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Executives

Perry Karsen - EVP & COO

Analysts

Matt Roden - UBS

Celgene Corporation (CELG) UBS Global Healthcare Conference Call May 22, 2013 11:30 AM ET

Matt Roden - UBS

Hi good morning everybody. We are going to move on to the next company presenting here at the UBS Global Healthcare Conference. My name is Matt Roden, I am a biotech analyst here at UBS, and I am pleased and privileged to introduce Celgene, a market leader in hematology and oncology, several marketed products and several interesting pipeline products in late-stage development.

Speaking on behalf of Celgene is Perry Karsen, Executive Vice President and Chief Operations Officer at Celgene. Perry started his second tour of duty with Celgene in 2010 after having spent 18 months as CEO of Pearl Therapeutics and prior having worked with Celgene for five years as a Senior Vice President. He has also had leadership experience in business development in Human Genome Sciences, Bristol-Myers Squibb and also experience at Genentech and Abbott.

Following the presentation, there's going to be a breakout session across the hall in Carnegie West. And with that, I am pleased to hand it over to Perry.

Perry Karsen

Okay, thank you very much, Matt. I appreciate it. And thanks all of you for coming in I know it's the last day of the conference, but we appreciate your attention. So I am going to start out with just reminding you that I will be making forward-looking statements and you should refer to our SEC filings before making any investment decisions.

So, I think all of you who know the company well know what our mission is and it has expanded over the past couple of years to move from Hematology into Oncology and now into immune and inflammatory diseases, but we are all about discovering, developing, manufacturing, and commercializing therapies for truly unmet medical needs as you know our products well and that's what they do.

So today, we are -- we believe we're a leading biopharmaceutical company in a number of areas. We are truly global. We fully integrated several years ago moving to Europe. We are now in China, we're in Japan, we are in Australia, we are everywhere in the world with direct marketing as well as partnerships and distributors.

We have a portfolio of leading products, primarily in hematology and oncology; REVLIMID, ABRAXANE, and the recent data that’s come out in ABRAXANE over the last six months in solid tumors, VIDAZA, drug in MDS; ISTODAX for lymphomas; and certainly THALOMID where we started; and most recently we're very excited about POMALYST and the launch of POMALYST in the second quarter.

Also fully integrated company in terms of R&D; those of you who were at our Analyst Day recently, I think got a good sense for the breadth of the pipeline at Celgene, and this is a story that is sustainable for years and years to come. It's an early stage pipeline, preclinical as well as Phase I and II that will move us into new areas, new therapeutic modalities, new indications in the 2020s and beyond.

And it's a business model that we believe is very powerful, powerful for the patients and also very powerful for our shareholders where we target unmet medical needs; we discover and develop differentiated products; and with those, we are able to build leverage globally. From an operating standpoint, once we have put an infrastructure in place as we did in hematology and then built on to that with the Pharmion acquisition and internal products, do the same thing in oncology, and we are going to do the same in INI as we move forward, and that has all contributed to industry leading growth in terms of our five-year EPS growth in performance.

And it’s about building those new businesses and franchises to continue to contribute to that growth; hematology certainly is a very established franchise for us in multiple myeloma, MDS, and AML moving into the lymphomas and leukemias. Oncology is a newer franchise. With the Abraxis acquisition, we moved into breast cancer, now lung cancer, we have submitted the drug in pancreatic cancer, and we are waiting further maturation of data in melanoma. And that’s a franchise that we continue to build. And our newest franchise, which is just emerging now is in inflammation in immunology with apremilast. You know that we submitted apremilast in the first quarter for psoriatic arthritis in the U.S., and we will be submitting applications in Europe at the end of the year for psoriatic arthritis and psoriasis and also psoriasis in the U.S.

So that’s a very exciting area for us. As we move forward the apremilast in those two diseases, we continue to explore Behcet's, ankylosing spondylitis, and we will use that as a platform to build out what we think will also be a world-class immunology and inflammatory disease franchise. And this is all translated into a leverageable model whereas increasing return on invested capital, you look at the margin growth. The operating margin, I think, is extremely telling, and again as we put the infrastructure in place, we have been able to leverage that infrastructure to increase our operating margins, our efficiencies, and take advantages of those infrastructures everywhere in the globe in our leading franchises.

And that’s certainly been driven by the revenue growth, 31% compounded annual growth which has contributed to an even faster growth in our earnings per share with last year $4.91 and a 47% compounded annual growth rate over that five-year period with more growth to come.

We believe it’s a very sustainable model. Earlier this year at a conference, we announced at 2017 guidance. As we look out at the milestones that we achieved in 2012 and how we are going to transform those into value, we believe that 19% compounded annual growth is very achievable and you can see from this graph where it’s going to come from, still primarily from our hematology franchise, but the oncology franchise contributing, apremilast contributing as well, so 19% just from that overall business as we look from today to the 2017 timeframe.

And just the existing franchises that we have today, products on the market that are being commercialized, those will grow 13% in that period between now and 2017 which gives us the confident that those new launches that I will show you in a moment will be able to contribute the increased amount of growth to get us to the 19%.

REVLIMID will continue to be a significant driver for the company, although it will drop over time in percentage of total revenue, which is our goal to diversify our portfolio of marketed products, but REVLIMID will continue to be a key driver for Celgene for years and years to come. We are looking forward to the launch in China and other emerging markets as we move forward, reimbursement in new markets, new data, new indications, and as you can see newly diagnosed multiple myeloma strategy is still in tact. We have four studies that we continue to monitor, and as we see those data from studies like MMO-15 and importantly MMO-20, we will be able to then develop and articulate our registration strategy for getting that newly diagnosed indication in Europe and in the US and maintenance therapy as well.

The studies continue to mature, data continues to come in. As we have it, we'll be able to communicate the strategy going forward, but it’s a major priority for us to get those -- that indication in every country where we have REVLIMID on the market. We feel very proud of bringing POMALYST to market. This is a product that many of you have followed with us for years, a very potent IMiD and what this does for patients is so meaningful. Previously, before POMALYST was available, there weren't many therapeutic options for those patients who had progressed from an IMiD and progressed from a Proteasome inhibitor. With POMALYST available, these patients now do have a very meaningful therapeutic option. So, for those third line patients, those patients with limited treatment options, POMALYST is now available, and it truly shows how these IMiDs are differentiated from each other between THALOMID, REVLIMID, and now POMALYST, all working differently, POMALYST being very effective agent for those patients who have progressed from THALOMID and REVLIMID, and so with this portfolio and our multiple myeloma franchise, we really are able to treat these patients for a prolonged period of time in combination with other agents as well, and we've truly transformed the treatment of what was a devastating disease until one that hopefully will become a chronically treated condition over time.

You know the benefits of POMALYST, the huge unmet medical need, survival data, statistically significant. Obviously, we achieved the progression-free survival end point, and we were rewarded with accelerated approval in the US, and we are waiting and have expectations for an approval in the second half of this year in Europe as well, which will truly be a very significant accomplishment to have approval for this drug in the same year in two major markets and be able to make it available for those patients in the US and in Europe, and we will be able to start filing in other markets as well. So, next drug is ABRAXANE in oncology, our solid tumor franchise. We look at 15% compounded annual growth for ABRAXANE in pancreatic cancer, and overall and the indications that it will be approved over the next five years. ABRAXANE alone will contribute 2 percentage points to our overall growth in that five-year period, and the pancreatic data is significant, it’s truly transforming for patients with a very devastating disease, and we see ABRAXANE in breast, lung cancer, and hopefully the approval in pancreatic cancer driving growth for the product as well as for the company overall. This is truly a differentiated molecule, much different than the existing taxanes as we've seen with the pancreatic data and the melanoma data, potential for improved safety versus the drugs that have to use Cremophor and other agents, and in pancreatic cancer, there's been no new advance in this disease for decades.

Now our Head of Clinical Development, Jean-Pierre Bizzari, this was his fifth attempt at developing a drug in pancreatic cancer. The other ones had all failed and with this one he was able to show a survival advantage. Melanoma data, we did achieve our progression free survival endpoint we are looking at the maturity of the overall survival data and if that comes in we will work with regulatory agencies to determine the best path forward for a registration potentially in melanoma as well. Again a disease where there has not been new frontline therapy for decades. So you can see here in 2017 we believe ABRAXANE will contribute $1.5 billion to $2 billion of revenue to our overall product revenue. And the data speaks for itself; on your right hand side is the pancreatic data showing the overall survivals, beautiful separation of the curves and what we've seen in interim analysis, the planned interim analysis in melanoma. On the left hand side again separation of the curves showing the advantage of ABRAXANE in these settings in survival, the benchmark for cancer drug.

Apremilast as I mentioned, our new emerging franchise in inflammation and immunology and we're very excited about the establishment of entirely new therapeutic franchise at Celgene, very related from a scientific basis to what we're doing in oncology which is also an inflammatory disease, but this will allow us to continue to diversify the pipeline of products and opportunities at Celgene and continue to build out a broad based company in oncology, hematology as well as INI. Apremilast we believe will grow 19% compounded annual growth over the next few years between now and 2017, adding 4 percentage points to the overall growth of the company. So apremilast will be a significant contributor to the company going forward.

And there is good reason for that. The drug is truly a potential blockbuster therapy in at least two diseases where we think we will have approval early on in psoriatic arthritis and psoriasis. We've seen some very promising phase 2 data in ankylosing spondylitis where an oral therapy actually showed skeletal changes and we're in a phase 3 trial now in ankylosing spondylitis that’s enrolling extremely well. You heard an update at our Analyst Day meeting. So we submitted in the US as I said in psoriatic arthritis in the first quarter. We will submit in psoriasis at the end of the year and both indications will go in to Europe at the end of the year as well. And as you follow this drug throughout this calendar year and you go to assume the meeting in the US and in Europe, you will continue to see more data. We now have six positive phase 3 studies from apremilast and psoriasis and psoriatic arthritis in a variety of settings including patients who are completely naïve to therapy and those data will be rolled out at medical meeting throughout the year, both the efficacy and the safety profile of the drug.

If you just look at some of the efficacy, this is the drug that will fill a huge unmet medical need between those patients who are on Methotrexate an oral therapy that is fairly toxic and patients who may be not quite ready for Biologic, which could immune compromising potentially and also is an injectable. And if you look at this slide here in the PASI-75, apremilast sits beautifully between the two most commonly used doses of Enbrel. So right there between the 25 and the 50 milligram doses, we see a 30% PASI-75 score for apremilast 30 milligram p.i.d. in psoriasis. If you look at apremilast overtime and this is again comparing to the Enbrel dose that’s perfectly between the two accepted approved doses for Enbrel and even though this is a cross trial comparison if you look at apremilast going out continuous efficacy out to 24 weeks right there between those doses of an anti-TNF agent.

And we have looked at apremilast as I said in a variety of settings from other prior therapies, naive patients in combinations and the blue bars here represent apremilast in a variety of different settings looking at the efficacy of different weeks 16 and 24. And as you can see it compares extremely favourably to other agents in the market as you look at those settings and as you look those time points. And most recently we have shown some monotherapy data in Biologic naive patients as well and you see at week 16 a 47% ACR 20 in psoriatic arthritis. So across a spectrum of the two diseases psoriasis or psoriatic arthritis comparing again cross trails but comparing to existing data apremilast compares extremely well from an efficacy standpoint and certainly from safety as well. So it's not just a current hematology/oncology products or apremilast, but we have over 30 pivotal Phase 3 trails underway and a variety of indications which gives you a good sense for how we are going to grow this company even beyond 2017 with new approvals coming this year, next year and into 2015 for very important molecules in our pipeline and beyond that as you heard in our analyst day for compounds that are in earlier stage in late teens in the late part of this decade and going into the early 20-20 as well.

And that’s going to sustain the growth of Celgene going into the long term, 2017 is where we’ve shown guidance and even beyond we expect to continue to grow. But between now and 2017 that 19% compounded growth rate and revenue with earnings growing faster then that at 25% which should get us in our estimation to $13 to $14 per share earnings per share in 2017 and continue to sustain the growth in the company from revenue and earning standpoint and hopefully from the valuation standpoint as well.

So we believe very powerful story here where we are very importantly delivering extremely critical outcomes to patient; that’s what Celgene is about. It’s discovering, developing and ultimately commercializing very meaningful therapies for those patients who needed, what we have done a multiple myeloma, in MDS, now in pancreatic cancer hopefully in melanoma, lung, breast cancer and what we are going to do with psoriasis and psoriatic arthritis going forward. These are products that serve patients in a very meaningful way and that helps drive certainly the financial performance of the company as well. And its all about execution at Celgene. I think we demonstrated over the years as we made the decision to commercialized REVLIMID on our own worldwide and have done that successfully, as we’ve done acquisitions that we have been able to integrate and make successful and as we’ve continued to discover drugs, develop them and get regulatory approvals but focus at Celgene is on execution excellence in execution. All 5000 employees worldwide are focused on this on a daily basis.

And what that continues to do is give us a long growth runway. We showed what we are going to do to 2017. At our Analyst Day we showed the pipeline that will drive the company in the late part of this decade into the early 2020s and we expect to continue to see growth and very importantly the diversification of our revenue base and our product portfolio well REVLIMID probably will drop to around 50% of total revenues by 2017, allowing a greater diversification of our revenue base as we grow the company going forward.

And at that execution it’s about key milestones and we know that many of you are tracking us as we put these up earlier this year and we continue to follow and make sure that we are executing against these 2013 milestones. I'm not going to go through all of them on the slide, but as you can see several of them we have achieved already.

The one we didn't was the Phase 3 data for myelofibrosis for POMALYST, but the green checks against the regulatory approval for POMALYST certainly in the US, submission of the regulatory filing for ABRAXANE in the US and in the EU for pancreatic cancer. We look forward to both indications approved in those two markets and certainly the positive is steam data for Phase 3 in psoriasis with apremilast. So we continue to move forward against these milestones and will execute in the second half of the year against all of these and be able to update you early in 2014 on how we did. But these are all key obviously to continuing to build the company, build the value for patients first and foremost and for our shareholders as we go forward.

So with that, I thank you for your attention and will turn it over to Matt.

Question-and-Answer Session

Matt Roden - UBS

Great, so we are going to just start the Q&A here, and then when we run out of time about five minutes, we are going to go over to Carnegie West to fill out the breakout. So first of all, I want to see if there are any questions from the floor and if not, I will kick us off. Yeah please.

Unidentified Analyst

(Question Inaudible)

Perry Karsen

So the question was about POMALYST and how it’s been doing since we launched it. And as you saw on the slide, it was launched in mid-February of this year. So, on our first quarter call, we did show the POMALYST revenues, $28 million if I remember correctly. We will see the second quarter revenues on our second quarter call at the end of July, but we feel very good about the launch of POMALYST. It’s been going extremely well. We had to introduce an entirely new risk management system to clinicians that encompass all three of our products, THALOMID, REVLIMID, and POMALYST. That introduction to physicians’ offices has gone extremely well. It was a great success by our commercial teams and our IT teams to introduce that service to clinicians.

We've seen a very good uptick of the product, new patients coming on, you know again this is an area where there was truly a significant unmet medical need and clinicians and patients seem to embrace POMALYST. So it’s early days, but we are very encouraged by how it’s going and you will see more on our second quarter call. So, thank you.

Matt Roden - UBS

So Perry you are an operations guy, and you mentioned key focus for your company is on execution, and I was wondering if you could talk a little bit about operationalizing the launch of apremilast worldwide. What are the key challenges and things that you are looking to sort of check the box on as quick as you can, and longer-term how you maximize the value of this compound for you?

Perry Karsen

Yeah, great question, Matt. Thank you. So, the launch of apremilast is a tremendous opportunity for Celgene, and it really takes us into an entirely new area. The first thing we've been doing is building up a team at the senior level, and Scott Smith has been head of our I&I franchise for several years now. He and the team have done a brilliant job of developing apremilast in psoriasis and psoriatic arthritis, getting the regulatory submissions in, and now we need to add people to help execute on the commercialization standpoint, and we've been very gratified by the candidate that we're seeing and the interest that we're seeing in joining the I&I team at Celgene to commercialize apremilast.

We've recently hired a new head for all of our U.S. commercial operations, a woman who came from -- most recently from Merck and was at (inaudible) before, running a very significant business for Merck, but saw the opportunity with apremilast to truly introduce a novel new drug in I&I. She has got tremendous experience launching drugs in this space. We’ve added a Head of Global Marketing for I&I most recently who came from J&J who was involved in their launches in this space. So for us it's very telling. The people who really know the inflammation in immunology space want to join and be part of the launch of this drug.

So that’s the first thing, it is to bring in that senior team to start operationalizing the commercialization first in the U.S. and then in Europe for apremilast. And after that, as we see the regulatory approval moving forward in the U.S., we will start building out the sales force as well, but it's bringing that senior team this year in getting all the plans in place and ready to go.

There are other areas obviously of Celgene. They are very involved in apremilast launch as well. Manufacturing is a key area for us. With REVLIMID, with POMALYST, with THALOMID, the number of capsules that we have to produce on an annual basis are somewhat limited, and certainly as we're manufacturing on our own are fully under our control. We're now building up the manufacturing operations for apremilast at our site in Switzerland, and we're going to be ready to go there. This is a twice a day pill, not a capsule, it’s a chronic therapy. So, the demand is just from a quantity standpoint going to be much more significant, but we're going to be able to meet those without any problem.

So it's those aspects of the launch that are starting to come together using IT and creative ways to support this launch as well, and as we move toward the latter part of this year and into early next year, we will give greater clarity on the size of the sales force in the U.S. for apremilast, what we are going to do in Europe because that application as I said will go in later this year, probably not launch until early 2015, so we have some time there as well.

But it's putting together an infrastructure that’s going to support in a competitive environment a very successful launch of a novel drug, and we are very excited about how it's going.

Matt Roden - UBS

And how do you compare and contrast the effort that you are going to put forth to bringing apremilast out versus what you have had to do in the Heme/Onc setting?

Perry Karsen

Yeah. This is a more challenging market. There is a lot of very successful agents out there, especially the biologics that have done very well not necessarily in exactly the indications we are going to go after, but as an immune and inflammatory disease molecule. So, there will be more intense competition. When we introduced REVLIMID in hematology/oncology, there certainly were therapies available, but it was fairly open area for a new novel molecule.

We believe that with the apremilast, we are going to be capturing a completely unmet medical need now in a niches I said between the methotrexate and the biologics and so there is a vast patient population very willing and receptive to this kind of agent as well as the clinician. At our Analyst Day we showed some market research data, blinded data that really confirmed the opportunity for the drugs. So it's going to be a more competitive marketplace in hematology, but we are ready for that challenge and we are going to do very well.

Matt Roden - UBS

Okay. That’s great. I think we are out of time for this session, but let’s take it across the hall for the breakout.

Perry Karsen

Okay. Thank you.

Matt Roden - UBS

Thank you.

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