Analyst Conference Summary



conference date: April 28, 2016 @ 6:00 AM Pacific Time
for quarter ending: March 31, 2016 (first quarter, Q1)

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Forward-looking statements

Overview: Strong y/y revenue and product growth continues. 2016 guidance was narrowed to the upper end of the prior range.

Basic data (GAAP):

Revenue was $2.51 billion, down 2% sequentially from $2.56 billion, and up 21% from $2.08 billion in the year-earlier quarter.

Net income was $800.7 million, up 43% sequentially from $561.0 million, and up 11% from $718.9 million year-earlier.

EPS (earnings per share, diluted) were $0.99, up 43% sequentially from $0.69, and up 15% from $0.86 year-earlier.


2016 guidance was narrowed to the upward half of the prior guidance range.

Product sales $10.75 to $11.0 billion, with an adjusted operating margin near 53.5% and GAAP operating margin of 42%. GAAP EPS $4.26 to $4.56. Non-GAAP EPS $5.60 to $5.70. 811 million weighted average diluted shares.

Also updated 2017 and 2020 guidance; see below.

Quarter Highlights:

Saw the usual Q1 Medicare donut hole effects. But Revlimid sales came in ahead of expectations and costs were well-controlled. Accelerated share buy back program in the quarter. Foreign exchange rates had a negative effect.

Revlimid growth was mainly unit volume driven. "Highly confident in Revlimid's future growth projectory." Duration of care is treating around the world. Overall revenue growth was mostly volume driven, with only slight price increases.

Otezla is ahead of Enbrel in market share for psoriasis, at 20%. Is at 15% for psoriatic arthritis. Had positive data in the ankylosing spondylitis long-term follow up. Filed an NDA in Japan and reported positive Phase 3 results for PsA biologic-naive patients. Phase 2 results in atopic dermatitis expected in Q2 2016.

Plans to initiate 50 new clinical trials in 2016. Data from at least 18 Phase 3 trials is expected in 2016 through mid-2018.

Non-GAAP numbers: net income $1.06 billion, up 10% sequentially from $0.96 billion and up 19% from $891 million year-earlier. Diluted EPS was $1.32, up 12% sequentially from $1.18, and up 23% from $1.07 year-earlier.

Abraxane sales were relatively weak and will continue to be due to competition, but has become the standard of care for pancreatic cancer.

Total product sales were $2.495 billion, down 2% sequentially from $2.54 billion, and up 21.4% from $2.055 billion year-earlier. $ billion of sales were in the U.S., $ million were outside the U.S.

Revenue in millions
Q1 2016
Q4 2015
Q1 2015
change y/y

Other, non-product revenue was $16.9 million.

Cash and securities balance ended near $5.71 billion, down sequentially from $6.6 billion. Debt was $14.3 billion. Operating cash flow was $975 million. $1.4 billion was spent to repurchase shares. $2.5 billion remains in share repurchase program.

Revlimid for the treatment of non-del 5q lower risk myelodysplastic syndromes (MDS)

A Phase 3 registration study of GED-0301 for Crohn's disease enrollment completion expected by year end. Endoscopy Phase 3 trial complted enrollment with data expected in 2017. Ulcerative Colitis Phase 2 trial is enrolling.

Positive Ozanimod Phase 2 MS study results were presented. The phase 3 data is expected in the first half of 2017. Ulcerative Colitis Phase 3 trial is enrolling.

Long term growth in hematology and oncology that had events in Q1 were the FUSION program and enrollment in partnered programs for luspatercept, AG-221 and AG-120. Opting in on Juno CD19 CAR-T program and Bluebird Bio BCMA program.

2016 possible data readouts:

REMARC trial with REVLIMID in DLBCL maintenance
CONTINUUM trial with REVLIMID in CLL maintenance
ETNA trial with ABRAXANE in neoadjuvant breast cancer
Phase 2 CC-122 for NHL and for SLE
Phase 2 motolimod (VTX-2337) in SCCHN and ovarian cancer

Rest of year planned trial starts include AG-120 Phase 3 in IDH1 mutant AML; CC-122 pivotal trial in NHL; Phase 3 trial of RPC4016 in EoE.

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 $105.9 million. Research and development expense was $733.2 billion. Selling, general and administrative expense was $543.0 million. Amortization of acquired intangibles was $91.8 million. Acquisition charges $36.2 million. Leaving operating income of $1.00 billion. Other & interest expense was $79.9 million. Income tax provision $120.9 million.

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

Long term targets: 2017 adjusted diluted EPS $6.75 to $7.00. 2020 adjusted diluted EPS over $13.00. CAGR (annual growth rate) through 2020 is projected at 18% for product sales and 23% for adjusted diluted EPS.


2017 guidance Revlimid up vs. other product sales down? Backup slide just shows that with FX out it shows strong operational performance. We can see sales momentum at current FX rates. The mix of revenue will be different than we thought in the past, with Revlimid up $1 billion, but FX will also effect that the most. Pomalyst would also be hit by FX because of our increased international sales. Abraxane revenue projections are down from before. Otezla target has been reaffirmed regardless of FX.

Long term Revlimid cliff, what will offset it? We have pretty clear visibility on bringing targeted therapies to market for multiple myeloma. We can potentially accelerate the next generation of therapies. The 2025-26 timeframe will probably see not one replacement for Revlimid, but multiple, to continue to grow through that period.

80% of patients who are being prescribed Otezla are getting insurance approvals at this time, which is not bad for a launch.

Leverage on balance sheet, guidance? We increased our debt load with the Receptos transaction. The plan is to work down our debt load. We are able to use foreign cash when buying offshore IP, and used some for Receptos. Our U.S. cash position is relatively good. Whether we would take on more debt for a large transaction would be specific to the deal. But we have a pretty full pipeline right now.

Q1 sequentially down? With ACA we make payments and also have to pay more to fill the donut hole. That is the main item each Q1, and for most of our industry. So gross to net is worse in a typical Q1. Plus we had a Pomalyst one-time adjustment in France.

Drug pricing thoughts? How do we afford the healthcare we want to have but invest in the future. It comes up in Presidential election years. A significant impact from politics is unlikely to occur. But we need to define value within our system, working with payers to restrain costs, but still working on better therapies for diseases. We have been engaged in this discussion, world wide, for a long time. The narrative in the media is different than what we deal with for patients and government.

REMARC trial powering? The design for Revlimid maintenance powered for PFS and OS after RCHOP. Expected PFS is 15 months vs. control and perhaps not statistically significant trend on OS, should work for a submission.

Driver for long-term revenue guidance increase for Revlimid? The data for long-term performance and for newly-diagnosed myeloma. We are seeing market share increases and longer length of treatment. We are seeing good results with Pomalyst as well. Our operational strength has compensated for the dollar strength in the 2020 projections. We also have a robust pipeline, so the guidance could turn out to be conservative.

Confidence in 2017 Otezla guidance? TrXs continue to grow, patient initiations are at a high level, we are gaining market share, and there is strong persistence in Otezla vs. biologics. We also have a number of European launches ahead, as well as a potential approval in Japan this year. Cosentyx launch is mainly hitting a different part of the market.

We want to maintain our Otezla position at a discount to biologics price, so we have not been aggressive with price increases bs. the biologics.

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Copyright 2016 William P. Meyers