Analyst Conference Summary

conference date: July 28, 2016 @ 6:00 AM Pacific Time
for quarter ending: June 30, 2016 (second quarter, Q2)

Forward-looking statements

Overview: Continued strong revenue and profit growth, led by Revlimid sales. Tweaked 2016 guidance

Basic data (GAAP):

Revenue was $2.75 billion, up 10% sequentially from $2.51 billion, and up 21% from $2.28 billion in the year-earlier quarter.

Net income was $598.2 million, down 25% sequentially from $800.7 million, and up 68% from $356.2 million year-earlier.

EPS (earnings per share, diluted) were $0.75, down 24% sequentially from $0.99, and up 74% from $0.43 year-earlier.

Guidance:

Product revenue lifted to high end of prior guidance, $11.0 billion. GAAP EPS reduced to $3.82 to $4.05. But non-GAAP EPS increased to $5.70 to $5.75. Non-GAAP operating margin near 54.0%. 806 million diluted shares. Revlimid sales $6.8 billion, up slightly.

Quarter Highlights:

Celgene CEO Mark J. Alles said "This strong momentum increases our confidence in our near- and longer-term outlook as we continue to invest in innovative research and the development of transformational therapies for patients worldwide." Revenue growth was driven mainly by unit volume.

A lot of trial data readouts are ahead in 2016 and 2017.

The revenue increase was despite a 1% negative impact from exchange rates.

Announced a collaboration with Jounce Therapeutics in July. In May entered a new collaboration agreement with Agios (AGIO).

Plans to initiate 50 new clinical trials in 2016. Data from at least 18 Phase 3 trials is expected in 2016 through mid-2018.

Non-GAAP numbers: net income $1.15 billion, up 8% sequentially from $1.06 billion and up 13% from $1.02 billion year-earlier. Diluted EPS was $1.44, up 9% sequentially from $1.32, and up 17% from $1.23 year-earlier. 54.6% operating margin.

Total product sales were $2.74 billion, up 10% sequentially from $2.495 billion, and up 22% from $2.25 billion year-earlier. $1.72 billion of sales were in the U.S., $1.02 billion were outside the U.S.

Other, non-product revenue was $9.8 million.

Cash and securities balance ended near $6.4 billion, up sequentially from $5.71 billion. Debt was $14.3 billion. Operating cash flow was $936 million. $343 million was spent to repurchase shares. $5.1 billion remains in share repurchase program.

Revlimid label extended in Europe in July to adults with relapsed or refractory mantle cell lymphoma.

Durvalumab in hematological malignancies is in six early-stage trials: NDMM, RRMM, MDS, AML, NHL, and CLL.

The Phase 2 CC-486 non-small cell lung cancer trial completed enrollment.

The Otezla Phase 2 atopic dermatitis trial is complete. No date for data publication was given.

A Phase 3 registration study of GED-0301 for Crohn's disease enrollment completed. Data is expected in Q3. Ulcerative Colitis Phase 2 trial is enrolling.

Ozanimod MS study phase 3 data is expected in the first half of 2017. Ulcerative Colitis Phase 3 trial is still enrolling. Phase 2 ulcerative colitis data was published in May.

Rest of year planned trial starts CC-122 pivotal trial in NHL; Phase 3 trial of RPC4016 in EoE.

Positive Abraxane, in combination with checkpoint modulators, data was presented in June.

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 $111 million. Research and development expense was $949 million. Selling, general and administrative expense was $732 million. Amortization of acquired intangibles was $175 million. Acquisition charges benefit $36 million. Leaving operating income of $824 million. Other & interest expense was $129 million. Income tax provision $97 million.

R&D expense was up substantially due to upfront collaboration expense.

Celgene is on track to deliver on its 2020 targets.

Q&A:

Impact of darzalex launch on your MM products? Pomalyst has good momentum, including moving up lines of therapy. Oral dosing is a plus. We don't see darzalex or CD38 drugs as competitive, but as complementary.

Lymphoma cost benefit for revlimid combos? Studies in T cell lymphoma and follicular lymphoma, compared to standard of care. We are expecting marked outcomes with a short period of administration. Elderly FL patients are frail and can't withstand much chemo.

GED-0301 endoscopy data, what are you looking for? The 63 patients are not through their 12 weeks. It is a relatively sever population, with disease confirmed by endoscopy at baseline. Results should come before year end.

Share count guidance? Our stock price was down, so we bought shares in Q1. Looking at 2017 there are accounting changes that impact share counts.

Otezla atopic dermatitis? We just got that data in. The study had a significant cohort from Japan. We are analyzing the data, not releasing it yet.

GED-0301 primary endpoint? Endoscopic study endpoint is change from the endo baseline. People are looking for 25% change in scores short term, 50% or more long-term. Using an endoscopic baseline is new. Generally when you see some effect early, you see a good response by week 52 and having long-term remission. We are collecting additional biomarkers in the trial.

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