Analyst Conference Summary



conference date: October 27, 2016 @ 6:00 AM Pacific Time
for quarter ending: September 30, 2016 (third quarter, Q3)

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Forward-looking statements

Overview: strong quarter, updated 2016 guidance up slightly overall. Look for large differences between GAAP and non-GAAP numbers.

Basic data (GAAP):

Revenue was $2.98 billion, up 8% sequentially from $2.75 billion, and up 28% from $2.33 billion in the year-earlier quarter.

Net income was $171.4 million, down 71% sequentially from $598.2 million, but up from negative $34.1 million year-earlier.

EPS (earnings per share, diluted) were $0.21, down 72% sequentially from $0.75, but up from negative $0.04 year-earlier.


2016 net product sales expected near $11.2 billion, of which $7 billion is from Revlimid. Resulting in GAAP EPS of $3.12 to $3.29 (down from prior guidance) and non-GAAP EPS of $5.88 to $5.92 (up from prior guidance).

2017 net product sales expected between $12.7 and $13.0 billion, with non-GAAP EPS between $6.75 and $7.00.

Quarter Highlights:

Celgene CEO Mark J. Alles said "Our increasing enterprise-wide momentum has us on-track to exceed key 2016 objectives and positions us well for sustained long-term growth." Celgene has a principled approach to pricing innovative therapies.

The FDA granted Priority Review for Revlimid as a maintenance treatment, post-autologous stem-cell transplant, in Multiple Myeloma. The PDUFA (decision) date is February 24, 2017. A European decision is also expected in the first half of 2017.

The main differences between GAAP and non-GAAP results were from the acquisition of EngMab.

"In September, Celgene completed a transaction to acquire Switzerland-based, privately-held biotechnology company EngMab AG for $625.3 million plus contingent development, regulatory and commercial milestones. EngMab's lead molecule is EM901, a T-cell bi-specific antibody targeting B-cell maturation antigen (BCMA). The acquisition includes an additional undisclosed program. The Company plans to file an Investigational New Drug (IND) application for EM901 in late 2017. The transaction was accounted as an asset acquisition, resulting in $623.3 million of research and development expense and $2.0 million of net working capital acquired."

Non-GAAP numbers: net income $1.23 billion, up 7% sequentially from $1.15 billion and up 22% from $1.01 billion year-earlier. Diluted EPS was $1.58, up 10% sequentially from $1.44, and up 28% from $1.23 year-earlier. Non-GAAP numbers exclude share-based compensation of $147 million, collaboration upfront expense of $324 million, litigation accrual expense of $30 milion, $87 million in amortization, $23 million change in fair value of contingent consideration, with a tax benefit of $145 million from the above.

Total product sales were $2.97 billion, up 8% sequentially from $2.74 billion, and up 28% from $2.31 billion year-earlier. $1.80 billion of sales were in the U.S., $1.16 billion were outside the U.S.

Revenue in millions
Q3 2016
Q2 2016
Q3 2015
change y/y

Other, non-product revenue was $14 million.

Revlimid got a boost in the quarter from sales to Russia, which are not expected to be repeated in Q4, but which have typically been happening twice per year.

Otezla is still waiting for reimbursement decisions in most EU nations. On track to achieve blockbuster status.

Cash and securities balance ended near $6.87 billion, up sequentially from $6.4 billion. Debt was $14.3 billion. Operating cash flow was $723 million. $273 million was spent to repurchase shares. $4.9 billion remains in share repurchase program.

"Celgene expects to submit a new drug application (NDA) to the FDA for enasidenib (AG-221) in relapsed and/or refractory acute myeloid leukemia (AML) with isocitrate dehydrogenase-2 (IDH2) mutation by year-end. The NDA will be based on data from an ongoing phase I/II trial in patients with relapsed and/or refractory AML and other advanced hematologic malignancies with an IDH2 mutation." AG-221 is licensed from Agios.

A considerable amount of new data on Abraxane and Revlimid will be released before the end of the year, notably at ASH (American Society of hematology) meeting in December.

Phase 2 data for ozanimod for multiple sclerosis was released in September.

GED-0301, mongersen, data were presented. Phase 3 data is expected in 2018. Believes is fundamentally different than other therapies. "Confident this product will be transformational."

More Otezla data will also be coming out in 2016.

See also Celgene product pipeline. There are a large number of trials under way not mentioned in this summary. Many of these programs are "potentially transformative."

Cost of goods sold was $107.7 million. Research and development expense was $1,653.5 million. Selling, general and administrative expense was $698.0 million. Amortization of acquired intangibles was $87.1 million. Acquisition charges $25.0 million. Leaving operating income of $411 million. Other & interest expense was $154 million. Income tax provision $85.4 million.


Revlimid post transplant benefit confidence? There is a distinct post-transplant opportunity in Europe. In U.S. there is already usage. Once we have the launch we can do education and market share should go up.

Revlimid duration inflection point? Progression free survival with triplets provide 20 to 28 months, and some data showing 40 to 50 months, versus our current 18 months. It will take time to build up duration.

AG-221 product positioning? Confident to be able to submit by end of year. There is very little therapy for AML, and a high need. Our data has matured, the efficacy and duration is very good, for the IDH2 mutation in relapsed refractory AML. Then we hope to extend the label based on other studies already underway.

Paragraph 4 filing? We expected more filers all along. We have filed a suit against them. We intend to defend our legal property and patent estate for Revlimid. We have 13 patents that cover rems to 2020, then other patents that cover it until 2027.

Pricing in Europe with Revlimid? The speed of getting reimbursements shows they understand the value proposition. Some markets require price reductions, but our reductions were minimal. The value proposition of the triplets is well-appreciated by payers around the world.

CLL has a serious unmet need, and CC122 had early positive results, more results later, it will be moved forward.

BCMA Juno v. EngMab? There is still a big need post Revlimid in MM. "BCMA is really a great target." Having both platforms availabe allows us to think about treatment sequencing. Also, CAR-T is only for younger patients. We could combine either or both with imids or checkpoint modulators.

Otezla compliance, duration? 90% of patients are coming from something other than a biologic. Duration is about 1 year so far, better than other oral compounds in the space. We have some 4 year data coming out, 65% stayed on 4 years in a trial.

We will have a comprehensive atopic dermatitis in a few months after we have reviewed the data and options available to us.

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Copyright 2016 William P. Meyers