Analyst Conference Summary

conference date: July 27, 2017 @ 6:00 AM Pacific Time
for quarter ending: June 30, 2017 (second quarter, Q2)

Forward-looking statements

Overview: Strong results, and lots of possible good data coming up in 2H.

Basic data (GAAP):

Revenue was $3.27 billion, up 10% sequentially from $2.96 billion, and up 19% from $2.75 billion in the year-earlier quarter.

Net income was $1.06 billion, up 13% sequentially from $941 million, and up 77% from $598 million year-earlier.

EPS (earnings per share, diluted) were $1.31, up 8% sequentially from $1.21, and up 75% from $0.75 year-earlier.

Guidance:

Guidance was changed to decrease the GAAP operating margin to 41.5% from 46.0%, while the adjusted, non-GAAP operating margin was increased to 57.5% from 57.0%.

This resulted in GAAP EPS estimate reduced to $5.36 to $5.62.

But non-GAAP EPS estimate increased to $7.25 to $7.35.

Quarter Highlights:

Celgene CEO Scott Smith said "Exceptional execution of key strategic initiatives strengthened and expanded our opportunities for long-term growth." Revlimid, Pomalyst and Otezla all had strong y/y growth. Well-positioned to achieve or exceed 2017 financial targets and support our 2020 outlook.

A collaboration with BeiGene was announced in July for BGB-A317, a PD-1 inhibitor. Celgene also exercised its option to expand collaboration with Forma Therapeutics.

Revlimid is expected to continue to ramp revenue, partly because the new label expansion is still ramping in Europe.

Non-GAAP numbers: net income $1.47 billion, up 8% sequentially from $1.36 billion and up 28% from $1.15 billion year-earlier. Diluted EPS was $1.82, up 8% sequentially from $1.68, and up 26% from $1.44 year-earlier. 59.5% operating margin. Non-GAAP numbers exclude share-based compensation of $170 million, collaboration upfront expense of $75 million, R&D asset acquisition expense of $0 million, litigation related loss of $315million, $88 million in amortization, $13 million change in fair value contingent consideration, with a resulting tax benefit of $222 million.

Total product sales were $3.26 billion, up 11% sequentially from $2.95 billion, and up 19% from $2.74 billion year-earlier. $2.12 billion of sales were in the U.S., $1.14 billion were outside the U.S.

Other, non-product revenue was $12 million.

Cash and securities balance ended near $10.1 billion, up sequentially from $8.9 billion. Debt was $14.3 billion. Operating cash flow was $1.6 billion. $0.5 billion was spent to repurchase shares. $3.9 billion remains in share repurchase program.

Revlimid Phase 3 ROBUST trial (combining with rituximab and R-CHOP) for ABC DLBCL completed enrollment in July, with data expected in 2018.

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

CC-220 for lupus will be advanced into Phase 2, following positive Phase 1 data reported in the quarter.

Celgene had strong presence at ASCO, including from partnerships. Among the data: Idhifa (enasidenib) for AML caused by IDH2 mutation, updated Phase 2 data. The PDUFA date is August 30, 2017. This is licensed from Agios (AGIO). In collaboration with Bluebird Bio, positive phase 1 results of bb2121 for relapsed/refractory multiple myeloma. A pivotal trial should begin this year. With Juno, updated Phase 1 data for JCAR017 for NHL; pivotal trial should begin this year. With Jounce Therapeutics, phase 1 data for JTX-2011 for advanced solid tumor.

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.

Celgene plans to submit ozanimod for RMS (relapsing multiple sclerosis) data to the FDA before year end, based on positive data in 2 Phase 3 trials. Otezla continued several trials aimed at label expansion. The other main indication is ulcerative colitis.

Celgene listed 20 key milestones expected in the second half of 2017, including data, submissions, FDA decisions, and trial initiations. See the Q2 2017 press release.

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 $111 million. Research and development expense was $835 million. Selling, general and administrative expense was $939 million. Amortization of acquired intangibles was $88 million. Acquisition charges $13 million. Leaving operating income of $1.31 billion. Other & interest expense was $178 million. Income tax provision $69 million.

Q&A:

BeiGene deal clinical strategy of IO platform? It is a well-characterized asset in late-stage development, and might be differentiated from similar products. We think will can come up with very tailored immunotherapy cancer combination therapies. We are not ruling out any combination at this point in time. We should be able to provide an update at ASH. PARP therapies are likely to be part of the program.

CC-220 for lupus strategy? Lupus has a large unmet need. We are encouraged by our data, and moving into Phase 2b.

French reimbursement in frontline use for Revlimid this quarter? There are some limited pre-reimbursement opportunities in France. We are confident we can achieve reimbursement in Q3.

Duration opportunity for Revlimid in Europe? 14 to 15 months in Europe currently. In U.S. it is "way above 20 months." "Over time I think treatment duration will become very similar."

Operating margin performance vs. new programs planned? We look to maintain R&D as a percent of revenue as we go along. Our revenue growth allows for R&D expense growth. We are comfortable we can support the programs you mentioned and others. We will get P&L leverage from SG&A. Some of our newer therapies could have higher cost of goods because they are proteins or otherwise complex.

Size of market opportunity for Idhifa? This will be our first approval from our distributed research. About 10 to 15% of AML patients have the targeted mutation. We start with relapsed/refractory second-line patients. We will also develop Idhifa in first-line AML. We will get first-line, Phase 2 readouts later this year. We are very confident about our launch preparations.

Triplets for MM are gaining traction, which should help us. Which triplet gets used depends on the specific patient.

Ozanimod revenue potential? Perhaps $4 to $6 billion between the two indications, MS and UC.

Nature of Beigene differentiation? We have said "potentially differentiated" based on preclinical models.

Luspatercept has a third big opportunity in myelofibrosis. "If only some of these opportunities are hitting, luspatercept is going to be a huge drug."

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