Analyst Conference Summary



conference date: October 24, 2013 @ 6:00 AM Pacific Time
for quarter ending: September 30, 2013 (third quarter, Q3 2013)

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Forward-looking statements

Overview: Increased 2013 revenue guidance, but Q3 GAAP net income was down sequentially and y/y on increased expenses.

Basic data (GAAP):

Revenue was $1.674 billion, up 5% sequentially from $1.599 billion, and up 18% from $1.419 billion in the year-earlier quarter.

Net income was $372.5 million, down 22% sequentially from $478.1 million and also down 12% from $424.2 million in the year-earlier quarter.

EPS (earnings per share, diluted) were $0.87, down 22% sequentially from $1.11 and down 10% from $0.97 year-earlier.


2013 guidance increased to net product sales above $6.2 billion. Revlimid revenue $4.2 to $4.3 billion. Non-GAAP EPS $5.90 to $5.95. GAAP EPS $3.77 to $3.90. 49% non-GAAP operating margin.

Quarter Highlights:

In the quarter Imnovid (Pomalyst in the U.S.) was approved for relapsed and refractory multiple myeloma in Europe and Abraxane was approved for pancreatic cancer in the U.S.

Non-GAAP numbers: net income $669.5 million, up 2.5% sequentially from $652.9 million and up 19% from $561.3 million year-earlier. EPS $1.56, up 3% from $1.52 and up 21% from $1.29 year-earlier. The main difference between GAAP and Non-GAAP results were stock-based compensation, upfront collaboration payments of $171.3 million, amortization of $65.7 million, and acquisition and restructuring charges of $33.7 million.

Product sales were $1.644 billion, up 5% sequentially from $1.564 billion and up 18% y/y. Volume growth was 19.3%, with prices flat; lower sales rate is due to foreign exchange headwinds.

REVLIMID revenues were $1.09 billion, up 12% y/y. New data in newly diagnosed multiple myeloma will be presented at ASH this quarter. Submissions for NDMM, based on positive results from the FIRST Phase III trial, will be submitted to the FDA and European regulators in the first quarter of 2014.

VIDAZA revenues were $220 million, flat y/y. Generic competition started in the U.S., but continues to grow internationally.

ABRAXANE revenues were $170 million, up 60% y/y, driven by new patient starts in pancreatic cancer. Will have a Europe decision in pancreatic cancer by year's end, then will work on further international approvals.

THALOMID revenues were $60 million.

POMALYST / Imnovid (pomalidomide) revenues were $90 million, up 35% sequentially, in the second full quarter of sales. Early results from Europe are encouraging.

Royalty and collaboration revenue was $30.4 million, down sequentially from $34.9 million

Cash and securities balance ended at $5.85 billion. Short and long-term debt was $4.6 billion. Operating cash flow was $571.1 million. $211 million was spent to repurchase shares. $1.5 billion in new senior debt notes was issued in the quarter.

48.9% adjusted operating margin despite increased investments in R&D and marketing.

Abraxane was approved by the FDA for metastatic pancreatic cancer. Also submitted for marketing authorization in Europe. Also hoping for good results in Melanoma in 2013 and bladder cancers. A Phase III trial started for triple negative breast cancer. Phase III trials should start soon for adjuvant pancreatic cancer and squamous non-small cell lung cancer. Survival data from the Phase III trial for melanoma are expected this quarter.

Apremilast for psoriatic arthritis new drug application was submitted to FDA in the first quarter, the PDUFA date is March 21, 2014, with commercial launch hoped for in 2014. Also submitted for Canadian approval. New data will be presented at ACR this quarter. Will submit for psoriasis in second half. Completed enrollment in ankylosing spondylitis phase III trial in Q3 2013. Apremilast is well-tolerated. Celgene is fully prepared for launches in 2014.

Revlimid large B-cell lymphoma trial enrollment is expect to complete in Q4. Phase 3 newly diagnosed follicular lymphoma enrollment continues. New trials for indolent non-Hodgkin's lymphoma are expected to commence this quarter.

Over 20 compounds are now in pre-clinical or clinical development. There are 25 pivotal trails underway and 12 earlier-stage trials, plus 30 pre-clinical programs. See also Celgene product pipeline.

Cost of goods sold was $86.2 million. Research and development expense was $584.5 million. Selling, general and administrative expense was $448.7 million. Amortization of acquired intangibles was $65.7 million. Acquisition & restructuring charges $33.7 million. Leaving operating income of $455.6 million. Other expense was $13.6 million. Income tax provision $69.5 million.

Increased GAAP operating expense was related to increases in clinical trials and higher upfront payments for collaborations, for the European launch of Imnovid, and the U.S. launch of Abraxane for pancreatic cancer.

Investment in Inflamation and Immunology (I & I) franchise will increase in Q4.


Driver to push the EU filing for 020 Revlimid? MM020 is very clear on dosiers of data. The timeline is for submission in Q1 just to make sure everything is optimal for submission.

SG&A in 2014? No 2014 guidance. The trajectory is for faster profit growth than revenue growth, but 2014 is the largest year for building the franchise. So the progress to 2015 operating margin estimates is not linear, improvement will be more in 2015. R&D timing is due to the large size of the portfolio.

R&D, need for a JAK inhibitor? We are happy with our collaborators. We don't see a need to do anything large at this time, but always are looking for new collaborations that fit our strategy.

MM020 filing label? Intent is to get the broadest possible label for newly diagnosed multiple myeloma (NDMM). We are using safety data from all the studies.

PFS2? Overall survival is a difficult endpoint to achieve. Progression Free Survival 2 is an important endpoint, and regulatory agencies are increasingly looking at it.

Buy backs? Because the stock price is so much higher than a year ago, this use of cash is now more likely to just offset dilution from stock-based compensation.

Pomalyst market share? It has billion plus potential in its core indication. "The growth trajectory is very good for this product and will be for a while."

2017 guidance affected by MM020 results? We do have better visibility today. Now consider that the 2017 targets are highly achievable. There is a lower level of risk to our achieving those targets. We can look at the MM020 data at ASH.

Implied Q4 guidance? Factoring in generic Vidaza full quarter in the U.S. Will accelerate investment in I & I. Feels very good about hitting the new raised guidance for the full year.

The majority of Pomalyst patients in the U.S. are either coming off Revlimid or Kyprolis.

Apremilast pricing? We see Apremilast being in the pre-biologic space, so it will be in accord with that.

Ankylosing spondylitis has about 1 million patients in the U.S., 2.2 to 2.3 million in the U.S. and Europe.

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Copyright 2013 William P. Meyers