Analyst Conference Summary

conference date: January 29, 2015 @ 6:00 AM Pacific Time
for quarter ending: December 30, 2014 (fourth quarter, Q4 2014)

Forward-looking statements

Overview: continued strong growth and guidance now up to 2020

Basic data (GAAP):

Revenue was $2.09 billion, up 6% sequentially from $1.98 billion, and 19% from $1.76 billion in the year-earlier quarter.

Net income was $613.9 million, up 21% sequentially from $508.5 million, but up 186% from $214.4 million year-earlier.

EPS (earnings per share, diluted) were $0.74, up 21% sequentially from $0.61, and up 196% from $0.25 year-earlier. (adjusted for 2 for 1 split in June 2014)

Guidance:

For Q1 2015, due to the usual annual donut hole and ACA adjustments, expected earnings is about 21% to 22% of full year guidance.

For the full year 2015 total net product sales are expected to be $9,000 million to $9,500 million, an increase of 22.3 percent year-over-year based on the mid-point of the range. REVLIMID net sales are expected to be in the range of $5,600 million to $5,700 million.
ABRAXANE net sales are expected to be in the range of $1,000 million to $1,250 million.
Non-GAAP operating margin approximately 52 percent; GAAP operating margin approximately 41.7 percent.
Non-GAAP diluted EPS is expected in the range of $4.60 to $4.75. GAAP diluted EPS is expected between $3.68 to $3.92

2017 financial targets: Net product sales target of $13 to $14 billion; Non-GAAP diluted EPS is expected to be approximately $7.50 with a fully diluted share count of approximately 830 million

2020 financial targets: net product sales expected to exceed $20 billion. Non-GAAP diluted EPS is expected to exceed $12.50 with a fully diluted share count of approximately 830 million

Quarter Highlights:

"Outstanding year ... momentum along with a number of key milestones provides great opportunity for 2015 and beyond," said CEO Bob Hugin. "In 2015 we plan to initiate 8 new Phase I programs."

Non-GAAP numbers: net income $840 million, up 4% sequentially from $806 million and up 29% from $649 million year-earlier. Diluted EPS was $1.01, up 4% from $0.97, and up 33% from $0.76 year-earlier. Excludes up-front payments on new collaborations, as well as $128.4 million in stock-based compensation, etc.

Non-GAAP product gross margin was 96.3%. Operating margin was 49.6%.

Celgene benefited from the reinstatement of the R&D tax credit.

Total product sales were $2.05 billion, up 5% sequentially from $1.96 billion, and up 19% from $1.72 billion year-earlier. $1.23 billion of sales were in the U.S., $822 million were outside the U.S.

REVLIMID revenues were $1.32 billion, up 2% sequentially from $1.30 billion and up 16% from $1.14 billion year-earlier. U.S. sales $797 million up 20% y/y; international $525 million up 11% y/y.

VIDAZA revenues were $153.7 million, down 3% sequentially from $157.8 million, but down 8% from $167.5 million year-earlier. Reflects the impact of generic azacitidine sales in the U.S. market.

ABRAXANE revenues were $235.9 million, up 11% sequentially from $212.2 million, and up 17% from $201.8 million year-earlier. Now has 3 global indications and continues international expansion.

THALOMID revenues were $57.0 million, up 10% sequentially from $51.9 million and down 6% from $60.9 million year-earlier.

POMALYST / Imnovid (pomalidomide) revenues were $202.1 million, up 12% sequentially from $181.1 million, and up 67% from $121.2 million year-earlier. Continues international launches, and new data presented at ASH are helping.

Otezla (apremilast) revenues were $47.6 million, up 170% sequentially from $17.6 million. It had been approved on March 21 for psoriatic arthritis and revenue commenced in Q2. In addition on September 23 Otezla gained approval for treating moderate-to-severe plaque psoriasis. There are trials underway for further indications.

Istodax revenue was $16.7 million, up sequentially from $15.7 million, and up 23% from $13.6 million year-earlier.

Other product sales were $3.9 million.

Other revenue was $30.6 million, down from $31.0 million year-earlier.

Cash and securities balance ended near $7.5 billion, up sequentially from $6.9 billion. Operating cash flow was $2.8 billion for the full year. Debt was $6.9 billion. $2.9 billion was spent to repurchase shares for the full year 2014

GED 0301 is in early stages of the registration program, which has 3 branches including 2 large 52 week trials. Data should be available in 2017.

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 $103.2 million. Research and development expense was $584.9 million. Selling, general and administrative expense was $544.4 million. Amortization of acquired intangibles was $63.6 million. Acquisition charges $37.7 million. Leaving operating income of $751.7 million. Other expense was $40.9 million. Income tax provision $96.9 million.

The 2020 guidance does not include the possible upside from possible approvals of early-stage therapies in the pipeline.

Q&A:

Lots of chatter about value for medicines. Could you talk about pricing across geographies? Our strategy is that the value proposition has to be core to every thing we do. We are committed to our products having a value proposition that is good for everyone, particularly patients. Differentiated science produces differentiated outcomes. We have objective discussions with authorities. We have teams focused on that. Our future projections are based on knowledge of pricing. Drug development is determined on an understanding of differentiated results.

Otezla, when might it be used more ahead of biologics? We have seen some plans putting Otezla ahead, we hope to continue to work on that. Versus newer oral products, we see Otezla as effective and safe, being proved over time. We have a significant runway to dominate and entrench in the market place.

The main drivers of strong Otezla forecasts are the extension to the second indication and geographic expansion.

Abraxane adoption, 1 to 2 year time frame? In pancreatic cancer the combo is becoming the standard of care. We expect to see that as we launch around the world. In lung and breast cancer, the lung indication is exciting, the positive opinion had not been in our projections. We see a lot of interest in Abraxane being combined with novel therapies in numerous tumor types. In breast the the data presented in December has been very positive for us.

GED 301, is there any retreatment in the data? The two 52 week trials will have a 12 week induction component, then maintenance. There is no plan for randomized withdrawal and retreatment.

For our Revlimid projections, there are a number of conservative assumptions, including potential price erosion and no inclusion of certain combinations.

The purpose of the GED 301 endoscopic study is to match up gross results with histological results. It is a 52 week study. This study can be done immediately and inform the larger studies when they start. We have not finalized the treatment doses with the regulatory agencies for the 2 large studies yet.

The current GED 301 formulation could be good for ulcerative colitis, at most should need some minor tweaking.

Revlimid label expansion and pricing? It will be country by country. Germany will have early access because one step is already in place. The sales in Europe will be staged, with some contribution in 2015, but the main ramp in 2016 and beyond.

Partnered drugs in the long term guidance? We had to think about the timelines for our partnered products. The base growth is coming from existing products. Revlimid in lymphoma has a lot of potential, but is included in the 3 points of "other" growth. We have GED 0301 in that space, but it depends on the timing. We have a lot of positive optionality that could make those three points or take us well beyond it. It is a very broad portfolio and we feel very good about the guidance.

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