Bristol-Myers Squibb Company (NYSE:BMY) Q4 2023 Earnings Call Transcript

Bristol-Myers Squibb Company (NYSE:BMY) Q4 2023 Earnings Call Transcript February 2, 2024

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Operator: Welcome to the Bristol-Myers Squibb Fourth Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Tim Power, Vice President and Head of Investor Relations. Please go ahead.

Tim Power: Thank you, and good morning, everyone. Thanks for joining us this morning for our fourth quarter 2023 earnings call. Joining me this morning with prepared remarks are Chris Boerner, our Chief Executive Officer; and David Elkins, our Chief Financial Officer. Also participating in today’s call are Adam Lenkowsky, our Chief Commercialization Officer; and Samit Hirawat, our Chief Medical Officer and Head of Global Drug Development. As you’ll note, we’ve posted slides to bms.com that you can use to follow along with for Chris and David’s remarks. Before we get started, I’ll read our forward-looking statement. 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. These 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 focus our comments on our non-GAAP financial measures, which are adjusted to exclude certain specified items. Reconciliations of certain non-GAAP financial measures to the most comparable GAAP measures are available at bms.com. And with that, I’ll hand it over to Chris.

Chris Boerner: Thanks, Tim, and good morning to all of you. I’m very pleased to be speaking to you on our earnings call for the first-time as a CEO, and I’m excited about the opportunity for our company to continue to deliver transformational medicines for patients. Please turn to Slide 4. Q4 2023 was a good quarter, including strong sales momentum in our inline and new product portfolio with 9% growth and nearly $10 billion in revenue with growth across multiple key brands, including Eliquis, Opdivo, Reblozyl, Opdualag, Breyanzi, Camzyos and Sotyktu. We also continued to generate significant cash flows from operations of $4.3 billion in the quarter. And as you’ll hear from David in a few minutes, we expect to grow our business this year.

During the fourth quarter, we also achieved important pipeline milestones and several key business development transactions to strengthen our growth profile. This is an important time for BMS. I know that many of you are focused on our strategy to navigate the decade and on the importance of disciplined execution at the company. We are writing the next chapter for BMS and with that comes an opportunity for change. So let me take a few minutes to tell you about our strategy to navigate our LOEs and be very clear about my focus on execution. Let’s go to Slide 5 and how we see the company today. When we look at our business, it’s comprised of two portfolios. First, we see a legacy portfolio of well-established products facing headwinds such as IRA.

Though this portfolio is declining, it is expected to continue to generate strong cash flows to enable investment in our future growth drivers. Second, we see an expanding portfolio of growth products, many of which are relatively newer to the market and have significant expansion potential. When you look at these portfolios combined with our exciting pipeline, you can see how it all comes together as depicted on Slide 6. As we think about this decade, we see three distinct periods; a near-term growth period, a transition period, and potential for sustainable top-tier growth, which we plan to drive in the back end of the decade. Between now and the middle of the decade, our focus will be on maximizing the opportunity we have with our growth portfolio.

This, along with pipeline execution, can best position the company into the transition period. Then, starting around 2026, our exposure is most acute and our focus will be on shortening the transition period as much as possible by accelerating our R&D programs, executing on product approvals and launches while maintaining P&L discipline. Finally, in the latter part of the decade, around 2028 and beyond, we plan to deliver sustainable top tier growth, and we have the portfolio, pipeline and financial flexibility to support this opportunity. Many of you recognize the first two periods. However, the late decade return to growth phase is less appreciated externally, including a number of important products that are not fully appreciated in consensus models today.

What supports our confidence is our expanding pipeline, recent deals, and newly launched products. Our strategy is to minimize the transition period coming in a few years while maximizing our growth in the back part of the decade. Turning to Slide 7. My confidence in our strategy is supported by the fact that compared with other companies that successfully navigated similar periods, we have some clear strengths, and expanding growth portfolio across multiple therapeutic areas, an exciting pipeline, differentiated platforms and continued financial strength to further invest for growth with business development. And the momentum from our most recent quarter to capitalize on these strengths is clear from Slide 8. In October, we told you we would strengthen commercial performance and during Q4, we have been making progress.

We have increased investment behind key growth brands such as Camzyos and Sotyktu. We are re-accelerating growth for Reblozyl by capitalizing on the launch of the commands indication in first-line MDS. Our efforts to further establish Opdualag as the standard of care in first-line melanoma are driving further growth. And we have made progress expanding capacity for cell therapies, particularly setting up Breyanzi for significant expansion this year. In R&D, we delivered important milestones, including recharging our early-stage pipeline with 10 INDs as we told you we would do at our R&D Day, delivering the approval of Augtyro in first-line ROS-positive lung cancer, and advancing our key platforms, including initiating our CD19 NEX T study in multiple sclerosis for our cell therapy program, and showing early, but important Phase 1 data for the AR LDD prostate asset from our targeted protein degradation platform.

Importantly, we have been active in business development. Specifically, we further diversified our Oncology portfolio with targeted oncology assets such as Krazati and PRMT5 from the recently completed Mirati acquisition. The planned addition of a differentiated bispecific ADC from SystImmune with exciting Phase 1 data across tumors, including lung and breast cancers, and the planned acquisition of RayzeBio, bringing important radiopharmaceutical assets, pipeline and manufacturing capabilities. And we announced the planned acquisition of Karuna Therapeutics, bringing KarXT, which we believe will be a transformational medicine for patients with schizophrenia, Alzheimer’s psychosis and potentially other indications with multi-billion dollar sales potential.

We are looking forward to launching this medicine after closing the transaction later this year. These deals add important growth substrate to our company and diversify our portfolio for the long term. Let’s turn to Slide 9. Execution for me is a top priority. Starting with Commercial. The focus is on continuing to accelerate performance for key growth drivers. This means ensuring the right resourcing and investment levels across our most important brands. And it means having the best people and driving accountability for delivering results. In R&D, building on the momentum I described coming out of last quarter, as we highlighted at our R&D Day, we have a strong pipeline with the potential to deliver over 16 enemies through the late 2020s.

And here, we need to accelerate and deliver top-tier productivity. We are also taking a hard look at our pipeline to prioritize investments for projects with higher return opportunities and discontinuing lower priority programs and our OpEx base. As we told you, we are going to absorb the OpEx from Karuna. This means we need to make room for these assets by focusing our OpEx base to increase efficiency and productivity. We have begun executing across all three fronts and look forward to updating you on our progress in future quarters. We plan to grow our business this year as shown on Slide 10. David will provide much more detail on our guidance in a few minutes. But what’s important from my perspective is that getting our long-term plan to work requires us to deliver well in the short term.

A few weeks ago, I reaffirmed our long-term targets as of that date. At that time, I also said, we were going back to our historical practice of providing mainly annual guidance with total company rather than product-level revenue targets. Therefore, we will not be updating those long-term targets moving forward. With that in mind, you can see that our growth portfolio is strengthening and our guidance reflects expected top-line growth this year. Before I hand the call over to David, I would like to thank my BMS colleagues for their efforts at serving patients during 2023, and for their enthusiasm for embarking on our next chapter as a company. David?

David Elkins: Thank you, Chris, and thank you all again for joining our call today. As Chris mentioned, this is an important time for BMS, as we embark on our next chapter, transforming our portfolio. Our performance in 2023 reflect a continued strong growth of our inline and new product portfolio and the ongoing erosion of Revlimid. Let’s get started with our top-line performance on Slide 12. Unless otherwise stated, all comparisons are made versus the same period in 2022 and sales performance growth rates will be discussed on an underlying basis, which excludes the impact of foreign exchange. We delivered sales of approximately $45 billion in 2023, which reflected 8% growth from our inline and new product portfolio, offset by unfavorable impact of generic entries.

During the year, we saw continued strong demand for our key inline products such as Eliquis and Opdivo, while newer products gained traction in the respective markets. If you turn to Slide 13, you see our 2023 sales split between legacy and growth portfolio that Chris spoke about earlier. This is how we will report our business as we move forward. What I can tell you is the transition of the business is already well underway from our legacy to our growth portfolio. For 2023, our growth portfolio delivered approximately 15% growth. This supports our strategy that Chris discussed earlier. We see our legacy portfolio providing a solid foundation for cash flow generation in near term, while the products within our growth portfolio grow in significance.

Let me dive deeper into our fourth quarter and full-year sales performance starting with our Oncology portfolio on Slide 14. We are pleased with the robust demand for Opdivo, which achieved strong global sales growth for the year. In the fourth quarter, U.S. sales grew 12%, primarily driven by increased volume and core indications, including first-line lung, upper GI and adjuvant bladder cancer, partially offset by optilized growth in first-line melanoma. During the quarter, U.S. and international markets each benefited from approximately $50 million of favorable stocking. Internationally, sales grew 4%, led by increased demand for lung and gastric cancer indications and from expanded reimbursement. Turning to Opdualag, which more than doubled its full year sales in 2023 and is now a standard of care treatment first-line melanoma.

In the fourth quarter, U.S. sales grew 80% versus the prior year, and 15% sequentially, benefiting from its strong market share position. With respect sales of Augtyro in the fourth quarter, we launched in late November and upon U.S. approval and Q4 sales reflect the initial wholesaler stocking. During 2024, we look forward to bringing this important medicine to more patients. Let’s turn to our Cardiovascular on Slide 15. Eliquis generated over $12 billion in sales in 2023 and continues to be the number one oral anticoagulant globally. In fourth quarter, sales grew primarily driven by demand in the U.S., as we continue to gain market share from competitors. Internationally sales in Q4 were broadly flat, driven by generic entry in several European markets.

Sales of Camzyos in the fourth quarter and full year were strong, including $88 million in Q4. As of December 31, we had roughly 4,500 patients on commercial drug. And on average, we have been adding roughly 1,000 patients to commercial drug per quarter. The momentum in the U.S. for Camzyos is expected to continue in 2024, and internationally we expect modest near-term sales contribution based on timing of reimbursement in newly launched markets. Turning to our Hematology portfolio performance on Slide 16, starting with Revlimid. Global sales for the full year were approximately $6 billion. Looking forward, we anticipate continued variability in Revlimid sales quarter-to-quarter based upon historic patterns and specialty pharmacy dispensing.

We anticipate an additional volume of U.S. generics to enter the market in March. We continue to forecast a step-down in Revlimid revenues in the range of $1.5 billion to $2 billion this year. Now moving to Reblozyl. Global sales grew 40% in 2023, surpassing $1 billion on an annualized basis for the first time. For the quarter, Reblozyl generated 60% sales growth, driven by strong demand and supported by a broad U.S. first-line label. Sales grew 75% in the U.S. in Q4. Internationally, Reblozyl continues to be launched in different markets across the globe, including recently in Japan. Turning to our cell therapy portfolio. Starting with sales of Abecma in the U.S., we continue to experience competitive impacts, while ex-U.S. demand remained strong in the quarter.

We remain focused on demonstrating the benefits of the product profile to our customers in anticipation of expanded use in the U.S. upon the potential approval of KarMMa-3 data in third-line plus setting. Abecma was recently approved in Japan in the third-line setting based on KarMMa-3 data. And last week, we received positive CHMP opinion. Moving to Breyanzi. Global sales doubled year-over-year, reflecting the strength of its clinical profile and an improved manufacturing capacity. We are pleased to have received FDA priority review for all three of our expanded indications for Breyanzi, and look forward to the PDUFA date in March for Chronic Lymphocytic Leukemia and additional PDUFA dates in May for Follicular and Mantle Cell Lymphoma indications.

Looking to this year, we expect to see strong sales growth starting in the second quarter, driven by improved supply capacity and the potential for these new additional indications. Moving to Immunology on Slide 17. Global sales of Zeposia in 2023 grew 72% to $434 million, driven by increased demand in multiple sclerosis and ulcerative colitis. We remain focused on driving growth across both indications. For 2024, keep in mind the typical impact of U.S. Zeposia sales in the first quarter due to copay assistance for commercially insured patients whose benefits reset. With Sotyktu, our goal continues to be driving demand and broadening access. We made good progress on both fronts in the fourth quarter. Fourth quarter sales in the U.S. also benefited from a clinical supply purchase of $17 million.

When you strip out the one-time purchases in Q4 and Q3, we showed strong underlying sequential sales growth of approximately 40%, reflecting good pull-through from CVS and increased demand. Going forward, the way to look at our progress in the U.S. is through commercially paid prescriptions. As we build volume and improve access, we will be subject to higher rebates, which is something to keep in mind as you model Sotyktu for 2024. Of course, Adam can talk more about this in the Q&A portion of our call today. Internationally, we expect Sotyktu to gain additional country regulatory and reimbursement approvals over time. Switching gears to our fourth quarter P&L on Slide 18. Having just covered sales performance, let me walk through a few non-GAAP key line items.

Gross margin as a percentage of sales decreased approximately 150 basis points to 76.4% compared to prior year due to product mix and lower hedge settlement gains. Excluding acquired in-process R&D, fourth quarter and full year operating expenses decreased primarily due to timing of expenses in 2022. The fourth quarter decline was partially offset by increased investments in Camzyos, Sotyktu and the timing of pipeline investments. Acquired in-process R&D in the quarter was $600 million, which was partially offset by licensing income, resulting in an unfavorable net impact of $0.20 of EPS. The fourth quarter effective tax rate was approximately 14.9%, driven primarily by earnings mix. Overall, earnings per share was $1.70 in the quarter and $7.51 for the full year.

Now moving to the balance sheet and capital allocation on Slide 19. Our financial position remains strong, with approximately $12.6 billion in cash and marketable securities on hand as of December 31, as we generate cash flow from operations of $4.3 billion in the fourth quarter. Through our strong financial discipline, we have been able to invest in our business and further expand our portfolio, maintain strong operating margins, pay down debt and return significant cash to shareholders through share repurchases and dividends. Over the past three years, we’ve returned over $30 billion in shareholder distributions, including the dividend, which we have increased annually for 15 years in a row. As you know, we’re going to be taking on additional debt this year to finance our planned acquisitions of Karuna and RayzeBio.

However, with our strong financial position, we plan to utilize our cash flow to pay down our debt as we’ve demonstrated in the past. Our plan is to repay approximately $10 billion of debt over the next two years to improve our leverage profile. Before turning to our line item guidance, let me close with our 2024 non-GAAP guidance on Slide 20, which includes Mirati, but excludes the future impact of pending transactions, SystImmune, Karuna and RayzeBio. As we did in 2023, we were providing revenue guidance on a reported basis, as well as on an underlying basis, which assumes currency remains consistent with prior year. We expect 2024 revenues to increase in a low-single digit range, reflecting our confidence in the growing momentum of our growth portfolio.

Excluding foreign exchange, we expect revenues to increase in the low-single digit as well. Driving our momentum this year will be increasing the sales in our growth portfolio from products like Opdivo and our recently launched products. As we said previously, we expect a more modest pace of growth than last year for Opdivo, with the potential for acceleration in the back half of the year from new indications. And while our legacy portfolio includes assets that are maturing, we expect strong growth from Eliquis in the U.S. this year. As it relates to quarterly progression of our sales, a few reminders. For products like Revlimid, Pomalyst and Camzyos, keep in mind the typical impact on sales in the first quarter due to patients entering the Medicare coverage gap early in the year.

And for Eliquis, the coverage gap dynamic works in the opposite direction, where we expect sales in the first half of the year to be higher than in the second half. As it relates to our line item guidance for the year, we expect gross margin to be approximately 74%, which reflects an evolution of our sales mix and the non-recurrence of hedging gains from last year. Excluding in-process R&D, we expect our total operating expenses to increase in a low-single digit range, reflecting the additional costs of Mirati and the reallocation of costs and efficiency initiatives in MS&A, as we continue to invest in our new product launches. This aligns with our previous operating margin target of at least 37%. This means we will remain focused on driving operational efficiencies across the organization, including portfolio prioritization, to enable us to invest for growth while maintaining high productivity.

We expect OI&E to be approximately $250 million of income, reflecting the PD1 royalty step down in January from 6.5% to 2.5%, as well as the financing costs related to the Mirati acquisition. We project our tax rate to be approximately 17.5%, reflecting an increase due to the non-recurrence of one-time tax benefit that occurred in the third quarter of last year, plus the anticipated impact of Pillar 2. Finally, we expect to deliver non-GAAP earnings per share within the range of $7.10 and $7.40. For clarity, our 2024 guidance excludes the three pending transactions. As a reminder, SystImmune is expected to add about $800 million in in-process R&D. Karuna is expected to be about $0.30 dilutive to earnings relating to financing costs as we plan to absorb the OpEx. And RayzeBio would be approximately $0.13 dilutive to earnings with half in financing and the other half in OpEx. When we report in Q1 in April, we will update our guidance to reflect the deals that have closed at that time.

Before we move to the question-and-answer session, I want to thank all of our colleagues around the world for their hard work and dedication in 2023. This is an exciting time for BMS as we rewrite a new chapter and maintain a singular focus on improving our growth profile over the course of the decade. I believe that our focused financial discipline coupled with a strong cash flow generation are key advantages that will enable us to further diversify our portfolio and invest in growth opportunities to deliver for patients and our investors. I’ll now turn the call back over to Tim and Chris for Q&A.

Tim Power: Question, please. But before we do, just a reminder. It’s obviously a busy morning for everybody. And to the extent, you can keep to just one question so we can get to as many people as possible. We would appreciate that. So let’s go to our first question, please.

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Q&A Session

Operator: The first question will come from Luisa Hector of Berenberg. Please go ahead.

Luisa Hector: And good morning. Maybe I’ll start with Abecma because you have the FDA Ad Comm (ph) coming up, so just your level of confidence heading into that. Any comments on how the label changes are impacting or not for all CAR-Ts and just any pressure that you’re seeing from [indiscernible] and how that might evolve in 2024? Thank you.

Chris Boerner: First, we’ll have Samit to answer and then go to Adam.

Samit Hirawat: Thank you, Lisa, for the question. From Abecma perspective KarMMa-3 data, we’ve shared updated data at ASH last year. And as you saw, it was very clear what is driving the overall survival curves. It’s because of the crossover that the patients have allowance for the progression of their disease on the standard-of-care arm. And therefore, that curve does benefit and therefore you see much of impact on that overall survival benefit that these patients are getting. We are very confident and we are very much looking forward to having that dialog and discussion with the regulatory authorities and looking forward to getting this product to the patients as soon as possible. So the second part that you asked about the label updates that the FDA is seeking right now for all CAR-T products around T-Cell malignancies.

Once again, we’ve treated thousands of patients. And from our perspective, as we look into our data, we do not see a positive relationship two (ph) CAR-T cell therapies in terms of Breyanzi and Abecma. So we will continue to have the dialog with the regulators on that as well as we look to the final wording the FDA will decide. With that, let me pass it onto, Adam.

Adam Lenkowsky: Thanks, Luisa, for the question. So we do expect growth in 2024 for Abecma. Commentary is a key catalyst for growth this year. And as Samit said, we do look forward to the ODAC to reinforce the benefits of Abecma in a triple exposed patient population. As you can imagine our commercial teams have been launch-ready for some time and we’re also seeing continued strong international performance. And we’ll launch both Abecma and Breyanzi in a number of new countries this year. We’ve stated that, we’re seeing continued impact from additional BCMA agents. This is a highly competitive market and putting some pressure on Abecma growth. But our teams are squarely focused on opening new accounts, expanding our site footprint, not just internationally, but also in the U.S. And coating the gap on efficacy perception, including solidifying any misconceptions around Abecma’s efficacy and reinforcing Abecma’s safety profile, particularly as it relates to CNS neurotoxicity.

So taken together, we’re confident in Abecma’s profile, looking forward to the ODAC, and I’m confident that will be more competitive this year.

Tim Power: Thanks, Adam. Can we go to the next question please, Andrea.

Operator: The next question comes from Chris Schott of JPMorgan. Please go ahead.

Chris Schott: Hi. Great. Thanks so much for the question. Just maybe a bigger picture question on the new launches. I think those new launches did about $3.6 billion in 2023. And I know you’re not giving longer-term targets. But just any — just rough framework of how to think about those sales in 2024, I guess, is there a target you’re providing? If there is not a target, can you maybe just talk a little bit about any areas you see that maybe you’re more or less optimistic versus where street consensus is? I know there’s just — there’s quite a bit of focus on the trajectory of those ramps. Thanks so much.

Chris Boerner: Thanks for the question, Chris. Maybe I’ll just start very quickly and then I’ll turn it over to Adam. As we had mentioned, not going to be providing individual product-level guidance, and I think we had alluded to that when we met at JPMorgan three weeks ago. But we did give, and we’ll continue to give company line item guidance, as we did today. And then you’ll see, as we report it today, we’re going to be talking additionally about the growth portfolio that we have, which is going to be important as we think about the business going forward. Adam, do you want to talk about the new launches?

Adam Lenkowsky: Yeah. So thanks for the question, Chris. I mean, we’re coming off a good quarter and we have a strong foundation for growth to build upon. We’re focused on continuing to accelerate our new product portfolio and maximizing the ten launches that we’ve had over the last four years. We’re certainly prioritizing the execution of our new launches and adding investment to accelerate the performance of our growth portfolio for products like Camzyos, Sotyktu Breyanzi. You’ve also seen the strong performance from Reblozyl and Opdualag. We also have some of our growth products like, Eliquis and Opdivo, which will continue to contribute significant growth in 2024. And finally, we’re readying for the launch of KarXT in September, which we’re excited to launch this product, which will be the first new treatment in decades for schizophrenia, and also brings a multi-billion dollar opportunity to the organization.

So adding it up, that’s why we’re excited to continue to drive commercial performance in an important 2024.

Tim Power: Right. Andrea, could we go to the next question, please?

Operator: The next question comes from Chris Shibutani of Goldman Sachs. Please go ahead.

Unidentified Participant: Good morning, everyone. Thank you for taking our questions. This is Charlie on for Chris. We had a question on the subcutaneous Opdivo strategy for a potential launch there. We heard from one of your competitors yesterday on their potential for a subcutaneous CPI, where they were considering — what sort of like a careful pricing strategy in the context of potential intravenous biosimilars that could be on the market at the same time. So just wondering how you’re thinking about pricing on a potential subcutaneous Opdivo? Thank you.

Chris Boerner: Adam?

Adam Lenkowsky: Yeah. Thanks, Charlie, for the question. So we’re not going to comment on the pricing of subcu, but what I can say, as you know, we announced positive results of our subcu Opdivo study in the quarter, and we anticipate a launch early next year. As a result, we have the opportunity to potentially benefit thousands of patients well into the next decade with subcu Opdivo. I think an important thing to keep in mind, remember, subcu has the potential to address the treatment burden for both patients and physicians due to less than 5 minute infusion time. And we’ve talked about our ability to convert roughly 30% to 40% of the overall U.S. Opdivo business into subcu. And that’s why we would expect to see this franchise endure into the next decade. So we certainly look forward to bringing this important formulation both to patients and physicians.

Tim Power: Let’s go to the next question please, Andrea.

Operator: The next question comes from Andrew Baum of Citi. Please go ahead.

Andrew Baum: Yeah. Thank you. A question for Adam. Have you rethought the use of bridge programs for launches in the U.S., following your Sotyktu experience? And then, same topic. Realistically, how long do you think it will be before Sotyktu starts printing revenues through the combination of broader coverage as well as just getting these patients off the bridge? Thank you.

Chris Boerner: Adam?

Adam Lenkowsky: Great. Thanks, Andrew. Let me just take the second question first and then I’ll answer as well, the bridge question. So Sotyktu is an important brand for the organization and we are executing into our plan. We shared last year, we’re focused on two areas. The first is driving demand at the top of the funnel, and the second is, securing access. And of course, as you mentioned, pulling through those patients from bridge to commercial and we’re making progress against both. You heard from David, when you normalize sales, excluding clinical trial, orders, net sales increased about 40% versus Q3. And access is critically important in this highly competitive market to drive commercial sales. So we’ve secured ESI and now Cigna in a one-step position that adds another 40 million lives approximately to complement CVS, which is in a zero step position, will continue to be this year, and that’s approximately 25 million lives.