Analyst Conference Summary

biotechnology

Celgene
CELG

conference date: May 4, 2018 @ 6:00 AM Pacific Time
for quarter ending: March 31, 2018 (first quarter, Q1)

I own this stock
Forward-looking statements

Overview: Strong revenue growth and increased guidance. Diluted Non-GAAP EPS rose to $2.05 per share, up 15% y/y. [IMO implying share price should be about $160 per share, even neglecting the pipeline]

Basic data (GAAP):

Revenue was $3.54 billion, up 2% sequentially from $3.48 billion, and up 20% from $2.96 billion in the year-earlier quarter.

Net income was $0.846 billion, up sequentially from negative $81 million, but down from $0.932 billion year-earlier.

EPS (earnings per share, diluted) were $1.10, up sequentially from negative $0.10, and down from $1.15 year-earlier.

Guidance:

Raised 2018 guidance to high end of prior range exluding Juno. Including Juno::

Revenue approximately $14.8 billion. Operating margin GAAP 38%, non-GAAP 56.0%. Diluted EPS GAAP $6.31, non-GAAP $8.45. Tax rate 17%. Shares 755 million.

Note that dilution from Juno acquisition reduced EPS from prior guidance, which excluded Juno.

Quarter Highlights:

Celgene CEO Mark J. Alles said "With multiple catalysts for growth expected over the next 12 to 18 months, we are reaffirming our 2020 outlook." Emphasized Celgene's operating competence, in light of the Ozanimod delay. Revenue growth was mostly due to volume growth. Sees low share price as an opportunity to repurchase stock cheaply.

Under new accounting rules must mark investments to market. That produced the $965 in other income, which is excluded from non-GAAP numbers.

Ozanimod delay was caused by a metabolite of Ozanimod that had not seemed significant during preclinical work. Given the strong efficacy and safety results of the clinical trials, and the similarity of the metabolite, the objection of the FDA surprised Celgene. Believes can fix and resubmit in Q1 2019.

Acquired Impact Biomedicines for $1.1 billion and Juno Therapeutics for $9.1 billion in the quarter. Also paid $150 million upfront to Prothena to collaborate on neurodegenerative diseases. Paid $101 million upfront to Vividion Therapeutics to identify and develop a range of small molecule agents.

Non-GAAP numbers: net income $1.57 billion, down 1% sequentially from $1.59 billion and up 15% from $1.36 billion year-earlier. Diluted EPS was $2.05, up 3% sequentially from $2.00, and up 23% from $1.67 year-earlier. Product gross margin 96.4%. Operating margin 57.9%.

Total product sales were $3.53 billion, up 1% sequentially from $3.48 billion, and up 19% from $2.96 billion year-earlier. $2.28 billion of sales were in the U.S., $1.25 billion were outside the U.S.

Revenue in millions
Q1 2018
Q4 2017
Q1 2017
change y/y
Revlimid
2,234
$2,188
$1,884
19%
Vidaza
157
163
158
-1%
Abraxane
262
251
236
11%
azacitidine
7
4
9
-22%
Thalomid
31
28
36
-14%
Pomalyst
453
442
364
25%
Otezla
353
371
242
46%
Istodax
19
18
20
-5%
Idhifa
14
13
0
na
Other
1
1
1
0%

Other, non-product revenue was $7 million.

Cash and securities balance ended near $4.74 billion, down sequentially from $12.0 billion. Debt was $20.3 billion. Operating cash flow was negative $325 million. $1.1 billion was used to acquire Impact Biomedicines. About $9 billion was used to acquire Juno. $2.7 billion was used for share repurchases. $4.5 billion new debt was issued to finance part of Juno.

Liso-cel (formerly Juno's JCAR017) pivotal NHL (non-Hodgkin Lymphoma) trial completed enrollment in April. Updated data to be presented at ASCO in June. A DLBCL trial was started in April. A Phase 1 CLL trial started in Q1. JCARH125 for BCMA started in Q1.

BB2121, in partnership with Bluebird Bio, for R/R multiple myeloma Phase 1 CRB-401 study data also ASCO in June.

Tislelizumab for previously untreated hepatocellular carcinoma (HCC) started a Phase 3 trial in Q1, in partnership with BeiGene. Also a Phase 2 for previously treated HCC.

Fedratinib for myelofibrosis is a JAK2 kinase inhibitor that has already completed Phase 3 in treatment-naive patients and a Phase 2 in patients secondary to Jakafi. An NDA is planned for mid-2018. Contingent payments to Impact could be up to $5.9 billion.

Revlimid Phase 3 ROBUST trial (combining with rituximab and R-CHOP) for ABC DLBCL NHL completed enrollment in July 2017, with data expected in 2018. For 2018 Revlimid growth expected with NSCT and post ASCT maintenance launches.

CC-486 for AML (acute myeloid leukemia) completed a phase 3 trial in Q2, with data expected in 2018.

CC-220 for lupus was advanced into Phase 2 in September.

CC-122 for NHL will initiate a pivotal program in 2018. Also BGB-A317 in NSCLC.

In September an IND was submitted for CC-92480, a CELMoD for multiple myeloma.

In June, with partner Acceleron Pharma (XLRN), enrollment was completed in Phase 3 trial for luspatercept for myelodysplastic syndromes and transfusion dependent beta-thalassemia, with data expected mid-2018.

Otezla (apremilast) continued several trials aimed at label expansion. A phase 3 ulcerative colitis trial is planned for 2018.

Ozanimod. In February the FDA rejected the application for relapsing MS; Celgene must refile. Expects to refile in Q1 2019. The EU filing will also be in Q1 2019. Strong Ozanimod data was released in April.

GED-0301 is development is being discontinued.

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." There are 12 Phase 3 studies that should read out by the end of 2018.

Cost of goods sold was $135 million. Research and development expense was $2.20 billion. Selling, general and administrative expense was $864 million. Amortization of acquired intangibles was $87 million. Acquisition charges $31 million. Leaving operating income of $218 million. Interest expense was $153 million. Other income $965 million. Income tax provision $184 million.

Q&A:

Ozanimod Q1 2019 guidance certainty? We have a path forward from the FDA. But it is a new NDA, so we will have a pre-NDA meeting with the FDA. Safety data already presented is very nice. The non-clinical legacy toxicology studies are already underway. We are confident in the Q1 timeline.

Priority of neuroscience? Ozanimod in MS has a clear path forward. We are taking a stepwise approach to neuro.

Dr. Reddy's decision to not have a Markman hearing? The claim was resolved, so no need for the hearing. [re generic version of Revlimid] The 30-month stay expires August 2020.

Thinking about what changes need to be made at Celgene going forward? Accountability of strategic planning. Steps have already been taking. We are executing very well in our core commercial area. The Ozanimod situation has been thoroughly dissected.

Ozanimod for UC enrollment? Slowed because of competitive landscape, it is difficult to accrue patients, with over 60 clinical programs in this indication. We are focussing on patients who have not been exposed to biologics. Timing given is conservative.

Otezla and formulary lists? We have contracts with 80% of the commercial lives, and getting earlier in the treatment paradigm.

 

 

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Disclaimer: My analyst summaries may include both our condensations of statements made by company representatives and my own analysis. They are not covered by any warranty. I cannot guarantee anything said by company representatives is true. I try not to make errors, but it is possible. Summaries, of necessity, eliminate fine-grains. These notes are for my own use, but I am sharing them with the investment community. See my Seeking Alpha articles for my opinions.

Copyright 2018 William P. Meyers