Celgene’s (CELG) CEO Robert Hugin on Q2 2014 Results – Earnings Call Transcript

Source: Seeking Alpha


Celgene Corporation (NASDAQ:CELG)

Q2 2014 Earnings Conference Call

July 24, 2014 9:00 am ET


Robert Hugin – Chairman, Chief Executive Officer

Jacqualyn Fouse – Executive Vice President, Chief Financial Officer

Mark Alles – Global Head, Hematology and Oncology

Scott Smith – Global Head, Inflammation and Immunology

Patrick Flanigan – Vice President, Investor Relations


Josh Schimmer – Piper Jaffray

Geoffrey Porges – Sanford Bernstein

Terence Flynn – Goldman Sachs

Ian Somaiya – Nomura

Robyn Karnauskas – Deutsche Bank

Yaron Werber – Citi

Geoff Meacham – JP Morgan

Ravi Mehrotra – Credit Suisse

Mark Schoenbaum – ISI Group

Brian Abrahams – Wells Fargo Securities

Matt Roden – UBS

Michael Yee- RBC Capital Markets

Mara Goldstein – Cantor Fitzgerald

Thomas Wei – Jefferies

Howard Liang – Leerink Swann


Good morning and welcome to the Celgene Second Quarter 2014 Earnings conference call. All participants will be in a listen-only mode until the question and answer session at the end of the conference. 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, Investor Relations at Celgene. Please go ahead.

Patrick Flanigan – Vice President, Investor Relations

Thanks, Nicole, and welcome everyone to our second 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; Jacquie Fouse, our Chief Financial Officer; Mark Alles, who is Global Head of our Hematology and Oncology franchise; and the Global Head of our Inflammation and Immunology franchise, Scott Smith.

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 Hugin – Chairman, Chief Executive Officer

Thanks Patrick, and thank you everyone for joining us this morning. I appreciate the opportunity to update you on the excellent results of the quarter and the significant progress achieved advancing strategic corporate initiatives. Operational excellence is the foundation of our business model. Outstanding results produce the resources that allow us to invest in the discovery and development of tomorrow’s transformational therapies, and our teams across the globe are delivering. Our businesses across functions and geographies have outstanding momentum. The strong revenue and earnings growth reported this morning reflect the excellent operating performance of our teams. Increased Revlimid duration of therapy and accelerating global launches of pomalidomide and Abraxane in pancreatic cancer fueled substantial volume and revenue growth. This strong performance supports raising our full-year financial guidance. Jacquie and Mark will discuss the results and our outlook in greater depth in a few minutes.

Capturing the full value of our franchises is the highest order of corporate priority. We’re making exceptional progress in building for the future. During the quarter, we strengthened our hematology product portfolio with important new clinical data in MDS, AML, and mantle cell lymphoma. The future of our hematology franchise was further enhanced through meaningful progress on strategic collaborations, including ACE-011 and ACE-536 in beta thalassemia, and exciting data in targeted relapse refractory AML with AG-221. We’re aggressively moving these programs forward with our partners, Acceleron and Agios.

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During the first half of the year, our oncology programs were advanced by the initiation of Phase III studies testing Abraxane as an adjutant treatment in patients with surgically resected pancreatic cancer and as maintenance therapy in patients with squamous non-small cell lung cancer. In the second half of the year, collaborations are positioned to evaluate Abraxane, Revlimid, CC-486 and other pipeline assets in combination regimens with emerging immuno-oncology therapies. Mark will outline some of the key studies that are accelerating our impact in the hematology oncology field. Over the next few quarters, we expect significant increased visibility on our next generation of registration track studies.

Building a market-leading inflammation and immunology franchise is also a key corporate initiative. Our U.S. team launched Otezla for psoriatic arthritis in April and are making outstanding progress in building the foundation of a first-class launch. Scott will detail many of the metrics that give us the confidence that our team is fully capitalizing on the opportunity of building a new market for this innovative oral compound. We look forward to launching the psoriasis indication later this quarter following FDA action. We could not be more excited about the progress and potential of Otezla.

Expanding and accelerating the development of our pipeline is essential to sustaining long-term growth. We are making outstanding progress in building and advancing one of the highest potential pipelines in the industry. During the quarter, we expanded our late-stage pipeline with the acquisition of GED-301, a potentially transformational product for the treatment of Crohn’s disease. Scott will outline the significant second half milestones in this promising program.

We also accelerated our internal and mid-stage research programs. Among the four novel development candidates named last year, we expect to advance at least two to IND by year-end, including our novel anti-CD47 antibody from Inhibrx targeting innate immunity. Our CC-122 inhib program is advancing in novel combination trials in CLL and diffuse large B-cell lymphoma, showing activity in settings of high unmet medical need. We’re also initiating clinical programs with our next-generation JNK inhibitor in fibrotic disease, and in scleroderma with our INI inhib, CC-220. Our research teams have identified novel biologic targets providing new insights to advance our existing and emerging programs in protein homeostasis.

Dynamic companies proactively evolve to best capitalize on market opportunities and to maximize the potential of their assets. During the quarter, we announced organizational changes designed to position us for maximum success in the years ahead. These changes provide Mark and Jacquie, outstanding leaders, the opportunity to have an even greater impact on our organization. In Mark’s new role as President and Chief Operating Officer, he will work with our franchise leaders to drive operational excellence across our functions and franchises. Jacquie was promoted to President, Hematology/Oncology to leverage her strong leadership, outstanding business expertise, and strategic perspective.

We also significantly enhanced our leadership team with the addition of Peter Kellogg. Peter is now on board and is in fact in the room with us today and will become our Chief Financial Officer on August 1. Peter brings a wealth of industry knowledge and expertise to our leadership team. Welcome, Peter. The energy generated by these leadership changes is already positively impacting the organization.

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This morning, we announced another important leadership addition with Dr. Rob Hershberg joining Tom Daniels’ team to lead our immuno-oncology research and early development initiatives and to establish our immuno-oncology center of excellence in Seattle, Washington. Dr. Hershberg joins us from one of our collaboration partners, VentiRx, where he served as CEO. We welcome Rob to the Celgene team.

Midway through the year, we have achieved a number of important objectives. Our exceptional operation momentum has us well positioned to deliver on key milestones in the second half of the year. It’s a very exciting time at Celgene.

Let me now turn the call over to Jacquie.

Jacqualyn Fouse – Executive Vice President, Chief Financial Officer

Thank you, Bob. Good morning everyone. Thanks for joining us on our second quarter call. We were extremely pleased with our second quarter performance and the momentum we have in the business across all of our major drivers as we move into the second half of the year. The underlying trends we built coming out of Q1 drove our Q2 results, and we feel great about the start we see already for Q3. Our teams are delivering strong execution today while strategically we also continue to add to our investments in the future. You saw examples of this in Q2 with our acquisition of GED-301 and our opt-in to the Agios AG-221 program.

Our total net product sales growth reached 18% and accelerated in Q2 for the year-over-year comparison versus the prior two years. We are very close to reaching the $2 billion per quarter level for our global product sales, and I’ll look forward to celebrating that milestone with you and our team. Of the 18% product sales growth, 14 percentage points, or about 80% was volume driven. Price in the quarter contributed 3 percentage points. We expect the full-year global net impact of price across our portfolio to be close to neutral.

Our P&L performance remains robust and adjusted earnings per share grew 18%, slightly faster than total revenue growth of 17%. Our team produced earnings growth that exceeded revenue growth even while we invested in our inflammation and immunology franchise and important launches across the hematology oncology business, and while we absorbed the impact of generic azacitidine in the U.S. Adjusted earnings per share was $0.02 lower in the quarter than it otherwise would have been as a result of our $2.5 billion May bond offering and expensing the premium we paid on the additional equity stake we bought in Acceleron. This 18% growth in adjusted earnings per share came entirely from operating income growth. The net impact of all financial drivers together was neutral.

Revlimid’s sequential growth in the U.S. in Q2 was impressive at 12%. The demand trends we saw at the end of Q1 produced the strong quarterly result. Growth and demand trends outside the U.S. were also very solid with about 2% sequential growth in Europe off of a very strong Q1 for that region, and the rest of the world is in good shape, though we saw some impact from distributor buying patterns in places like Latin America.

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