Celgene Management Discusses Q3 2012 Results - Earnings Call Transcript

 |  About: Celgene Corporation (CELG)
by: SA Transcripts


Good morning, and welcome to Celgene's Third Quarter 2012 Earnings Conference Call. [Operator Instructions] I would like to remind you that this call is being recorded. I would now like to turn the conference over to Patrick Flanigan, Vice President of Investor Relations at Celgene.

Patrick Flanigan

Thank you, Lee, and welcome, everyone, to Celgene Corporation's Third Quarter Earnings Conference Call. The press release reporting our financial results, in addition to the presentation for today's webcast, can be accessed by going to the Investor Relations section of the corporate website at www.celgene.com.

Joining me in the room today with prepared remarks are Bob Hugin, our Chairman and Chief Executive Officer; Jackie Fouse, our Chief Financial Officer; and Mark Alles, who's our Chief Commercial Officer.

As a reminder, during today's call, we will be making forward-looking statements regarding our financial outlook in addition to regulatory and product development plans. These statements are subject to risks and uncertainties that may cause actual results to differ from those forecasted. A description of these risks can be found in our most recent 10-Q on file with the SEC. These statements speak only as of today's date and we undertake no duty to update or revise them.

Finally, a reconciliation of the adjusted financial measures to the most comparable GAAP measures are available as part of the earnings release.

I would now like to turn the call over to Bob.

Robert J. Hugin

Thank you, Patrick, and thank you everyone for joining us this morning. I appreciate the opportunity to review the results of the third quarter and our outlook for the remainder of the year.

The financial results for the quarter were excellent, highlighted by strong growth in revenue and earnings per share. Based on these results and our outlook for the remainder of the year, we're increasing our adjusted earnings per share guidance to a range of $4.85 to $4.90 per share, and narrowing our revenue guidance to a range of $5.45 billion to $5.55 billion. Our global teams are energized and focused on achieving these targets. Jackie and Mark will tell you more about our financial and operating performance in a few minutes.

In addition to the exceptional operating performance in the third quarter, we achieved an important milestone to provide significant growth opportunities for our portfolio. We advanced key strategic initiatives to strengthen our leadership position in hematology, to broaden our oncology portfolio, to build our inflammatory disease franchise and to invest in our long-term future by accelerating our early and mid-stage pipeline. The operating results, the milestones achieved and the advancement of our strategic initiatives position us for extraordinary value creation.

To further strengthen our hematology franchise, we're executing on our strategies of maximizing the full potential of REVLIMID, capitalizing on the blockbuster potential of pomalidomide and accelerating the development of new therapies such as oral azacitidine, CC-292, ACE-011 and ACE-536. During the quarter, significant progress was achieved in accelerating important growth opportunities for REVLIMID in new indications and new geographies.

In mantle cell lymphoma, we achieved the requirements of our FDA special protocol assessment and are finalizing our preparations to submit a supplemental new drug application in the United States by year end. Accrual of other lymphoma and leukemia pivotal clinical programs progressed during the quarter. We expect to full year accrue our first pivotal study in chronic lymphocytic leukemia in the next few months.

We continue you to make progress with our regulatory and reimbursement initiatives in China, Korea, Russia, Brazil and Mexico, with updates on these approvals in the coming months. Each new market that we add to our geographic portfolio allows us to further leverage our global infrastructure and contributes to our long-term growth trajectory. We've advanced the review of our MDS deletion 5q application in Europe and continued to monitor the progress of our newly diagnose and maintenance studies designed to expand our myeloma label.

The clinical and regulatory progress achieved this quarter for pomalidomide, our next potential hematology blockbuster, was outstanding. Just this week, we announced data from our Phase III MM-003 trial demonstrating statistically significant and clinically meaningful improvements in PFS and overall survival in patients with relapsed/refractory multiple myeloma. Regulatory reviews in both Europe and the United States are moving forward. We also expect data from our Phase III myelofibrosis trial in the first half of next year. We're committed to delivering on the significant potential of this new breakthrough therapy for cancer patients worldwide.

We're accelerating the development of additional innovative high potential programs that broaden our pipeline. We plan to initiate our Phase III trials of oral azacitidine and MDS and AML later this quarter. Our Btk inhibitor, CC-292, is being evaluated in both CLL and lymphomas. We're also advancing ACE-011 and ACE-536 to proof of concept in MDS, beta-thalassemia and diamond-blackfan anemia.

The approval of ABRAXANE for non-small cell lung cancer in the United States and the recently reported positive results in metastatic melanoma significantly strengthen our solid tumor franchise. As reported this morning, the melanoma data will be presented at the Society for Melanoma Research meeting on November 11 in Los Angeles. Additionally, we're eagerly anticipating Phase III data in pancreatic cancer later this quarter. Our teams are committed to capitalizing on these important developments to the ABRAXANE brand.

The breadth and depth of our hematology/oncology portfolio is further enhanced by the promise of 20 early and mid-stage programs, including new IMiD class compounds, kinase inhibitors, epigenetic modifiers, cellular therapies and other programs developed by our internal research teams and external collaborators. These programs hold exceptional promise for patients and are of important strategic value to Celgene as we broaden our pipeline and build for the future. Our pipeline programs are highlighted on slides included in today's presentation materials.

As we look to the future, there is no program on our portfolio with greater transformational potential than apremilast. Our team is doing a fantastic job of turning the exceptional promise of this program into reality. We have now completed the largest pivotal program in psoriatic arthritis ever undertaken with impressive results. We're now compiling the data sets from 3 positive Phase III trials for FDA submission next quarter.

As the data is disseminated at upcoming medical meetings, beginning at the American College of Rheumatology meeting in less than 3 weeks, I am confident that you will begin to see the potential of this drug to satisfy the enormous market potential for an efficacious and well-tolerated oral therapy in serious inflammatory conditions.

In addition to the psoriatic arthritis data, we recently announced statistically significant positive data in Behcet’s disease, a debilitating inflammatory condition with very limited therapies. We're evaluating opportunities to incorporate this data into our global regulatory filings.

Our development program for apremilast also includes pivotal programs and modern to severe psoriasis and ankylosing spondylitis. Data from our 2 Phase III psoriasis trials are expected in the next 3 months. With positive data, we plan to file a supplemental application in the United States late next summer and a combined psoriatic arthritis and psoriasis application in the European Union in the third quarter of next year.

Apremilast has the potential to transform the treatment of patients with these serious chronic diseases and as such has the potential to transform Celgene. There is no higher corporate priority in capturing the significant value of this new franchise.

These accomplishments illustrate the powerful momentum of our business model and the extraordinary potential of our franchises. During the first 3 quarters of this year, we have delivered outstanding results, achieved multiple major milestones and advanced strategic imperatives that positioned Celgene for sustained long-term growth. It's an exciting time at Celgene, with meaningful new opportunities on the near-term horizon.

Jackie and Mark will now provide their perspective on these results and our outlook for the remainder of the year. Let me now turn the call over to Jackie.

Jacqualyn A. Fouse

Thank you, Bob. Good morning, everyone. Thank you for joining us on the call today. The Celgene business model produced another set of excellent results for the third quarter of 2012 and our financial and commercial metrics are strong across the board.

Year-over-year Q3 revenue growth of 14% was volume driven, and I will speak to that and our individual product performances in a moment. Operating profit grew over 19% in Q3 over Q3 of 2011 and our margin improved to 49.1% for the quarter and 47.8% for the year-to-date period, an increase for the quarter of 140 basis points on a sequential basis and 230 basis points on a year-over-year basis. This margin increased 280 basis points for the year-to-date comparison.

We also added value with financial drivers and thus grew earnings per share by 26%. On the strength of this quarter's performance and given our full year outlook, we are raising our EPS guidance by $0.05.

Total revenues grew 14% in Q3 of this year versus Q3 of 2011 and sequential growth versus Q2 was 4%. International growth was particularly strong and spread across all of our major products and geographies.

As has been the case for several quarters, our revenue growth was largely driven by volumes with price also being a positive contributor this quarter. The favorable price impact in Q3 is mainly due to the timing of price reductions in the EU for those who had a smaller impact this year than last year in the quarter.

The net impact of foreign exchange fluctuations in the quarter was 2 percentage points negative. We hedged the amount of our operating profit exposure in any given currency by executing those hedges against our revenues. For this reason, we have very little to no impact from currency fluctuations in our profits, but can have a minor impact in our revenues because those are typically not 100% hedged.

The combination of revenue growth, reductions in both cost of goods sold and R&D expense as a percentage of revenues and a reduced share count versus 1 year ago allowed us to increase earnings per share by 26%. Our overall P&L dynamic continues to demonstrate the power of our business model, and we saw that again in Q3 as revenues grew by 14%, while operating profit grew by 19% and earnings per share by 26%. To summarize the drivers of earnings per share, $0.20 of the $0.27 year-over-year quarter improvement came from operating income growth, and $0.07 came from the lower share count as a result of our share repurchase program.

This quarter, our products and total revenues grew at the same rates on both a year-over-year and sequential basis. The cost of total revenues include royalty and collaborative revenues. They will be impacted by changes in those line items and we would expect our royalty revenues to come under pressure in the future as generic competition to both Focalin and Ritalin may enter various markets around the world.

Turning to our products and geographic sales breakdown, we see the continued strong performance of REVLIMID globally on both a year-over-year and sequential basis. Overall, year-over-year growth for the quarter was a quite solid 18% and relatively evenly spread across the globe. 2% sequential growth in the U.S. comes on the heels of a very strong 10% sequential growth in Q2 over Q1 and our international business turned in its second 7% sequential growth quarter in a row in Q3.

VIDAZA logged yet another excellent quarter with 15% year-over-year growth and 9% sequential growth. We are particularly pleased with the products performance outside the U.S. with sequential international growth of 15% and 16% year-over-year.

ABRAXANE posted a strong showing outside the U.S. with 29% year-over-year international growth and 13% sequential growth. ABRAXANE revenues in the U.S. declined on a year-over-year basis partly related to the fact that Q3 2011 sales were positively impacted by the generic paclitaxel shortage last year. We feel very good about the future for ABRAXANE as we now have a lung cancer indication in hand and other indications still to come. Mark will talk more about the market dynamics to our key products in just a moment.

During the quarter, we saw 160 basis point year-over-year improvement in our gross margin to almost 95%, mainly due to a favorable variance in our revenue mix. Total R&D expense as a percentage of revenues declined, partly due to the timing of our spend as well as the evolution of our clinical trial portfolio and some leveraging of fixed costs within R&D.

For the quarter, SG&A expense rose as a percentage of revenues, partly related to the timing and amount of expenses associated with patient assistance programs as well as prelaunch spend for ABRAXANE lung. Our effective tax rate remains at 16.5%, a 50 basis point improvement versus last year.

Comparing our year-to-date P&L performance to our full year guidance, we see that growth margins are at the high-end of our guidance range, while R&D as a percentage of revenues is slightly favorable to our guidance and SG&A as a percentage of revenues is somewhat higher than our guidance. This is due to patient assistance expense and also related to the addition of some commercial expense to support the launch of ABRAXANE in lung cancer and the planning for the launch of pomalidomide. Our long-term expectation for a downward annual trend in SG&A as a percentage of revenues remains unchanged. With all of the above, we are on track to hit our 48% operating profit margin target for this year at the high end of our original guidance and our effective tax rate target of 16.5%.

The next slide shows the trends in the key line items of our P&L for the past 5 full years and the year-to-date figures for 2012. Here, we clearly see our business model performing as it should, with the expenses declining in a sustainable way over time as a percentage of revenues and operating margin improving.

Our strong P&L performance is driven -- is driving strong cash flow generation. We generated $1.5 billion of net cash from operations in the first 9 months of this year and we have repurchased $1.5 billion of our own shares in those 9 months. Our balance sheet is strong and we leveraged that's strength to issue $1.5 billion of 5- and 10-year bonds during Q3, thus securing long-term financing at a very attractive cost and reinforcing our financial flexibility.

The trends on our return on invested capital remains on a positive trajectory as our business model performs well and as we manage our asset base and capital structure with a view to optimizing returns over time.

Regarding our guidance, on the strength of our Q3 performance and given our outlook for the remainder of the year, we are increasing our earnings per share guidance about $0.05 to a range of $4.85 to $4.90, up from the previous range of $4.80 and $4.85. We are narrowing our revenue guidance range given that only one quarter remains in the year, while maintaining the midpoint at $5.5 billion. We are also narrowing our REVLIMID revenue guidance by maintaining the lower end of the range and reducing the upper end of the range, in line with comments we have made previously regarding our full year expectations for the product.

To summarize, our revenues continue to be volume driven and our operating profit growth continues to outpace revenue growth as we leverage our global business model. We are performing well across all of our operational, commercial and financial metrics in doing so while we invest for the long-term health and growth of our business. We saw success on a number of key milestones during the past quarter and we'll see results on several others over the coming quarters as we move towards a strong finish to 2012 and an exciting start to 2013.

Thank you and I will now turn the call over to Mark, who will elaborate more in our commercial dynamics and the new developments we expect to see in our product portfolio.

Mark J. Alles

Thanks very much, Jackie, and good morning, everyone. Third quarter net product sales were strong. Our global business experienced a relatively typical impact of the summer months and some newer competitive challenges, but successfully produced record quarterly sales of REVLIMID and VIDAZA.

For ABRAXANE, we expect the recent FDA approval for the treatment of non-small cell lung cancer and emerging Phase III data in metastatic melanoma to significantly accelerate momentum. Our cancer portfolio is extremely well positioned for continued sales growth. Significant opportunities to increase length of treatment duration, increase overall market share and add new market approvals remain key drivers of short and longer-term brand performance. New data, new indications and new products are also beginning to add important commercial opportunities for growth.

Global third quarter REVLIMID sales were $970 million, representing 4% sequentially -- sequential quarter growth and 18% year-on-year growth. Following a very strong second quarter, REVLIMID sales in the United States grew 2% quarter-on-quarter to $547 million. Year-on-year sales were up 17%. Quarterly, overall market share trends continue to be 50% to 55%, treatment duration improved and new patient starts grew 3% quarter-on-quarter.

The recent market introductions of subcutaneous bortezomib and carfilzomib are creating new considerations for how hematologists will treat multiple myeloma. Our research reports that the market use of subQ bortezomib is rapidly replacing intravenous bortezomib, including a combination used with REVLIMID. Carfilzomib was launched late in the quarter, and early market share data suggests single agent use as third or fourth line treatment and some combination used with REVLIMID in earlier lines of therapy.

In the market and in clinical research, REVLIMID continues to be the foundation of treatment for patients with multiple myeloma. This bodes very well for the product's long-term growth trajectory, both in the U.S. and globally. International REVLIMID sales were excellent. Sales were $423 million, an increase of 7% quarter-on-quarter and 20% year-on-year.

Broader demand in Latin America, Australia, Germany, Canada and the United Kingdom and very good results in our other core markets combined to produce record international REVLIMID sales. We are moving closer to opening up new emerging markets for REVLIMID. We expect public reimbursement in South Korea by year end. We anticipate regulatory approval in China very late this year or in early 2013, and we expect reimbursement in Russia and approval in Brazil next year.

New market expansion is a key growth driver, expanding the REVLIMID label is another. Let me share my perspective on our ongoing efforts to broaden the approved indications for REVLIMID. First, long-term follow-up continues for REVLIMID efficacy and safety in the newly diagnosed multiple myeloma trials MM-015, IFM-0502 and CALGB 100104. Recall that in each Phase III study, treatment with REVLIMID led a highly statistically significant improvements in progression-free survival.

While there is broad clinical and regulatory agreement about the overwhelming efficacy and in clinical benefit represented in these studies, regulatory concerns that the second primer malignancies may have a negative impact on overall survival trends require more mature survival data. These analyses are event-driven. Based on our current projections, we expect to be able to initiate discussions with European and other regulatory agencies with mature data from MM-015 during the first half of 2013 and with mature data from the IFM and CALGB studies during 2014.

On a separate and equally important note for newly diagnosed myeloma, we expect data from our international Phase III study, MM-020, to be available during the first quarter of 2013. The timing and comprehensive data from MM-020, MM-015, IFM and CALGB studies should provide a range of options for us to achieve global regulatory approvals for REVLIMID in newly diagnosed multiple myeloma.

Second, in Europe, regulatory review of the REVLIMID marketing application for low-risk, transfusion-dependent deletion 5q MDS is ongoing, with an opinion from CHMP expected during the first half of 2013.

Third, given the strong efficacy and safety results of MCL-001, the REVLIMID special protocol assessment study in relapse or refractory mantle cell lymphoma, we plan to submit a supplemental new drug application to FDA by the end of this year. If approved, this opportunity would become the first in a series of lymphoma indications we hope to achieve over the next several years.

Fourth, the development of REVLIMID as a single agent in novel combinations for the treatment of patients with chronic lymphocytic leukemia is a high priority. Our program is on track. The pivotal Phase III study CLL 008, comparing REVLIMID to chlorambucil as first-line therapy, is projected to complete accrual by early next year and we expect updated and new clinical data to be featured at this year's American Society of Hematology meeting.

Celgene has established our immunomodulatory drugs, REVLIMID and THALOMID, as distinct therapies for the treatment of multiple myeloma. From newly diagnosed patients with smoldering disease to the most heavily pretreated patients, our franchise products have helped and continue to help hundreds of thousands of patients. The constant and most critical need is to discover and develop and bring to market new therapies for those patients who have exhausted all existing treatments. This need is the focus for the development of pomalidomide.

As you know, we announced that the international pomalidomide Phase III study, MM-003, has demonstrated significant progression-free and overall survival advantages for heavily pretreated patients. We will provide these promising results to European and U.S. regulatory agencies in support of their ongoing regulatory reviews. It is our understanding that the MM-003 study investigators will submit an abstract to this year's ASH to be considered as a late-breaking presentation. Clinical follow-up on our fully enrolled Phase III study of pomalidomide in myelofibrosis continues with results expected in the first half of 2013.

In the third quarter, Celgene made significant progress advancing our strategies to expand strong global leadership position in the treatment of patients with MDS. Across all global markets, VIDAZA continued to gain share in intermediate-2 and high-risk disease. Global third quarter sales were excellent, a record $220 million, up 9% quarter-on-quarter and 15% year-on-year. In the United States, VIDAZA share of the hypomethylator market is steady and above 8%. Sales grew 1% quarter-on-quarter and were up 13% year-on-year. International sales grew strongly, led by Australia, France, Germany, Italy and the United Kingdom. VIDAZA sales increased 15% quarter-on-quarter and 16% year-on-year. We also made progress in the quarter to strengthen the VIDAZA label. We completed patient enrollment in the Phase III registration study in acute myeloid leukemia. Results are expected within 1 year and, if successful, should support label expansion to include all patients with AML.

Our clinical and regulatory teams have made excellent progress advancing CC-486 oral azacitidine to the point where we plan to initiate 2 special protocol assessment designated Phase III studies by the end of this year. One study will test CC-486 in the subset of lower-risk MDS and the other Phase III study will test CC-486 as maintenance therapy in AML. Beyond MDS and AML, investigators in Celgene have developed and are pursuing clinical strategies with CC-486 to enhance the antitumor activity of traditional chemotherapies for lung cancer and pancreatic cancer. We are early in this investigation, but we have seen dramatic results in some patients.

During the third quarter, the clinical and commercial potential of ABRAXANE came into sharper focus. Our strategy to optimize ABRAXANE in traditional taxane markets like breast cancer and lung cancer was advanced by the October 2012 FDA approval of ABRAXANE plus carboplatin for the treatment of non-small cell lung cancer. Important information about the differentiated response rates by histologic subset is included in the improved labeling. This marketing approval provides an immediate and significant opportunity to expand the benefits of ABRAXANE to completely new patient segments. Please recall that ABRAXANE is now FDA approved in breast cancer and lung cancer based on superior Phase III direct comparisons with paclitaxel.

Our strategy to develop ABRAXANE in solid tumor cancers where very few treatment options exist and where taxanes have demonstrated limited benefit was at least partially validated by the positive Phase III results of the ABRAXANE CA-33 metastatic melanoma study. In this study, 529 patients who had not been treated with prior cytotoxic chemotherapy for metastatic melanoma were randomized to be treated with weekly ABRAXANE or standard dacarbazine. The primary end point is progression-free survival with key secondary end points, including overall survival.

ABRAXANE met the primary end point of this study by demonstrating a statistically significant improvement in progression-free survival with a median PFS of 4.8 months versus 2.5 months for dacarbazine. The interim analysis for the key secondary end point of overall survival shows a meaningful trend in favor of ABRAXANE with a median overall survival of 12.8 months versus 10.7 months. The overall safety profile is comparable with other ABRAXANE Phase III studies.

Cross-study comparisons have limited value, but the median PFS and overall survival demonstrated by ABRAXANE in this unselected group of patients with advanced melanoma compares very favorably to the Phase III results of the B-Raf inhibitor, vemurafenib, and the results of the combination of ipilimumab plus dacarbazine. Full results of the CA-33 study, including efficacy analyses based on B-Raf status, will be presented on November 11 at the Society for Melanoma Research meeting. We are accelerating regulatory discussions that could expand the global ABRAXANE opportunity to include melanoma.

Unresectable pancreatic cancer is a disease with decades of failed drug development and modest gains in patient benefits. Extending the overall survival is the major goal of therapy. It is this background that led to the development of ABRAXANE in combination with gemcitabine for patients with pancreatic cancer. As Bob noted, we expect overall survival results from our pivotal Phase III study before the end of this year.

The 2012 American Society of Hematology meeting will be held from December 7 through December 11 in the great city of Atlanta. We are currently aware of more than 140 abstracts reporting on the results of our in-line and development stage products across virtually every hematological malignancy. Of note, there are more than 30 REVLIMID abstracts in NHL and CLL, 20 pomalidomide multiple myeloma abstracts and 19 azacitidine AML or MDS abstracts. From this substantial amount of meaningful clinical information, there are 6 abstracts I would like to highlight now.

First, the benefit of REVLIMID in the second line treatment of multiple myeloma after patients have been treated with REVLIMID maintenance therapy is an important regulatory end market question. Important follow-up data from MM-015 will be presented that demonstrates no diminution of REVLIMID benefit or a new safety consideration for patients who are treated with REVLIMID following progression after the first line treatment regimen in MM-015.

Second, the MCL-001 or emerged study abstract has been selected for oral presentation. Recall that these data are the basis for our year end REVLIMID sNDA submission.

Third, in CLL and NHL, the clinical synergy of REVLIMID in combination with the approved therapeutic antibodies, ofatumumab or rituximab, will be featured. In relapsed or refractory CLL, the combination of REVLIMID with ofatumumab demonstrates high response rates, including in patients with high-risk cytogenetics. In a randomized Phase II study, significant benefit has been demonstrated from the use of REVLIMID or the combination of REVLIMID plus Rituxan as maintenance therapy for patients with diffuse large B-cell lymphoma or at high risk for relapse.

Fourth, we hope that the pomalidomide MM-003 study results will be presented during ASH, but we know that the Phase I study combined pomalidomide plus low-dose dexamethasone with bortezomib will be in oral presentation.

Lastly, an oral presentation of the safety and efficacy of CC-486 in the treatment of lower-risk MDS should provide strong rationale for patients to enroll in our 2 pivotal Phase III studies. ASH is always a pivotal cancer conference for Celgene. We think this year's meeting may be one of the more compelling and informative meetings for our brand and for our scientific platforms.

Our third quarter net product sales were excellent. Total sales grew 4% quarter-on-quarter to $1,390,000,000 and 14% year-on-year. REVLIMID sales are approaching $1 billion per quarter, with multiple existing and future catalysts for robust growth.

We are just beginning to realize the impact of the many clinical and regulatory milestones achieved in the quarter. We look to the momentum that these and others will create for us through the end of this year, all of next year and beyond.

Thank you for your time this morning and I will turn the call back to Bob.

Robert J. Hugin

Thank you, Mark, and thank you, Jackie. It was an extraordinary quarter, during which the Celgene team around the world produced excellent results and made substantial progress on key strategic initiatives, positioning us for sustained long-term growth and exceptional value creation.

I want to thank all of my colleagues for their dedication and commitment to making a meaningful difference in the lives of patients in need around the world.

Thank you for joining us this morning. Operator, would you please now open the call to questions?

Question-and-Answer Session


[Operator Instructions] Our first question comes from the line of Geoff Meacham with JPMorgan.

Geoffrey C. Meacham - JP Morgan Chase & Co, Research Division

I had one for you on MM-020. What's the percent of events you'll hit that have data first quarter of next year? And probably, the more important one is given the focus on overall survival now from the maintenance trials, why not just wait for this trial to mature a little bit more?

Mark J. Alles

Geoff, it's Mark. We expect the PFS analysis to be on 70% events and the, of course, interim overall survival would accompany that PFS analysis.


The next question in queue comes from the line of Geoff Porges with Bernstein Research.

Geoffrey C. Porges - Sanford C. Bernstein & Co., LLC., Research Division

My question and -- lots of moving parts here, but perhaps ABRAXANE -- just a couple of questions. Jackie, could you remind us of what ABRAXANE component there is to the $8 billion in 2015? And then given what you're seeing, what's your conviction about the achievability of that? Or do you think that you can actually do better now with some of the data points that you're seeing in the approval in lung cancer?

Jacqualyn A. Fouse

Geoff, thanks for the question. So the range that we have for ABRAXANE is a 2015 target, is $1 billion to $1.25 billion for all indications. And I will hand the question over to Mark in just a second. But I think with the lung cancer approval, with some of the other things that we see, as they continue to develop, we're increasingly confident in our ability to deliver on those targets by 2015. So let me turn that over to Mark, maybe...

Mark J. Alles

Yes. Now thanks for the question. ABRAXANE is becoming a product with multiple differentiated segments in the solid tumor market for progress against the revenue target, the sales target that Jackie just spoke to. So the melanoma data, we certainly see as upside in the short term because those results, we think, are quite compelling. Of course, we will follow-up with regulatory agencies quickly to understand what's the market label potential. But with pancreas coming with the lung cancer approval, we expect to be able to, on a composite basis, with a lot of those different opportunities, to be able to produce the sales number that Jackie spoke to.


Our next question comes from the line of Marshall Urist with Morgan Stanley.

Marshall Urist - Morgan Stanley, Research Division

So I want to touch on REVLIMID in the front line in Europe. We've all obviously gotten to take a look at the regulators, in-depth thoughts in the EPAR. So it will be helpful, I think, for you guys to talk about your strategy kind of in light of the kind of many layers that's in the EPAR in terms of how they're thinking about the data, number 1. Number 2 is when are we going to get an updated look at the overall survival trends from the 3 front-line studies? Are we going to get that at ASH? Or is that some time next year? And then just a little bit more on kind of what's driving the 2014 timeline for post-transplant maintenance. Do you think you're going to be over sort of 50% of events in those studies by that point?

Robert J. Hugin

Thank you for that. I think it was an 8-part question, but I'm not sure. This is Mark. Let me just remind you what I said in my prepared remarks. So at ASH, we will see a very important follow-up set of data on MM-015 that addresses directly one of the regulatory concerns. And that is if patients who progress after REVLIMID maintenance were to receive REVLIMID or any other therapeutic agents for myeloma, would there be inherent resistance in that setting. We think that abstract addresses the issue very nicely, so that's the first that we'll follow-up. When we think about the maturity of 015, the CALGB and IFM studies, we're now projecting, as I stated, that we'll see more mature survival trends and a follow-up for SPMs for MM-015 during the first half of '13. But given the event rate, the projection for IFM in CALGB is -- has moved to 2014. A little bit of follow-up on MM-020, if I might, I apologize if I didn't address the longer-term follow-up component of that study. Remember that the study is blinded, and in fact, it would be up to the independent monitoring committee to recommend at the interim for PFS, whether or not we should stay in a period where follow-up for survival would be important. So that's really not a consideration that we would take independently, but would consider on advice from the independent monitoring committee. So I think the composite for European expansion in Europe and around the world is intermediate timing in terms of follow-up. But starting at ASH, important data that informs the market about REVLIMID at second line after maintenance therapy first line, and then follow-up on 015, MM-020, CALGB and IFM over a period of months.


Our next phone question comes the line of Rachel McMinn with Bank of America Merrill Lynch.

Rachel L. McMinn - BofA Merrill Lynch, Research Division

Just a follow-up on that, Mark, I wanted to better understand. In your prepared remarks, you did say that you'd have a range of options for European approval. But I guess my understanding was previously, you didn't think MM-020 really kind of played into that. So can you kind of walk through, I guess, the scenarios of what could happen? So if 015 reached the threshold, do you file on that, but then 020, you'd let it mature for longer? I'm just trying to understand the different kind of branches of the tree of how European -- your filing strategy would shift based on various data points.

Mark J. Alles

Well, thank for the question. Bob and Jackie may also have some commentary. But it really is a rich set of data, a comprehensive set of data that will come together. And I really believe that we have opportunities to combine data sets based on the timing and maturity of those data sets for potentially a broad newly diagnosed myeloma label. But also as the data is available to us and based on the nature of the data, we can take a strategy of sequential submissions and label expansion for either a transfer in eligible maintenance post-transplant, et cetera. So I think we're in a position where the data will give us many opportunities and a range of opportunities to decide how, when and what type of regulatory submissions we'll make.

Robert J. Hugin

And there isn't any need for us to link or not link. It really depends on the timing of the data and what's in the best interest to get the broader label as soon as possible. But there is no requirement for us to hold for any one study or another. They're -- they all would stand on their own our ability to submit that with a strategy that we think is best for us and for patients.


Our next phone question comes from the line of Brian Abrahams with Wells Fargo Securities.

Brian Corey Abrahams - Wells Fargo Securities, LLC, Research Division

My question is a question on ABRAXANE for pancreatic cancer. Wondering what's your view as to the bar for overall survival improvements relative to gemcitabine that you think would be prestigious by clinicians is clinically meaningful? Do you think the survival, meaning overall survival, will need to be as high as what we've seen historically for folfirinox or perhaps lesser would be acceptable because of the potential side effect differences?

Mark J. Alles

Now, thank you for the question, Brian. Yes, I'm not going to speculate for the market in terms of what's meaningful. What is very obvious is that even and in quote of the folfirinox data, no matter what, this patient population around the world needs desperately new treatments and therapeutic options to help improve and extend their life. So we believe a positive outcome in our study that leads to regulatory approval will lead to a very meaningful market opportunity simply on the basis of the desperate need of the patients. We will do our best, of course, once we know the data to make sure ABRAXANE gemcitabine could become the global standard of care.


Our next question comes the line of Yaron Werber with Citigroup.

Yaron Werber - Citigroup Inc, Research Division

So I just wanted to follow-up and my apologies for belaboring this but I think it's important. So are you saying that you're expecting data from 020 in Q1? And so are you sort of hinting that you think that you're going to be hitting the interim based on 70% of the events? Or is -- or you're just saying you're going to have a look at that point? And then secondly, is there any way you can tell us what's the -- how many events are you guys expecting in the study? What's the final event count that you're looking for on the final analysis?

Mark J. Alles

So Yaron, this is Mark. So the -- we are saying that we should have data in Q1. I think what I've said before is important. There are a number of considerations in these lines that study about the number of events for PFS and/or for OS because it is event driven that would create a scenario for us to understand data in Q1. Exactly how that will play out is unknown, but our projection put data that would inform Celgene in Q1 of 2013.

Jacqualyn A. Fouse

With -- just to be clear, with 70% of the PFS events having occurred.


The next phone question comes from the line of Mark Schoenebaum with ISI Group.

Mark J. Schoenebaum - ISI Group Inc., Research Division

Guess what I'm going to ask about. First line REVLIMID in Europe. The one thing that I wonder about, what gives, Mark -- perhaps what gives you so much evident -- sorry, conviction or confidence that you don't need a statistically significant overall survival benefit than instead you just need, I guess, for the hazard ratio to be below 1?

Mark J. Alles

Thanks for the question. Again, let's remind ourselves. These studies we're discussing 015 CALGB IFM unblinded early against a robust, well-regarded end point of progression-free survival. The difference is meaningful and clinically beneficial. That is a strong agreement across all constituencies so far. This idea that we need overall survival in the context of what is the impact or not of second primary malignancies is an open question that requires mature data we've discussed. But we are very confident because we have a very robust result against the primary end point of these studies and we have trends, we believe, that will support that SPMs do not have a deleterious effect on the overall survival trends. Of course, mature data will tell us and the regulators if that's the case.


Next question comes from Eric Schmidt with Cowen and Company.

Eric Schmidt - Cowen and Company, LLC, Research Division

Okay. Maybe I'll move on to a different topic. Just on the apremilast, Mark, and the data we're going to see in psoriatic arthritis at ACR. I'm wondering if you think in terms of a competitive profile you need to be as good on a safety and efficacy standpoint anti-TNS in order to compete on convenience.

Robert J. Hugin

Yes, well, thanks for the question. It's Bob. I think it is important for people who want to follow this to come to ACR because we will have the opportunity to really talk about the efficacy profile, what we're seeing in psoriatic arthritis and the safety profile and different subsets in patient populations and to really understand the competitive positioning of this compound. We believe we're going to have a big, big opportunity here to have a highly efficacious compound oral in front of biologics. But that's what you're going to see as the data rolls out, and that strategy become clear at ACR in just the next few weeks. So I think you'll begin to see more data there, then you'll have to grow your own conclusion about that. But we're very confident that we're going to have a big opportunity here.


Next question comes in the line of Michael Yee with RBC Capital Markets.

Michael J. Yee - RBC Capital Markets, LLC, Research Division

Actually, a question on ABRAXANE and melanoma. So we have the data presented, at least in the press release. Are you committed to filing this data? And given the other products that are approved in melanoma today now, what would you think are the pros and cons of -- that the regulatory agencies are going to think about, whether or not to accept your filing and whether or not to approve it without a survival benefit yet?

Mark J. Alles

Now thanks for the question. We have a few very near-term regulatory meetings that I think will give us more information that would help address some of your question. I think that from a, again, a progression-free survival end point and what we see as an interim analysis for overall survival, we think that trend, the comparability of what we see across these studies, again, selected patients in the B-Raf mutated group with vemurafinib, then looking at the combination of ipilimumab with dacarbazine, we think that ABRAXANE joins these drugs in showing regulatory agencies and clinicians that dacarbazine really has become a drug that is really limited in its use for patients with melanoma. So I think the overall picture is one of confidence. We need to do some follow-up to see if the current overall survival trend improves. But we will engage regulatory agencies in the near-term and we remain committed to that and confident that it will be a market-shaping event for us.

Robert J. Hugin

And as we get more clarity on those discussions at upcoming events, we'll provide that clarity as we receive it.


Next question in queue is Matt Roden with UBS.

Matthew Roden - UBS Investment Bank, Research Division

With respect to pomalidomide, can you talk about how the new PFS data from MM-003 will be handled in the context of your ongoing reviews? It seems like you get -- you might be able to submit this as an amendment to the U.S. filing, but would have to wait to file this with EU until after action is taken? And then lastly, do you think it would impact the probability of approvals in either jurisdiction -- either geography?

Mark J. Alles

So let me start with the point about the data. It clearly strengthens the value proposition for pomalidomide right out of the gate. We met and exceeded at the overall survival interim the boundary for superiority. So that can give you some sense about how significant the survival advantage is. In addition, the progression-free survival end point is quite meaningful. And as you will see, if presented at ASH, we see consistency in the type of PFS from 02 to the data that now are in the 03 study. So the composite for regulatory agencies is that these applications are in front of CHMP and FDA, and we are in the middle of providing the data to these regulatory agencies as they ask for it and per the requirements of ongoing regulatory notification. So certainly, we think that this is a slight positive to major positive. But in terms of approvability, that really is part of the regulatory process. We certainly don't think it's a negative.


Next question comes from Chris Raymond with Robert Baird.

Christopher J. Raymond - Robert W. Baird & Co. Incorporated, Research Division

I was just kind of struck by some of your commentary on the competitive dynamic in -- with respect to REVLIMID in the addition of the subQ Velcade label. I think you mentioned it as a new consideration as is carfilzomib. Can you talk a little bit more, maybe give us some more color on that dynamic? Are you seeing, with the onset of the subQ label, more combination use? Or are you seeing perhaps more decisions to use Velcade instead of REVLIMID? And then also, is there a -- you mentioned some combination use of carfilzomib upfront or earlier lines of therapy. Can you put a little bit more brackets around that? Exactly how pervasive is that?

Mark J. Alles

Thanks for the question, Chris. It's Mark. So the market dynamics are interesting in that we see a bit of choppiness quarter-to-quarter. But there's no question that REVLIMID is maintaining that strong steady share in the range I quoted. Remember that the RBD regimen now has been in the market for, I want to say, 3 maybe even 4 years. And there are new data for the combination of REV, carfilzomib, dexamethasone that have been presented at a number of meetings over the past year. So I think it's quite natural that physicians would want to swap out the proteasome inhibitor of carfilzomib for bortezomib and we see that happening. But at an aggregate basis, this is a very, very tiny percentage of the overall market dynamic. I would remind you as well, on a go-forward basis, that the full clinical development program for carfilzomib requires approval through the combination trial with REV/Dex, the so-called Aspire trial. So that dynamic favors, we think, more use of REVLIMID, when or if those data are positive. So I think what we were trying to do is recognize within the short-term, Velcade is a slightly different product because of the subQ administration, and that is really a shift in the use of Velcade. But REVLIMID is advantaged by being the combination therapy for these drugs now and in the future.


Next question comes from the line of Mara Goldstein with Canter Fitzgerald.

Mara Goldstein - Cantor Fitzgerald & Co., Research Division

My question actually relates to sales force resource allocation and expansion. And I guess, specifically, are you currently adding sales or estimates? So where will they be allocated? And I'm thinking in particular about promotional activities for solid tumor indications. And as for apremilast and the field sales force, is the plan to utilize existing labs versus adding to a new field sales force?

Mark J. Alles

Thanks. It's Mark. Thanks for the question. In fact, we are realigning and enhancing our U.S. hematology sales force to more fully focus on the multiple myeloma market, in particular, because of the upcoming launch of pomalidomide. So strengthening our share voice in the market and then having the diversity of the myeloma portfolio that now where we expect will include pomalidomide shortly. On the solid tumor side, we have good capacity to launch the lung cancer approval with the existing team. What we may decide to do based on the new melanoma data, and perhaps what we would hope is the readout on the pancreatic study, is we may decide to increase from our current base. But right now, we're evaluating that strategy.

Robert J. Hugin

And then specifically, our hematology/oncology commercial organizations are extremely expert, experienced and focused to the areas of, again, the areas where we're focused, and that any type of buildout commercially which we'll about in the coming months in terms of our strategy for taking advantage of apremilast, will be the same way, a very experienced, expert, focused group separate from hematology/oncology.


Next question comes from the line of Thomas Wei with Jefferies.

Thomas Wei - Jefferies & Company, Inc., Research Division

I had a question on MM-020. Just in relation to second primary malignancies, should we have the expectation that there would actually be a lower rate of SPMs in the REV/Dex arm relative to MPTs and REV in that arm is not being given with melphalan, whereas THAL is being given with melphalan. And then just a clarification on the potential for the DSMP to recommend continued follow-up for overall survival when you get to that interim in the first quarter of 2013. What exactly does that mean about the disclosure of the details around the PFS overall survival and SPM data?

Mark J. Alles

Tom, this is Mark. Thanks for the question. Bob or Jackie might want to jump in as well because of the flavor of your question. So with respect to second primary malignancy, we don't, of course, have any specific information because MM-020 remains blinded. But because melphalan is not part of 2 of the arms of the study, and we have such global pharmacode vigilance experience with REVLIMID and dexamethasone in the first, second and even maintenance lines of therapy, it would be our expectation that REV/Dex would have a lower rate of SPMs, a lower incidence rate of SPMs, particularly AML, NDS as a consequence of melphalan exposure, but we will see. In terms of disclosure, I don't want to speak to that directly. But Jackie, would you want to comment?

Jacqualyn A. Fouse

Yes, Thomas, I mean, I think we'll have to see what the timing on that data is and there would be a couple of opportunities to think about. We, as a company, will have to consider whether or not we do some kind of headline disclosure. But you also might want to keep in mind that I believe the International Myeloma Workshop meeting is in May. I don't remember exactly the date. But that certainly is a medical meeting that would provide a forum for potential more detailed discussions of that data, assuming that it's available. And maybe just to clarify one point on that, back to a question that was asked, I believe that at the 70% PFS event, right, that would put you at the number of events at around 1,000.


Next question comes from the line of Joel Sendek with Stifel, Nicolaus.

Joel D. Sendek - Stifel, Nicolaus & Co., Inc., Research Division

I have a question on apremilast. In the impact on the operating margins, we've seen the operating margin increase a lot over the last couple of years. If apremilast is as good as or is as strong as you all anticipate, will the impact be positive or negative? And then could you also share with us the contribution of apremilast to your 2015 guidance?

Jacqualyn A. Fouse

Joel, it's Jackie. I'll take that one. So this is a great time for Celgene for a lot of reasons. But with respect to the P&L dynamic and given the amount of leverage that we have in the business model on the existing business, it bodes very well for our ability to make the right long-term decisions about go-to market strategy for apremilast, where we think that based on what we see and as you have more visibility to the data, you will be able to form a better opinion about this as well. The potential for having a business model with a very targeted commercial group that, in terms of its general characteristics and potential for margin generation, could look a lot like the hematology/oncology model that we have today. And then from a platform with multiple indications possible for the product, that would generate quite strong top line growth. So we will, as Bob mentioned, discuss more of the specifics of the go-to market strategy for apremilast and you'll have data to be able to think about those 2 things together. But we could be in a position of moving ahead with that platform and use some of the leverage generated by the existing business and P&L to make those investments, but still be able to deliver leverage in the overall Celgene business on a go-forward basis. And then once you got full year revenues from apremilast, you get very much into another round of extremely strong leverage generation and very, very strong top line growth. So that's the way that you should be thinking about this. When we think about the 2015 targets, as we've said before, in that $8 billion to $9 billion revenue range we have, $6 billion to $6.5 billion is our assumption for hematology, $1 billion to $1.25 billion for ABRAXANE, and then the balance in other, which actually could include some indications like melanoma for ABRAXANE, that was not in our original range. But apremilast will be the biggest part of that, and if you just back into that number, it's $0.3 billion to $1 billion, I think it's the range that you get for that other category in 2015.


Next question comes from John Sonnier with William Blair.

John S. Sonnier - William Blair & Company L.L.C., Research Division

I'm just curious with all of the discussion about the long-term risk reward profile of REVLIMID. You guys haven't talked much lately about the internal Celgene database. I think a couple of years ago, when this discussion was hot and heavy, you'd said that 177,000 patients have been mined at that time, and the SPMs, I think, at that time, was only 0.4% and significantly lower among the 130,000 front-line patients. Does that still look the same? Any plans to update that? Will that be part of the filing in Europe when you resubmit?

Mark J. Alles

And I appreciate the question. We do have a robust pharmacovigilance as part of our risk management programs around the world. And you're right, it's been a while since we commented on it, in part because even with the denominator of patients growing dramatically, these rates of observations are essentially the same. We've seen nothing new, different in our pharmacovigilance, our internal database. And of course, we provide these updates to regulators every single quarter.


Our next question comes from Jim Birchenough with BMO Capital.

Jim Birchenough - BMO Capital Markets U.S.

So just following up on a couple of prior points. In terms of positioning of apremilast in front of anti-TNS, do you think you need radiographic response data and will we get sharp score data at the ACR meeting? And then on what to expect around the 015 update that we'll get early next year, what we've seen typically, when you're looking to exclude some risk as you look at the upper bound of the confidence intervals, and it would seem that EMA is saying they want to see that below 1. So if you're looking at an upper bound confidence interval below 1, isn't that statistically significant? And if instead you're talking about trends, aren't you really talking about upper bound risk that goes above 1 and why would that be acceptable? I'm just try to understand that better.

Mark J. Alles

Now thanks for the question. Bob, did you want to [indiscernible]

Robert J. Hugin


Mark J. Alles

Okay. Now thanks for the question. So the question about overall survival is significant with respect to confidence intervals. I think it's an important perspective. What we are unclear about is in the end, of course, with the trends and with analyses where SPMs are included for overall survival, will the regulators ultimately require an overall survival advantage to formally and finally decide on benefit risk? It's our impression from everything we know that the PFS advantage, the event-free survival analyses and then trends with hazard ratios that are below 1 for these 3 studies would be acceptable to regulators. In the end, this technical question is going to require review and specific regulatory interpretation of our resubmitted dossier. The apremilast question?

Robert J. Hugin

And the apremilast, we'll have more discussion of the data that the ACR meeting. But generally, radiographic data is not part of a PSA program, but it is part of the ankylosing spondylitis data that we're accruing now.


Our final question for today will come from the line of Ian Somaiya with Piper Jaffray.

M. Ian Somaiya - Piper Jaffray Companies, Research Division

I had a question for you, Mark, on CLL and [indiscernible] broadly speaking. Obviously, those 2 programs are advancing fairly quickly. Can you give us a sense of what the current off cycle sales are for REVLIMID in those indications? And what do you think the opportunity is? Is it like REVLIMID in myeloma, is it less? What are some of the considerations.

Jacqualyn A. Fouse

It is Jackie, and I'll turn it over to Mark. But just, when you take the total numbers of patients in the -- all of the non-Hodgkin's indications and CLL, you get a total patient pool that's about 2.5x the number of patients in myeloma. So when you think about the opportunity, that's maybe the place to start. And then you can run through the different non-Hodgkin's subsets of patients and the timing on approvals that we expect and you can see that in our top line charts for REVLIMID to layer that in from a timing standpoint. But it is more than 2.5x the total number of patients versus the myeloma pool. With respect to the other part of the question, I'll let Mark answer that.

Mark J. Alles

Yes. Now, Ian, thanks for the question. So we're excited about the acceleration of our clinical programs. We mentioned CLL 008. We also have the CLL 002 study ongoing, that's the maintenance trial. In lymphoma, we have a number of strategies, starting with the mental cell opportunity that is near term, but we're making good progress with the remark study and other strategies in combinations with rituximab. So I think using the number that Jackie spoke to, we, still, on the longer term, see the REVLIMID opportunity in those markets, CLL, NHL, to be multibillion. In the current book of business that we have, this has been the trend for a while. There is very little use of REVLIMID in the setting of relapsed/refractory CLL or NHL. We do have, in the U.S., compendia listing for REVLIMID in lymphoma. And based on, we think, more data, the compendia for CLL would likely get updated in, let's say, the next year or so. So I think this opportunity that you asked about remains robust. We have great data now and it will grow from here. And we're very committed to making REVLIMID a standard in various settings for CLL and non-Hodgkin's lymphoma.

Jacqualyn A. Fouse

With that, thank you, everybody. I think we've run out of time. So thanks, this morning, for being on the call with us, and we look forward to seeing you at upcoming events that we will host for investors at ACR for the first time this year. We're very excited about that. And also we're looking forward to an extremely exciting ASH meeting in December. So we will see you soon. Thanks a lot.


Thank you, presenters. Again, ladies and gentlemen, this does conclude today's conference. Thank you for your participation and have a wonderful day. Attendees, you may disconnect at this time.

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