Celgene's (CELG) Management Hosts Jefferies Global Healthcare Conference (Transcript)

Jun. 4.14 | About: Celgene Corporation (CELG)

Celgene Corporation (NASDAQ:CELG)

Jefferies Global Healthcare Conference Call

June 4, 2014 10:00 ET

Executives

Jackie Fouse - Executive Vice President and Chief Financial Officer

Analysts

Thomas Wei - Jefferies

Thomas Wei - Jefferies

My name is Thomas Wei. I am one of the senior research analysts on the biotech team at Jefferies. And it’s my great pleasure to have our next presenter from Celgene, Jackie Fouse here who is now if I get the title correct, you are President of Hematology/Oncology, is that correct?

Jackie Fouse - Executive Vice President and Chief Financial Officer

I will be soon.

Thomas Wei - Jefferies

Yes, okay. President of Hematology/Oncology and also currently is still wearing the Chief Financial Officer hat. Here to do actually a fireside chat, so we have dispensed – I got Jackie to agree to dispensing with the slides. So, we will try to along the way fill in a couple of background blanks for you all, but we thought that a Q&A session would be helpful. And of course, we would love to make it interactive. So, if anybody does have questions, I will stop periodically. Please don’t be shy. And part of the reason for this format was also because we are not hosting a breakout session afterwards. So, if you do have questions for Jackie, this is your opportunity to try to get them in and thanks so much Jackie for coming, especially straight from Africa.

Jackie Fouse - Executive Vice President and Chief Financial Officer

Happy to be here.

Thomas Wei - Jefferies

Okay. So I thought maybe one thing just to fill in a little bit of background for folks that would be helpful to start is a reminder of some of the long-term guidance objectives that you had outlined for Celgene before, especially on the revenue side. It would be helpful to get a lay of the land before we start our discussion.

Jackie Fouse - Executive Vice President and Chief Financial Officer

Great. So, yes thanks for that. It’s a good place to start. So, we have given targets for revenues out to 2017 that now totaled $13 billion to $14 billion, that’s the range that we have given. We started about a year and a half ago giving those targets and at the time the number was $12 billion. So, we have been able to take it up over the last year and a half and the revenues breakdown into three different areas by therapeutic category. So, we have $1.5 billion to $2 billion of revenues assumed in there for ABRAXANE, which is our solid tumor product, $1.5 billion to $2 billion assumed for OTEZLA, which is our product newly approved for psoriatic arthritis and where we expect to have a psoriasis indication later this year.

And then the balance is our hematology business, including REVLIMID, where the revenues are expected to be $7 billion. POMALYST/IMNOVID were they are expected to be another $1.5 billion for a total of $8.5 billion and then you have another roughly $1 billion to $1.5 billion from other products, including VIDAZA and ISTODAX. So, those are the revenue numbers. And just as a reminder, the earnings per share number in 2017 is at least $15. So, we took that up as well. So, what you see from here out to 2017 are constant annual growth rates of 21% on the top line and 26% on the bottom line and all of that’s coming from existing products and indications, where we have got clarity on the new approval timing and so very little risk associated with achieving those I would say and some upside potential.

Thomas Wei - Jefferies

Actually, maybe that’s a good place to start.

Jackie Fouse - Executive Vice President and Chief Financial Officer

I knew you were going to ask me that.

Thomas Wei - Jefferies

Yes. Where do you see there being upside potential to this guidance and maybe just a little bit more specific on how you formulate these numbers like what is in and what is not in those specific revenue numbers?

Jackie Fouse - Executive Vice President and Chief Financial Officer

Yes. So, that’s a great question. When we decide to give longer term targets and we have done this now for few years starting back in 2011, one, we have matched those targets up with timeframes where we see inflection points in the business. And we only give financial numbers around products and indications, where we have got the Phase 3 clinical data in hand and we have a clear regulatory pathway and timeline. So, we are not throwing a lot of things into the financial model, where there is a significant amount of uncertainty associated with those. So, I like to think about it as being a base case that of financial targets and we have established a track record over the last three or four years of giving those numbers and then being able to improve them over time, but it should give investors a frame of reference as to what the base growth in the business can be.

So, in these financial targets, what’s included in all of the products that are in there, our existing products are already approved. The indications that would be new would be the psoriasis indication for OTEZLA, where we have a PDUFA date in the U.S. of September and we are on track with approvals over psoriatic arthritis and psoriasis in Europe by Q1 of next year. So, that will be a new indication included in those targets. And then the newly diagnosed approvals for both the U.S. and Europe for REVLIMID, where we are well on our way with the regulatory process around those as well and should have those in hand by the first quarter of 2015. So, other than that, everything is already approved being launched. If you would have some approvals maybe in jurisdictions outside Europe and the U.S. like Japan that would be relatively modest in terms of their contribution.

So, some of the things that are not included would be any other indications for OTEZLA beyond psoriatic arthritis and psoriasis, things like VIDAZA AML opportunity in Europe. The other thing about or any of the other non-Hodgkin’s lymphoma indications those, we push those all out beyond 2017. The other area, where I think just to make sure we understand how we build our financial models, probably a little bit conservative is because we have got a global portfolio of businesses now. There are assumptions in there around market shares and duration of treatment and approval timelines for every country in the portfolio. And you might expect us to be a little bit conservative in terms of what we assume in any of those individual drivers if everything goes the right way and the portfolio can present upside. And so to that point I think assumptions that we have made for the newly diagnosed impact especially in Europe but to some extent in the U.S. on market shares and duration of treatment I think we have probably been pretty conservative on that.

Thomas Wei - Jefferies

Okay. Just to clarify when you put things in the model like newly diagnosed REVLIMID or psoriasis for OTEZLA, your financial targets long-term are not probability risk adjusted additional revenue opportunity that’s kind of fully baked in, but with conservative assumption?

Jackie Fouse - Executive Vice President and Chief Financial Officer

That’s correct, that’s correct.

Thomas Wei - Jefferies

And when you look at all of the various opportunities of upside that you had mentioned, what would be some of the biggest, what would you think are the biggest or most exciting of those upside opportunities to the guidance?

Jackie Fouse - Executive Vice President and Chief Financial Officer

If I would say OTEZLA you are not going to believe me, so I won’t say that. I think probably anything around incremental impact associated with newly diagnosed label expansion for REVLIMID both in the U.S. and Europe would have the largest absolute dollar impact for a few reasons. Particularly in Europe we are going from a situation for that specific indication where we don’t have any market share today or very little because it’s not the – the product is not reimbursed for that in Europe. And we have seen in the newly diagnosed setting the frontline setting for multiple myeloma in the U.S. that the product even without a label has gone to the share position of being in the mid sort of 50% market share. So our assumptions for the trajectory in Europe once we get the approval and then make our way through the launch are probably somewhat conservative in terms of what the trajectory for gaining share could take.

We are also now seeing with a larger and larger portfolio of numbers of patients that as we get duration of treatment increases in both the geographies that the impact of those increases in duration of treatment is quite substantial. So if you gain a month of duration of treatment across this big portfolio of patients it’s got a significant impact on growth. And so I think those are some of the things that we are going to see upside from. I also think there are some geographies like Japan as an example where maybe we will be able to get approvals for products like POMALYST a bit faster than what we had assumed. So those are the sorts of things that I think have the most upside.

Thomas Wei - Jefferies

Maybe just to provide some context around REVLIMID in the frontline setting especially in the U.S. where are we at, like where is this based right now in terms of penetration and duration and when you think about the longer term why do you – what sort of magnitude of increase have you thought is reasonable?

Jackie Fouse - Executive Vice President and Chief Financial Officer

Today as I mentioned in frontline in the U.S. our share position is around the mid-50s. We think that when we are able to promote the product on label and the newly diagnosed setting that we should be able to gain at least ten share points just associated with that. The trends for the product are very positive already, so I think we are going to be building on momentum. And as we have continued to see data come out of the MM-20 trial and in other trials that are coming along there is more and more support for the benefit of using REVLIMID early in the treatment paradigm and for keeping patients on it for a longer period of time. So we think there is significant upside there.

On the duration of treatment we are around 16 months now in the U.S. have been on a steady gaining trend there. Again the more data you see around the maintenance aspects of the product and more supportive it is for leaving patients on drug. And in Europe we are only around 11 months, again we have continued to gain over time. But because we don’t have the approval for the frontline we have got a nice opportunity there to continue to increase that duration of treatment in Europe. One other related thing on this it’s not contemplated in our financial targets would be the potential impact from positive read-outs of some of the combination trials that are ongoing with REVLIMID and other companies products, notably elotuzumab, Kyprolis, carfilzomib and others. So, we are having any positive data that comes out on those combinations will be supportive for the continued role of REVLIMID as backbone treatment across all patient segments in frontline multiple myeloma. So, those are the kinds of things we haven’t put in either. In fact, just as a little bit of trivia and I am going to make Thomas go out and do the work to list them all, but there are 20 Phase 3 trials ongoing across the clinical development landscape, including REVLIMID in combination with something. So, Thomas is going to do his work and come back and tell us what those 20 things are.

Thomas Wei - Jefferies

So, I am glad that you had segued to that question, is that really, so you are right, when we look at myeloma right now, I think we are all very excited about the fact that there is this whole new wave of third agent to potentially be added to Rev/Dex frontline. Does that allow you to go from your 55 to 65 to more share and to actually start taking away from Velcade or is the real impact in terms of duration, lengthening duration with the third agent, how do you think about that?

Jackie Fouse - Executive Vice President and Chief Financial Officer

Well, I think duration is for sure a very important driver. I think if we tell you that we think we can get an additional 10 share points that I am mindful of this in my new role that I am going into as well in the U.S., you might assume that we feel very good about our ability to do that. And I think there is potentially upside of that as we continue to see the landscape evolve. I mean, it is a disease that we are not curing yet. So, we will I think see more and more novel-novel combination therapies, more. And we see that borne out in the clinical data more triplet regimens versus doublets and a lot of great things going on for multiple myeloma patients. So, in fact, however you kind of slice up the share positions, the market size from a dollar standpoint for multiple myeloma from a commercial perspective is growing with the addition of these novel agents and more treatment choices. And then you get into a whole dynamic also around frontline, second line, third line and any opportunities across all of those as we have these portfolios of drugs, very interesting.

Thomas Wei - Jefferies

And I think a lot of the 20 Phase 3 trials that you referred to, the third agent in that regimen is actually usually not yours, could you just go through though what efforts you have to be a player in that regimen in the third spot of the regimen, what do you have that is exciting?

Jackie Fouse - Executive Vice President and Chief Financial Officer

Yes. So, I think we have got a lot of things going on. You have seen us do a number of R&D collaboration deals over the last few years, notably we did about 21 of them I think just in 2013 alone. So, we have this great fan slide that you can have a look at on our website if you don’t have it already that shows all of those collaborations and how they slot into different areas of science or drug classes or drug targets and it makes sense in the whole portfolio. So, a number of things that we have going on specifically in multiple myeloma is we are partnering with other companies that may have monoclonal antibodies and other compounds. So, many of the existing trials that are ongoing we have been running those in partnership with some of our fellow companies in the space already.

We are looking at different things in the PD-1 space with companies who have those molecules potentially to combine those not only with REVLIMID, but also with ABRAXANE and oral azacitidine. So, those things are going on. We have through our own partnerships, if we take an example, one would be the MorphoSys collaboration with a MOR202 compound being a CD38 target is one that we could potentially see in combination with REVLIMID or with POMALYST. So, when we take the IMiD portfolio of drugs that we have some of the things that we have got going on internally as well and then this large portfolio of R&D collaboration agreements. We have got agreements we have got a lot of choices about the different combinations that we are able to pursue and run those through proof of concept pretty quickly to then get to where we might take the programs into the Phase 3. So a lot of things going on, I mean you know we are looking to make the next big leap at some point in multiple myeloma and that could include novel combinations, it could also include next generation in it, whether it’s all (122) compound that you have heard a little bit about or some other things that we have got going on. So it’s all very exciting, lots of optionality that’s not priced into the stock yet.

Thomas Wei - Jefferies

So I wanted to ask about some non-myeloma stuff especially since that – a lot of the non-myeloma stuff is what is causing Celgene volatility of the stock these days, so the first thing is on patent, so of course I am…

Jackie Fouse - Executive Vice President and Chief Financial Officer

I thought you are going to talk about GED-301.

Thomas Wei - Jefferies

I probably can’t get away without asking you some patent questions, so I guess the Markman hearing has concluded, maybe you can just in terms of next steps and timing and what you can say coming out of Markman about your confidence in REVLIMID lasting until 2027?

Jackie Fouse - Executive Vice President and Chief Financial Officer

Alright. So we are as confident as we have ever been as we have made our way through the process and it is ongoing litigation so there are lot of things that I can’t say. But we have not seen anything that has surprised us particularly along the way with the process. We are glad that the Markman’s step in the process is done. We – I would say we would characterize the outcome as being something that we are happy with in terms of prevailing on our interpretations of the claims, most notably for the hemihydrate claim which is related to the 2027 patent where our definition was the one that was upheld. And our definitions for the claims around the unsolvated aspects of the Form A patents and we prevailed on those and are quite pleased with that outcome.

So I think if you would ask me how I feel today versus a year ago, I would say I am even more confident in our position and the timeline for this intellectual property holding about 2027. The next steps in the process include discovery that is ongoing now that will continue out through September that needs to take place before the judge would schedule the trial. So that includes expert witness testimony. So that part of the process will run to September and then the judge could schedule the trial for anytime after that. She showed herself to be quite efficient, I would say with respect to the Markman proceedings. So maybe she gets it in by the end of the year more likely it’s probably going into 2015, but let’s see. So I think we are going to gather more information as we go through that, but we are as confident as we have ever been, so let’s see how it goes.

Thomas Wei - Jefferies

So I think one of the parts of the guidance that people feel is the riskiest is maybe on OTEZLA, you can choose to agree or disagree with the, but how do you feel about your long-term guidance on OTEZLA and how should we interpret the early script data that’s been generated so far?

Jackie Fouse - Executive Vice President and Chief Financial Officer

So what I would say is I do agree that the rest of you think there is more risk associated with that target maybe than we do, so I will agree with that part of the statement. The reason why we feel good about our range of $1.5 billion to $2 billion in 2017 is partly related to – one we believe we have got a great drug in our hands and we are going to be able to show you that as we launch it and it can give you some harder numbers and data points associated with that. But also by 2017 keep in mind that we will have multiple indications, so we will have both psoriatic arthritis and psoriasis and those are large market opportunities. And we will have approvals in multiple geographies, so both the U.S. and Europe. So you have got a number of different components to driving the growth out to 2017, it’s not a one geography, one indication situation, so that’s part of it.

What we are seeing early on with the psoriatic arthritis launch, we jut got that approval in March, so it’s early days but there are a few things and we will talk more about this on our Q2 earnings call that we think are quite positive one is related to the access position for the drug. So we had certain expectations around that in terms of targeting a certain percentage of patients in psoriatic arthritis who would not have to be required to step through other therapies before getting the drug. So, we are very happy with where we are from an access standpoint. We are seeing the drug fall quite nicely into the part of the market that we have been targeting, which is the pre-biologic space. That’s where the larger number of patients and the larger opportunity for our drug we think is. And the combination of convenience, efficacy, safety, the way that we chose to price it at a discount on an apples-to-apples basis to the biologics, we think has put it in a quite good position. We have gotten favorable feedback from payers, it’s position is, as I said from an access standpoint is in a very good place. We have got our first formularies signed up and are now building on that.

And what we are seeing in the early script trends we think is also positive. So, the data that you see can be a little bit hard to interpret, just because we are using a specialty pharmacy distribution channel for now and the capture rights from IMS or Symphony, whichever one you are looking at are going to be maybe a little bit different than what you would see for some other drugs, but I think the trends that you would see in the data are indicative of what we are seeing from a trend standpoint. The number of patients that we are seeing sign up for the patient support programs and things like that, are also metrics that we are looking at. So, we feel really good about the launch and we will be able to show you some revenue numbers over the next few quarters. Q2 is one where we are still very much in build mode. This is the product that has the first two weeks of – are non-revenue generating, because patients get titration pack and they have got a couple of weeks that they are on before we get revenue generating scripts, but we like what we are seeing so far. We will talk a lot more about it on the Q2 call and give you some data.

Thomas Wei - Jefferies

I am wanting to a play a little bit of a speed round game with you, which not all senior management is open to, but I call it my favorite child game. So, you as the parent at Celgene, I would like you to pick between the following choices. So, if you had to choose between REVLIMID in follicular lymphoma or REVLIMID in diffuse large B-cell lymphoma, what do you think is the thing that we should focus on?

Jackie Fouse - Executive Vice President and Chief Financial Officer

I would probably focus on diffuse large B-cell first, partly because I think the timeline to getting an approval could be even faster for that indication, but I like them both, so.

Thomas Wei - Jefferies

How about on REVLIMID in combination for myeloma with their proteasome inhibitor like your own or carfilzomib or REVLIMID with one of the new antibodies like elotuzumab?

Jackie Fouse - Executive Vice President and Chief Financial Officer

Again, you might expect me to say, I like them both. I think the go forward with the monoclonal antibody combinations is very exciting. It’s going to take myeloma into a different place than it’s been in the past. So, I have vote elo.

Thomas Wei - Jefferies

How about OTEZLA for psoriasis or OTEZLA for ankylosing spondylitis?

Jackie Fouse - Executive Vice President and Chief Financial Officer

Psoriasis is definitely the larger market opportunity. In fact in our numbers in 2017, we are assuming that $1.5 billion to $2 billion will be 50% to 55% psoriasis. I think it’s the profile of the product is going to play very well with dermatologists in terms of what they are looking for, for the combination of safety, efficacy, tolerability, convenience all of those things. And in fact, I am glad you asked me that, because one of the positive things that we are hearing back in the current launch is coming from the derms who are treating psoriatic arthritis were getting quite good feedback and a little bit faster adoption than we had expected through from that audience, which I think speaks well to the profile of the drug.

Thomas Wei - Jefferies

And from a future – kind of future outlook for Celgene and business development activity, solid tumors or hematologic malignancies?

Jackie Fouse - Executive Vice President and Chief Financial Officer

That’s a hard one, because that’s a really hard round, if I am going to directly answer that question, because there is great opportunities for us across both of them. The deal, that you see us do are typically allowing us the potential to have a compound come through be screened and then play in either of them. So, gosh, if I have to pick one, I guess I will say hematology just because, but I like them both, so.

Thomas Wei - Jefferies

Okay, great. I did want to – we probably only have time for one question from the audience, I have taken all of your time but does anybody here have a question for Jackie before we let her go off to her one-on-one session. Right there.

Question-and-Answer Session

Unidentified Analyst

(Question Inaudible)

Jackie Fouse

Yes, so the question was what’s our commercial position outside of the U.S. our commercial infrastructure and then are we open to partnering from a commercial standpoint in certain markets. So we have actually built a global commercial infrastructure over the last, well let’s call it 8, 9, 10 years. So we have our own legal entities and our own commercial infrastructure in over 50 countries including the U.S., Europe, Japan, and the emerging markets like China, Russia, Turkey, Brazil, Mexico. So we feel pretty strongly that that’s the model that’s going to create the most value for us over time. That being said, we have in the past and we today have some distribution agreements, so some commercial partnerships in certain selected geographies where we think that that’s the right model. And we will continue to – we have those across some parts of Latin America, a little bit in the Asian countries as well and it’s some thing we would continue to look at if it makes sense. OTEZLA may be a product where at some point in certain geographies it would make more sense to partner with someone commercially to make the most of that opportunity we will see. Thank you for the question.

Thomas Wei - Jefferies

Great. I think that in the interest of time we should let Jackie go. Thank you so much for doing this, really appreciate it. And thanks for your insight.

Jackie Fouse - Executive Vice President and Chief Financial Officer

Thank you. And thanks everybody.

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