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Jacqualyn A. Fouse – Executive Vice President and Chief Financial Officer

Analysts

Eric Schmidt – Cowen and Company

Celgene Corporation (CELG) Cowen & Company 33rd Annual Health Care Conference Call March 5, 2013 11:20 AM ET

Eric Schmidt

Okay, good morning, everyone and welcome again to Cowen’s 33rd Annual Health Care Conference. My name is Eric Schmidt, I’m one of the biotechnology analyst at the firm and it’s my sincere pleasure to welcome back our next presenting company, Celgene. As many of you know, they are one of the leading companies in the large-cap biotech space and certainly these days the leader in the hematology, oncology universe.

We are glad to have with us today the Company’s Chief Financial Officer, Jackie Fouse, as well as Director of Investor Relations, Lisa Hayes. And I think that Jackie has planned about 20, 25 minutes of an overview, and should have some time in this room for a few of your questions. And then Jackie and Lisa will also be hosting a breakout session in which room, Lisa, do you remember I think just around the corner. We’ll let you know before the end of the talk.

Jacqualyn A. Fouse

Great. Thanks a lot Eric. Thanks for being here. You took one and a half minutes of my time, so I’ll try to be good with that. I remember being here last year and Eric being one of the few but a little bit more optimistic about the chances of our pancreatic trial working. So congratulations for that, because since then we’ve all seen the success with that and I’ll talk little bit about that.

So start with the forward-looking statements, that tells you can believe anything that I’m about to say from here on now. And we’ll move on to everything else, because I think most of you do believe what I say most of the time. Everything is embodied in this mission statement for Celgene, it’s something that you see continue to be characteristic of the way we’re executing on existing businesses and driving them through geographic expansion overtime and things that will apply to new businesses that we may go into.

So when we think about an Inflammation and Immunology franchise, keep these things in mind, very focused on unmet medical need, strong scientific data, good quality science behind the products we produce that make a difference in patients lives that allows us to take good market shares, maintain a good benefit cost profile for our drugs and we can discover, develop and we have a strong track record on commercial execution of the products.

None of those characteristics will change, so you will see those be constant themes in everything that we do, I think it’s worked very well for us up to now. Many of you know these things about the company, for anybody who doesn’t just a little bit of a reminder, we have our own feet on the ground in over 50 countries around the world commercializing products. We’ve been doing this for a while as we get new products and new indications in the portfolio, we can go to market within quickly execute effectively. We got a global infrastructure around the whole corporation to build our firm. I’ll talk about this in a minute but you see that leverage flowing through this business model now that it is very well established and continues to expand geographically.

We’ve extended our research capabilities over time, we see in one of the columns there the focus on that. Internally, we continue to stay very focused on the area that we think we have core competencies in and around that IMiD platform of products, translational medicine, some other things that you’ll hear about in our May 6 R&D data we’re going to do, so keep your eyes open for that. Keep that in your calendar.

We have been complementing those capabilities where a fair number of R&D partnerships that you see us do in collaborations over the last few years, whether it’s with Agios for cancer metabolism, whether it’s with Epizyme and Epigenetics, whether it’s Acceleron, many of the other deals that you have seen us do, those are things we’re tapping into expertise from others to complement what we do and access breakthrough technologies for the future. And all of those things are going to play out for us over a very long period of time. The Avila acquisition goes along with that as well. So built up a great regulatory, our research and development and regulatory capability.

What’s new on this slide is, a lot of you have seen this slide, 10 times or 15 times, every time you meet with us what’s new, Pomalyst is a reality now, approved by the FDA on February 8, physicians are prescribing the product, patients are on drug where out of the gate in a very nice way with the launch of that product. So before that was still a dream, now it’s a reality, Pomalyst (inaudible) pomalidomide on the slide.

And so second the business model, I’m not going to spend a lot of time on this, there is a link for you, so you keep in your mind the concept of targeting unmet need, delivering on the science so we develop differentiated products that have a strong benefit cost profile. We take those through a business model that today has a fully built out global infrastructure for executing on global regulatory approvals we’re executing, on global commercialization and that is allowing, we’re focused on specialty physician channels, and we will continue to stay focused on specialty physician channels. So when we think about developing Inflammation and Immunology platform, keep that in mind all these characteristics will be consistent across the franchises. What is that allowed us to do, it’s allowed us to deliver 47% EPS growth over the last five years.

Two things that are very clear to you in our P&L from the standpoint of our operating performance, and I’ll talk about that a little bit more in just a minute. How are we going to sustain that because you might say we are tracking it, that’s all great, but the best is behind you and I’ll tell you the best is yet to come, because we’ve got a bigger and bigger base where we’re still producing extremely attractive growth rate.

We will have an accelerating growth profile from 2013 out for 2017, we'll talk about that in just a moment with 19% top line growth and 25% earnings growth on an ever increasing base and a more diversified portfolio where you should have better view on risk associated with that as we continue to evolve the model.

We have established a track record in hematology that I think is clear. We are going to continue to build on that franchise. We'll talk about how more in a moment and the numbers for that franchise out for 2017. We call our oncology franchise emerging or building, why? Because we just got a long approval for Abraxane. We're going to file for pancreatic. We are going to be able to leverage those within the solid tumor model where we had the existing breast cancer base and continue to roll those out globally as well. We have products in the pipeline for solid tumors, so that is a growing very rapidly building franchise.

And everything that we've learned about is, we're going to be able to taken leverage for a product in Apremilast that came out on Celgene research, we know the technology well. We will be able to use the general characteristics of the business models that we have in hematology, oncology to pursue unmet medical need patient groups and indications within inflammation and immunology for specialty physician channels in rheumatology and dermatology. So don't forget the characteristics of the business model across the franchises, don't try and even with the indications and product change a little bit and the continuous global expansion is part of the story as well.

So what we have done over the last five years, you’ve seen our operating profit margins improved to 48% as we took the business from the U.S. into Europe in 2007 and Japan in 2010, continue to expand the products and indications around the globe and the leverage of that investment in commercial infrastructure and corporate infrastructure. So you see leverage in SG&A, you see some leverage in R&D, even while continuing to invest in the projects that we think should be priorities to allow us to keep this virtuous cycle of growth going for a long period of time and little bit of leverage in cost of goods. We’ll look at this a bit more in a moment.

The guidance that we’ve given you for 2013 is what is operating margins of 49%, 100 basis point improvement even while we will make some investment in commercial infrastructure for the U.S. in advance of an Apremilast launch in psoriatic arthritis in the first quarter of 2014. We can do all that because this whole base is leveraging the model delivering, we’ve said that R&D will be about 24% of revenues in 2013, SG&A 22% and cost of goods sold about 5%. So you’ve got leverage coming from multiple places in the P&L that doesn’t include anything from financial drivers in terms of incremental added value versus 2011. So I just want to put that in perspective.

Very mindful of returns, continuously improving returns on invested capital, this number is conservatively stated as GAAP based income numbers and it includes the cash within the balance sheet. So we’re mindful of the P&L, as well as returns, balance sheet, capital structure, all of that value to deliver to shareholders. These are the revenue and EPS numbers that go with all of that, just as a reminder I already talked about the 47% CAGR for EPS over the last five years. So that’s the track record that you are looking at.

How we are going to keep that going out to 2017? I like these time points because 2013 represents the current annual guidance that we’ve given to you, so you can see how this year is going to go. 2015, the $8 billion revenue number, the $8 EPS number everybody remembers, we started with that back in January of 2011. We updated that in January of 2012 to add the upper ends to the range from $8 to $9, we are maintaining that.

When we look out to 2017 and you’ll see this in just a moment, we have successes in hand to build on so that the growth that we are estimating after 2017 comes from drivers where you should be able to look at those and feel like the clinical and regulatory risk is modest or at least understandable and transparent to you. Because we view that, that approvals in hand or they’re coming eminently in terms of the factors that are going to drive this growth. It's an accelerating growth story from 2013, 2014 to the 2015 and 2017 period and there are number of things that are not in there that will play out over the period beyond 2017 and we'll talk about that in just a moment as well.

That's why I like these three time points, 19% top line growth. We want you guys to understand the same way as we do. Where is it coming from? We expect 13% growth in businesses that we had existing at the end of 2012 with some contribution from a newly diagnosed label indication for Revlimid in Europe, we'll talk about the timeline in just a moment. These are our core businesses, this is our core hematology franchise and for Abraxane it is only the breast and lung business. So we are finding it this way in case you think about risk to those differently than you do risk to new indications for Abraxane or Apremilast. 13% growth, strong growth in existing business, very leverage free of old model. Where is that coming from? I hope in the back there, you can see this I don’t work for an atomic company anymore, so I can’t make jokes about our charts there.

In terms of the key drivers, we continue to see positive momentum from a share standpoint from duration, trend and our hematology of business, we expect those to continue. We expect to expand through label indications and newly diagnosed. The biggest incremental opportunity there is in Europe, somewhat in the U.S. as well. The timelines for resubmission of the newly diagnosed filing in Europe are on the slide here with the first one expected in the second half of 2013 for resubmission, approval in the second half of 2014 on the basis of the MMO-15 trial. A lot of detail will be discussed around that, but I think I will leave to the Q&A.

But the chart here shows you the timelines for assumptions for newly diagnosed expansion for Revlimid, which is one part of this growth component. In addition to that, we’ve got some other things going on. You’ve seen we’ve got the approval in China now, take a little bit of time for that business to become a larger business and its going to be a nice incremental contributor in other markets as well. What’s the other big driver here?

And in fact, from an absolute dollar standpoint, the larger driver is Pomalyst, we have the approval in hand in the U.S. and the U.S. everything is going well. In Europe, we expect an approval in Europe in the middle of this year or may be in Q3 or this summer. Everything on track with respect to the regulatory process there we submitted in Europe in May of 2012. As you know, it can take 12 to 15 months, everything moving along well.

We like the way the launch is going. We think Pomalyst has a distinctive profile and we think that a lot of products can coexist in this space together it’s unmet medical need for patients and third-line in greater setting and we feel very good about that. Pomalyst is going to be a key driver in the overall hematology franchise out to 2017. That’s where I will say the clinical risk is essentially zero, because you got a product that in hand, it’s about our ability to go out and execute on that, and I think you will see some nice news from us as we continue to update you about that.

We like the profile of the product quite a lot. We think it has distinct competitive advantages and we continue to see that IMiD class of drugs, whether it’s Revlimid or Pomalyst being the backbones of therapy across all lines of treatment in multiple myeloma whether a single agent or in combination continuous treatment drug of choice. We think Pomalyst is going to do extremely, extremely well. I mentioned that we expect an approval in the second half of this year in Europe. We will have data from the myelofibrosis trial a little bit later this year as well. Myelofibrosis is not, I repeat not in our base case model for numbers out to 2017.

That’s the base business, 2 percentage points of constant annual growth rate or added just from the pancreatic indications for Abraxane. So you’ve seen the data on that now presented at ASCO GI. How do we think that Abraxane is going to evolve over the next four years from 2013 out to 2017? We expect to submit for the pancreatic indication as soon as we can, so relatively soon. We said first half of this year in the U.S. and a little bit later in Europe, but we're working hard to get that done sooner rather than later.

We think that the Abraxane, gemcitabine combination is going to become standard of care for 75% to 80% of the patients in the non-resectable pancreatic cancer indication and we're very excited about that. It will be a nice ramp. So what you see happen with the Abraxane franchise is a nice steady growth in that base breast and lung business, pancreatic is coming in, strong contribution in 2015, continuing very rapid growth out to 2017 at which point it becomes more than half of the total revenue contribution from Abraxane and we will expand it globally as well, we can talk a bit more about that potentially in the Q&A.

We at the lower end of this range in 2017 do not have any contribution from melanoma, just to be clear about that. We'll see overall survival data later this year from the melanoma trial where we already reached the primary endpoint of PFS, so we’ll get to see that data flow soon as well. So that – these are just the survival curves that we saw from the pancreatic trials and melanoma trials. And the reason why this is important is, it's a nice support to the overall franchise, because these are diseases were taxanes historically have not worked very well in the past.

So seeing this kind of data tells you that there is something going on with the non-paclitaxel product in Abraxane that is different. And you will see and hear doctors talking more and more about this as more parts of the data presented from the pancreatic trial, as the melanoma trial place out, about one is differentiated from different things that you will see from the doctors on mechanism of action on biomarkers and other things that’s going to play out over time. So you’re not going to watch for that over the course of the year as well.

So we are happy about that. How do we get to 19%? There are more percentage points added to the constant annual growth rate from Apremilast across multiple indications. The two main indications here are psoriatic arthritis and psoriasis, how do we get to that? So if we just look at the different indication with Celgene is, it has further risk studying Apremilast or you’ve seen data now from psoriatic arthritis, you just file the data from – I thought it was the Cowen’s on and not the Celgene’s on. The think will just blow you away, right. You have seen data just as we can from the psoriasis, we’ve seen one trial continue to see a flow of data over time on those indications. The Ankylosing spondylitis trial, we expect to have fully robust at the end of this year and then data coming out in 2014.

You can see the patient numbers here, the large numbers of patients. We are not assuming that we go in out of the gate and get huge market shares. We are looking at a product with a very good efficacy profile and excellent safety profile, excellent tolerability, convenient, a lot of different things that are going to make it a differentiated product to play very well across these indications in early treatment therapies, pre-biologics and there may be some opportunities to expand the market to also get some share in, biologic failure patients.

The both things are at different end to the spectrum where we think the sweet spot is right here in the middle with large numbers of patients that physicians will treat differently once they have a side effective or treatment regimen. So you can see some of the data that continue to come out. There we’ll have results from the PALACE-4 trial which is treatment naive coming out later this year, you’ve now seen the psoriasis data. I think this is going to be a building story, a building enthusiasm with doctors and then eventually with all of you as well as you see what a therapy like this will be able to do when it gets to market. So we expect to submit the psoriatic arthritis indication in U.S. for approval this quarter, and then would have an approval and be launching in early 2014.

Just a couple words on efficacy, because I know the headline numbers on efficacy, that will help doctors think about treating their patients, and then there is what you can get to in terms of comparative information. Keep in mind, we’re not trying to compete with the biologics, we’ll let the biologics compete with each other. We believe this product has a place in a very different part of the market to call about its own share of the market again as I said in the early treatment line pre-biologics. Remember the penetration rates in psoriatic arthritis and psoriasis, and psoriasis is only about 10% for the biologic. So there is a lot of patients out there that can be treated with Apremilast.

These are the placebo adjusted numbers based on the data that we’re able to get where we’ve got confirmed where that data comes from. For Apremilast, you see it falls right in between the low-dose enbrel and hogh-dose enbrel regimens for psoriasis on a placebo adjusted basis for PASI 75 that’s a headline number. It’s a regulatory end point we did hit, we needed to hit that.

When you look also at changes in PASI over time for patients, what you see is Apremilast is the yellow one, nice early onset of effect maintaining a durable effect that improves over time again it’s falling right between the low dose, high does enbrel and you get out to 24 weeks the percentages are not very different. So when you think about that kind of efficacy profile with the safety, tolerability, convenient, all the things that we’ve been talking about, we will price this product at a discount to biologics to make it attractive from a payer standpoint as well.

So just keep those in mind, just to sum up on this one in PsA, we hear some placebo adjusted comparator information as well including some different patient subsets that you can think about overall efficacy versus some of the different patient subsets. And when we think about positioning, this is pre-biologic early treatment, it will have the different numbers backup the Apremilast bars are the one in blue and you can see the competitor products. If you don’t have copies of these, we will make sure that you do.

So we think we’ve got a great product in Apremilast there and it allows our enthusiasm. Over the next couple of years, these are some of the key approvals that we think that we will get. We have Pomalyst in the U.S. already in hand, we have a PDUFA date for Revlimid in mantle-cell lymphoma, that’s June of this year. You think progress on all of these things as already you’ve got timelines, that should be clear in transparency. So you can follow those, you can handicap our chances of getting the approval.

Vidaza for AML, Pomalyst for myelofibrosis not in our model, not in our numbers after 2017, just to remind you of that. So where we are going? As I already said, 19% top line growth, 25% bottom line growth because we continue to be able to leverage that model even with targeted commercial infrastructure investment to call specialty physician channels for Apremilast and Inflammation and Immunology. You see an accelerating trajectory there as indications like pancreatic start to reach their potential. There is steeple growth trajectory after 2015, Apremilast as well. So those really coming into the model and creating that accelerating growth trajectory.

Other indications for Revlamid and non-Hodgkin's lymphoma and CLL, those all really don't start to contribute until beyond 2017. So after our R&D they made it fix, where you can talk a little bit more about how we think about beyond 2017 period, I want you to be comfortable with this one first.

So just to wrap things up and may be in the breakout when you talk about little bit more of granularity on those things that you've got the break down by hematology, by oncology, and also you can think about those differently if you want to. We have great products that are doing so well, because they improve patients’ lives, the sciences there, we are constantly generating more data around those we're going to continue to do that focused on unmet medical need. We have a proven track record. We're going to seek on what we know have to do and continue to leverage that another franchises, you’ve seen us to be very focused on efficiency with our infrastructure, our cost so that when you see the leverage coming out of the P&L.

And we've got a very long growth run way ahead of us in Revlamid and Abraxane and Apremilast still to come. I can give you a fair amount of transparency after 2017 to help you think about it. We got a lot of growth beyond that as well with an ever more diversified portfolio of product indication. And a lot of different ways to create value not to mention the financial drivers that are not even included in the base model.

So I do have three and half minutes which if I wouldn’t have Eric to one and a half like five or so. I think we're going to take and nearly just a milestone to summarize on some of the things that you will see us in terms of data play you want to be watching for the rest of the year.

So maybe with that, I will stop and let you ask me some questions. Are you all allowed to ask the questions.

Question-and-Answer Session

Jacqualyn A. Fouse

Nobody is brave enough.

Eric Schmidt – Cowen and Company

Okay I’ll.

Jacqualyn A. Fouse

Or let me we want to consider whether we’re going to see some nice and let you go forward.

Unidentified Analyst

Exactly we know the MM-020 to time lines pushed out a little bit, your prior guidance (inaudible).

Jacqualyn A. Fouse

In case everybody in the back didn’t hear the question it was about MM-020 primary endpoint data readout and timing on that. So with these trials, we’ve always said just remind everybody with all of them whether its I or some else is there, event driven trials, so the event or progression of disease or death, we have to have the events occur. We make our best projections about the timing of when we think the events will occur. In this case, its 70% progression free survival event is the primary endpoint.

Based on where those have been, we were making projections and thinking we would have that data may be in March or April. The event rates have slowed down somewhat. So when we run those out, we could be June, July. I’ve said a latest case scenario, I think would be around September. What you are seeing is, the patients were still on active therapy or under the trial per call or Revlimid dexamethasone continuous treatment patients. The patients who are in the already 18 month arm and the MPT are essentially 18 months as well as arms are no longer arm therapy under the trial.

When you look at the body of data that would tell you what median PFS statistics are for some of these different groups. I think that you might come to the conclusion that its not a bad thing that this trial is taking a little bit longer to reach the primary endpoint read out than what we had estimated it to be. There’s a few months here and there make a big difference for us, from a business model standpoint, the answer is no, it does not. We’re more interested in what the outcome of the trial is. We do expect to have it relatively soon. So let’s wait and see what it is and then we will proceed into file as quickly as we can in the U.S. for newly diagnosed based on that trial population. And we will be evaluating the strategy in Europe alongside the expectation for updated raw material while survival data from the MMO-15 trial, and they would come a little bit more in the breakout how those two pieces of things come together. So we forego that where we are.

Michael?

Unidentified Analyst

(inaudible).

Jacqualyn A. Fouse

Yeah. So the international – the question is about the international Myeloma Working Group meeting which will start April the 3, or 4, I think it is in Kyoto. For those of you who want to make that trip over for that. I think it’s going to be of course a good meeting, it’s a very focused meeting, it’s a small meeting with less hype around than ASH if you will. So, good opportunity close to the doctors.

We think there will be an update on the OS trends in the CALGB trial, that’s probably going to be the most important incremental piece of news that you would see to be able to continue to track that to see how it supports us staying on track with that part of our strategy for label expansion in Europe and so that’s probably the most important thing. You’ll see some other I think bits and pieces of updates, but that’s probably the one to watch for.

Unidentified Analyst

(inaudible).

Jacqualyn A. Fouse

All right, I’ve always stated my welcome. Thank you very much. Let’s meet in the breakout.

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