Analyst Conference Summary



conference date: November 5, 2015 @ 6:00 AM Pacific Time
for quarter ending: September 30, 2015 (third quarter, Q2 2015)

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Forward-looking statements

Overview: Continued solid revenue growth, but showed a GAAP loss due to expenses from collaborations and Receptos acquisition. It is important to look at the non-GAAP numbers, which reflect ongoing operations better.

Basic data (GAAP):

Revenue was $2.33 billion, up 2% sequentially from $2.28 billion, and up 18% from $1.98 billion in the year-earlier quarter.

Net income was negative $34.1 million, down sequentially from $356.2 million, and down from $508.5 million year-earlier.

EPS (earnings per share, diluted) were negative $0.04, down sequentially from $0.43, and down from $0.61 year-earlier.


2015 product sales are expected between $9.0 and $9.5 billion. Revlimid sales guidance increased to $5.8 billion. Abraxane guided down to $0.95 to $1.0 billion. Non-GAAP EPS $4.75 to $4.85. GAAP EPS guided down to $2.02 to $2.24 due to acquisition accounting.

Quarter Highlights:

Celgene acquired Receptos on August 17, 2015 for $7.1 billion. "The transaction adds ozanimod, a novel, potentially best-in-class, oral, selective sphingosine 1-phosphate 1 and 5 receptor modulator to the Company's deep and diverse pipeline of potential disease-altering medicines and investigational compounds. Phase III trials with ozanimod in moderate-to-severe ulcerative colitis and relapsing multiple sclerosis are ongoing with data from these trials expected beginning in 2017."

After the quarter ended, in October the Quanticel Pharmaceutics acquisition closed. Drug candidates are expected to start clinical trials in 2016. Celgene paid $100 million in cash and may pay up to an additional $385 million in contingent payments.

"The reported GAAP net loss for the quarter primarily reflects an increase in costs related to strategic transactions including upfront collaboration expenses driven by the Juno Therapeutics collaboration, inclusive of the premium paid to acquire an equity stake, as well as expenses incurred in connection with the acquisition of Receptos."

CEO Bob Hugin said "the continued progress of our clinical pipeline and important strategic collaborations have us well-positioned for long-term growth." Sales growth has been "robust." Investments in international sales are "virtually completed." Key drivers for 2020 goals are in place. Celgene is preparing a large pipeline of "disruptive, paradigm changing therapies."

Non-GAAP numbers: net income $1.01 billion, down 1% sequentially from $1.02 billion but up 25% from $806 million year-earlier. Diluted EPS was $1.23, flat sequentially from $1.23, and up 27% from $0.97 year-earlier. Excludes up-front collaboration payments and other charges. 54.5% operating margin.

Total product sales were $2.31 billion, up 3% sequentially from $2.25 billion, and up 18% from $1.96 billion year-earlier. $1.39 billion of sales were in the U.S., $1.13 million were outside the U.S.

Revenue in millions
Q3 2015
Q2 2015
Q3 2014
change y/y

Other revenue was $21.5 million.

Revlimid launch in newly-diagnosed multiple myeloma is going well, with launches in several major European countries still due.

Abraxane is now under competition in lung cancer from PD-1 inhibitors, but should continue to have a strong role. Further Abraxane trials are underway with intent to expand its label or establish it in combination therapies.

Otezla launches by country continue, indicating revenue will continue to ramp. In the U.S. it is taking share from biologics and dominating the new-to-therapy patients.

Cash and securities balance ended near $7.51 billion, up sequentially from $7.49 billion. Operating cash flow was $285 million. Debt was $15.5 billion. $815 million was spent to repurchase shares. $4.3 billion remains under the stock repurchase plan.

In October, Vidaza was approved by the European Commission for the treatment of adult patients aged 65 years or older with acute myeloid leukemia (AML) who are not eligible for hematopoietic stem cell transplantation. A positive opinion from the European Medicines Agency's Committee for Medicinal Products for Human Use (CHMP) was granted in September.

A supplementary NDA was filed with the FDA for the expanded indication of Revlimid for the treatment of non-del 5q lower risk myelodysplastic syndromes (MDS). The Prescription Drug User Fee Act (PDUFS) decision date for the submission is April 16, 2016.

A Phase 3 registration study of GED-0301 for Crohn's disease is starting with enrollment completion expected by year end. There will be a second Phase 3 trial as well, starting in early 2016.

The Phase 3 Otezla injectable plaque psoriasis trial data was presented in October, showing continued improvement of patients after 52 weeks.

At ASH in December data will be presented from Revlimid, luspatercept, AG-221, AG-120, and ACY-1215. Data from Abraxane studies will be presented at the Breast Cancer Symposium in December.

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.

Cost of goods sold was $109.9 million. Research and development expense was $1.30 billion. Selling, general and administrative expense was $550 million. Amortization of acquired intangibles was $64 million. Acquisition charges $226 million. Leaving operating income of $80 million. Other & interest expense was $100 million. Income tax provision $14 million.

Interest expense in 2016 is expected between $480 to $500 million. The increase is a result of debt used to finance acquisitions.

Discussed pricing and the impacts of healthcare costs on economies. Believes that innovative and effective drugs bring great value to society.


AstraZeneca deal on MM drug, data that PD1 for MM? Abstracts for ASH came out this morning. Revlimid / Pembro trials have very good response rates for MM. The deal has a much broader scope. We may also combine novel agents from our pipeline.

Abraxane weakness? We expect international growth to continue. In the U.S. it is very competitive, especially with the recent introduction of immuno-oncology (IO) therapies for lung cancer. We are waiting for the combination data in the IO space to mature, but the early data makes us optimistic for both lung and breast. So we have reason to believe that Abraxane combinations have a bright future.

Revlimid and Pomalyst pricing going forward? The evidence for their value is strong. There is significant support for treat to progression in triplet combinations. There could be more patient segmentation, but IMIDs should be the backbone for each combination. The value propositions for patients should be good.

Otezla duration of therapy? Once patients are acclimated they seem to stay on, with improving results over time.

Interest in ophthalmology? Not necessarily, we just wanted a great doctor on our board.

Biogen vs. Celgene's S1P1 molecule from Receptos? We evaluated Receptos over 2 years and looked at the variety of S1P therapies. We have non-public data, and we feel good about its profile. We are in Phase 3, they are behind.

About half of your cash for R&D this year is not on the P&L (acquisition expense)? We are excited about a pipeline that sets us up for long term growth. We invested a lot this year with AZ and Juno. When we collaborate or in-license we pay for their past R&D. Once they are with us we run the expenses through our P&L. We may not see this much of a bolus of spending going forward. The IO space opened up and we wanted to play a role. So 2015 is an unusual year for this kind of expense.

When might 2020 numbers be updated? We change our 2020 numbers when we believe they change significantly; no set schedule. We feel very good about 2020. The opportunity for Abraxane combinations has not been captured in the current 2020 forecast, nor the AZ/Medimmune program.

Infrastructure build-out, does it mean leverage over the next few years? We still have room to bring out new products.

Generic Velcade impact in Europe? With the clinical data for front line MM, we are doing well with Revlimid in Europe. We are not seeing much generic impact at this time.

There is a strong return on investment thesis that underlies our decisions for infrastructure and new drug platforms.

Cellular therapy strategy? We remain incredibly optimistic, but we have to prove it in trials. We won't increase of percentage of investment until we see some clear data. It could apply to a wide range of therapeutic areas.

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Copyright 2015 William P. Meyers