conference date: January 30, 2014 @ 6:00 AM Pacific Time
for quarter ending: December 31, 2013 (fourth quarter, Q4 2013)
Overview: Continued strong revenue growth, but profits down on major increase in R&D spend.
Basic data (GAAP):
Revenue was $1.756 billion, up 5% sequentially from $1.674 billion, and up 21% from $1.447 billion in the year-earlier quarter.
Net income was $214.4 million, down 42% sequentially from $372.5 million and even down 19% from $263.1 million year-earlier.
EPS (earnings per share, diluted) were $0.50, down 43% sequentially from $0.87 and down 18% from $0.61 year-earlier.
For 2014 revenue is expected near $7.5 billion, which would be 15% growth over 2013. Product sales $7.3 to $7.4 billion. Revlimid sales $4.9 to $5.0 billion. Non-GAAP operating margin around 50%; GAAP 39%. Will invest in new & ongoing R&D, collaborations and commercial capabilities, notably in immunology and inflation therapies.
Resulting in expected non-GAAP diluted EPS of $7.00 to $7.20. GAAP EPS $5.54 to $5.92. 425 million fully diluted average shares.
2017 estimated revenues increased to $13 to $14 billion, with non-GAAP EPS of at least $15. That implies a 21% CAGR for sales and a 26% CAGR for EPS.
"Our operating momentum and data from key clinical trials support strong growth in 2014 and beyond," according to Bob Hugin, Chairman and CEO. 2013 growth was driven by volume, plus a 2% y/y increase in prices offset by a 1% negative effect of currency exchange rates.
Success in 2013 provided the means of building an even-more-diverse early-stage pipeline, as well as new collaborations. Expect 3 programs to emerge from new biologics capabilities in 2015. In 2014 both more phase III results and advancement of some therapies into phase III trials is expected.
Non-GAAP numbers: net income $649 million, down 3% sequentially from $669.5 million but up 13% from $572 million year-earlier. EPS was $1.51, down 3% from $1.56, but up 14% from $1.32. The main difference between GAAP and Non-GAAP results were stock-based compensation, upfront collaboration expense of $227 million, amortization of acquired intangibles of $66 million, a change in fair value of contingent consideration of $92 million, offset by the resulting reduction of income taxes of $129 million. Product gross margin was 95%. Operating margin was 46.1%.
Product sales were $1.725 billion, up 5% sequentially from $1.644 billion.
REVLIMID revenues were $1.136 billion, up 13% y/y from increased therapy duration and market share gains. U.S. sales were $663 million, international $473 million.
VIDAZA revenues were $168 million, down 22% y/y. U.S. sales $27 million, down 70% due to competition from generics.
ABRAXANE revenues were $202 million, up 90% y/y. U.S. sales $159 million, up 89%. International sales $43 million, up 92%. Use for non-small cell lung cancer, pancreatic cancer and (in Europe) breast cancer all showed gains.
THALOMID revenues were $61 million, down 16% y/y.
POMALYST / Imnovid (pomalidomide) revenues were $121 million (new drug for relapsed/refractory multiple myeloma, so no y/y).
Other product sales (Istodax and authorized generic Vidaza) were $37 million.
Royalty revenue was $29 million and collaboration revenue was $2 million.
Cash and securities balance ended at $5.7 billion. Short and long-term debt was $4.7 billion. $722 million was spent to repurchase shares.
Full year 2013 operating cash flow was $2.2 billion.
In 2013 Celgene made upfront payments of $576 million for R&D collaborations and $162 million in equity stakes and $53 million in pre-paid R&D. An aggreate of $1.5 billion in bonds were issued to support these investments.
Abraxane for metastatic pancreatic cancer was approved for marketing in Europe. Country by country launches are planned.
Otezla (was 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. Will submit for psoriasis in second half. Data expected from ankylosing spondylitis phase III trial in Q2 2014. A Phase III trial for Behcet's disease is planned for initiation in 2014. Celgene is fully prepared for launches on any approvals in 2014, with in-place teams and launch plans.
Over 20 compounds are now in pre-clinical or clinical development. There are 25 pivotal trials underway and 12 earlier-stage trials, plus 30 pre-clinical programs. See also Celgene product pipeline.
Cost of goods sold was $92.8 million. Research and development expense was $731.2 million. Selling, general and administrative expense was $448.7 million. Amortization of acquired intangibles was $65.7 million. Acquisition & restructuring charges $91.7 million. Leaving operating income of $325.8 million. Other expense was $108.6 million. Income tax provision $2.8 million.
For the full year 2013 revenue was $6.5 billion, up from $5.5 billion in 2013. Non-GAAP net income was $2.56 billion or $5.96 per share, up 21%.
By 2017 the plan is to reduce R&D as a percent of revenue from the current 23.2% to 19%, and SG&A from 23.4% to 18%. That would result in an operating margin of 57%. (all non-GAAP).
Ankylosing spondylitis effects if trial successful? It is a very near term outlook. There are not any oral therapies, or much at all, for the disease. The study is fully accued for patients. We see a fit with marketing for psoriatic arthritis. As to the dollar value, it will evolve over time. We have not included any revenue for this indication in our current guidance.
Slide 41, collaboration payments, what is planned for 2014? We think these investments will pay off nicely over time. We saw data in 2013 from partner companies that led us to engage in a high level of activity. Guidance includes costs from 2013 deals, but not any possible new deals.
First line label for Revlimid? We would expect approval coming about 12 months after submissions, around Q1 or Q2 2015. By mid 2016 the majority of European countries should have settled into reimbursement pricing. In Europe it would be a non-transplant eligible population. That is included in guidance for 2017, but conservative in share uptake.
CC-486 for solid tumors? Epigenetic priming data for ovarian and other solid tumors is exciting. We could see Phase II data in 2015. Our targetted therapeutic antibody pipeline is also very exciting, and could be combined with priming. In 12 to 18 months we hope to get data allowing us to go into pivotal Phase III trials with epigenetic priming.
We believe that there are so many trials of novel agents added to a revlimid/dex backbone, that in a few years that will become the paradigm for new MM patients and maintenance therapy, greatly expanding Revlimid use.
Chronic kidney disease is a huge opportunity if we can show a positive impact on bone with the right risk/benefit. But we need more data.
Expect to see the usual Q1 downward seasonality? It is the donut hole exposure that usually causes that. It is early in Q1, so far we are encouraged.
Pricing? We typically take price increases in the U.S., but in 2013 in Europe the decreases were less than planned. But it can be choppy in some countries.
Abraxane in 2013, by disease? EU pancreatic approval came at the very end of 2013. Pacreatic cancer will be the growth factor in 2014. Lung cancer in the U.S. will be the second driver, with breast cancer relatively stable.
Cash use in 2014? We like cash to provide financial flexibility. We are managing for a sustained, long-term share repurchase program. For business development nothing has changed; our high cash balance does not imply we are going to make a huge acquisition.
CLL (chronic lymphocytic leukemia)? There are a number of new therapies for CLL; we are happy for the patients. But no treatments are curing patients, and the pool of long-term patients is growing. That is the population we could help with Revlimid for maintenance. BTK inhibitor with Revlimid or a biologic depends on future data.
CC-122 for myeloma? CC-122 has shown good response for NHL, CLL or myeloma, but it is too early to be specific. This year we should define the pathway to registration.
HCY 1215 for myeloma should get some early data this year, in combination with other drugs, that could define a path to registration.
Dividend vs. buy-backs? But backs are a pillar of our capital deployment strategy. We will continue to look at the possibility of dividend payments, especially if new products ramp up some time after 2014.
Decided not to immediately pursue a registration strategy for Abraxane for melanoma due to mixed data, but continue to experiment with it in combination with other therapies.
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