Analyst Conference Summary

conference date: July 26, 2018 @ 6:00 AM Pacific Time
for quarter ending: June 30, 2018 (second quarter, Q2)

Forward-looking statements

Overview: Strong revenue growth led by Revlimid. Increased revenue and adjusted EPS guidance

Basic data (GAAP):

Revenue was $3.81 billion, up 8% sequentially from $3.54 billion, and up 19% from $3.27 billion in the year-earlier quarter.

Net income was $1.05 billion, up 24% sequentially from $0.846 billion, but down 5% from $1.10 billion year-earlier.

EPS (earnings per share, diluted) were $1.43, up 30% sequentially from $1.10, and up 5% from $1.36 year-earlier.

Guidance:

For full year 2018 increased revenue guidance to $15.0 billion. GAAP diluted EPS adjusted down to $5.95 to $6.25, but non-GAAP EPS raised to $8.70 yo $8.75.

Q3 will have higher R&D expenses and milestone payments.

Quarter Highlights:

Celgene CEO Mark J. Alles said "Momentum supports raising revenue guidance. Five late-stage blockbusters are expected to launch by end of 2020. Fedratinib regulatory submission on track."

Ozanimod FDA and EU submissions expeced in Q1 2019. Strong Ozanimod data was released in April.

List price of Revlimid and Pomalystincreased 5% earlier this month. No further price increases this year. Committed to keeping prices for patients reasonable, but will raise prices when a medicine proves increased effectiveness. Of the y/y revenue increase, 15 of 17 percentage points were from volume growth.

Non-GAAP numbers: net income $1.59 billion, up 1% sequentially from $1.57 billion and up 5% from $1.51 billion year-earlier. Diluted EPS was $2.16, up 5% sequentially from $2.05, and up 16% from $1.87 year-earlier. Product gross margin %. Operating margin %.

Total product sales were $3.81 billion, up 8% sequentially from $3.53 billion, and up 17% from $3.26 billion year-earlier. $2.43 billion of sales were in the U.S., $1.38 billion were outside the U.S.

Other, non-product revenue was $6 million.

Cash and securities balance ended near $3.41 billion, down sequentially from $4.74 billion. Debt was $20.3 billion. Operating cash flow was $1.2 billion. $3.3 billion was used for share repurchases, but that pulled forward planned purchases to take advantage of the low stock price. But authorized $5 billion in additional repurchases.

Revlimid Phase 3 data for relapsed/refractory follicular lymphoma and marginal zone lymphoma met its primary PFS endpoint. Regulatory submissions are planned for Q1 2019.

Abraxane plus Roche's Recentriq Phase 3 trial in metastatic non-squamous NSCLC met its endpoints, as did the same combination for triple negative breast cancer.

Liso-cel (formerly Juno's JCAR017) pivotal NHL (non-Hodgkin Lymphoma) trial updated data was presented at ASCO in June. A DLBCL trial was started in April. A Phase 1 CLL trial continues to enroll.

JCARH125 for BCMA trial started in Q1.

BB2121, in partnership with Bluebird Bio, for R/R multiple myeloma Phase 1 CRB-401 study data also released at 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 on track. 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 is in Phase 2.

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.

Luspatercept, with partner Acceleron Pharma (XLRN), Phase 3 trial data was positive for MDS (myelodysplastic syndromes) and transfusion dependent beta-thalassemia.

Otezla (apremilast) continued several trials aimed at label expansion. A phase 3 ulcerative colitis trial is planned for 2018. But given the progress with Ozanimod, the program is being re-evaluated.

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 $126 million. Research and development expense was $1.25 billion. Selling, general and administrative expense was $790 million. Amortization of acquired intangibles was $127 million. Acquisition charges $34 million. Total costs and expenses $2.33 billion. Leaving operating income of $1.49 billion. Interest expense was $183 million. Other income $4 million. Income tax provision $262 million.

Q&A:

Revlimid incremental revenue opportunity? Are people already using Revlimid squared? We think it will be much more broadly adopted once it has the FDA label. It provides a chemo-free option.

Ozanimod vs. gilenya competition? We see clear differentiation from gilenya, including the lwoer dose, particularly on the safety profile.

BCMA multiple products, hurdle to take forward? Uniquely positioned with both CAR-T and antibody approaches. CAR-T is a one-time treatment, so that is an advantage, but there are a variety of endpoints that depend on the stage of the disease.

Business development? No change in capital allocation strategy. Priority is to build the next generation of assets.

Our pricing approach is product by product. It is based on both inflation and incremenal value.

We would be reaffirming our 2020 outlook, based on our understanding of pricing including Obamacare and Medicare. We want to increase patient access and affordability. But there are a lot of moving parts in the President's blueprint.

The Idhifa launch is going well, we are seeing increased testing for the IDH2 biomarker.

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