Analyst Conference Summary

conference date: October 25, 2018 @ 6:00 AM Pacific Time
for quarter ending: September 30, 2018 (third quarter, Q3)

Forward-looking statements

Overview: Strong revenue and earnings growth led by Otezla sales. EPS up strongly y/y, but partly on reduced share count.

Basic data (GAAP):

Revenue was $3.89 billion, up 2% sequentially from $3.81 billion, and up 18% from $3.29 billion in the year-earlier quarter.

Net income was $1.08 billion, up 3% sequentially from $1.05 billion, and up 9% from $0.99 billion year-earlier.

EPS (earnings per share, diluted) were $1.50, up 5% sequentially from $1.43, and up 24% from $1.21 year-earlier.

Guidance:

Increased 2018 guidance to $15.2 billion revenue, $1.6 billion Otezla revenue. But reduced GAAP operating margin to 34%, GAAP EPS to $5.25 to $5.75. While non-GAAP operating margin was reduced to 55.5%, non-GAAP EPS range increased to $8.75 to $8.80.

Quarter Highlights:

Celgene CEO Mark J. Alles said "Excellent top and bottom-line momentum in the third quarter supports raising our 2018 financial guidance. We are focused on shaping Celgene's future by rapidly advancing our late-stage pipeline, accelerating promising early research programs, and strengthening the organization." A number of new products should launch by 2020. 5 INDs have been submitted this year for molecules with novel mechanisms of action.

So far in 2018 there have been ten positive Phase 3 trial results announced

Reaffirmed 2020 outlook of $19 to $20 billion in revenue with over $12.50 non-GAAP EPS.

Increased prices attributed 4.7% to the revenue increase, but mostly driven by increases in volume.

Non-GAAP numbers: net income $1.65 billion, up 4% sequentially from $1.59 billion and up 6% from $1.56 billion year-earlier. Diluted EPS was $2.29, up 6% sequentially from $2.16, and up 20% from $1.91 year-earlier. Product gross margin 96/2%. Operating margin 53/3%.

Total product sales were $3.89 billion, up 2% sequentially from $3.81 billion, and up 19% from $3.28 billion year-earlier. $2.60 billion of sales were in the U.S., $1.29 billion were outside the U.S.

Other, non-product revenue was $2 million.

Cash and securities balance ended near $4.4 billion, up sequentially from $3.41 billion. Debt was $20.2 billion. Operating cash flow was $1.9 billion. 24 million shares $83.53 per share average were repurchased.

In December Celgene will be making many data presentations at ASH, including for luspatercept, liso-cel, bb21217, JCARH125, and Revlimid.

In October the Genentech trial results for Tecentriq plus Abraxane in triple-negative breast cancer, showing positive results, were presented. Also that combo for NSCLC.

Ozanimod filings are on track for Q1 2019. New Phase 3 study were initiated in Q3 2018 for Crohn's. Phase 3 ulcerative colitis study should complete in mid-2019.

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. Believes on track for 2020 approval.

JCARH125 for BCMA trial started in Q1 2018.

BB2121, in partnership with Bluebird Bio, for R/R multiple myeloma Phase 1 CRB-401 study data also released at ASCO in June. Phase 2 and Phase 3 trials have started. Believes on track for approval in 2020.

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 for the end of 2018. Contingent payments to Impact could be up to $5.9 billion.

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. Another Phase 3 trial, for ESA naive, very low to intermediate risk MDS patients, started in Q3 2018.

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. In October the Phase 3 trial for moderate to severe plaque psoriasis of the scalp reported positive results.

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 $157 million. Research and development expense was $1.08 billion. Selling, general and administrative expense was $746 million. Amortization of acquired intangibles was $127 million. Acquisition charges $101 million. Total costs and expenses $2.21 billion. Leaving operating income of $1.68 billion. Interest expense was $193 million. Other expense $109 million. Income tax provision $296 million.

Q&A:

JCAR017 filing timing? There is a minimum expectation for duration, 6 months or greater. As we gather data it should add to that and safety.

What do you need to replace Revlimid revenue erosion in the future? The combined peak revenue of the 5 new drugs we are emphasizing should replace all of the Revlimid revenue loss. Our early research has a number of products that could be significant, and we will continue acquisition BD activity.

Margins? We don't guide long term, but you can see from our 2020 reaffirmation you can see they should remain pretty good.

Fedratinib tone, is it guarded? Confidence is high.

Lower prices for Medicare population in CART? CMS has been active in the CART space, we believe they are finding ways to do this.

CART competition? BlueBird Bio, our product with them 2121, is best in class and we hope to move to earlier stages of myeloma. Strategy is to be first and best.

Share buy backs that were above current price, buy backs? Our priority is to invest in the business, both internally and by collaborations. We don't need excess cash reserves. We still believe in buy-backs, have no plans for a dividend.

Bispecifics for BCMA v. CART? We think both can continue together. Some patients will relapse, and there will be frail patients.

Donut hole change in 2019, impact on revenue? Was 50%, is to go to 70%, may be revised by legislation. Our model uses current law, 70%, for our projections.

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