Analyst Conference Summary



conference date: October 23, 2014 @ 6:00 AM Pacific Time
for quarter ending: September 30, 2014 (third quarter, Q3 2014)

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Forward-looking statements

Overview: Another strong quarter.

Basic data (GAAP):

Revenue was $1.98 billion, up 6% sequentially from $1.87 billion, and up 19% from $1.67 billion in the year-earlier quarter.

Net income was $508.5 million, down 15% sequentially from $597.8 million, but up 37% from $372.5 million year-earlier.

EPS (earnings per share, diluted) were $0.61, down 15% sequentially from $0.72, and up 42% from $0.43 year-earlier. (adjusted for 2 for 1 split in June 2014)


Some adjustments were made to full year 2014 guidance, with revenue nearly unchanged, GAAP EPS adjusted down and non-GAAP EPS adjusted up:

Revenue over $7.6 billion. Revlimid sales over $4.95 billion. Abraxane sales near $850 million. Non-GAAP operating margin over 50%. GAAP operating margin 33%.

Non-GAAP EPS $3.65 to $3.70. GAAP EPS $2.38 to $2.42.

Quarter Highlights:

Celgene believes "Upcoming U.S. and European clinical and regulatory milestones and the meaningful progress we are making with our pipeline strengthen our position for future growth and success." Celgene's therapies offer "value propositions driven by robust and expanding clinical evidence." Believes growth will continue into 2015 and beyond.

Celgene now has a collaboration and option agreement with Sutro Biopharma to develop antibodies and antibody drug conjugates (ADCs). This extends the 2012 agreement. Celgene currently owns 15% of Sutro. The upfront payment was $95 million.

Non-GAAP numbers: net income $806 million, up 7% sequentially from $750 million and up 20% from $669 million year-earlier. Diluted EPS was $0.97, up 8% from $0.90, and up 24% from $0.78 year-earlier. Excludes up-front payments on new collaborations, as well as stock-based compensation, etc.

Non-GAAP product gross margin was 95.4%. Operating margin was 52.0%.

Total product sales were $1.96 billion, up 19% from $1.64 billion year-earlier. $1.13 billion of sales were in the U.S., $830 million were outside the U.S. Of the 19% growth, 15% was due to unit volume and 4% due to price increases.

REVLIMID revenues were $1.30 billion, up 7% sequentially from $1.21 billion and up 19% from $1.09 billion year-earlier. Application was made for label expansion to newly diagnosed multiple myeloma (NDMM) FDA PDUFA date is February 22, 2015.

VIDAZA revenues were $157.8 million, up 4% sequentially from $152.0 million, but down 28% from $220.4 million year-earlier. Reflects the impact of generic azacitidine sales in the U.S. market.

ABRAXANE revenues were $212.2 million, down 1% sequentially from $215.3 million, and up 25% from $169.6 million year-earlier. The launch for pancreatic cancer in Europe is going well. A Phase III trial for adjuvant resected pancreatic cancer continued enrollment as did a Phase III trial for maintenance for squamous cell non-small cell lung cancer (NSCLC).

THALOMID revenues were $51.9 million, down 4% sequentially from $54.3 million and down 14% from $60 million year-earlier.

POMALYST / Imnovid (pomalidomide) revenues were $181.1 million, up 13% sequentially from $160.9 million, and up 102% from $89.5 million year-earlier. Pomalyst y/y sales increase driven by launch in Europe.

Otezla (apremilast) revenues were $17.6 million, up sequentially from $4.6 million. It had been approved on March 21 for psoriatic arthritis and revenue commenced in Q2. "As of the end of July, Otezla® had captured the highest share of new patients of any brand in the U.S. psoriatic arthritis category." In addition on September 23 Otezla gained approval for treating moderate-to-severe plaque psoriasis. There are trials underway for further indications. Otezla is an oral therapy with no black box warning for serious infections or malignancies and no routine lab monitoring requirements, and "early demand is promising."

Istodax revenue was $15.7 million, down sequentially from $17.1 million, and up 12% from $14.0 million year-earlier.

Other product sales were $0.6 million.

Other revenue was $25.4 million, down from $30.4 million year-earlier.

Cash and securities balance ended near $6.9 billion, up sequentially from $6.2 billion. Operating cash flow was $901 million. Long-term debt was $6.7 billion. $252 million was spent to repurchase shares. $3.68 billion remained in the share-repurchase program.

Revlimid will continue to be advanced in combination with rituximab-CHOP for DLBCL (diffuse large B-cell lymphoma).

Partner Agios Pharmaceuticals initiated a Phase I/II trial of AG-221, a dehydrogenas-2 (IDH2) mutant inhibitor, in advanced solid tumors having a IDH2 mutation. The ongoing Phase I trial was also expanded to test AG-221 in a wider variety of cancers.

GED-0301, mongersen, an oral Smad antisense oligonucleotide for Crohn's disease, presented positive Phase II data in Vienna on October 21, showing strong achievement of remission at the 40 mg and 160 mg doses. The initiation of GED-0301 for Crohn's disease Phase III trial will be important and may commence by year-end.

Phase IIa data for sotatercept for hemodialyis anemia will be presented in November.

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

Celgene is initiating a broad Phase I/II clinical program with T-cell checkpoint inhibitors.

Cost of goods sold was $97.7 million. Research and development expense was $675.1 million. Selling, general and administrative expense was $497.6 million. Amortization of acquired intangibles was $63.7 million. Acquisition charges $1.5 million. Leaving operating income of $646.6 million. Other expense was $59 million. Income tax provision $69.0 million.


GED 301, kind of treatment duration to be comfortable with fibrosis safety? We have seen no fibrosis events so far. We are actively working with the FDA and global authorities for Phase III design. The trial would likely last 52 weeks.

GED 301 dosing? In the Phase II study you can see the dose responses. We have a lot of hints on where to go.

Endoscopy use in GED 301 study? In Phase II it was required to confirm that they had the disease prior to the trial. There was an option for patients to have an endoscopy at 4 weeks, but no one opted for it. There is likely to be a component in the Phase III trial, but that will be worked out with regulatory authorities.

There was some KOL skepticism about why GED 301 was working, given low placebo response? There has been the idea that Smad7 is over-expressed in Crohn's disease in the GI track. With our antisense technology silencing the mRNA, we are leaning to a reduction in Smad7 protein, which is allowing PGF beta to have a biological effect in the cells. This seems to lead to durability of response, which you are not seeing in other agents in the space. This response was consistent in pre-clinical, Phase I and Phase II. The low placebo rate was from the study design, which required remission at two time points. This allows to distinguish the drug signal from the normal waxing and waning of the disease.

Impact of steroids on the GED 301 study? The population we tested is more normal for Crohn's than other studies, so a higher percentage of them on steroids. "It was quite a broad population that we studied."

Abraxane flattish revenue last few quarters? Share in pancreas and lung continues to grow, but the growth has slowed over time as Abraxane became the standard of care. Breast cancer therapy is very competitive, and we have seen some decline in share there, and it is a big market. We think we have some things we can do in breast cancer to be more competitive. We are in the early days in Europe, with major country approvals ahead in 2015, which should drive new revenue. We will also be presenting new data in the future.

Cash offshore vs. onshore, and usage? In 10-Qs we say how much is in U.S. The majority of our cash is offshore, but we generate cash in the U.S. and so have cash to buy back shares. We bought more shares in the first half of the year when the stock price was soft. Our priority for cash is to take care of the strategic needs of the business, including acquisitions. We have a lean infrastructure with little capital spend. We return cash when it builds up.

Long term guidance plans? We tend to give that at the end of the year, when we have some clarity that will inform the market place.

We are very interested in ulcerated colitis, we have a Otezla trial for it and will probably try GED 301 or a modification of it.

Otezla drop off rate? We are seeing an inflection coming in scripts for psoriasis. So far we are seeing good persistency, but this is with limited data so far. "We are very, very pleased" with prescriptions so far.

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Copyright 2014 William P. Meyers