GS - BMY (BUY PT 85): Our Meeting with Management | BMY Message Board Posts


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Msg  10312 of 10562  at  9/23/2022 2:26:20 PM  by

JBWIN


GS - BMY (BUY PT 85): Our Meeting with Management

 

We had the opportunity to meet with leadership from BMY including CEO Giovanni Caforio, CFO David Elkins, Chief Medical Officer Samit Hirawat and Chief Commercialization Officer Chris Boerner. Our meeting took place on the heels of the company having just attained several critically important and highly anticipated milestones for the year, including FDA approval of three innovative products (all 3 - Opdualag, Camzyos and Sotyktu - with a novel mechanism of action) that we expect to headline a notably young portfolio of essential revenue growth drivers in the second half of this decade. With confidence that appears bolstered in our view, management’s focus on and commitment to the strategy and objectives articulated during their analyst meeting almost a year ago, remains steadfast and determined. Discussion naturally traversed a range of topics including those top of mind across the industry - such as capital allocation and business development priorities, current views on implications of the Inflation Reduction Act; and issues of importance specific to the company - including strategic decision-making and the outlook for key pipeline assets and new product launches such as milvexian, Sotyktu, and the CAR-T portfolio. We reiterate our BUY rating on BMY shares. See within for key takeaways from our discussion.

Takeaways
 

n On the topic of capital allocation, management emphasized that their thinking regarding how they consider and prioritize the traditional range of options (i.e., business development/M&A, debt pay-down, share repurchase) remains largely unchanged. In terms of business development and M&A specifically, where in our view the company has been effective in identifying and executing on logical tuck-in transactions, management reiterated the importance of bringing to bear, internal expertise - where management has previously highlighted long-standing industry leading capabilities spanning discovery, development and commercialization in oncology, hematology, immunology and cardiovascular diseases. This is not to say, however, that BMY excludes consideration of opportunities within therapeutic areas where the company is currently not as fully built out. During our discussion, management pointed to a number of earlier-stage deals (pre-proof of concept stage) involving assets addressing  diseases within the CNS space. In terms of stage, commentary indicated an expectation to continue pursuing opportunities that balance both earlier-stage opportunities with later-stage, more de-risked assets (such as e.g., Turning Point TPTX and MyoKardia). Logically, especially with larger asset commitments, the company is able to build confidence through structures where they are able to establish a deeper level of understanding over a longer period of time (such as for instance, through partnerships) citing their ability then, to transact quickly and efficiently following e.g., a de-risking event; with benefits that then may include greater confidence in their assessment of potential cash returns over a nearer-term period. On the forward, management expects the company’s dividend policy to remain consistent with prior years. BMY also expects to continue to be opportunistic with share repurchases, where we note that post 2Q22 results, it was specified that the company has $10.2bn remaining under the current share repurchase authorization. 

Recognizing that there will be much to learn and better understand, as important details regarding the structure and implementation of the Medicare price negotiation component of the Inflation Reduction Act become more evident, BMY management voiced their interest in particular (which we note to be similar to other management teams across the industry) in (1) gaining further clarity on how prices/value of medicines will be established by CMS in order to better assess potential impacts on their portfolio, and frame preliminary strategies. (See our previously published notes, in which we highlighted from our discussions with various stakeholders involved, how the issue of the extent of potential pricing discounts, is a primary area of uncertainty HERE, HERE, HERE); and (2) seeking clarity on updates regarding elements of the text which are anticipated to have potential wide-ranging ramifications, including on clinical program designs and business development strategies - with specific mention (again, echoing commentary from other leading management teams across the industry) of the shorter duration for small molecules vs. biologics (i.e., 9 vs. 13 years post approval). On these two issues - in terms of the potential impact to pricing strategies at the time of launch owing to timelines relative to potential exposure to negotiated pricing, management emphasized that while this issue clearly introduces an undeniable element to consider in the overall calculus, foundationally speaking, BMY expects pricing decisions to continue to be guided by fundamentals, including the profile and value proposition being offered by the asset, the level of competition within the target market segments, etc. With regard to the impact on capital allocation, based on what is known at present, management stated that it would appear to be fair to assume, that embedded within the calculus of the returns potential for assets with larger-scale revenue potential, should be the assumption that there is the potential for opportunities to be “capped” at 9 or 13 year post approval; and as such, logically impacts the structure, extent, timelines and sequencing of development programs for certain drugs. When asked to opine on potential impact on specific assets in their portfolio, management noted that they do not expect Opdualag to be impacted by the potential exposure to price negotiation for Opdivo, pointing to Opdualag’s approval under a distinct BLA. Management did concede, however, that there remains uncertainty regarding how a subcutaneous version of Opdivo would be considered, noting that potential approval would likely not occur under a separate BLA. (See previous links for our discussion of text related to new formulations of approved products). Finally, when asked about the potential role that legal challenges by the industry could play as details regarding structure and implementation are further established, management responded that based on their understanding of the context by which legal challenges to certain provisions within the bill could be introduced, litigation would appear to be unlikely over the near-term, noting that they would not expect such actions to occur until the outlining of implementation plans has progressed further, pricing based on negotiations has been set, and thus potential harm may be more specifically identified, enabling in turn, contemplation of potential legal remedies as a path for potentially addressing concerns. 

In terms of the company’s longer-term outlook, when considered both out to 2025 and also out to 2029, we perceive that with the multiple noteworthy (in our view) accomplishments over the past 12 months, management’s confidence has been bolstered in the 2025 guidance and aims for revenues in 2029 to exceed the level being targeted for 2025. Management noted that while they have been clear that the strategy includes plans to be actively engaged on the business development front, calculations of target levels do not include any assumptions for revenue contribution from anticipated M&A. Management noted that beyond the varying degrees of uncertainties that are naturally tied to variances in views relating to the prospects for assets across the commercial portfolio and late-stage assets, a potential contributor to the differential in Street forecasts vs. their guidance objectives and goals include the company’s inclusion of risk-adjusted revenue contribution from the portfolio of mid-stage pipeline (e.g. cendakimab, CELMoD). In addition, the company mentioned that they believe that the company’s guidance for 2029 non-risk adjusted revenues for certain products, could also conceivably prove to be conservative. In our view, forecasts by the Street for assets such as Sotyktu and the CAR-T portfolio, could arguably fall in this category. Additionally, when asked to opine on their expectations for how Opdivo revenues in particular could evolve during the post-LOE (2028) period, management shared that in their view, an appropriate base case assumption would be to assume a relatively standard biosimilar erosion curve trajectory for Opdivo, but note that they expect Opdualag revenues to be protected into the 2030s.

With newly approved Sotyktu, management highlighted certain aspects of the company’s commercialization approach including establishment of a dedicated, highly experienced (12 years median in the category, with 20 years professional tenure) specialty focused commercial team that is being activated to launch the drug. Management’s tone, in our view, came across as confident. Interest in the drug abounds as awareness is already high, and the team goes forth confident in the drug’s profile and the robust clinical data sets in hand (i.e., head to head comparisons with standard of care competitor regimen) and in the label (clean in our view, with notably no black box warning akin to that constraining agents in the JAK inhibitor class). On the potential impact from Humira biosimilars on the psoriasis market, management discussed that they have already contemplated in their planning, a wide range of potential scenarios for how the market could evolve. Of note, they do not expect that meaningful an impact on the psoriasis market dynamics for Sotyktu in the 2023/24 period, but acknowledged that there is naturally some uncertainty in terms of how the market could evolve in the 2025/26+ period. That said, management emphasized that despite this uncertainty they feel confident in the product’s opportunity, positioning and outlook, especially versus Otezla, given Sotyktu’s clinical profile and label. On the forward, data readouts from clinical development effort across a range of attractive indications - such as Psoriatic arthritis, and including in particular in our view, in Lupus (where a Phase 3 trial has commenced) and where an advanced oral therapy could be disruptive, helping address significant unmet need in a challenging and sizable indication.

On Milvexian post the presentation of Phase 2 secondary stroke prevention (SSP) data at the ESC meeting a month ago in August, management reiterated their confidence in their strategy and on the scope of potential opportunities. While investors remain to learn of (and dissect) further details regarding the Phase 3 program (e.g., whether they plan to evaluate different doses and multiple doses across the 3 target indications was not disclosed), BMY highlighted the opportunity in atrial fibrillation in particular (once again referencing the estimated ~40% of potentially eligible patients who are either not being treated (~20%) or are being under-dosed/receiving inadequate treatment (~20%) as being the targets that continue to be assumed in BMY and their partner JNJ’s forecasts (JNJ’s commentary specifically has included expectations that the product has potential to achieve peak revenues in the range of $5bn+). 

And finally, our sense for management’s views on the scope of opportunity for the company’s CAR-T portfolio is that their bullishness remains strong, and genuinely undiminished by the current delivery challenges (manufacturing supply constraints) that currently weigh on near-term revenue performance. Not debated, is that demand is strong. Further, we concur with management that demand is likely to further strengthen as data sets continue to accrue, bolstered further by clinical experience in managing patients, from earlier line treatment settings - where supportive arguments such as impressive efficacy (CR rates) and increasing potential for delivery challenges to be better navigated (i.e., outpatient treatment and reimbursement economics). During our meeting, management reiterated that they expect Abecma supply to continue to improve in 2H22 and into 2023, while efforts to address Breyanzi manufacturing shortages will extend into 2023. On Abecma, they emphasized that they believe that a combination of factors - including broad appreciation for the product’s predictable safety profile and concordance between the drug’s clinical profile as demonstrated during clinical trials with real-world efficacy data (as presented at ASCO 2022) is proving helpful in bolstering physician confidence in the product. Importantly, BMY continues to believe that there is room in the market for more than one agent, especially in view of the demand. Finally, reinforced in our conversation is our sense that the December ASH Meeting this year is likely to be quite a relevant and timely forum for important clinical updates in the space, including in particular, from BMY. To highlight, BMY plans to present full data at ASH from the KarMMa-3 study, for which top line results were shared earlier this year. BMY also highlighted that they expect to present data from their subcutaneous formulation of their BCMAxCD3 t-cell engager (CC-93269) and both expansion and combination data for CC-99282 (CELmoD) - assets which we expect to increasingly emerge as part of the vernacular of pipeline agents that investors should expect to come more in focus on the forward, over the near and intermediate term. Thus, we will be looking to ASH for potential catalysts still ahead during 2022. 

We reiterate our BUY rating on BMY shares. 





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