Celgene's CEO Presents at Cowen & Company 34th Annual Health Care Conference (Transcript)

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Celgene Corporation (CELG) Cowen & Company 34th Annual Health Care Conference Call March 4, 2014 11:20 AM ET

Executives

Patrick Flanigan - VP, IR

Perry Karsen - EVP, COO and CEO, Celgene Cellular Therapeutics

Analysts

Eric Schmidt - Cowen & Company

Eric Schmidt - Cowen & Company

Okay. Good morning everyone and welcome back to Cowen's 34th Annual Health Care Conference. It’s my pleasure to welcome back Celgene which has been kind enough to ritz with their presence for many, many years. It’s also a pleasure to always welcome back a former Cowen alum, Patrick Flanigan, who is VP, Investor Relations at Celgene. We are delighted to have with us today for the presentation Perry Karsen, who is CEO of Celgene Cellular Therapeutics and also Executive Vice President and COO at Celgene. I think Perry has planned for about 20, 25 minutes of overview. We will have some time right here to take a few of your questions after his talk and then we can move next door to the Tufts Room if there is additional interest in the breakout session. Perry?

Perry Karsen

Okay. Eric, thank you very much. It’s always a pleasure to be here, so thank you for inviting us and thank you to everybody for being here this morning right before lunch. So, before I begin, I just need to remind you that I will be making forward-looking statements and you should refer to our financial filings before making any investment decisions. And I think those of you who have been following the Company know who we are and what we are trying to do. And we are building the preeminent biopharmaceutical company in oncology, hematology and now very importantly in inflammation and inflammatory diseases all focused on innovative novel therapies that meet really very much unmet medical needs. And I am going to talk to you about some of those here this morning.

We are now a global biopharmaceutical company, so we have been at this conference for many years and we have evolved overtime to the point now where we are in over 50 countries around the world with our products. We have research centers on the East Coast of the United States, the West Coast in Europe, over 5,000 employees globally with a portfolio of products that have come from both our internal development as well as from some of our external relationships and acquisitions overtime spanning hematology, oncology and very soon we hope in the next couple of weeks in inflammatory and immunological diseases. With an R&D capability, we have a very substantial discovery infrastructure internally. We have relationships on the outside that I will talk to you about that will all fuel the growth of Celgene for many, many years to come with more innovative therapies that are going to meet patient’s unmet medical needs and you can see them progressing through our pipeline with the volume of trials that we have today in the clinic in phase II, phase III and even our preclinical programs to ensure that that pipeline continues for a longtime.

And that has all resulted in some very significant growth, you can see how net product sales over the last few years, 25% compounded annual growth rate. Our EPS of over 31%, so we have been able to leverage the P&L very well as we have built of the infrastructure of the company and that trajectory is forecasted to continue. All based on this proven business model where we have a virtuous cycle here of finding those unmet medical needs, coming up with differentiated products, leveraging the infrastructure that we have put in place for the discovery, development of these products and mostly importantly for the commercialization. And then leading performance that excellence and execution that produces the kind of results I just showed you. And the P&L operating leverage, I will talk about a little bit more in a moment that continues to generate that cash flow, allows us to diversify to bring in more products from the outside as well as to fuel our internal growth efforts and we will continue this cycle going forward.

The business model is proven and is very scalable and is really a very attractive proposition with that infrastructure once it’s in place, we can add products to it without adding a lot of additional infrastructure and what you see is the leverage in the operating margin line where we are somewhere around the 50% level now and forecasted to continue to grow overtime. The R&D spending dropping as a percentage of revenue but continuing to grow from an absolute dollar perspective, so that we fuel that growth of the company going forward, moderating SG&A, once the infrastructure is in place, there is not a lot that needs to be added and the cost of goods, managing that manufacturing which we do all on our own around the world.

Also the returns on invested capital as a result of the investments that we have made and the productivity of the organization, you can see the return on investment and invested capital continuing to grow significantly overtime from the historical growth that we’ve shown to-date.

And we talked a lot about 2017, and where we’re going to go between now and then with the products that we have in the portfolio, the execution that we’ll do on the regulatory side as well as on the commercial side, and what that growth means to the company and to our shareholders. 2017 sales continues that strong momentum in the core franchise, it’s certainly REVLIMID forecasted to be a $7 billion drug in 2017, POMALYST you saw the launch last year took up very well, filled a huge unmet medical need forecasted to be in that $1.5 billion range. So the hematology franchise which is very important to us today obviously and will continue to be for many, many years to come growing to that $9.5 billion to $10 billion range with the beginnings of our solid tumor franchise and now ABRAXANE approved in several indications growing to that $1.5 billion to $2 billion range by 2017 and OTEZLA the PDUFA date is just 17 days away, March 21st and we’re ready for that launch and we forecast that drug to be in the $1.5 billion to $2 billion range in revenue in 2017, all adding up to somewhere between $13 billion to $14 billion in revenue in 2017.

If you look at the individual products, the growth to-date and where we’re going to take those going forward, REVLIMID obviously the core product for Celgene, it will continue to be the core product even as we diversify away and our revenue base continues to grow beyond REVLIMID. REVLIMID will continue to be a major, major focus for the Company. The increased duration of therapy and the market share growth in the approved indication of relapsed refractory multiple myeloma and we have seen patients on this drug for not just months, but years and years as their disease is maintained.

The expansion in the newly diagnosed multiple myeloma the MM20 study that many of you saw those data at ASH. We have said that the filings will go-in in the first quarter of 2014 and we are on our schedule for that. And we continue to grow the product beyond multiple myeloma, in NHL, in CLL, in MDS, which is also a very important indication for us with studies to read-out over the next months and in the next couple of years in those indications that will continue to add once those indications are approved additional growth to REVLIMID getting to as we said $7 billion in revenue in 2017.

POMALYST the brand name for pomalidomide in the U.S., IMNOVID is what it’s called in Europe. It’s had a spectacular launch last year of $300 million and a very significant ramp because it fulfills a huge unmet medical need for patients. These patients had no other therapeutic alternatives they had failed proteasome inhibitors, they had failed IMiDs, had failed combinations and POMALYST is an agent that allows those patients to continue to thrive -- extends life was approved early last year in the U.S. toward the end of the year in August in Europe is now launched in both of those markets.

We’ll see overtime what the actual duration of therapy can be for those patients on POMALYST/IMNOVID. We’re very hopeful that it will continue to extend that duration of therapy for those patients. And as we get approvals for REVLIMID in newly diagnosed multiple myeloma, POMALYST could be moved up into more of that second line therapy to allow those patients to continue to treat these disease as chronically treated conditions. We’re looking at a number of combination strategies as well how we can best optimize the potential of POMALYST and IMNOVID around the world.

ABRAXANE as you know we acquired Abraxis BioScience several years ago to lay the foundation for our solid tumor franchise with ABRAXANE. And ABRAXANE has certainly more than met our expectations, approves in metastatic breast cancer and proved in the non-small cell lung cancer and now in pancreatic cancer, the first drug in decades to show a survival advantage in pancreatic cancer approved in the U.S. in September at the end of the year in the EU. And we are not stopping there with ABRAXANE, we are initiating trials in a number of other diseases, triple negative breast cancer, adjuvant pancreatic cancer, non-small cell lung cancer and maintenance to extend the use of ABRAXANE in a variety of solid tumors because we see this agent as a very active, very promising agent in a number of diseases and especially in pancreatic cancer the additional survival benefit that we’ve shown is significant considering what’s been done in this disease nothing for decades but we’re not done we’re going to continue explore ABRAXANE in combination therapies and other indications in pancreatic cancer to do what we can to extend the lives of patients with this disease and expanding into other new cancers in 2014 as well as we go into colorectal and ovarian and we look at combinations with various immunotherapy agents and ABRAXANE as well. So the growth of ABRAXANE 28% compounded annual growth, we expect to reach in the $1.5 billion to $2 billion range of revenue in 2017.

We’re very excited about the launch of OTEZLA brand name for apremilast, which as I said the PDUFA date for psoriatic arthritis in the U.S. is March 21st. We’re eagerly anticipating that approval and will be ready to launch right after approval, sales force is in place, the leadership team is in place, we’ve attracted a number of extremely talented experienced professionals who have launched some of the major drugs in the inflammation and immunology space over the last few years to come to Celgene to join our franchise to help us fill the next grade I&I franchise in the industry. So psoriatic arthritis approval hopefully by March 21st, that’s for the PDUFA date, we have a PDUFA date now for psoriasis in the third quarter of the year and the EU application is going in for both psoriasis and psoriatic arthritis and we expect approval hopefully in the first quarter of 2015 in Europe.

As I said we are prepared to launch in the U.S. in psoriatic arthritis where we have about a 1 million patients who are underserved, they are either on methotrexate or a failed methotrexate, they may or may not be ready for a biologic and OTEZLA will fill that need for those patients with an oral therapy that is efficacious and safe for those patient populations. So a huge opportunity, psoriasis will be the next indication in the U.S. and hopefully in Europe as well, 2.5 million patients again in oral therapy with some very profound efficacy and a safety profile for that patient population today as well that is underserved and underutilized and we have a phase III trial running in ankylosing spondylitis off of a phase II study that looked promising. Phase III data should read out sometime in the first half of this year and we’ll see what those results look like, and so the phase III in ankylosing spondylitis we’re going to look at a number of other indications as well, Crohn’s disease, ulcerative colitis, atopic dermatitis, so that we can build OTEZLA out to its full potential over the years to come as we move forward and advance additional formulations as well as we look at the lifecycle management of the product to possibly a once a day.

Now if you look at the data and many of you have seen the data that we presented at various meetings over the past year or so, but from just looking at four of our studies, our four pilot studies, phase III studies, it’s very profound to see how they did in each of these studies really overlays itself. There were no outliers of any of these studies and you see from week 16 and beyond the increasing efficacy is measured by the ACR20 response rate in that range here, anywhere from 40% to 60% depending on the study but all very consistent. And very significantly if you look at the graph on the right, the 32 week psoriasis data, the line on the grey line on the bottom is placebo and once those placebo patients crossed over to OTEZLA you see an increase in the efficacy again by in this case measured by the PASI score, meeting that level for those patients who were on OTEZLA, so a very active drug, very significant uptake and efficacy overtime and very durable efficacy as well as patients remain on the drug for many weeks and months.

As we’ve done our micro research and we’ve talked to clinicians about how they will envision using OTEZLA and very significant to us, very aligned with our clinical program and the results we’ve seen over 66% of these patients would be pre-biologic. These are patients who would probably have failed a DMARD and now would be advanced to an oral therapy in OTEZLA before they would move on to a biologic. There’s a 30 plus percent group of physicians who would use OTEZLA after biologics and we saw some of those data in our trials as well where OTEZLA can play a role, but the primary positioning for this product will be for those patients pre-biologic probably after methotrexate initially at least to satisfy a huge unmet medical need of patients who are greater than 60% of that patient population.

So, unique opportunity also in ankylosing spondylitis as I’ve mentioned there is a phase II data was really, our attention and the investigator’s attention in the efficacy is seen in changes in the response of these patients and also in some of the skeletal changes, we’re running the phase III trial as I said 500 patients study, we’ll see the data in the first half of this year and this study is a study that if positive would be a registration study that we’d submit to regulators and we’ll see what the results of those studies look like as we see the data, but initially psoriatic arthritis, psoriasis and then hopefully ankylosing spondylitis to have three indications very soon after launch of OTEZLA.

This is a company that is looking at sustainable growth, with our pipeline, the potential commercially of our products we are going to continue to continue to deliver for many, many years to come. And we’ve recognized that we can’t do this all on our own, we have great scientific teams, great discovery scientists, we’ve done a very nice job of bringing the IMiDs forward and a number of other molecules in different mechanisms of action, but we also want to be able to work with those companies who have expertise in areas where we don’t necessarily have that concentration of expertise and you can see in this slide, the number of partnerships that we’ve done in a variety of areas to bolster our efforts in very important mechanisms such as the epigenetic area, cancer metabolism, protein homeostasis where we’ve partnered in and cancer stem cells with companies who are focused on these areas, they bring great scientific expertise, great clinical development capabilities and these partnerships over the years to come, we believe will provide us and our partners with very meaningful therapeutics for patients who have tremendous unmet medical needs. And these partnerships are definitely win-win, for us and our collaborators, where both companies and ultimately patients and the shareholders of these companies will benefit overtime as we see the data and ultimately the products move through the pipeline from this array of collaborations.

These collaborations are already realizing the products certainly in the pipeline, collaboration with MorphoSys with the anit-CD38 antibody, our Acetylon collaboration, Epizyme is in the clinic, Agios is in the clinic. So a number of companies, three of those here in Boston alone who are moving into the clinic in early trials, proving up some of their early molecules and we will see those advance overtime. Our cell therapy group is moving, one of our cell therapy preparations forward in peripheral arterial disease and diabetic foot ulcers, we believe that cell therapy will be a very meaningful therapeutic modality certainly in the next decade and we intend to be a significant player in that area. Collaborations with OncoMed in the cancer stem cell area, we are looking at also other products to build out our immunology and information pipeline as well. And novel, novel combinations in diseases that currently have tremendous unmet medical needs where we believe the regulators are looking more favorably on those novel, novel combinations as we can demonstrate efficacy and safety.

Phase II trials, over 100 phase II trials planned or underway with a variety of agents, the first one being Oral Azacitidine which we think is a very promising molecule both for hematological malignancies and for solid tumors in priming for chemotherapy. Our partnership with Acceleron with ACE-011 and ACE-536 and some of the molecules in our own internal pipeline as well as our partnership with VentiRx which is an Immune Oncology company in Seattle where we are looking at their agent, their Toll-like Receptor agent in solid tumors.

And to really make progress, ultimately get price from the market, certainly we have to move those phase II products into phase III and we’re doing that with over 30 trials here as outlined, both partner products as well as products that come from our own internal pipeline that ultimately will make their way to the market with 28,000 patients enrolled in over 50 indications; so a very robust pipeline that will sustain the growth of Celgene for many, many years to come. And it will deliver these kinds of results that was talked about of moving our product sales to that $13 billion to $14 billion range with EPS in the $15 range by 2017, significant compounded annual growth, and again leveraging that infrastructure that we have put in place to deliver that operating margin and the leverage on EPS from the growth that we expect to see in revenue.

So a very powerful model here at Celgene where we are leveraging all of the metrics that are improving our financial metrics, our operational metrics, how we’re doing in moving drugs from discovery through IND into the clinic and getting approvals, a more diversified portfolio with our I&I franchise in our study to develop, the oncology business moving forward which lowers the risk of the revenue generation across a number of products in the pipeline and this strong growth will continue to 2017. We have four blockbuster products by then, we believe and that will continue to fuel that growth. All of those products in hand. It is up to us now to execute on the commercial side which we certainly will do. Adjusted EPS expected to grow 26% compounded annual growth over that timeframe. But this isn’t just about 2017. It’s about what we’re going to do beyond 2017. How we are going to continue to develop and deliver those very meaningful therapies for patients, with 21 programs, over 50 indications, a 100 plus clinical trials that will be delivering those drugs for years and years to come; 5, 10, 15 years into the future.

And I will just close with some of our key milestones that we showed at another conference earlier this year, what we’re going to achieve in 2014 and will be back here hopefully next year if Eric invites us to recount how many of these we have been able to accomplish, but across our pipeline in hematology oncology and I&I across all of our franchises and our businesses, our geographies, we would deliver this year greater value to our shareholders and most importantly value in important therapies to patients who are desperately waiting the results of our efforts.

So with that I will turn it over to Eric and the audience to answer any questions. Thank you.

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