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Celgene Corp (NASDAQ:CELG)

UBS Global Healthcare Conference Call

May 19, 2014 / 1:30 P.M E.T.

Executives

Perry Karsen – CEO, Celgene Cellular Therapeutics & COO

Analysts

Matt Roden – UBS

Matt Roden – UBS

This is from Celgene Corporation. Speaking on behalf of Celgene is Perry Karsen, the CEO of Celgene Cellular Therapeutics and the Chief Operating Officer of the Company. And Perry is on his second tour of duty here with Celgene, starting in 2010, after having spent 18 months as a CEO of Pearl Therapeutics, which was acquired by AstraZeneca. Prior, he worked at Celgene for five years as a Senior Vice President. But I'd like to pass it on to Perry. Thanks for being here.

Perry Karsen

Great. Thank you very much, Matt, appreciate it, and thanks to all of you for your interest in Celgene this afternoon. So first, I do need to just qualify and let you know that I'll be making forward-looking statements here this afternoon and you should consult our financial filings before making any investment decisions.

Well, I think, those of you who are familiar with Celgene, you know what our mission is and what our vision is and that is to continue to build a great biopharmaceutical company, focused on oncology, hematology and now immune and inflammatory diseases as well; offer unmet medical needs and I'm going to talk to you a little bit about those therapies that we have on the market and in our pipeline that are going to help us achieve exactly that vision.

We are a leading global biopharmaceutical company now, as you can see, operating in greater than 50 countries around the world, with sales in more than 70 countries, manufacturing around the globe as well with our portfolio of products. I think most of you are familiar with our hematology products, our oncology products and then ABRAXANE and now OTEZLA, which we recently launched for psoriatic arthritis in the US and have some great plans for it, which I'll mention in a moment.

We also have a very unique R&D capability. We've done a lot of work internally in hematology, oncology, and many other products on the market, certainly all of them on the market. And those in our pipeline come from our own internal portfolio with a very rich pipeline of probably over 30 trials ongoing, certainly in Phase III and moving to the market. So both internal and external development on the R&D side, creating that pipeline of opportunities that ultimately will make it to commercialization.

And the business model is one that we feel very good about. It is initially looking at those unmet medical needs. Where can we have a transformative impact on a disease, on patients, and with that coming up with differentiated products out of our own pipeline, those of our partners, leveraging the infrastructure that we've built on the hematology side, the oncology side, now in I&I, to ultimately develop those products, get them approved, gain pricing and reimbursement and move those products and those therapies to patients. And once we do, it's the execution in the marketplace that we've done very well in the hematology side, on oncology and now we're doing in I&I that just completes that virtuous cycle that allows us then to take some share of those revenues, reinvest them into more development of products and continue to bring products onto the market. So it's a sustainable top and bottom-line growth. Great operating leverage, once the infrastructure is built. Adding products into that infrastructure creates very little additional expense and you have that operating leverage on the operating margin side. Our cash flows, very diversified portfolio, and the growth from our organic products, as well as from those that come from outside.

And you've seen what the results have been. This is from 2009 to 2013. Obviously net product sales, 25% compounded annual growth with EPS of 31% compounded growth in that period. So that whole cycle has contributed to that revenue growth, the EPS growth and continuing that future virtuous cycle. Delivering certainly on all the operating metrics as well. As I said, the beauty of this model is the leverage you have once that infrastructure is built and you can see that on the operating margin side, as we move to 2014 with our estimate of 50.5% operating margin, keeping R&D and SG&A at a very reasonable level from a percent of revenue, certainly the absolute numbers, as revenue growth will increase on the R&D side, especially our cost of goods also at a very reasonable number.

And that all contributes to the outlook for the future, where we expect to be in 2017, and a strong momentum in our core franchises. REVLIMID forecasted in 2017 to be a $7 billion drug in multiple myeloma, mantle cell lymphoma and another -- number of other hematological malignancies. POMALYST/IMNOVID, our follow-on product that was introduced in the US and also in Europe, we see at $1.5 billion by 2017. So the hematology franchise continuing to execute well with the core products. In ABRAXANE, on the solid tumor side, anywhere from $1.5 billion to $2 billion with certainly the breast, the lung cancer and now the pancreatic cancer indications. OTEZLA, our newest marketed product, $1.5 billion to $2 billion also in 2017, and I'll now tell you in a moment how we're going to get there. So 2017, $13 billion to $14 billion in sales by that period of time.

REVLIMID is the core product, will continue to be core, although we are diversifying into other areas as well, but REVLIMID will be a very important product for Celgene for many, many years to come, with growth drivers primarily in increasing the duration of therapy, getting the newly diagnosed multiple myeloma indication that was submitted both in the US and in Europe this year and continuing to develop the drug in additional indications, in hematological malignancies. So you can see between the 2013 timeframe to 2017 that 13% compounded annual growth coming from all of those areas with the drug.

POMALYST and IMNOVID, this is a great products for patients. Previously, before the introduction of POMALYST, patients ran out of therapeutic options. If they would progress from REVLIMID, there were very limited options for them therapeutically. With POMALYST in that relapse/refractory patient population, this has served a need for patients that is very profound and we saw as we launched it last year in February, a very significant increase in revenue from the drug. As you can see, $300 million last year worldwide, because there is a huge unmet medical need that is being addressed by POMALYST, IMNOVID is the brand name in Europe. So, over time, we'll see an increase in duration of therapy with POMALYST, as patients can stay on the drug for a longer period of time and continue to be treated very successfully and probably combinations as well with other therapeutic agents, with the proteasome inhibitors, with antibodies, maybe with HDAC inhibitors as well in an epigenetic approach. So POMALYST, we do expect will be a blockbuster drug by 2017. The estimate is $1.5 billion in worldwide sales.

ABRAXANE is the cornerstone of our solid tumor, of our oncology franchise. It came from the acquisition of Abraxis BioScience and it has really established now a new standard of care in pancreatic cancer. Previously there had not been a new therapy in pancreatic cancer for over a decade. We have been able to show a survival advantage with ABRAXANE in combination with gemcitabine, approved in the pancreatic indication in September of last year in the US and then in December in Europe, being rolled out in both of those markets at the end of last year and certainly as we speak now.

We're also looking at expanding ABRAXANE into other indications, both in the pancreatic side, looking at triple-negative breast cancer, adjuvant pancreatic cancer, non-small cell lung cancer maintenance. So there's a lot of opportunity for us to continue to develop ABRAXANE and continue to have a major impact on those patients in need. So you'll see, in 2014, as it expands into new areas in combination therapies and continues to grow as it serves patients who previously had no other therapeutic alternatives.

We are very excited about the launch of OTEZLA. OTEZLA, as you know, was approved in March in the US in psoriatic arthritis. We expect approval in the third quarter of this year in psoriasis in the US and then early next year in both indications. The launch is progressing extremely well along the lines of all of our expectations, with our sales reps having visited all of their accounts in these last six or seven weeks or so, some of them numerous times. First formulary approvals are coming on board from our managed care group. And we're getting the access that we need for the product with both the payers, as well as the clinicians. We have a sample titration pack that's distributed to clinicians. Those packs are being used to start the patients on the drug and with all of our key performance indicators, OTEZLA is achieving those and we're very happy with where we are today. There's such a great future for this drug, certainly in psoriatic arthritis, but in the psoriasis market, where we think an oral therapy will have a great deal of attraction to both patients as well as clinicians.

We expect ankylosing spondylitis Phase III data certainly between now and the end of June, the first-half of this year. We're continuing to develop the drug in other indications, atopic dermatitis, as well as other disease areas in the [I&I field] (ph) and we're looking at once a day formulation as well. So we are very much at the very beginning of OTEZLA drug that we think is going to have a tremendous future on its own for a number of indications, but also will be the cornerstone of our I&I franchise that we are going to build on over the years to come and also use the same model of operating leverage for I&I that we have done with hem/onc over time.

As I said, ankylosing spondylitis data, we should see that between now and the end of the second quarter here. It's a very large opportunity for an oral therapy that we hope will actually have a skeletal impact for these patients. There is no oral therapy available with a patient population of 2.5 million. So we have data expected from a 500 patient Phase III trial again in the next few weeks there and if positive then we'll be able to inform on our regulatory strategy and how we're ultimately going to make this product available to those patients who need it.

Many of you, I'm sure, are aware of our latest business development transaction GED-0301, a very exciting transformative therapy for patients with Crohn's Disease. This is truly a first in class, very unique oral antisense molecule that targets the Smad7 mRNA in these patients. Works actually on the epithelial lining of the gut. So you have very little, if any, systemic absorption, very safe profile for this drug and it's fulfilled our mission at Celgene of truly developing, discovering, advancing our partners' transformative therapies. If the Phase II data, which hopefully we will find a venue in the second half of this year to start communicating, if those data are replicated in Phase III, this truly will have a very transformational impact on Crohn's patients in oral therapy, with a very reasonable benign side effect profile that hopefully in induction as well as in maintenance therapy treats these patients.

So, Phase III registration program should begin by the end of this year, early next year. And as we have better clarity on exactly how we will advance into Phase III, we'll certainly communicate that. Deal terms, a $710 million upfront payment that we believe reflects certainly the value of this drug, and I think you will as well, as you see the data, with milestones on regulatory and development, as well as sales milestones. So for us a very exciting opportunity, one that we believe will contribute significantly to the building of our I&I franchise, off of the base that we'll have with OTEZLA, and most importantly, we'll have a very important impact on patients who currently have limited treatment options.

So beyond 2017 is about driving that sustainable growth. How do we continue to grow Celgene beyond 2017 into the 2020s and beyond. We believe Celgene will be a Company for generations to come and it is about the pipeline. We've been very active on the external development front over the last several years with the strategy of identifying areas where we want to be a significant player and can't do that on our own. Well, we need to access the expertise of partners, of companies who are focused in a particular area of expertise. Folks like Agios in cancer metabolism; Epizyme in epigenetics; FORMA in protein homeostasis; ABRAXANE, Acceleron and others who have the expertise in a specific area that we could never assemble at Celgene on our own.

So partnering with those folks will allow us to leverage not only our own internal capabilities in discovery, but importantly in development and approval and market access, but the partner's expertise in a particular technical area. And so you can see here the spectrum of areas that we identified as important to Celgene and those partnerships that we've been able to implement to fulfill those areas. We've been very, very fortunate in having a number of high-quality, unbelievably expert companies be willing to partner us in areas and we're starting now to see the fruits of some of those partnerships. Certainly Acceleron, as the two compounds that we have with them moving forward in various anemias, recently at the AACR in April, data coming out of Agios for AG-221 in AML, early days, small number of patients, but very promising, seems to prove the hypothesis of cancer metabolism by interfering with IDH2 mutants, lowering the 2HD level and having an impact on patients.

So the whole premise of partnering with those companies that are experts, leveraging their expertise, along with ours, combining the two, creating new therapeutic options for patients, hopefully is coming to fruition today and for many, many years to come.

And we see that in our pipeline, in Phase I. We expect to have greater than three new INDs every year. You can see some of the products that are in Phase I today, both internally at Celgene and from our partners, like MorphoSys, Acceleron, Epizyme, Agios, OncoMed, those products moving forward and as they advance into Phase II, but today we have significant data flow that we expect this year and next year coming from products in our own pipeline, as well as those of our partners and certainly the goal is then to move into Phase III, broadening that Phase III pipeline in those programs to ensure that we have upside, not only to our 2017 financials, but beyond that until the 2020s and beyond.

So a very deep clinical and development pipeline, 22 programs in clinical development, 100 plus of sponsored studies, 28,000 enrolled patients with -- in over 50 indications, either additional indications for our own drugs or new indications for new therapies that will hit the market. Not all of these are going to make it, but we believe that many of them will and those will continue the growth of our Company and continue to deliver very meaningful therapies to those patients who we serve.

And that will result in what we believe is certainly the forecast today for 2017, where again, product sales of $13 billion to $14 billion, a compounded annual growth rate of 21% from 2013 to 2017, with EPS growing even faster than revenue at 26% compound annual growth. So, delivering to the topline, delivering even faster growth to the bottom line, all the way serving those patients who need these therapies.

And this is a powerful business model that is proven today and will continue to prove itself out over the future. We're leveraging that model, that virtuous cycle of signing products of unmet medical needs, leveraging our infrastructure to develop them, get approval, get market access and commercialize successfully. And the diversified pipeline, with products like ABRAXANE, OTEZLA, POMALYST also delivering sales in excess of $1 billion each, helping to diversify that pipeline and those product revenues from REVLIMID to a broader portfolio across the spectrum. With strong growth, not only to 2017, with four blockbuster products, the four that I just mentioned, accelerating EPS growth certainly, to growing at 26% compounded annual growth, but then beyond 2017 and into this 2020s and beyond with all the programs that we have in development and all the future partnerships that we expect to implement.

A number of milestones in 2014. I'm not going to get into each and every one of them. We put these up in January of every year and so, then we can show you how we've done in the previous year and what we're going to do going forward. But a number of very important milestones this year on the development side, on the regulatory side, certainly on the commercial side, as we advance these products through development to the marketplace, ultimately to patients, both in hematology, oncology, and now in our I&I franchise as well with OTEZLA in psoriatic arthritis/psoriasis in September and then getting ready for the launch next year as well. And we're moving other products forward internally as well. ACE-011 from Acceleron moving forward in renal anemia would also fit very well with our I&I franchise as that moves forward in development and makes its way to patients as well.

So that a very exciting future and near-term 2014, but beyond that 2017 and an even beyond and we're very excited about the portfolio of products that we have, the progress we're making, the progress of our partners and the future for many, many patients who are going to benefit from the therapies that we will bring to the market. Thank you very much for your attention.

So Carnegie West, we'll have a breakout session right across the hall. See you right there. Thank you.

Question-and-Answer Session

[No formal Q&A session for this event].

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Source: Celgene Corp' (CELG) CEO Perry Karsen At UBS Global Healthcare Conference (Transcript)
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