Bristol-Myers Squibb Company (BMY) Q4 2015 Earnings Report, Transcript and Summary

Good morning. My name is Sean and I will be your conference operator today. At this time, I would like to welcome everyone to the Bristol-Myers Squibb 2015 fourth 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. [Operator Instructions]. I will now turn today's conference over to Mr. John Elicker. Please go ahead, sir.

Thanks Sean and good morning everybody. Thanks for joining us as we discuss our Q4 results as well as our 2016 outlook. With me this morning are Giovanni Caforio, our CEO, Charlie Bancroft, our CFO, Francis Cuss, our Chief Scientific Officer and Murdo Gordon, our Head of Worldwide Markets. Now, Giovanni and Charlie will have prepared remarks and then we will go to your questions. Before I turn it over to Giovanni, let me take care of the Safe Harbor language: During this 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. We will 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. Well, 2015 was a pivotal, very important year for Bristol-Myers Squibb. We began a new chapter of growth and laid a strong foundation for our future. This was true across the complex. Commercially, we had $16.5 billion in sales, 4% growth over the previous year, which is especially strong, given the loss of exclusivity for Abilify early in the year. Regarding R&D, it was an extraordinary year with 112 product approvals, including 23 in major markets and 11 by the FDA alone. In addition, we also had three Opdivo study stops for overall survival. Let me share just a few of our highlights and Charlie will then provide more details about our key brands. We are very encouraged by the global performance of Eliquis and I believe that we are well on our way to becoming the number one NOAC globally. Global sales for 2015 were $1.8 billion, which represents more of a doubling versus prior year. Our Hepatitis C portfolio delivered strong performance in 2015, notably in Japan, in certain European countries and most recently in the U.S., where we saw good performance in the fourth quarter. Overall, we had $1.6 billion in global sales. Obviously, we all know this is a very competitive and highly dynamic market. We do expect new competition to have an impact on our business as we are already seeing in Japan. Orencia also had a good year with almost $1.9 billion in sales, 14% increase over 2014. Regarding immuno-oncology, it was nothing less than an incredible year. We exceeded expectations, thanks to important clinical results, earlier than expected launches and an unprecedented uptake in new patient share across multiple tumor types validating our development strategy, our belief in the importance of overall survival and our strong commercial capabilities. Commercially Opdivo performance was very strong. Nearly $1 billion in global sales. In lung cancer in the U.S., we have approximately 60% of new patient share in non-squamous and around 70% in squamous. In melanoma, we are pleased to have a broad approach to this market with indications, ranging from the adjuvant setting with Yervoy to the metastatic setting with Opdivo. The adoption of our combination therapy, the first of its kind has been strong and we have approximately 20% market share. And in renal cancer, I am pleased to report that the uptake is similar to what we have seen in lung with new patient shares over 50%. With respect to R&D, 2015 was an exceptional year and in fact we are already off to a very strong start in 2016. This morning, we announced the early stop of our CheckMate-141 study in patients with head and neck cancer. Our fifth early study stop with Opdivo. We look forward to discussing the data with regulatory authorities. Last year, three of our key trials with Opdivo were stopped early because of a survival advantage versus the previous standard of care and we moved quickly and effectively with regulators receiving seven approvals from the FDA across three tumor types. Opdivo is now approved in 46 countries. We accomplished much in lung. In the U.S., Opdivo is the only PD-1 indicated for all second line patients across all histologies and importantly regardless of PD-1 status. In the EU, we had received approval for squamous and are waiting regulatory review for non-squamous. And in Japan, Opdivo was approved with a broad label in December. In renal cancer, Opdivo's approval came in the second half of the year, only one week after our submission was validated by the FDA, which demonstrates the importance of the data in an area where the medical need for patients is very high. All-in-all, I am very proud of our accomplishments in immuno-oncology including our ability to establish Opdivo as the leading immuno-oncology agent, one that is foundational and a standard of care within its approved indications. Going forward, we remain fully committed to further strengthening our position. This year, we should see data from Opdivo trials in four additional tumors and in first line lung cancer and start to see some data from some of our early assets. Finally, we expect three additional I-O assets to enter clinical trials bringing the total to eight clinical assets beyond Yervoy, Opdivo and Empliciti. I am confident we are making all of the right investments from a commercial perspective and from an R&D perspective to continue to execute our strategy in immuno-oncology and further strengthen our leadership position. Now, before turning the floor over to Charlie to provide our 2015 financials and 2016 outlook, let me say that I am very confident and optimistic about our future here at Bristol-Myers Squibb as we have entered a period of expected growth. Driven by the unprecedented success in 2015, we are in a position of strength with significant growth opportunities in I-O where we have advanced our leadership position in Opdivo. Eliquis is well on its way to becoming the number one novel anticoagulant. The performance of our underlying portfolio remains very strong and we are advancing a diverse innovative and promising pipeline by combining our internal R&D efforts with a continued focus on business development, seeking to develop transformative medicines for patients in need. And with that, I will turn the floor over to Charlie. Thank you.

Thank you, Giovanni. Good morning, everyone. I will start with some comments regarding the quarter and then move on to our 2016 guidance. As Giovanni mentioned, we had a strong fourth quarter with very good performance across our key brands. Total revenues of $4.3 billion, up 1% over last year. With the continued strengthening of the dollar against most currencies, foreign exchange had an unfavorable impact on sales of 5% in the quarter and approximately $0.08 on EPS. Sales for Eliquis were $602 million, more than double from fourth quarter last year. Eliquis is now the number one NOAC in new to brand patient share in cardiology across 12 markets around the world and we continue to see strong demand trends from key markets such as the U.S., Germany and Japan. Sales for our Hepatitis C portfolio were $458 million, with most of the sales coming from the Daklinza. U.S. sales were $212 million and we are seeing strong demand since the launch in Q3. Sales in Europe were $121 million with strong performance in Germany, France and Italy. In Japan, we had sales of $80 million, which is down significantly from Q3 sales of $175 million, as weakened trends reflect the pressure for new regimens that have entered the market. Opdivo uptake continues to be very strong, with sales of $475 million for the quarter. As Giovanni mentioned, we are seeing rapid adoption in the U.S. with Q4 sales of $410 million. About two-thirds of Opdivo sales are within lung cancer, both squamous and non-squamous. We are also seeing an increase in melanoma with the approval and launch of the Opdivo plus Yervoy regimen. Our I-O portfolio now has the leading new patient share in first line melanoma. Opdivo has now been approved in 46 countries. The European launch for both first and second line metastatic melanoma and squamous non-small cell lung cancer is going well in the country where pricing has been secured, notably Germany where we are seeing rapid uptake in both lung and melanoma. Sales for Yervoy were $266 million, down 28% from last year. There are two dynamics at play. With the U.S. approval and launch of the regimen in the adjuvant indication, we are seeing signs of stabilization there. Outside the U.S., the launch of Opdivo and Keytruda are having an impact on Yervoy where sales were down 40%. We launched Empliciti in the U.S. in December. We began commercial activities with just a couple of days and are in good position that drug. While it's early, we are seeing a high level of interest and recent trends are encouraging. We continue to see competitive pressures on our HIV business. Sales of Reyataz and Sustiva down 14% and 23%, respectively. Recall that we transferred our rights to Erbitux on October 1 and therefore we no longer report revenues. In the quarter, total royalties for Erbitux in both the U.S. and Japan were approximately $60 million and were reported in other income. Now I will comment on a few line items from our non-GAAP P&L. Gross margin was 78% during the quarter. Our gross margin varies primarily due to product mix and benefited from the divestiture of Erbitux and strong Opdivo and Hep-C sales. As you recall, we increased investments to support important growth opportunities in our portfolio, both commercially and in R&D. Marketing, selling and administrative expenses, which now includes A&P, increased about 10% in the quarter due to the increased investments in key brands, primarily Opdivo. R&D expenses increased primarily due to investments behind I-O and Empliciti, which includes clinical trials and expanding our medical organizations globally. Our non-GAAP tax rate was 15.1%, which reflects the full year of the R&D tax credit which was permanently extended in December. 2015 was a very good year across the board and we are pleased that marks the year of both top and bottom line growth. We expect this momentum to continue in 2016 with revenues expected to grow about 5% and strong double-digit EPS growth. As you saw on our release, we are setting our non-GAAP EPS guidance range at $2.30 to $2.40. This range assumes current exchange rates. As Giovanni mentioned, we expect strong performance in Opdivo, given the strong execution in the U.S. and launches in more countries as we secure additional approvals with associated pricing and reimbursement Eliquis is also an important growth driver and we are seeing strong exit trends that we believe will continue. Our Hep-C portfolio will continue to be a meaningful contributor to revenues though new regimens are already having an impact in Japan and we expect a similar situation in the U.S. later this year. As a reminder, there are several factors to keep in mind which will have an impact on our 2016 revenues. As I mentioned, we are seeing stabilization of our Yervoy business in the U.S. but ex-U.S., we are seeing pressure, particularly in the EU and that will expand as PD-1's launch globally. Recall that the regimen at adjuvant indication are not yet approved yet by the U.S. which accounts for approximately 50% of Yervoy sales. So we do expect to continue to see the impact of PD-1's there. The HIV franchise remained under competitive pressure. Our mature products are a naturally declining business. In addition, the exploration of certain relationships with third-party supply agreements and the divestitures of Ixempra and some international products last year further impacts this category. As previously mentioned, we no longer record revenues for Erbitux. We will record royalties on Erbitux sales in other income. As you all know, the U.S. dollar has strengthened against almost all currencies from 2015 average rates. Based on current FX rates, this is expected to negatively impact our 2016 revenues by approximately 2% and $0.10 to $0.12 on earnings per share, which is factored into our guidance. To summarize our 2016 sales outlook, we are very pleased that our key brands that are important to our future growth are performing very well. Our underlying revenue growth excluding the impact of Erbitux, Abilify exclusivity FX is in the low-teens. Our gross margin continues to be largely driven by product mix. For 2016, the loss of rights to Abilify and the structure of our copromotion agreement for Eliquis will put downward pressure on gross margin. Partially offsetting that will be the growth in sales of new products such as Opdivo and the divestiture of Erbitux. Additionally, FX favorability that we saw on international cost of goods in 2015 is not expected to incur in 2016. Our operating expense projections for 2016 reflects investments that we began in the second half of last year that are continuing, particularly in R&D, which include additional clinical trial investments, increased medical resources and Phase IV studies. We will however continue to be prudent with commercial resources on our older brands and leverage our specialty model. As Giovanni described, 2015 was an exceptional year, which provides great momentum as we enter 20106. Now we would be happy to address your questions.

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

[Operator Instructions]. Your first question comes from the line of Vamil Divan from Credit Suisse. Your line is now open.

Great. Thanks so much for taking the questions and the comments. So I want to apologize, I missed some of this. But just a little more color on Opdivo and the trends you are seeing there. Obviously you have had the entry of Merck into the lung cancer kind of the beginning of the quarter, the holidays, near the end of the quarter. If you could just a sense of what you \saw over the course of the quarter, maybe even a little sense of how things are going so far this year? Just so we can get a little better sense of the ongoing run rate in how we should look at your forecast in that product going forward? And then maybe the second one more from Murdo around the positive data on the head and neck side. Could you just give a little bit more color on how you see the commercial opportunity for that potential indication relative to the lung where a lot of the focus has been so far? How do you see this one stacking up and the importance within the overall portfolio? Thanks.

Vamil, let me just start. So this is Giovanni and then I will ask Murdo to give you some more color on performance and answer your question on head and neck. We are very pleased with the performance of Opdivo in 2015 and particularly the acceleration we have seen in Q4. That's clearly the driven by the breadth of our label in lung cancer across all histologies, regardless of PD-1 status. It's driven by the high unmet medical need in renal and again the strength of our overall survival data and a very solid uptake of the regimen in melanoma given the efficacy profile. We have approximately 80% of value share of the PD-1 market and a very strong commercial execution. Murdo?

Yes. Thanks Vamil. I would add a couple of things to Giovanni's comments. Specifically in the lung area, we have been very pleased. As you know, we saw rapid uptake in squamous after availability of the 017 data and subsequent approval. And we have seen similar uptake now in non-squamous, where we are about 60% new patient share in second line. That profile is a very competitive profile for Opdivo. We have two strong indications that overall survival benefit and continue to see very strong receptive from oncologists because of the lack of a requirement to test for PD-L1 status in lung. Now with the release of other data from our competitors, namely the 010 study, we continue to feel that that competitiveness in second line will continue. Given the fact that we have been able to establish superiority in squamous and non-squamous separately in all-comer populations and have a resulting indication for both histologies that reflects that, we feel really good. We haven't really seen a deterioration in our new to patient share with the advent of the 010 data set. I think you also asked about head and neck. We see the opportunity in head and neck as really exciting. Obviously, when we see the actual full data set, we will know more about what to expect. But what I would say is, this is a high unmet medical need area and is one where Opdivo in second line represents a significant opportunity. That being said, it is a smaller tumor type. It is second line is between 5,000 and 10,000 treatable patients in the U.S., a little higher than that in Europe.

Thanks Vamil for the questions. Sean, could we go to the next one, please?

Your next question comes from the line of Marc Goodman from UBS. Your line is now open.

This is Ami Fadia on behalf of Marc. I had two questions. Number one, on Opdivo you gave us a sense of some of the latest market share. Could you remind us what time period that was measured for and how do you see those market shares across the different indications play out in 2016? And the also sort of second part of the Opdivo question is, we are seeing pretty good strength in the U.S. In 2016, where do you see progress coming from outside the U.S.? Where do we have pricing already? What do we expect to change over the next few months? And then I have second question.

Thank you. Let me just start answering the first part of your question. I will ask Murdo to provide more detail. As both I and Murdo mentioned in our remarks and the answer to the first question, there is really rapid penetration across all of the indications where we have a label, the two histologies in lung, renal and melanoma. The two most recent approvals where there is more dynamic growth in the fourth quarter, really were the uptake of the regimen in melanoma and renal. And we are very encouraged by both trends. Those trends will continue into 2016. We also see that in 2016, we will begin to see uptake in other European countries. The only country where we really have an uptake to-date is Germany and those curves are similar to the U.S., but we are making progress. We are negotiating pricing and reimbursement in many other countries around the world, mainly in Europe and we will begin to see the impact of our international business later in the year.

Yes. Thank you, Giovanni. The profile, as I mentioned, in lung for Opdivo in both squamous and non-squamous has shown to be very competitive in second line and we are seeing strong shares. We expect that that will continue. In melanoma, the Yervoy plus Opdivo regimen is getting about 20% of new patients in first line. It's early days and we have a newly expanded label to include all patients regardless of BRAF status and so we hope that that will continue to evolve in the U.S. Now go back to comments that Charlie made ex-U.S. for Yervoy specifically, where we don't have a regimen indication nor do we have an adjuvant indication, we would expect to see Yervoy continue to feel the pressure of the advent of first line new patient share of Opdivo and Keytruda across Europe. So expect Yervoy to have some pressure going forward ex-U.S. When it comes to renal cell carcinoma, the most recent approval for Opdivo, we are very happy and are seeing a rapid uptake like we saw in melanoma and in lung where we see roughly 50% new patient share. Now these percentages move around. They are from very small data sets. We use them as directional and we use them to estimate how rapidly behavior is changing in the market. Ex-U.S., we are very happy with reimbursement evolution and we are seeing reimbursement authorities across Europe move quickly with us to find appropriate reimbursement for patients across Europe and we feel very good with the broad label that we have in Europe that includes both first line melanoma for Opdivo and squamous non-small cell lung cancer, we feel very good about our ability to negotiate good access for European patients.

Great. Sean, can we go to the next question, please?

Your next question comes from the line of Jami Rubin from Goldman Sachs. Your line is now open.

Thank you and congratulations on a terrific year. Charlie, I have a question for you on guidance. I am little bit confused about something. So you ended 2015 with 77% gross margins and the guidance for 2016 is for gross margins between 75% and 76%. I am assuming that you are just being conservative, since this is the beginning of the year and it probably proves or pays to be conservative at this early part of the year. But help me to understand, while I understand that Eliquis will get bigger and that puts pressure on your gross margin, the other line items of your business are growing. And when I think about the contribution of Opdivo and the expected growth of Opdivo in 2016 relative to the expected growth of Eliquis, I would think that mix should be in your favor. You also mentioned that Erbitux would be in your favor too. So if you could just explain why 75%, 76% versus ending the year at 77%? And then if you could also just address with respect to guidance, the guidance doesn't seem to imply much in the way of margin expansion. You had made some comments about that a couple of quarter ago. But where are we in terms of when we should expect to see meaningful margin expansion to play out? Thanks very much.

Okay. Thank you, Jami. Our gross margin, as I pointed out, has a lot to do with mix and I talked about the different products coming in and out. So Abilify going away, HIV pressure there. You are right, Opdivo is going to be a big year in 2016, Eliquis though does put a drag on that. I would say net net, a lot of our mix is almost makes off, but the bigger impact, as I mentioned in my comments is related to FX on international cost of goods sold. If you recall, the end of 2014, FX rates started deteriorating and the benefit that we got that flowed through our international cost of goods in 2015 doesn't repeat again, given the rates don't have that larger dichotomy year-over-year. So that's almost a 2% impact and also included some hedging gain that flow through cost of goods sold again in 2015 that [indiscernible] 2016. In regards to operating margin, the way we are defining and most of all of you analyst define it is our operating income held for sale. So that's how we are looking at it and that's how we would talk about it going forward. We have addressed this and said that we expect leverage mostly beginning in 2017. As I look at how we finished 2015 at about 23.4%, we don't expect any decline in 2016. We should be flat or slightly above that as we look at 2016.

And Jami, this is Giovanni. Just to reiterate that Charlie just said. As you have seen in our guidance, we have initiated a number of really important strategic investments commercially in R&D in 2015. Those are continuing at roughly the same level in 2016. And just to confirm what Charlie said and we have said before, we are committed to increased profitability beginning in 2017.

Thanks for the question, Jami. Sean, can we go to the next question, please?

Your next question comes from the line of Andrew Baum from Citi. Your line is now open.

Hi. Thank you. Two questions, please. Firstly in regard to CheckMate 026, your first line Opdivo versus chemo. The primary endpoint is progression-free survival. Obviously the initial experience with PFS was checkered because of pseudo-progression .Could you outline the measures you have taken to minimize the risk to using the PFS endpoints within this trial? Obviously I understand it's first line and therefore you need to do that, but have you manage to derisk some of the initial observations? Second, a strategic question for Giovanni. Your portfolio and approach is very heavily focused on novel checkpoints and specifics and obviously there were term asset classes within the I-O space where you are less active than some of your peers. So how are you thinking about either broadening out and I guess I think you have cancer vaccines or cell therapies and there are of course others, versus reducing the risk profile of the organization because of the short cycle time in immuno-oncology by bolting on an additional asset class outside oncology, especially given the rating of the sector and the availability of finding interesting assets to acquire?

So let me ask Francis to start and address your questions, Andrew, on 626 and then I will make some comments on your second question.

Well, good morning, Andrew. Let me first of all say I am really proud of R&D's performance in 2015. I am actually thrilled that we have showed survival benefits in the second line lung setting in a patient population of platinum resistance that frankly have no options. As far as, forgive my laryngitis, as far 026 is concerned, we have actually taken great care in the design of this study. We have paid real attention to the choice of endpoint, the optimal timing of the analysis, the role of the non-proportional hazard ratio and of course the role of PD-L1 expression and the sample size. And we have used a wealth of data both published and our internal data on Opdivo to help guide us. So we believe we really have got the optimum balance of speed and the design to deliver positive results in the widest population of first line lung patients as we have done in other studies of Opdivo recently. Thank you.

And Andrew, just a quick answer to your question on immuno-oncology breadth and the diversification more broadly. Let me say first, with respect to immuno-oncology, I feel very confident that we have a broad approach to immuno-oncology for the short-term, the medium term and the long-term. And when you think about our central pillar today, obviously it is checkpoint inhibition. We have two assets in the market and really exciting data with the combination of Opdivo and Yervoy, which we are taking into more tumors. We have an exciting pipeline of eight agents, early agents in the clinic and we have actually strengthened that approach recently last year in 2015 through a number of business development activities we have built to what I think is an attractive early pipeline addressing the tumor microenvironment, which is a new area for us. So we have a lot to do with continue to advance our existing portfolio combinations in early assets. Obviously as the leaders in the field, we always look at new platforms and technologies and as they become better established and we are interested in that data, we are very much open to making moves in that area. Let me also say though, that beyond immuno-oncology, we actually are continuing to work to build a differentiated pipelines in other areas and we have made, again, progress in fibrosis in 2015. We strengthened our CV pipeline with a clear focus on heart failure and continuing to progress potentially transformative assets beyond oncology in every one of our areas.

Great. Thanks, Andrew. Sean, can we go to the next question, please?

Your next question comes from the line of Tim Anderson from Bernstein. Your line is now open.

Thank you. A question that deals mostly with the timing of the data releases. So if I look at 026, your first line trial, clinicaltrials.gov says that recently got pushed out by, I think, three or four months to October. I look at the combo IPI/NIVO data for CheckMate 227, that looks like it's slipped by eight months from 2017 to 2018. At the same time, it also looks like 141 slipped. That was pushed out by three or four months very recently. Yet today, you stopped that trial early. So on these other trial that I described, they are still very much the realm of possibilities that those could read out early on an interim and I guess of special importance would be the first line lung, given the fact that Merck results might be doing a similar timeframe. And then the second question on timing has to do with your later generation products. So in October in your earnings call, you talked about having data on things like lag and cure on CD137 late 2015 or early 2016 and now if I understand the guidance correctly, we are really looking at late 2016. So in a matter three months, the timing of data disclosures got pushed back by about a year. And I am wondering, if you can just articulate exactly why that's the case?

Good morning, Tim. So we expect to have data, as you say, towards the end of 2016 for the 026 study and we don't expect an earlier readout. There is no interim analysis on that study. As far as 227 is concerned, we are very happy with the progress of the trial. We are looking at the beginning of 2018. So that and as we move to the combinations, I think it's just worth pointing out that when we talk about I-O combinations, we already have a combination approved, two approve drugs. In melanoma, we have got it under review in the EU and we have got late stage studies in lung, renal and several other tumors. So as far as the exploratory programs in novel combinations, we are getting data in-house now both the monotherapy and combination. If possible, we will present data later in 2016. And I think depending on what we see, we could move into larger studies by year's end or early 2017. But I want to make this point, we have a very high hurdle for bringing new assets forward because basically, it's got to be better than what we believe Opdivo, Yervoy is going to be which already, as far as I know, the only proven combinations of potentially similar synergy. So we are very optimistic about the Yervoy regimen with Opdivo and we will be bringing forward data later in the year on the others. Thank you.

Thanks, Tim, for the question, Can we go to the next one, please, Sean?

Your next question comes from the line of Seamus Fernandez from Leerink. Your line is now open.

Thanks very much for taking the questions. So a couple of quick questions, one for Francis and then one for Murdo. Francis, as we think about new areas for combinations, can you just help us understand where you really think the new combinations can be most impactful? As we look at it, I think many of us focus in on the lung cancer market quit a bit. And as I think about it, is it something like refractory lung cancer and then perhaps more broadly colorectal cancer, those are the big nuts that need to be cracked? How are you thinking about next opportunities for the overall I-O story at Bristol? And then, separately for Murdo, can you just help us better understand the transition that you think is going to be necessary as you shift from a broad marketing message for a patient in the second line setting to a potentially narrower PD-L1 biomarker driven message post a hopefully successful CheckMate 26 study? Thanks.

Good morning Seamus. So our strategy is to look at our combinations through the tumor lens. And as you mentioned, we are focusing on prioritizing those areas with the greatest unmet need. Since we believe that I-O combinations are the best way forward to try that long-term survival for patients, we are again looking at it IPI/NIVO together in a number of trials at the moment. And then in those areas where, as you said, unmet need, those rapid regressive in lung and those that relapse in lung and certainly those tumors where there has been modest benefit for monotherapy, we think these is a particular opportunity as new and novel combinations come forward to perhaps meet the unmet need there. So with our portfolio, as Giovanni mentioned, now of eight combination, eight assets with three more to come in this year, we think we are going to be driven by the science and the clinical data and of course should we see good data, we will be moving in these areas of unmet need. We will be moving it very quickly forward.

And Seamus, with regard to your question of how do we transition from a leadership position that we will maintain and continue to grow in second line with the evolution of data sets in first line. I would say, first off, we have to look at the reasons why we are being successful in second line beyond perhaps testing or not testing. We have a very strong commercial and medical organization worldwide. We are seeing very rapid uptake across the board in the U.S. We are seeing it in Germany. We are actually it seeing in France as well. It's just not translating into revenue recognition there because it's in the ATU. We have a high degree of readiness in Japan. But really, we have got clarity on our dosing. We have a strong customer centric organization, a breadth of indications beyond lung and a very strong clinical development program. One thing to keep in mind is, what we are seeing in the lung market is there is a slow moving but growing evolution of testing, particularly in first line. So testing in second line is a difficult proposition, as you know, because of ability to re-biopsy or assess tissue, but we are seeing first line testing in the range of about 60%. And we are very, very focused on ensuring that the Opdivo biomarker PD-L1 test is available everywhere we want to market the products. So we think we will be in really good shape for a PD-L1 selected population in first line and I think we will have all the necessary commercial and medical capabilities for that period in time.

Thanks, Seamus, for the questions, Can we go to the next one, please, Sean?

Your next question comes from the line of Tony Butler from Guggenheim Securities. Your line is now open.

Thanks very much. One brief question please, on elotuzumab or Empliciti. Congrats on getting that out in the marketplace, but the label, as you know, is quite broad in multiple myeloma. And the real question is, where today are you seeing it used most? In failures first line, do you see the utility there as second or third line failures, that would be very helpful? And finally, John, I hope to do feel better. Thanks.

Tony, first let me say, as Charlie mentioned that the early signs from the U.S. market are encouraging, the very early signs. As you know, Empliciti is the first immuno-oncology agent to get into multiple myeloma. It's a crowded market, but one that continues to have a really high unmet medical need. And we think that that asset can play an important role. Let me ask Murdo to give you a little color on where it's being used. And remember, it is really early times.

Yes, that was going to be my first comment. It's really early and it's difficult right now to so any kind of segmentation on the initial uptake that we have. We are very pleased with the uptake in the U.S. We are seeing nice trends. We are seeing good coverage in execution from the commercial organization and the medical organization being able to reach all key customers. The team that is working on the promotion and education of physicians on Empliciti has been the team that had successfully driven Sprycel over the last few years. So this is a team that can execute very effectively. But it really is early to tell whether we are getting through relapsed refractory patients in second line or beyond. We will continue to monitor that going forward .But the early feedback, very positive.

Thanks, Tony, Sean, can we go to the next question, please?

Your next question comes from the line of Mark Schoenebaum from Evercore ISI. Your line is now open.

Hi guys. I appreciate you taking my question. And if I ask a question that's already been asked, please ignore it. I apologize, I was on an off the call, given today's carnage. But I was wondering, you guys, I believe, recently started a Phase II trial looking at Yervoy plus Opdivo in lung cancer that's running in parallel, I believe, with the registration trials. Wondering what you hope to learn from that Phase II? And why do it, given the Phase III is already ongoing and what you hope to learn and when Wall Street might expect some data release from that? And then I would love to ask Giovanni about capital allocation. I certainly felt like, please correct me if I am wrong, but you have signaled that diversifying the company, the I-O is kind of on autopilot and the company is really focused on it, but one of your goals as a relatively new CEO is to make sure the company was well diversified and you have mentioned several therapeutic areas you are interested in. You have done some smaller deals, but is this still a big focus for you? And how is your appetite for perhaps medium sized deals around the $10 billion mark that other companies have decided. Thank you very much.

Good morning, Mark.

Good morning.

So this is my CheckMate 568 and so let me first of all say that we have full confidence in the 227 study as the definitive randomized study for first line non-small cell lung cancer in combination. That being said, we believe the experience from single arm studies of combinations like this can help inform future medical practice as part of our very expansive data generation that's going on in non-small cell lung cancer.

And Mark, this is Giovanni. Let me just answer your question on capital allocation, specifically diversification. So first of all, business development remains a top priority for us. I must say that when many of our deals last year were smaller deals on early asset, they all are extremely interesting from a scientific perspective. And actually 2015 was a year of unprecedented activity for us from a business development perspective. First, we continue to be very active in immuno-oncology. I know you were joking when you said, it's on autopilot, but in reality we really feel we are at the very beginning of an extraordinary story in immuno-oncology and we continue to be very focused not only on delivering the value of the portfolio and pipeline we have but also continuing to strengthen that. And going back to what I said a few minutes ago, the agreements we reached in 2015 really have strengthened immuno-oncology, particularly in the tumor microenvironment. Second, we are focused on diversifying beyond immuno-oncology. We have signed some important agreements last year that have strengthened our pipeline in cardiovascular medicines, where we now combining internal and external, we have a really attractive approach to heart failure. We are building a very differentiated early pipeline in fibrosis, continuing to advance interesting assets in immunoscience. And as you know, we have two genetically defined disease products in the clinic as well. So that coupled with the strength and performance of Eliquis provides a good platform for growth outside of oncology as well. And with respect to your question regarding the size of the deals, as we said in the past, we are agnostic. We are really interested in deals that make sense strategically in terms of the therapeutic area feat, they are very strong in terms of the scientific promise and obviously makes sense financially.

Great. Sean, can we go to the next question, please?

Your next question comes from the line of Chris Schott from JPMorgan. Your line is now open.

Great. Thanks very much for the questions and congrats on the data. Two questions here. First on Eliquis, can you just talk about the strength in the quarter? I know last quarter was impacted by the donut hole, but can you just elaborate on the 4Q trends a little bit more? And my second question was on Opdivo, any update on duration of therapy that we have seen with patients in lung cancer so far? I guess specifically on nonresponders, are you seeing physicians discontinue therapy at time of progression? Or are we seeing some physicians continuing to treat through progression? Thanks very much.

Yes. Thank you very much, Chris, for the question. It's Murdo. Just I will go through Eliquis very quickly, but we are seeing strength in Eliquis across all major markets. Performance in Japan, U.S. and across Europe has been very strong. As was mentioned, we now lead in new to brand prescriptions in cardiology which we see as a leading indicator for the entire market across 12 markets. And we are seeing really, really strong demand in all of the major markets in our stroke prevention atrial fibrillation indications. And we have more recently launched the VTE treatment indication across Europe and in Japan. So we will see hopefully some continued accelerations of that. You alluded to the donut hole effect in Q3. We did see somewhat less coverage gap impact in Q4 in the U.S. but we did nonetheless some of that in Q3. So we are very optimistic that we will continue to see strong evolution in Eliquis and along with our Pfizer partners, we feel really good about being able to drive Eliquis to become the number one NOAC, as Giovanni mentioned earlier in the call. With respect to your question on Opdivo and DOT, duration of therapy in lung, really this is a very difficult number to get at so early after launch. It seems like longer, but we have only really been in the market in lung since March of last year. And you really need 24 months to have a 12-month look back to get to an accurate duration of therapy. So it's still difficult to elucidate that. So we don't a good number for you there. And then you also asked about, are we seeing physicians persist when there is evident progression. I wouldn't have a good answer for you there, but we are seeing in the case of patients who are high expressers and the status is known, I would think that persistence there would be more likely than in low expressers.

Chris, thanks for the questions. Sean, can we go to the next question, please?

Your next question comes from the line of David Risinger from Morgan Stanley. Your line is now open.

Yes. Thanks very much. With respect to Opdivo, I think that you mentioned that two-thirds of the sales in the fourth quarter were in lung. Could you further breakout kidney versus melanoma? And then second, could you just discuss the Opdivo Phase II trial readouts to watch this year in lymphomas and bladder cancer? Could you just frame those for us and talk about the evidence for likely success and your level of enthusiasm? Thank you.

Francis, why don't you start on Phase II and then Murdo will cover the question on Q4 sales.

Good morning David. Just to say, it's a very exciting year for data this year. We have started well with head and neck. I think the Hodgkin's lymphoma, we have the data in-house and we are in discussions with the regulators about submission there. Non-Hodgkin's lymphoma, we should see later in the year, the single arm study there. We are expecting data in bladder and we believe that no matter what the Roche submission does, we may, assuming the data is good, we will have an opportunity to go forward with that too possibly, depending on the data.

Yes. Thank you. And question regarding mix, I mean we were really only generating significant revenue in lung and melanoma in the fourth quarter. We had about three weeks, four weeks of renal cells and really the very beginning of the uptake. So it's a two-third, one third split lung, melanoma for fourth quarter last year. Obviously that will evolve. We feel really good about the early penetration in renal reaching, as I said, in the early part of this month about 50% new patient penetration. So really what we are seeing are very similar uptake curves across all of the solid tumors that we have had approval in so far and that gives us confidence about Opdivo's outlook for 2016.

Great. Thanks, Dave. Can we go to the next question, please, Sean?

Your next question comes from the line of Geoff Meacham from Barclays. Your line is now open.

Good morning guys and thanks for taking the question, yet another for Opdivo in lung. Just checking to see what type of share you guys have already in first line lung ahead of the data this year? And then a bigger question, I know data dependent, but is it your view that the science really has evolved to where I-O combinations with chemo may be as attractive as non-chemo in market such as first line lung and even bigger tumor types like breast and colon? Thanks.

Just very briefly on first line, let me just say, we have a very, very little penetration, first line at this point. As Murdo mentioned before, we are really at the beginning of a very rapid uptake with high shares. Let me ask Francis to answer your question with respect to combinations.

Well, just to mention the combinations, Geoff, as I said, we believe the best opportunity for prolonging survival and responses is with I-O combinations but we have a very comprehensive program including both I-O combinations and also chemotherapy combinations, both in our 227 study in a community study and some exploratory studies. I think I would say the data to-date, data release than we probably have the most, but prolonged data doesn't support broad use of chemotherapy in combination, but I think we would see what the data shows. And there is a possibility that maybe some areas where that is beneficial. But as I said, I think our view is what science we have would suggest that I-O combinations are going to be perhaps the best for long-term survival.

Thank you, Geoff, for the questions. Sean, I think we have time for two more?

Your next question comes from the line of Alex Arfaei from BMO Capital Markets. Your line is now open.

Good morning folks and thank you for taking the questions. Your guidance states that you are cutting SG&A and increasing R&D, both are more than we expected. I am just wondering because previously you said that you were increasing marketing spend for Opdivo and Eliquis this year and so I am just wondering if you could kind of put that in context of SG&A coming down? And also the increase in your R&D spending, I am just wondering, to what extent is this indicative of increased concerns about competitive thrust to your I-O franchise? Or is it a function of new opportunities that have become available to you? Thank you.

Alex, this is Giovanni. So first of all, let me say, we stack up our commercial investments behind the key growth brands last year, Opdivo and Eliquis, you mentioned and we are very committed to continue to invest competitively going forward including 2016. Obviously, we continue to look at our mature portfolio and the evolution of our portfolio overall and we have been and we will continue to be very disciplined in allocating all of our resources to the growth portfolio we have. So I just want to make sure that we continue to be very clear that Opdivo, Eliquis and all of our growth opportunities continue to be competitively resourced and supported in terms of their growth. With respect to R&D, actually our increased investment comes from our confidence in our R&D strategy and the increased leadership position that we have gained in 2000, which makes us really confident given the number of successes we have to continue to broaden our development footprint. And when you look at the R&D spend, a lot is about development but we are also continuing to resource a very competitive medical organization and data generation activities across the board in support of many launches we have ahead of us in 2016.

Thank you for the questions, Alex. Can we go to our final question, Sean, please?

Your final question comes from the line of Gregg Gilbert from Deutsche Bank. Your line is now open.

Thanks. A couple of questions on Opdivo there, a bit different. Is the net pricing across global regions holding steady as with your original intent? And if not, can you perhaps quantify some of the differences? And then secondly in the U.S., curious about your DTC campaign on Opdivo. I would have thought that the speed of uptake for these I-O agents and the market share dynamics would not really be affected by patient awareness that can be dealt with via DTC, but maybe you can share thoughts on the philosophy of DTC for this area? Thanks.

Gregg, let me start with your second question about DTC and patient awareness. We made a conscious decision, an important decision to invest in DTC advertising for lung cancer because we feel that is a long history of treatment that have not delivered significant value to patients with lung cancer. There is pessimism for many patients. And the number of patients particularly in the second line setting that are not being treated as aggressively as they should be treated. So for the first time, we have been able to offer a really meaningful opportunity through Opdivo to patients, pretreated patients with lung cancer. We felt it was important to invest in a campaign and in many ways mobilize patients to seek treatment now that an option is available. Charlie or Murdo, on pricing?

Yes. Gregg, on net pricing around the globe we are, as I mentioned before, really pleased with the recognition of the value that Opdivo represents and have been pleased with our discussions with reimbursement authorities. There have been positive assessments in France and in Germany for Opdivo. We are making good progress in the U.K. So we feel good about how net price will hold ex-U.S.

Thanks, everyone. Thanks for the questions. Let me just conclude by saying again that 2015 was a very important year for us at Bristol-Myers Squibb as we began a new chapter of expected growth. We have laid a very strong foundation for the future. Thank you.

Sean, thanks for helping coordinate the call and thank you everybody for joining us.

Absolutely, sir. Thank you. This concludes today's conference. You may now disconnect.