Analyst Conference Summary

conference date: January 25, 2018 @ 6:00 AM Pacific Time
for quarter ending: December 31, 2017 (fourth quarter, Q4)

Forward-looking statements

Overview: Strong revenue, but a hit from the new tax law knocked down GAAP profits.

Basic data (GAAP):

Revenue was $3.48 billion, up 6% sequentially from $3.29 billion, and up 17% from $2.98 billion in the year-earlier quarter.

Net income was negative $81 million, down sequentially from $0.99 billion, and down from $429 million year-earlier.

EPS (earnings per share, diluted) were negative $0.10, down sequentially from $1.21, and down from $0.53 year-earlier.

Guidance:

For the full year 2018 Celgene expects sales volumes to lead growth. Total revenue is expected between $14.4 and $14.8 billion, which would be up about 12%. GAAP operating margin about $46.5%, adjusted operating margin about 60%. Adjusted tax rate about 18%. GAAP diluted EPS $7.26 to $7.66. Adjusted diluted EPS $8.70 to $8.90. 775 million average diluted shares.

Product sale guidance for the major sellers: Revlimid $9.4 billion, Pomalyst $1.9 billion, Otezla $1.5 billion, Abraxane $1.0 billion.

Guidance does not include impact of Juno acquisition.

Q1 will show normal downward seasonality from the donut hole and other effects.

Quarter Highlights:

Celgene CEO Mark J. Alles said "Our operating momentum enables us to continue expanding our portfolio, as demonstrated by the two strategic transactions announced this year." Revenue was driven by volume, not price increases. Second year in a row at least 8 INDs filed. Added 3 late-stage assets with blockbuster potential to clinical portfolio since July of last year. Celgene could launch two CAR-T therapies in the next two years.

bb2121, partnered with Bluebird Bio, for multiple myeloma, was granted breakthrough therapy status.

Non-GAAP numbers: net income $1.59 billion, up 2% sequentially from $1.56 billion and up 23% from $1.29 billion year-earlier. Diluted EPS was $2.00, up 5% sequentially from $1.91, and up 24% from $1.61 year-earlier. Product gross margin 96.8%. Operating margin 551.%. Non-GAAP numbers exclude share-based compensation of $162 million, collaboration upfront expense of $96 million, R&D asset impariment charge of $1.62 billion, $79 million in amortization, $1.43 billion benefit in fair value contingent consideration, with a resulting tax adjustment benefit of $299 million, and a non-operating tax adjustment of $1.25 billion..

Full year non-GAAP net income was $6.02 billion, with adjusted EPS of $7.44. [WPM: which should put the stock price above $140]

Total product sales were $3.48 billion, up 6% sequentially from $3.28 billion, and up 17% from $2.98 billion year-earlier. $2.27 billion of sales were in the U.S., $1.21 billion were outside the U.S.

Other, non-product revenue was $4 million.

Otezla continues to lead in new prescriptions for psoriasis with a 40% share.Total branded prescription share has reached 22%, making it #3.

Cash and securities balance ended near $12.0 billion, up sequentially from $11.8 billion. Debt was $15.8 billion. Operating cash flow was $5.25 billion. Did not state for the quarter, but for the year $3.9 billion was spent to repurchase shares, and the bulk of that was in Q4.

In 2017 had 7 INDs including CC-92480 and CC-93269.

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.

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. The Phase 3 trial for Behcet's disease had positive results. The ulcerative colitis pivotal program should start this year.

Celgene ozanimod for RMS (relapsing multiple sclerosis) positive data in 2 Phase 3 trials

Ozanimod for ulcerative colitis Phase 3 trial should completed enrollment Ozanimod for Crohn's disease Phase 3 trial started in 2018. In February the FDA rejected the application for relapsing MS; Celgene must refile.

Numerous data presentations were made at the ASH meeting in December.

See slide 44 for a full list of 2018 milestones.

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 $119 million. Research and development expense was $2.74 billion. Selling, general and administrative expense was $774 million. Amortization of acquired intangibles was $79 million. Acquisition charges $1,435 million. Leaving operating income of $1.20 billion. Other & interest expense was $67 million. Income tax provision $1,212 million.

Q&A:

JCAR 017 neurotox and CNS rates in different batches of patients? Profile has been reasonably consistent.

CC-122, not on slides anymore? Based on the emerging profile, we think it works best in lymphoma. CC-220 and CC-9240 are being developed for MM.

Bluebird partnership? It is very important, we are advancing bb2121 to market rapidly. We are doing the manufacturing. We believe it could be disruptive particularly for relapsed multiple myeloma. The Juno deal should not impact the Bluebird partnership.

Revlimid is our entry point into lymphoma. JCAR-017 is the anchor molecule. 2020 revenue thinking has not changed, we are waiting for trial results, we feel good about that goal. With Juno the revenue is mainly after 2020.

Ozanimod trials have been designed with end markets in mind. Some discussions with FDA still to take place.

Phase 2 Otezla abstract, positioning vs. Ozanimod? Excited by data, high unmet need for quite sick patients. The two drug trials are of somewhat different ulcerative colitis patient populations.

Juno acquisition outlook effect on margins? It is about $0.50 dilutive this year, which will take our margins down slightly. We will do an update after we close the transaction. In the next couple of years it will be a very small item in our P&L.

M&A vs. stock repurchases? Tax reform opens our capacity a bit, despite the impact on Q4 GAAP results. Last year we did not buy much the first 3 quarters, then took advantage of the volatility to buy in Q4. Share repurchases will not prevent us from doing M&A in the future. We will remain on the forefront of the science.

Neurology areas of interest? We have a team focusing on protein homeostasis, neurodegenerative disease. We see ourselves as immunology

JCAR-125 adds to our broad campaign in the BCMA space. We have not dosed the first patient yet, but plan to proceed rapidly.

Filgotinib., what is your filing strategy? We have Phase 3 in frontline setting and a Phase 2 study. Label will depend on discussions with FDA. Potential billion plus revenue is based on a global rollout.

Marketing of Otezla? We are pleased with the momentum. DTC campaign to get to pre-biologic, post-topical patients, which we see as a key market. We do expect seasonality in Q1. We are also doing in-office promotion and work with KOLs.

UC enrollment for ozanimod has accelerated, so we expect to complete it by year end.

We are going for both post-Jakafi segments with Filgotinib. Luspatercept can address other aspects of the disease. We believe we already have the salesforce we need and can just plug it in.

Do you need cell mods any more for multiple myeloma? There is a role for new cell mods in MM. The disease has many unmet needs, both as single agents and in combination. JCAR-017 will offer a disruptive approach to refractory lymphoma, moving some patients from acute to chronic, so the prevalence of the disease will continue to expand. Which is why we feel very good about our revenue estimates for JCAR-017.

For M&A we are not trying to plug any near-term holes. We are looking for science that will make a big difference in the next decade. For the full year our stock repurchases approached $4 billion, but most of that was in Q4 when the stock price was low. It is a great way to return cash to shareholders.

Ozanimod base case is we will have a label with monitoring. We can differentiate vs. the competition. For Otezla the EU countries are in the early stage of their launches, so we see a possible inflection outside the U.S.

60% of patients diagnosed with psoriasis are untreated. So the potential is high.

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