regarding CheckMate-227 and survival, I think you're absolutely correct in what you just mentioned, which is that this will be a descriptive endpoint. And that's because of where it sat in the hierarchy of fiscal analysis. So you are completely right.

This will yield a descriptive analysis of overall survival, even the TMB high population. And again, we look forward to seeing that data mature with time as we move forward. Second question is regarding when you can expect to see data on the chemo combo.

As I mentioned earlier, this is an area that we think will still play a role, an important role, as lung cancer continues to segment. As you remember, Part 2 of our study of CheckMate-227 has a chemo combo arm across a broad spectrum of patients.

We expect that data to be out – you know it's very difficult to know – probably in early 2019 at the best way to look at that. But again, it depends upon how that data matures. And then CheckMate-9LA will be probably a little bit after that. Now, you will see some data on the chemo combo at ASCO this year, but that will be in the PD-L1 negatives.

I think your question really focused more on the broader patient population. And unfortunately, that really is 2019 before we're going to have that information.

Charlie?.

Yeah, David, on our Keytruda royalties, we book those actually in other income and expense. And for the quarter, we booked approximately $70 million related to Keytruda royalties, which compares about $30 million in Q1 of last year..

David, thanks for the question. Can we go to our last question, please, Lauren..

Our final question comes from Steve Scala with Cowen..

Thank you. I have two questions. First, for Giovanni, I understand you're not giving future guidance. But in prior periods of uncertainty, specifically 2013, the company gave thoughts on minimum earnings in a future year.

In that regard, can you speak to earnings in 2019? Do you see earnings growing in 2019? Or is it simply too early to say? And then a question for Charlie. Something important regarding U.S. tax reform seems to have either been clarified or learned in the last three months, leading to the downtick in the tax rate, in part.

I realize there was other factors as well. But can you elaborate on the tax reform aspect of the downtick in earnings – in tax rate? Thank you..

Steve, just very briefly on guidance. At this point, we are not providing guidance on 2019. It's clearly too early. And we are very focused on execution this year, as you've seen very good results and very good trends in the business. But premature to discuss guidance for 2019..

Yeah. So, Steve, on the U.S. tax reform. As you know, tax reform, which was approved at the very end of 2017 with no real simplification, it was actually on top of the current tax legislation. So there was a lot to work through to understand all of the implications.

As we mentioned on the fourth quarter earnings call that we did see a benefit in our rate going forward. As we dug into the legislation, we found some of those opportunities as we have applied it to our particular business and were able to accelerate some of that.

So as far as the benefit related to what we originally guided, I would say about three-quarters is related to tax reform implementation versus just jurisdictional earnings mix..

Thanks, everyone. So in closing, let me just reaffirm, this was an important quarter with strong performance across the company. We continue to make progress against our strategy with a focus on transformational medicine.

And as I've had an opportunity to discuss with all of you during the call, I am confident in the significant growth opportunities we have as a company for the future. Thanks very much for your questions..

Okay. That wraps up the call, Lauren. And everyone, thank you. If you have any follow-ups, we'll be available..

And once again, that does conclude today's conference. We thank you for your participation..