Celgene Corporation (NASDAQ:CELG)
The 34th Annual J.P. Morgan Healthcare Conference
January 11, 2016 10:30 AM ET
Bob Hugin - Chairman & CEO
Cory Kasimov - J.P. Morgan
All right. Good morning everyone. My name is Cory Kasimov. I’m the senior biotech analyst at J.P. Morgan and let me add my welcome to the 34th Annual Healthcare Conference. And now it’s my pleasure to introduce Bob Hugin, the Chairman and CEO of Celgene, who will once again kick things off for us this year in something that has become an annual rite of passage and arguably one of the more anticipated presentations of the entire week. Please note that following Bob’s presentation, there will be a breakout just across the hall in the Borgia room. So with that, I’ll turn it over to Bob.
I could not be more excited and more energized to be with you this morning to share the strategic positioning and the progress on strategic initiatives at Celgene that are really designed to significantly enhance long-term shareholder value.
It is very poignant for me to follow Carlos Fernandez, I have to digress for a moment because though this is my 17th year at Celgene, I had the incredible privilege to work closely with Carlos, the first 13 years of his J.P Morgan experience, and he is such an outstanding gentlemen and banker. It really is a great opportunity for me to follow him.
The presentation that we have today does have forward-looking statements that have risks entailed to them and actual results may or may not be as they’re described.
When we think about Celgene, we think about first and foremost the mission and a vision of our Company. The purpose it gives to all of us, it unifies us, and that makes sure that we’re focused on most important things, and that’s building a market leading global company that is focused on discovery, development, and commercialization of disruptive therapies that are going to have a meaningful, meaningful impact on the lives of patients who are so tremendously underserved.
And the state of Celgene is incredibly strong today, because of that long-term focus on disruptive technologies with the patient at the center of what we do. And I was thinking about this whole mission and vision when Carlos was speaking, and the year is off to a somewhat challenging start with the implications of concerns about the transformation of the Chinese economy and the reverberations in equity markets, but I do have to tell you that I don’t think those reverberations and those short-term implications can mask the underlying strength of our industry. The type of scientific advances are accelerating and are meaningful.
The impact on patients over the next decade, we think about this coming decade, it is no doubt the decade -- the dawning of the decade of the impact of molecular biology combined with information technology. The promise is bright and the fundamentals are strong, and hope you share with me my view that Celgene is a barometer, and if you look at the strength and promise of Celgene, it indicates the strength and success that we’re going to have on our entire industry.
Also the mission, vision, focusing on disruptive technology is a very, very important business proposition for us. One of the great headlines for the last couple of years is pricing pressures. No doubt, we’re in difficult economic times, aging populations, rising cost of healthcare, we have to have innovative solutions. As long as we’re focused on transformational improvement and patient care, we will accrue great value for our Company and our shareholders, but we need to be relentless, rigorous, and robust in the pursuit of disruptive change, not incremental change, and that is the core fabric of the mission of Celgene.
When we think about advancing our vision and accomplishing our mission, we think of the four strategic imperatives that make it easy for us to understand what we must do everyday to make that mission and that vision a reality, and it starts with operational excellence.
When I think about 2015, I can think of no greater example of the success that we’ve had by focusing on what needs to be done everyday across all aspects of our company. The full spectrum of what we do geographically and functionally, organizationally, 2015 was an outstanding year, whether it would be in the near-term accomplishments, I’m going to talk about the financial results of our Company, but advancing the medium term prospects, so we achieved great results in 2020 and ensure thus for the long-term we accelerate those disruptive technologies that give us the market leading sustained high growth for the next decade and beyond, and 2015 was a year of great accomplishment in all of those areas of our Company.
We think about the progress that our franchise has made in delivering in the here and now. The hematology franchise led by Jackie, in terms of fulfilling the promise of REVLIMID, of getting it approved in newly-diagnosed myeloma across the world. And I do want to stop for a second and recognize Gerald Masoudi, our general counsel; and Mark Alles, who led the very tough contentious tough negotiations to give much more clarity on the runway for REVLIMID in settling the Natco litigation. Their work was outstanding and recognized the strong strength of our patents.
All of our products had great progress in terms of launches all around the world, and we did other things to really advance the here and now. I’m going to -- in a minute, tell you the results unaudited of 2015.
Our franchises are much stronger because of the progress achieved in 2015. When you think about the acceleration into Phase 3 and the opportunities we have increasing number of Phase 3 programs today, because of the results and the work in 2015. Our franchises are stronger. Think about our collaborations in immuno-oncology with AstraZeneca and MedImmune.
And the progress in T-cell therapy features with the collaboration with Juno, and certainly we think today of our promise in inflammatory bowel disease, because of our internal programs combined with our progress being made with GED-0301 and now with ozanimod in ulcerative colitis. We today have over 100 sponsored trials with more than 18,000 patients being studied in serious diseases across the world to being advanced by Celgene therapies.
And this virtuous cycle of delivering of the here and now, but ensuring that we invest in the long-term, great progress in productivity and our research in early development in areas, so ably led by Tom Daniel and Rupert Vessey, Rob Hershberg, eight INDs and we’ve announced six different clinical studies starting in immuno-oncology in bringing durvalumab to a combination with our products in hematology.
Number of combinations. We all know George Golumbeski and the incredible impact he has had on Celgene. 80 transactions to strengthen our Company over the past four, five years, 29 in 2015 alone. 2015 is a year of great results, but positioning us also significantly for the longer term.
Again unaudited, the end of this month we will provide the official results of the Company, but strong, strong performance. 21% revenue growth year-over-year, 27% earnings growth, at the same time using our balance sheet to assertively manage our capital structure, buying $3.3 billion of shares back, improving operating efficiency. And I want to stop for a second and mention Peter Kellogg, because it was in the third quarter that we closed the Receptos deal, and M&A activity with AstraZeneca and Quanticel, but most importantly Receptos, we had to achieve these financial results for absorbing $0.17 of operating expense unexpected, unplanned beginning in really September and we delivered these results. So I appreciate the leadership and the financial discipline that is shown by all of the members of our leadership and all of our Company, but certainly led by Peter.
This performance in 2015 is not an outlier. It is consistent with our strategy of the vision of the whole cycle of the virtuous cycle of operating excellence and investing in the future. We have produced more than a decade of outstanding revenue growth and earnings per share growth, at the same time building a global infrastructure in multiple franchises and building the potential of a pipeline that we think is one of the most, if not the most, high promise and potential pipeline in the entire industry.
This is not a one-year phenomenon, it is part of a long-term execution strategy that we’re delivered -- we’ve delivered on and we’re committed to delivering on for the long-term. And because of the performance in 2015 and the investments we’ve made in the many years before, we’re very optimistic about meeting or exceeding the guidance that we gave last year, that surprised people to say, looking out to 2020, we feel very optimistic about it. In fact, just this summer, we increased that guidance and the progress achieved throughout the year of 2015 gives us more confidence that we will meet or exceed this guidance and these targets for 2020.
We think about our franchises. The core of our Company, the progress achieved is very significant. Let me spend a few minutes going through the hematology franchise and the I&I franchise and also our research and early development operations.
When I think about the near-term and the operating excellence, well it’s Mark and Jackie and the entire leadership of Hem/Onc , focused on maximizing the value of our commercial assets. And you think about the progress we achieved with REVLIMID as a backbone and the success of POMALYST, the progress achieved is extremely significant across these products. Today, three products, blockbuster products with double-digit growth potential, it is an awesome commercial franchise that we’ve built.
Just to give you a sense of the momentum in the fourth quarter, sequential growth of REVLIMID, fourth quarter over third quarter, 7.4%, a bounce back quarter for ABRAXANE, 17.4% quarter-over-quarter sequential growth; POMALYST 14.6%, ozanimod I think is 32% quarter-over-quarter sequential growth. Great operating performance in the fourth quarter with a focus on the commercial achievements necessary to provide the resources for us to invest in the near, medium-term, and long-term future of our Company.
And we’re not just stopping with where we’re today. The franchises investing in the future of hematology/oncology throughout our portfolio, and we’re going to begin to see the dividends and the results of these investments at our hematology/oncology franchise in 2016 and most significantly in 2017. The investments in these very late stage programs have the potential to add upwards of $3 billion of additional revenues to our franchise over the next four to five years, significant investments over the long-term that are going to pay major dividends to us in the relatively near-term.
15, 16 years ago, we were here trying to let you know that we thought we could make a difference in the lives of myeloma patients beginning with THALOMID. Today, the world for myeloma patients has changed dramatically. We are on the verge of really being able to talk a bit as a chronic disease, and our products are the backbone of the advances made in turning myeloma into a chronic disease. Our programs are fundamental to patients in every stage of disease, but I want to tell you and assure you that we’re not satisfied with where we’re. Our goal is to turn myeloma into a disease that is cured, and if you look at this slide -- on the far right hand side of that slide, we haven’t stopped investing in the future of myeloma patients, and we believe with the advances we made, we’ve made to date and others, working with investigators all around the world, we’re going to cure myeloma, and it will be Celgene that will play an important role in doing that and continuing to leverage the successes we’ve had in changing dramatically the lives of myeloma patients over the past decade.
Our franchise in not just myeloma, but it’s also myeloid diseases where today we’ve revenues of approximately $800 million. But our investments in AML and MDS and other myeloid disorders, consistent with the strategic knowledge that we have in the area of B-cell malignancies and other hematologic diseases, and we’re committed to really make this a $3 billion franchise with the investments we’ve made both internally and externally.
I’m going to talk about our collaboration strategy in a moment, but I want to talk about just this as an example. The two major first significant investments that we’ve made in this distributed research model champion by Tom and George and others, was Agios and Acceleron. Our first two, we’re in late stage registration studies that have the potential in the near-term to have dramatic positive impact on patients. The first two in registration studies and we’re accelerating our progress in this area of adding durvalumab to ensure that it’s potential in terms of PD-L1 molecule to be able to combine with our products to impact patients who suffer from these myeloid disorders.
And when you look at cc-90009, that is another example of the internal research advancing the knowledge that we have from the IMiD program to the cell mod program to a very targeted AML drug based on a technology of protein homeostasis, and our cellular therapies of NK cells coming from our CCT franchise IND in the fourth quarter this past year. So, great promise on turning reality from $800 million into a $3 billion franchise in that.
Overall our hematology oncology franchise is targeted in areas where we have competitive advantage. And we’re building a portfolio of internal programs and external programs designed to have tremendous impact on patients and it’s a high area of unmet medical need with great opportunity for us over the next five years. We have a diverse portfolio with great, great promise. And we’re very excited about our partner programs with VentiRx and OncoMed. They’ve had potential impact in the oncology space as well. Very excited about the success, the progress achieved and the potential of our hematology franchise.
It would have not been but a few years ago that I would have been on this stage telling you, please think about Celgene. We can be a player in immune-inflammatory diseases. And then a year or two later, when there was some hope that we could have an immune-inflammatory franchise, I came here and told you. I said; we have the opportunity to create a market. There is a need for safe and efficacious small molecules in advance of biologics in different rheumatological and dermatological indications, lots of skepticism. I can tell you that 2015 is a breakout year for us to tell you that, that is a reality. And we are building one of the leading franchises in this entire area.
And if you look at the fourth quarter results of Otezla, $184 million, it is the most successful launch of any therapeutic in the history of this therapeutic area in terms of its progress in this first full year of launch. And that’s a U.S. phenomenon, but it is increasingly so in Germany and other parts around the world. And we’re committed to ensure that psoriatic arthritis, psoriasis patients and other diseases over time have access to this product all around the world. And its not just in those disease, we continue to invest in it.
We’ve already filed our application in Turkey for Otezla, and we’re working on a number of different diseases. And in fact we’re going to have data in ’16 and a number of these things to look at the potential expansion. And the first one actually came a couple of weeks ago, a little bit earlier we expected. We now have long-term -- I can tell you for the first time, we have long-term follow-up on a study that had some challenges in terms of inclusion criteria and clinical trial design. But long-term follow-up in ankylosing spondylitis, radiographic data demonstrates that this is not a drug of signs and symptoms, but this is a drug of disease modification. We’ve got to figure out how we’re going to use this data and turn this into making this product over the longer term available to patients in this significant unmet area, disease.
Over this past year, our progress in achieving, building an inflammatory bowel disease franchise is significant. We had the progress made in our GED franchise in -- with GED-0301. We are now enrolling phase III patients in our programs. It’s an important part of it. Its millions of patients suffer from these diseases where there is no adequate therapies. And as you remember, we were here and told you, the incredible phase II data. It is our mission to ensure that we replicate that in phase III, and we’re on target to do that in the timelines that we’ve announced.
Clearly Ozanimod, the Receptos transaction strengthens this franchise for us. We’re rapidly accruing the phase III studies there, and in fact great compliments to the Receptos team, where there has been not one drop-off, and Scott’s team to really ensure that we accelerate in fact all of the accrual timelines are ahead or on schedule even since the acquisition. So it’s very encouraging that progress achieved there. And Otezla, in ulcerative colitis we’re going to see data in the very near future.
Overall the same thing, area of high unmet medical need, building a diverse internal and external pipeline, giving us great promise. And this is a reminder; the first data we will see from the Receptos, Ozanimod transaction is in multiple sclerosis, to give us the opportunity along with our partnership with Abide and Forma and other companies building a neuro-inflammation opportunity if we see proof of concept. So that’s going to be the first place we see data multiple sclerosis Ozanimod in 2017, both pivotal trials fully accrued.
The pipeline is the lifeblood of any company like Celgene in our industry, and we’re committed to disruptive technologies. And we’re very proud and excited about the pipeline that we have built over these last few years in terms of the diversity of early stage and late stage opportunities coming out of our pipeline, but it’s all based on the focus on internal excellence. Understand where you have competitive advantage. And we think we have great expertise internally in cancer stem cells, immuno oncology, epigenetics, protein homeostasis, immunology generally, and with the context of next generation biologics, modalities being applied to all of those areas.
It starts with being expert at what you know internally and focus on the areas where you believe there can be disruption and transformation in patient care, and we’re leader in those areas. And we need to be focused, we need to be expert. You can't be a great partner if you’re not expert internally. And the greatest value creation of any company in our industry is to discover, develop and commercialize products from your own laboratories that you retain the full global rights too. And that is the core part of the strategy. But we recognize that partnering is a critical part of that component, and we made great progress.
Two years ago we unveiled this presentation to you to say, we need to build campaigns in these areas of high promise of disruptive technologies. We’re not going to do it alone. We’re going to -- we want to work with people who share our vision and a commitment to really turning these technologies into reality for patients, and we’ve done great progress. In the last two years we’ve more than doubled or virtually doubled the collaborations that we have in these core areas of expertise to Celgene, so we can have the kind of campaigns that we learn from synergistically and iteratively to increase the probability of success for our own portfolio and for the partners that we want to work with closely to ensure all of us succeed successfully, because when the patient succeeds we all will benefit.
And this strategy of a distributed research model of working together in an integrated fashion with partners has great benefit to Celgene. We learn from them. We cannot just increase the numbers. We increase the quality of candidates we put into the clinic. We’ve learned about how to make our clinical programs more efficient. Because when you think about the scale that we’re building, we have to be a leader in operational efficiency and we can learn a lot and we have learned a lot from our partners. Its one of the greater advantages of being a company that is designed and committed to learning from others and helping others advance.
Our own internal pipeline is very focused in areas again where we have internal expertise. It is incredibly deep, diverse and we made excellent progress in 2015. We stopped a number of programs, which is an important component of research. Not everything works, and we stopped a number of programs in ’15. We added programs and we made significant advances.
And you think about, when we put out pipeline together internal and external, it’s more than double what it would be if we were focused on these exciting areas of technological promise alone. But its not just it -- of in terms of just an additive, it is synergistic and the probability of success for all of us is greater because we work together. We have high expectations in 2016 in advancing this pipeline. We intend to put 10 different compounds into phase I. Advanced -- at least two compounds into proof of concept by demonstrating proof of concept and advancing at least two new compounds into phase III. Significant goals and objectives for 2016, and it’s in a focused way in the areas where we have internal and external expertise to ensure we have the highest probability of success and promise of turning this into reality.
When you think about this entire portfolio, it has the potential and all of us have the challenge of our industry. We have to reinvent ourselves through every cycle. We know 50 individual products from our portfolio that today that have the potential for regulatory approval over the next decade. All these are not going to work, but 50 the potential. And that has great promise from us from a sales and revenue point of view. And I want to highlight this slide from a semantic sense. Our current long range plan demonstrates that our proved products and the medium and near-term programs that are a part of that plan are expected to sustain our revenue base all the way through any loss of exclusivity. This is not something we go down -- all the way down; we have to rebuild back up.
Our existing late stage or medium term programs and approved products give us the ability to sustain the revenue base all the way through. And the investments we’ve made internally and externally over this past decade give us the opportunity to continue to accelerate market leading growth for more than the next decade. And none of this promise includes using the tremendous cash flow that we’re generating both for new internal programs and further business development. The promise of Celgene is extremely bright, but the future needs to be made up of many, many near-terms and we’ve got to retain that focus on the here and now.
And we have tremendous ambitions in 2016 to advance the key programs that we have that are going to -- in phase III that are going to have near-term impact on patients. We had a robust phase III program in 2016 that we’re accelerating. But despite that, we are going to see strong earnings growth. We’re going to see strong revenue growth. Four blockbuster products with the potential for double digit growth, and at the same time we’re committed to leveraging our operations to improve operating margins and we will certainly manage our capital structure as we support our research and our business development issues.
2016 is going to be a year of great promise and excitement. There are going to be major milestones at Celgene across all of the functions in areas of Celgene. And with this, we feel very excited about the potential to produce that kind of outstanding results in 2020. But as I talked to you in this presentation, it’s not just 2020. We are committed to long-term sustainable high growth because of disruptive technologies focused on changing the way patients are treated in serious diseases. Great potential for the long-term. I could not be more excited about the promise and potential of Celgene than I am today. And because of that we have such an obligation to turn this promise into reality.
Dynamic companies don’t just manage their portfolios, but they lead, and they challenge their leaders, and they challenge their teams. They stretch their teams. They stretch their leaders. And they also capitalize on the incredible strength and experiences of their leaders. We’re so fortunate, at Celgene to have Rupert following Tom, and Tom staying on as the Chairman of Research. The leadership of Peter, and the experience that he brings to our financial organization. And we’re going to make changes affective in March to strengthen our organization even further.
In March, Mark Alles is going to become the CEO of Celgene. I’m going to step into the role of Executive Chairman of Celgene, and I’m committed full time to lead the strategic initiatives our company into the future and to work on key initiatives that are going to increase long-term patient and shareholder value of our company, and Mark is going to dynamically lead our company as the CEO. And Jackie Fouse is going to become the President and COO of Celgene. I’m sure that we have great operational excellence to deliver on this promise. And Scott Smith who has just so ably led our I&I franchise is going to become the Chairman of our Management Committee to ensure we’re doing the kind of things to ensure that we deliver on this reality.
I could not be more energized and excited about the future of Celgene both today and tomorrow and committed with all of these people to deliver and turn this great promise into reality.
I thank you for your interest in Celgene and following us. And we look forward throughout the course of this year to continue to update you on the tremendous progress we anticipate making in 2016. Thank you very much.
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