【Transcript】Celgene at JPM19

Celgene Corporation (CELG) CEO Mark Alles Presents at 37th Annual J.P.Morgan Healthcare Brokers Conference (Transcript)

January 7, 2019 10:30 AM ET

CompanyParticipants

Mark Alles -Chairman & CEO

Giovanni Caforio -Bristol-Myers Squibb Company, Chairman & CEO,

Conference CallParticipants

Cory Kasimov - JPMorgan Chase & Co., Senior Biotechnology Analyst

Chris Schott - JPMorgan Chase & Co., Senior Analyst

Operator

All right. Goodmorning to everyone. My name is Cory Kasimov. I'm the senior large-cap biotechanalyst at JPMorgan, and let me add my welcome to the 37th Annual HealthcareConference. We're kicking things off a little differently this year as lastweek we obviously had one of the most significant pre-conference announcementsever with the Bristol-Myers/Celgene transaction. And now we're honored to haveboth management teams here for a fireside chat with myself and my colleague,Chris Schott. So from Celgene, we, of course, have the Chairman and CEO, MarkAlles; and from Bristol, we have the Chairman and CEO, Giovanni Caforio.

Chris Schott

Great. And let mejoin Cory in welcoming both Mark and Giovanni to the stage this morning. I didwant to mention one housekeeping item before we start. There's not going to bea breakout session following today's presentation. So we're just going to dothe fireside.

And with that, Giovanni,do you want to make some opening intro remarks? And we'll jump into the Q&Afrom there.

Giovanni Caforio

Thank you, Cory.Thank you, Chris. Good morning, everyone. It's an honor to be here with Mark inopening this conference. I just want to spend 5 minutes to tell you how excitedwe are about the deal that has been announced and tell you a little bit moreabout the fantastic company we are creating.

Before I do that,you have our disclosures here. And let me just give you sort of an overview ofthis extraordinary science leader and innovation leader that we are creating bycombining Bristol-Myers Squibb and Celgene.

This is afantastic company. We are maintaining the focus on three areas of very highunmet medical need with oncology, autoimmune diseases and cardiovascularmedicine. That's been our strategy at Bristol-Myers Squibb for many years.

It complementsextremely well the portfolio and the pipeline of Celgene. And together, we havean opportunity to build the number one franchise in oncology across solidtumors and hematologic malignancies. We're actually combining forces to becomea really important player in immunology. And of course, we maintain the numberone cardiovascular franchise with ELIQUIS.

As I said, thatthe deal is really about science, innovation and pipeline. And when you look atthe combined company, the opportunity to launch six new medicines in the next24 months is a potential opportunity, which is just extraordinary.

At the same time,we are increasing the number of Phase III assets in the company, and we arecontinuing to invest in a very broad life cycle management program for OPDIVOand our immuno-oncology franchise. So just think about the opportunity to dowell for patients and generate value over the short term.

I'm also reallyexcited about the doubling of our early and mid-stage pipeline. These areassets across all therapeutic areas. They are truly innovative technologies.I'm sure we'll have a discussion about that. And underpinning thisextraordinary set of opportunities, there's two things.

First of all,great science. Both companies have significant expertise in small molecules. Wewill have, as a combined company, great experience and expertise withbiologics, the leading franchise in cell therapy and great people from bothcompanies that I look forward to bringing together with a real passion forscience, innovation and for patients.

So when we thoughtabout this deal, we think about four drivers of value for shareholders of bothcompanies. First of all, obviously, marketed products. We think about that intwo ways and obviously, primarily, Revlimid. We think about Revlimid in twoways.

First of all, itis a medicine that has transformed the treatment of multiple myeloma and doeswell for thousands of patients every day. For us, it's a platform where wethink we can maintain a leadership position in hematology for the long term.And obviously, from our perspective, the cash flows for marketed productsenable us to delever quite quickly.

The deal is reallyabout the science and innovation, and of course, cost synergies are important.I'm very confident we'll be able to deliver those synergies by bringingtogether two great companies.

But the deal isreally about the pillars that you see on the right. It's about the launches ofthe next 12 to 24 months. These are very innovative differentiated medicinesthat address needs of patients that are waiting. We'll be working together fromday 1 to bring them to market successfully. And then the medium and long-termpromise of the pipeline, which is quite extraordinary.

So I'm reallyexcited. This is a deal that makes sense scientifically. It makes sensestrategically. It delivers value to shareholders from day one, and it creates afantastic company. Thank you.

Question-and-AnswerSession

Operator

Q - Cory Kasimov

All right. Thankyou, Giovanni, for setting the stage like that. And I guess to kick off theQ&A, let me start with Mark and maybe you can talk about why you think thisis a good deal for Celgene shareholders and why now is the right time toexecute on this deal?

Mark Alles

Well, first, Cory,thanks. Let me add my happy new year to everyone, and good morning. Celgene isa unique company that many of you have followed throughout the years. But Iwant to start by thanking the employees of the company and all the stakeholderswho have been part of this journey up until now and thank Giovanni, his board,his leadership team, for their vision in creating what we believe will be thepreeminent global biopharmaceutical company.

So let me startthere. I think it's the right deal at the right time because both companies areleaders in the cancer field, hematology and oncology. The complementarity isundeniable. The strategic vision of this deal is compelling, and I hope formost who cover this industry, it's pretty obvious even.

For Celgeneshareholders, it's compelling in that it provides substantial cash immediatelyafter closing. It realizes and unlocks value for our shareholders immediatelyin that way. As everyone has seen from the structure of the deal, we're alsoparticipating as shareholders. That was important to Celgene, its board and itsemployees in that the deal contemplates approximately 31% ownership afterclosing.

We see there-rating of the stock in this company over time. We think that's enormousunrealized value for our shareholders that, as Giovanni lays out the strategicvision, we will realize over time.

I think the thirdaspect of that, it continues to provide value and access to cash for our shareholdersthrough dividends, which is something that many analysts have been asking meabout over the last two years in the context of our strong cash flows. So Ithink in that context, it's important, and then additional value through thecontingent value right that the deal applied to, as Giovanni talked about,these launched products. I'm sure we'll discuss that a little bit more.

Both companies hada record year. 2018 for Celgene, as we announced this morning, was by far thebest year in the company's history on operating momentum. Our fourth quarterunaudited is outstanding. We'll provide that update later in the month as partof our planned earnings. And of course, Bristol has already announced theirview for '19.

The market, ofcourse, is trading us how it's trading us, but our core businesses and our coreproducts are doing extremely well. And as Giovanni points out and I'll closewith, this is a scientific powerhouse. When you put together the innovation andthe scientists for Bristol-Myers Squibb with what we've built through ournetwork of partners and our stand-alone company, the scientific prowess of thiscompany is unparalleled. And that's something, I think, intrinsically that willadd value over time. So it is the right deal. It's the right time. We're veryproud to be sitting here with Giovanni today.

Chris Schott

Great. And maybebuilding on that, Giovanni, can you elaborate a little bit more on what thecombination does that each company couldn't do on their own? So how do we thinkabout the value Bristol brings to Celgene portfolio and vice versa?

Giovanni Caforio

Yes, Chris. Ithink that's really the core of the deal, in fact, because the two companiesare so complementary. It's a unique combination. And so one thing I would sayis that thinking about bringing together two companies this size that operatein the same therapeutic area, areas there's virtually no overlap for any majorprogram.

So what do webring to the table together? Well, one of the things we're going to be workingon from day one is really accelerating the preparation for six launches. And as- at Bristol-Myers Squibb, we feel that we've built, because of experience withELIQUIS and OPDIVO, an industry leading access and reimbursement organization,particularly in the U.S. and clearly in oncology, well, I think that's going tobe really important because we've got a lot to do.

We've got sixlaunches. In some areas like cell therapy, which is an area I'm really excitedabout, the access and reimbursement landscape is just beginning to be shapedtoday, and I think that we're going to be bringing together strongcapabilities.

The other one thatI would mention is psoriasis. You know, Otezla is doing very well. It is - ithas met an area of important need for patients. Celgene has done a great jobestablishing Otezla in the marketplace where we have been thinking about how webuild an infrastructure commercially, medically from an access point of view aswe think about the launch of TYK2.

Well, that's aclear advantage to be bringing those two organizations together. I'm thinkingabout the potential launch of TYK2 in psoriasis. I think the launch will bequantumly more successful because of the two companies working together.

And there are somany other examples where the complementarity of these two companies is justgoing to create more value than just the sum of Celgene and Bristol-MyersSquibb.

Christ Schott

Makes a lot ofsense. I think you talked a bit about the deal not necessarily being driven byRevlimid, but it's obviously a large piece of the Celgene story. So maybe youcan talk a little bit about the assumptions you used on Revlimid and overallhow you got comfortable with the IP landscape for the product.

Giovanni Caforio

Sure, Chris.Obviously, it's a very important point. First of all, we have worked with Markand the Celgene team and done very deep due diligence on Revlimid. And itstarts from the fact that we've become very comfortable with their perspectiveabout the strength of the IPS state on Revlimid and the assumptions thatthey've made and we've made with respect to the IP and the entry of generic.

Of course, thereare a number of scenarios that can play out, and we, as the acquiring company,have looked at and looked at those. And under all scenarios that we've assumed,we're very comfortable the deal creates value and the cash flows from Revlimidenable us to delever rapidly as a company.

So that's reallythe way we've looked at it now. As I said earlier, when you look at thetotality of the deal, this is really about science and innovation and creatingthe best pipeline in the industry.

Mark Alles

Might interject.As Giovanni is talking about with the near-term launches, Celgene stand alonehas talked about these five products being able to generate in an unadjustedplatform between $12 billion and $14 billion in peak sales. Of course, thisoverlays the window that we're talking about with respect to Revlimid IP.

So it's not onlythe confidence in the estate and the outlook for Revlimid cash flows, it's alsohow we layer on in the combined company a lot of launch revenue, a lot of newdiversification. The combination plays out, I think, really, really nicely forthe new Bristol-Myers Squibb.

Chris Schott

Great. And one --I guess, the one last one, Revlimid. The Celgene deal, I think you talked a lotabout science platform you're creating, but it also brings a major patentexpiration to the Bristol story. I think it's something The Street historicallyhas been -- we have a tough time digesting.

So how did you -when you look to the complementary you're talking about, you look at thepipeline but then balanced against, you're kind of dealing with this Revlimidissue, how do that factor into how you thought about the deal and thecombination?

Giovanni Caforio

Yes. I think thatwith the way we really think about it is we look at the combined company sort ofalmost without Revlimid. And when we look at that, we see a company that has anopportunity to grow over that period. We see a significant number ofvalue-creation opportunity in the short term and a fantastic pipeline.

And so that makesus comfortable that we are creating a company that actually prepares us reallywell for sustained growth, including the period later in the decade where wewill have some losses of exclusivity.

And as I saidearlier, we think about the cash flow from Revlimid as really important to helpus deliver, maintain a strong financial flexibility going forward. But when youthink at the totality of the combined company, this is a growing company withsignificant diversification of opportunities in areas we know really well.

Chris Schott

Great. And maybeto follow up finally on that. Just when we think about the cash flows of thecombined company, can you just elaborate a little bit more about how we shouldthink about the delevering process?

Giovanni Caforio

Yes. I think that- so when you look at the company in the next 3 years, we're thinking about $45billion of combined cash flow from the combined company. That gives us ampleflexibility to delever rapidly.

Obviously, payingdown the debt is the priority in the short term. But in the medium and in thelong term, we will continue to be able to invest in science and innovation andwe're very comfortable with that.

Chris Schott

Great. And I willleave some time to talk about the pipeline. But before we get to that, I didwant to talk on the Bristol portfolio and specifically OPDIVO and yourconfidence in the growth outlook for the products.

Can you just talka little bit about how you're feeling about OPDIVO, how you're thinking aboutthe immuno-oncology market? So I think that's one of the questions thatsurfaced as the transaction was announced.

Giovanni Caforio

Yes, absolutely.So I feel very good about where we are. We had a really strong year with OPDIVOin 2018. We have leading shares in every one of our approved indications. I haveover 20 registrational trials that I'm looking at in the future. And of course,there are some trials in lung cancer, which are very important over the courseof this year.

But then when wethink about the future, we have one of the broadest programs in the adjuvantsetting. We think that's one of the next chapters of the journey inimmuno-oncology. We are very well positioned.

And so one of thereasons why this is the right time to do a deal, it's because we have two verystrong, highly performing franchises with OPDIVO and ELIQUIS that creates asolid foundation for this new company. And now we're going to build from that.

Chris Schott

So just to beclear here, nothing in this transaction should be read as less confidence inthe OPDIVO outlook going forward?

Giovanni Caforio

Listen, this isthe creation of a fantastic company. It's a sign of confidence in our abilityto execute and the promise we have in the future. And I'm thinking aboutcreating this great company from a position of strength.

Chris Schott

Great.

Cory Kasimov

So Giovanni,you've talked a lot about your excitement for Celgene's pipeline. How are youthinking about the company's big 5? Those 5 late-stage assets in particular?

Giovanni Caforio

Yes. I - ofcourse, as you can imagine, we have really looked at those with a lot ofattention during the due diligence process. And I must say that Mark and histeam, and these are great group of people at Celgene that we've worked with.We've become really excited about working together from day one of the duediligence.

These are verydifferentiated medicines. They address areas of high unmet medical need. Inthree of these products, in fact, we already know the registrational data. Theyare derisked. And we think they're going to do great things for patients andthey'll have a really important role to play in the market.

With respect tothe cell therapy platform, I'm actually really excited about that. I think it'sthe best platform in the industry. I believe that as we think about bringingthose products to market, many of the short term challenges with pricing andreimbursement and funding mechanisms will have evolved. So I think this is onecase in which maybe coming in a little bit later is going to be an advantage.Ultimately, the profile looks really promising.

So I guess, theanswer is whether you look at luspatercept and fedratinib, the role thatozanimod can play in multiple sclerosis and the two cell therapy asset ofJCAR017 and bb2121, we are really excited about these medicines. We've lookedat this in detail.

And as I saidearlier, of course, the Celgene team is getting ready to launch them. I thinkwe can add value by working together. I can't wait to get started to preparingfor those launches because those five medicines, of course, together with TYK2,which is a really important program from Bristol-Myers Squibb Company, they aregoing to make a big difference for patients. Our perspective is that we'regoing to be adding more than $15 billion of peak sales from these 6 launches.

Mark Alles

So if I could pickup there, Cory, just imagining that you would want to talk about the CVR andthe context of these launches, first, I'm very pleased to make sure people knowwe did some at the fedratinib NDA for myelofibrosis at the end of the year ontime. We also submitted the sNDA for Revlimid in combination with rituximab inindolent relapsed/refractory non-Hodgkin's lymphoma. So those were two end ofthe year opportunities that go directly to short-term opportunity, fedratinibbeing a new product.

We're also veryfar along with the resubmission in the U.S. of ozanimod for relapsing multiplesclerosis. We continue to be very confident in submitting in Europe thisquarter and resubmitting in the U.S. this quarter.

People in thisroom, of course, will remember that at the start of the year, we had some gaps,deficiencies in the first submission. We've spent this year filling in thosegaps, particularly against a secondary and then tertiary metabolite. We feelvery, very good about the application at this point. And of course, ourcolleagues from Bristol-Myers Squibb have looked at that very, very carefully.So there is two products.

Luspatercept atASH was the featured product. It was the number one abstract and it was highlyviewed as one of the most important medicines to come along in hematologyprobably since Revlimid or maybe Imbruvica as an example. So luspatercept iscompletely derisked in the context of its submission later this year.

The bb2121 profile,I know everyone is quite familiar with it at this point. These are patientswith a median of 10, 15 lines of therapy for myeloma who will die if they don'tget treated with an effective therapy. That's the population for 2121 with abreakthrough designation category.

The last patientfor the KarMMa study was reinfused at the end of last year. So the 128 patientpivotal trial is completely enrolled. Now we just wait. You know the data set.You know the safety profile. This is the point about being derisked.

Liso-cel, we'vehad the pivotal data for about six, eight months. Our focus is on the BLA, notupdating the world about follow-up data, but on the regulatory submission forLiso-cel.

So when we thinkabout the CVR and the three products that we've agreed are perhaps a little bitmore idiosyncratic or unique, they make up the CVR, but there are five productshere that are expected to launch, as Giovanni says, with derisked data in thenext 18 to 24 months. All have the kind of upside opportunity in the short termin advance of any IP scenario that we see happening to Revlimid and itserosion, and that's on top of the life cycle for OPDIVO and other products thatmechanically drive the cash flows and the upside for the company.

Chris Schott

Great. Can youtalk through - last few minutes here, maybe for some synergy opportunity. Canyou elaborate a little bit more on what you see there? And as part of that, Iguess I think about both companies competing in rapidly evolving markets.

So how do youensure that you don't disrupt the organizations in these very importantlaunches and end markets as you go about extracting those synergies?

Giovanni Caforio

Yes. I - ofcourse, we've thought about this long and hard. I'm comfortable in our abilityto deliver those synergies because when you bring those two large companiestogether, there are always overlap. There are - there is always an opportunityto do things together.

And so I repeat,I'm very confident in our ability to do that. I clearly agree with you that thenumber one priority for us is to have the resources that are necessary in orderto accelerate this absolutely extraordinary pipeline to the marketplace. And sothat's going to be the priority. I believe the synergies will come naturallyfor the - from the integration of two large infrastructure.

Let me just say avery important point. These are two companies with great and passionate people.We have an opportunity to bring the best of both to work together on somethingreally special. And when I think about one of the things that makes me reallyenthusiastic about this deal is that this is and can continue to be thedestination company for the best scientists in the world.

And because of themodel that we have between Bristol-Myers Squibb and Celgene, we've both alwayshad a really clear focus on the fact that innovation is important wherever itcomes from, whether it's internal or external. I think this new leading companywill continue to be a company that works really effectively with the biotechsector and continues to be a driver of innovation in the marketplace.

Mark Alles

We're not naive.There will be challenges. There always are challenges when you're at the scale.That said, I believe that for sure, the Celgene team and I believe this aboutBMS, have known the company for my whole career, which is 32 years.

We're going torise above this. The patient need, the opportunity is so great. We'll riseabove it. It really is a case of two companies, one mission, discover, develop,deliver drugs for patients with high unmet medical needs. The people at bothcompanies know we'll do as well as we do for the patients that we seek to serveand then in between that is going to get in the way, and I believe Giovanni'sleadership will make that happen.

Chris Schott

Great. So maybethe last minute or two here. Early stage pipeline, what are you guys mostexcited about as we think about the early stage pipeline at the data that we'llbe acquiring here?

Giovanni Caforio

Well, I thinkthere's many things, but there are two things I'm really excited about. Firstof all, as I said, cell therapy. I think when you look at the Celgene strategy,we have the industry leading platform here. I think we're just at thebeginning, and I'm very excited about that.

The second areathat I want to touch on is BCMA. I think this is an extremely exciting targetthat can continue to transform the treatment of multiple myeloma. I believethat Celgene has the best and the broadest approach to BCMA with multiple shotson goal.

I think that'ssomething we're really, really excited about. The Celgene team has done fantasticwork in this area and they're attacking BCMA from multiple modalities. I thinkwe'll be able to play a leading role there. These are two examples of trulyexciting things that we can't wait to start working on. This is very exciting.

Mark Alles

For the 15 yearsthat I've been at Celgene, we've tried to unlock the mystery of how proteindegradation works in a putative way against disease. And I'm very excitedbecause we're at the cusp now of not just experimenting. But for example, inmyeloma, in AML and in other diseases, we have molecules in the clinic thathave specific protein targets for degradation, and they are working.

So the platform ofprotein degradation in the setting of AML, myeloid disease broadly and multiplemyeloma, this is now starting to become reality. Imagine a platform of smallmolecule chemistry that could work in the protein degradation space againstknown, and in some cases, new targets that were unknown until the chemistrymatched up with the target. This is where we are right now.

For example, wehave an androgen receptor degrader that has just moved from development into acandidate for clinical development and we're super excited about it. This willall be part of the platform of the new BMS. So thank you.

Chris Schott

Great. Well, Ithink we're just at about time. Thank you, guys, so much for joining thismorning and best of luck for the transaction.

Giovanni Caforio

Thank you. Thankyou, Mark.

Mark Alles

Thank you.

Chris Schott

Thanks so much.