celg 301 market opportunity note

Joel D. Sendek [email protected] (212) 271-3867

Stifel Equity Trading Desk (800) 424-8870

Company Update

GED-0301 Could Enter a $7B Crohn's Disease Market in 2018

In 2018, based on our projections GED-0301 could enter a $6.8B Crohn’s

disease market (see Exhibit 1 & 2). We estimate the 2013 WW Crohn’s disease

market at $4.2B, led by sales of TNF inhibitors Remicade (JNJ) and Humira

(ABBV). We project a 10% 5-year CAGR (2013-2018) in the Crohn’s disease

market due to strong historical y/y growth, entrance of Takeda's selective α4β7

biologic in 2014, and a relatively low penetration of ~17% for TNF’s in the U.S.

market.

Our expectation is that GED-0301 Ph 2 results will show >50% patients reach

clinical remission at week 4, which serves as the basis for our current sales

estimate. We update our model to include 2018 GED-0301 revenue of $223M in

Crohn’s disease and await Ph 2 results to adjust appropriately. We expect to see

disclosure of the results in a major medical journal or medical meeting within

3-months, which provides a meaningful catalyst to share price.

GED-0301 Crohn’s disease Ph 1 results registered an 87% (13/15 patients)

clinical remission after only 4-weeks of follow-up, which compares favorably

to the 48% (13/27) clinical remission in the Remicade Ph 3 program (see

Exhibit 4). The Ph 1 study treated 15 patients across three dose cohorts (40mg,

80mg, and 160mg) with GED-0301 for seven days (no comparator arm) and

achieved similar efficacy across all dose cohorts. No serious adverse events were

registered.

GED-0301 has a differentiated profile, as it has potential to be the first

targeted oral approved in Crohn’s disease and is the only Smad7 targeted

therapy. We also believe there is potential for GED-0301 to differentiate on safety

versus TNF’s, which have a black box warning for risk of lymphoma and serious

infection. TNF efficacy also tends to dissipate over time, providing opportunity for

GED-0301 to differentiate if Ph 3 data, which we expect in 2017, demonstrates

durable efficacy.

We see upside to our estimates, as we believe there is potential for

GED-0301 to also prove efficacious in ulcerative colitis, a market which we

estimate at $1.7B in 2013 WW sales. Smad7 pre-clinical studies support our view

that GED-0301 has a mechanistic role in ulcerative colitis. In addition, TNF and

α4β7 therapies have demonstrated efficacy in both Crohn’s disease and ulcerative

colitis, which infers potential for GED-0301 in both indications (see Exhibit 3).

Since CELG has not confirmed development plans in ulcerative colitis, we see an

announcement from CELG confirming development in ulcerative colitis as

providing further upside to our estimates.

Changes Previous Current

Rating — Buy

Target Price — $185.00

FY14E EPS — $7.60

FY15E EPS — $9.95

FY14E Revenue — $7.75B

FY15E Revenue — $9.80B

Price (05/02/14): $147.40

52-Week Range: $175 – $111

Market Cap.(mm): 62,276.5

Shr.O/S-Diluted (mm): 422.5

Enterprise Val. (mm): $67,001.0

Avg Daily Vol (3 Mo): 3,816,974

Net Cash/Share: $12.09

Cash (mm): $5,110

Debt (mm): $4,224

Dividend( / %) 0.00 / 0.0%

S&P Index 1,881.14

EPS 2013A 2014E 2015E

Q1 $1.37 $1.67A $NE

Q2 1.52 1.83 NE

Q3 1.56 1.96 NE

Q4 1.51 2.14 NE

FY Dec $5.96A $7.60 $9.95

P/E 24.7x 19.4x 14.8x

Revenue 2013A 2014E 2015E

Q1 $1.46B $1.73BA $NE

Q2 1.60B 1.88B NE

Q3 1.67B 1.99B NE

Q4 1.76B 2.15B NE

FY Dec $6.49B $7.75B $9.80B

EV/Rev 10.3x 8.6x 6.8x

One Year Price Chart May 4, 2014

Celgene Corporation

CELG – NASDAQ

BuyBiotechnology

Stifel does and seeks to do business with companies covered in its research reports. As a result, investors should beaware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors shouldconsider this report as only a single factor in making their investment decision.

All relevant disclosures and certifications appear on pages 13 - 14 of this report.

$4.2B Crohn’s Disease Market in 2013 We estimate the WW 2013/2018 Crohn’s disease market size at $4.2B/$6.8B (see Exhibit 1 & 2). We base our estimate on the leading branded therapies prescribed in Crohn’s disease, which includes the following TNF therapies: Humira (ABBV), Remicade (JNJ), and Cimzia (UCB). We employ a combination of company interviews and IMS analysis to derive Crohn’s disease sales within total reported sales for each TNF therapy. We also include Takeda’s Entyvio sales in our projections as we expect it to gain approval in May 2014 and it represents the first selective α4β7 therapy to reach market potentially eliminating the risk of PML associated with currently approved Tysabri.

Strong historical y/y growth, entrance of a selective α4β7 biologic in 2014, and relatively low penetration of ~17% for TNF’s in the U.S. market drives our WW 10% 5-year CAGR (2013-2018) in the Crohn’s disease market. We estimate the 2013 U.S. prevalence of Crohn’s disease at ~600K Americans. We estimate TNF therapies such as Remicade cost ~$28K per year and account for ~$2.4B in U.S. Crohn’s disease TNF sales, which implies ~86K Americans are treated with TNF’s each year or ~17% penetration in the U.S. This relatively low penetration provides significant opportunity for continual strong growth in the Crohn’s disease market. Our penetration estimate is based on all disease severities and biologics are only indicated for moderate-to-severe patients, but we estimate >50% of Crohn’s disease patients become moderate-to-severe at some point in their lifetime. We also note that a substantial portion of historical revenue growth derives from price increases. From 2011-2013, Remicade price increased ~22%, which accounts for a significant portion of historical revenue growth in the Crohn’s disease market.

Exhibit 1: Crohn’s Disease WW Market Size Graph

Source: Stifel analysis, company reports, company interviews, IMS

Exhibit 2: Crohn’s Disease WW Market Size Table


$M 2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E

Humira 1,428 1,668 1,919 2,073 2,197 2,307 2,399 2,495

Remicade 1,703 1,903 2,069 2,235 2,369 2,487 2,587 2,690

Cimzia 113 161 190 228 274 328 394 473

Entyvio - - 51 198 454 708 950 1,178

Total 3,244 3,732 4,229 4,733 5,293 5,830 6,329 6,836

y/y growth - 15% 13% 12% 12% 10% 9% 8%

Celgene Corporation (CELG) May 4, 2014

Potential for GED-0301 in Crohn’s Disease and Ulcerative Colitis We believe there is potential for GED-0301 in Crohn’s disease and ulcerative colitis as supported by Smad7 pre-clinical studies and currently approved therapies, which have demonstrated efficacy in both indications. We note GED-0301 is the first product to target Smad7 in humans and CELG has only confirmed plans to pursue Crohn’s disease; however we believe ulcerative colitis is an obvious indication for future clinical development plans. In inflamed mucosal tissue explants from patients with Crohn’s disease and ulcerative colitis, there is a marked overexpression of Smad7, and inhibition with Smad7 antisense restores proinflammatory cytokine production. We also note that TNF and α4β7 therapies have demonstrated efficacy in both Crohn’s disease and ulcerative colitis, which infers potential for GED-0301 in both indications (see Exhibit 3).

Exhibit 3: Crohn’s Disease and Ulcerative Colitis Competitor Approval Dates

Source: Company reports

We estimate the WW 2013 ulcerative colitis market at $1.6B, which compares to $4.2B for the Crohn’s disease market. We believe there is potential for CELG to initiate Ph 2 clinical trials of GED-0301 in ulcerative colitis within 12-months; however, we note that the Ph 3 program in Crohn’s disease clearly takes precedence. Both Crohn’s disease and ulcerative colitis fall under the classification of inflammatory bowel disease (IBD). Crohn’s disease differs from ulcerative colitis in that it affects any part of the gastrointestinal tract, from the mouth to anus versus ulcerative colitis, which is limited to the colon. Ulcerative colitis only affects the inner most lining of the colon while Crohn’s disease can occur in all layers of the bowel walls resulting in more complications such as causing the wall of the gut to become thickened, inflamed, and swollen leading to ulceration, fistula formation and even perforation.

MOA Ulcerative Colitis Crohn's Disease

Remicade TNF September 2005 August 1998

Humira TNF September 2012 February 2007

Cimzia TNF N/A April 2008

Tysabri α4β1,7 N/A January 2008

Entyvio α4β7 May 2014* June 2014*

* - PDUFA date

FDA Approval


GED-0301’s 87% Clinical Remission in Ph 1 Trial GED-0301 Crohn’s disease Ph 1 results registered an 87% (13/15) clinical remission after only 4-weeks of follow-up, which compares favorably to the 48% (13/27) clinical remission in the Remicade Ph 3 program (see Exhibit 4). The Ph 1 study treated 15 patients across three dose cohorts (40mg, 80mg, and 160mg) with GED-0301 for seven days (no comparator arm) and achieved similar efficacy across all dose cohorts. At enrollment, the median CDAI score of all GED-0301 patients was 289, which is comparable to the moderate-to-severe patients enrolled into the Ph 3 TNF clinical trials. The definition of clinical remission employed in the trial requires a reduction in CDAI score to <150. Although we hesitate to interpret clinical studies without a comparator, we believe the historically weak placebo effect (see Exhibit 4) in Crohn’s disease implies strong potential that GED-0301 could offer a meaningful delta over placebo.

Exhibit 4: Crohn’s Disease Clinical Remission Rates at Week 4 of TNF and α4β7 Products versus GED-0301

Source: Stifel analysis, company reports * - Entyvio employed a clinical remission at week 6 as opposed to week 4 ** - GED-0301 Ph 1 results in 15 patients (no comparator) versus competitor Ph 3 results

GED-0301 Ph 1 results registered a 100% (15/15) clinical response after only 4-weeks of follow-up, which compares favorably to the 81% (22/27) clinical response in the Remicade Ph 3 program (see Exhibit 5).

Exhibit 5: Crohn’s Disease Clinical Response Rates at Week 4 of TNF and α4β7 Products versus GED-0301

Source: Stifel analysis, company reports * - Entyvio employed a clinical response at week 6 as opposed to week 4 ** - GED-0301 Ph 1 results in 15 patients (no comparator) versus competitor Ph 3 results


Favorable GED-0301 Toxicity Profile In the Ph 1 study, no serious adverse events were registered. In total, 25 adverse events occurred in 11 out of 15 patients, with the most common events reported as mild and most deemed unrelated to study drug (see Exhibit 6). We also note that there is low absorption of GED-0301 into the blood stream, which should minimize toxicity concerns; however, this may also create concerns regarding efficacy. In principle, GED-0301 does not require absorption into the bloodstream to achieve efficacy. GED-0301 is protected by an external coating, which allows the antisense to transit through the stomach and proximal small intestine and reach the terminal ileum and right colon where the active compound is released at the site of disease activity.

Exhibit 6: AEs Registered in 15 Patients Ph 1 Study

Source: American Society of Gene & Cell Therapy Ph 1 paper

We believe there is potential for GED-0301 to differentiate on safety versus TNF’s, which have a black box warning for risk of lymphoma and serious infection. However, we do note that Smad7 inhibition with GED-0301 may increase the risk of colitis-associated colorectal cancer; but this is strictly theoretical and further study is required to determine if such a risk exists. There is also a hypothetical risk of fibrosis with GED-0301.

Cohort 1 Cohort 2 Cohort 3

No. of events No. of events No. of events Grade

CD relapse 0 1 0 Mild Unlikely

Abdominal pain 0 0 2 Severe Unlikely

Vomiting 0 0 2 Severe Unlikely

Triglycerides and/or

cholesterol increased3 0 3 Mild

Not related (2)

Unlikely (2)

Probable (1)

Bilirubin increased 3 0 0 Mild Not related

Lymphocyte count

increased0 0 1 Mild Not related

Serum potassium

decreased1 0 0 Mild Not related

Urinary leukocyte count

increased1 0 1 Mild Not related

Urinary leukocyte esterases

count increased1 0 0 Mild Unlikely

Urinary tract infection 1 2 0 Mild Not related

Hypertension 0 1 0 Mild Not related

ECG alteration 0 1 0 Mild Unlikely

Rhinitis 1 0 0 Mild Unlikely

Assocation with

study drug


GED-0301 Ph 2 Crohn’s Disease Data Readout Represents a Significant Near-Term CELG Catalyst We expect to see disclosure of the GED-0301 Ph 2 study results in a major medical journal or medical meeting within 3-months, which provides a significant catalyst to share price. We believe the ACG medical conference in Philadelphia occurring October 17-22 is a probable venue for the presentation of results. We believe the size of the Ph 2 study with 166 patients is appropriate to assess GED-0301 efficacy with a high degree of confidence (see Exhibit 7 for trial design). One of the two Ph 3 Remicade trials used for approval was actually a single-dose trial in only 108 patients, which is smaller than the GED-0301 Ph 2 study. We note that administration of GED-0301 was only for 14-days; however, in the induction setting of Crohn’s disease, this is sufficient to assess efficacy as patients are presenting with active disease and the standard endpoint in Crohn’s disease trials is clinical response or clinical remission as measured by CDAI at week 4. We believe positive Ph 1 data, a “highly” competitive bidding process for rights to GED-0301, and a substantial upfront payment of $710M coupled with double-digit royalties implies that the Ph 2 data is highly efficacious, rapidly acting, and safe.

Exhibit 7: GED-0301 Ph 2 Study Design

Source: EU clinical trial registry


Potential for GED-0301 to enter a $6.8B Crohn’s Disease Market in 2018 Based on our projections, in 2018, GED-0301 would enter a $6.8B Crohn’s disease market and would compete with a differentiated profile (see Exhibit 8). We base our timeline estimate on previous competitor Ph 3 clinical programs. The maintenance setting of the Ph 3 program is the bottleneck for timelines; however, it is unclear if CELG will employ a 26-week primary endpoint as in the Cimzia Ph 3 program or employ a 56-week primary endpoint as in the Humira Ph 3 program. We estimate enrollment of 1,000+ patients into the GED-0301 Crohn’s disease Ph 3 program based on Humira and Cimzia, enrolling over 1,000 patients in their Ph 3 program. We also note that GED-0301 is not the first antisense oligonucleotide to seek approval as FDA approval of Kynamro (mipomersen) recently validated the drug platform. The first and only antisense drug approved by the FDA was Isis’s Kynamro in January 2013, a once-weekly subcutaneous injection to lower LDL for patients with homozygous familial hypercholesterolemia (HoFH).

Exhibit 8: GED-0301 Crohn’s Disease Approval Timeline and Coinciding Market Size



GED-0301 Differentiated in Competitive Landscape We see GED-0301 as differentiated in the competitive landscape due to its unique MOA and oral administration (see Exhibit 9 for competitive landscape). If GED-0301 is able to achieve long-term efficacy in the maintenance setting of its Ph 3 program (data in 2017), it has potential to further differentiate from TNF’s. While currently approved TNF’s such as Remicade offer a robust and rapid response, efficacy tends to dissipate over time. One factor contributing to the loss of TNF response over time is the development of anti-drug antibodies, an issue with high awareness in the gastroenterology community. Since GED-0301 is not an antibody, it lacks anti-drug antibody concerns. We expect the first α4β7, Takeda’s Entyvio, to receive approval in May, followed by Roche’s etrolizumab and Amgen/AstraZeneca’s AMG 181, which also target α4β7. These products differ from Tysabri by selecting only for α4β7 (gut specific) and not for α4β1 (CNS), which is hypothesized to cause the risk of PML. In contrast to TNF’s, α4β7’s tend to offer a slow response that increases over time, making it a less attractive therapy for induction therapy but more attractive in the maintenance setting. Since α4β7’s lack the TNF associated risk of lymphoma and response does not appear to dissipate over time, we expect the α4β7 class to successfully gain traction in the Crohn’s disease market.

Exhibit 9: Crohn’s Disease Competitive Landscape

Source: Company reports, clinicaltrials.gov

Product Lead Company Target Phase

Cimzia UCB SA (UCB:BB) TNF Approved

Entocort EC AstraZeneca PLC (AZN) Glucocorticoid Receptor Approved

Humira AbbVie Inc. (ABBV) TNF Approved

Remicade Johnson & Johnson (JNJ) TNF Approved

Tysabri Biogen IDEC, Inc. (BIIB) Integrin α4β7/α4β1 Approved

Entyvio Takeda (4502:JP) Integrin α4β7 BLA

Etrolizumab Roche Holding AG (ROG:VX) Integrin α4β7 3

Prochymal Mesoblast Limited (MBLTY) Stem Cells 3

RHB-104 RedHill Biopharma Ltd. (RDHL) Antibiotic 3

Stelara Johnson & Johnson (JNJ) IL-12/IL-23 3

GED-0301 Celgene Corporation (CELG) Smad7 Ph 3 ready

Alequel Enzo Biochem, Inc. (ENZ) Immune system 2b

AMG 181 AstraZeneca PLC (AZN) Integrin α4β7 2

BI 655066 Boehringer Ingelheim GmbH N/A 2

BMS-936557 Bristol-Myers Squibb (BMY) CXCL10/IP-10 2

CNDO-201 Coronado Biosciences, Inc. (CNDO) IL-4/ IL-3 2

GLPG0634 Galapagos NV (GLPYY) JAK/STAT 2

HMPL-004 Hutchison MediPharma TNF/IL-1/ NF-Kappa B/ IL-6 2

MEDI2070 AstraZeneca PLC (AZN) IL-23 2

NI-0401 NovImmune SA CD3 2

NN8555 Novo Nordisk A/S (NVO) T lymphocytes 2

NN8828 Novo Nordisk A/S (NVO) IL-21 2

PF-00547659 Pfizer Inc. (PFE) MAdCAM-1 2

PF-04236921 Pfizer Inc. (PFE) IL-6 2

Rifaximin-EIR Alfa Wassermann RNA polymerase 2

TNFa Kinoid Neovacs (ALNEV.FP) TNF-α 2

Tofacitinib Pfizer Inc. (PFE) JAK3 2

Xeljanz Pfizer Inc. (PFE) JAK/STAT 2

SGX203 Soligenix, Inc. (SNGX) Glucocorticoid Receptor 1/2

PF-06480605 Pfizer Inc. (PFE) Unknown 1

SAR252067 Sanofi (SNY) LIGHT 1


Crohn’s Disease Background Crohn’s disease is an inflammatory bowel disease, which causes inflammation of the digestive tract lining. Crohn’s disease affects any part of the gastrointestinal tract, from the mouth to anus. Crohn’s disease causes the wall of the gut to become thickened, inflamed, and swollen leading to ulceration, fistula formation and even perforation. Crohn’s disease usually occurs early in life, ~1/6

th of

patients present before the age of 15 often with severe disease, and the average age at diagnosis is 27 years. There is currently no cure for the disease and treatment focuses on controlling symptoms. Crohn’s disease is a chronic relapsing and remitting disease. This means patients will suffer periods when the disease flares up and causes symptoms, followed by periods of remission when a patient may not experience symptoms. When the disease is active, patients can suffer from persistent diarrhea, rectal bleeding, urgent need to move bowels, abdominal cramps and pain, sensation of incomplete evacuation, and constipation. The Crohn’s Disease Activity Index or CDAI is frequently used to assess disease severity and the therapeutic success of drugs in clinical trials. Nearly every major clinical trial involving therapeutic intervention utilizes CDAI as an outcome, providing an objective “gold-standard” scale. We outline the components of the CDAI in Exhibit 10.

Exhibit 10: Components and Scoring of the CDAI

Source: Gastro.org We estimate a 2013 U.S. prevalence of Crohn’s disease at ~600K Americans. Approximately 13% of Crohn’s disease patients have chronically active disease, 73% have a chronic intermittent course, and only 10% remain in remission over many years. Up to 57% of all patients require at least one surgical resection, indicating a high percentage of patients have moderate-to-severe disease severity at some point in their disease course.

Clinical or laboratory variable Weighting factor

Number of liquid or soft stools each day for seven days 2x

Abdominal pain (graded from 0-3 on severity) each day for seven days 5x

General well-being, assessed from 0 (well) to 4 (terrible) daily for seven days 7x

Presence of complications* 20x

Taking diphenoxylate/atropine, loperamide, or opiates for diarrhea 30x

Presence of an abdominal mass (0 as none, 2 as questionable, 5 as definite) 10x

Hematocrit of less than 0.47 in men and less than 0.42 in women 6x

Percentage deviation from standard weight 1x

Total Score* - One point each is added for each set of complications: Arthralgias or arthritis, iritis or uveitis, anal fissures, fistulae

or abscesses, other fistulae, erythema nodosum, pyoderma gangrenosum or aphthous ulcers, fever during the

previous week


Crohn’s Disease Treatment

Induction setting: treatment of active disease such as a flare, in order to induce remission

Maintenance setting: treatment to maintain remission, after remission

is induced (represents the majority of sales for our market size estimates)

Crohn’s disease treatment consists of a step-up pyramid approach coupled with assessment of disease severity. Anti-inflammatory drugs are the first step in the treatment of Crohn’s disease. For mild disease, 5-ASA drugs such as sulfasalazine or mesalamine are often the first treatment but their efficacy is controversial as a 2011 meta-analysis showed failure to achieve remission with 5-ASAs was 68% versus 75% with placebo. Side effects include nausea, headache, fever, rash, pancreatitis, and pneumonitis. Antibiotics can prove effective in the treatment of Crohn’s disease and are often recommended for patients who do not tolerate or do not improve within 3-4 weeks with 5-ASAs. We believe antibiotics can help reduce the amount of drainage and heal fistulas and abscesses in people with Crohn’s disease. We also believe that antibiotics can help reduce harmful intestinal bacteria and suppress the intestine’s immune system. The most prescribed antibiotics in Crohn’s disease are metronidazole and ciprofloxacin. For moderate-to-severe disease, corticosteroids are often necessary and exhibit an impressive 60-80% response within 10 to 14 days but not without limitations. Side effects include puffy face, night sweats, insomnia, high blood pressure, diabetes, osteoporosis, bone fractures, cataracts, glaucoma and an increased susceptibility to infections. Steroids are also limited to short-term use in order to induce remission and are not favorable for maintenance therapy. Immune system suppressors and TNF’s are often used for 3

rd line therapy and

beyond. The most widely used immunosuppressants are azathioprine, mercaptopurine, and methotrexate. These drugs are often prescribed in patients who are steroid refractory and are associated with increased susceptibility to infections. These treatments are often prescribed in combination with TNF’s such as infliximab or adalimumab. However, TNF’s further the risk of infection and also carry a long-term risk of lymphoma. Although TNF response is rapid, it dissipates over time.


Target Price Methodology/Risks

Our primary valuation analysis using PEG ratios yields a $185 12-monthtarget price. We derive our 12-month target price by multiplying a peer-groupmedian P/E to Growth (PEG) ratio by our projected 5-year EPS cumulative annualgrowth rate (CAGR) projection. We then apply this resulting P/E ratio to ourprojected next 12 months fully diluted non-GAAP EPS estimate. For CELG, a 0.93xPEG multiplied by our long-term (2013-2018) growth rate of 23.7% yields a 22.0xmultiple. We apply this multiple to our next 12-month diluted EPS estimate of $8.42to derive a 12-month target price of $185.

Risks:Clinical and Regulatory Setbacks to Key Pipeline Products.Failure to meet our revenue estimates.

Company Description

Celgene (CELG) is an integrated global biopharmaceutical company engagedprimarily in the discovery, development and commercialization of novel therapiesfor the treatment of cancer and inflammatory diseases through gene and proteinregulation. Celgene's key marketed products include Revlimid, Pomalyst, Abraxane,Istodax, Vidaza, and Thalomid.


Stifel

2013-2016 2013-2017 2013-2018

Joel Sendek 212-271-3867 3yr EPS 4yr EPS 5yr EPS

CAGR CAGR CAGR

20% 26% 24%

2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E

1QA 2QE 3QE 4QE

Revlimid WW $ 3,208 $ 3,767 $ 4,280 $ 1,144 $ 1,217 $ 1,259 $ 1,321 $ 4,940 $ 5,789 $ 6,603 $ 7,571 $ 8,177

U.S. 1,830 2,151 2,489 642 703 728 752 2,824 3,305 3,829 4,409 4,761

ex-U.S. 1,378 1,616 1,791 502 514 531 569 2,116 2,484 2,774 3,163 3,416

Abraxane WW 386 426 649 185 206 222 234 847 1,164 1,373 1,675 1,887

U.S. 321 333 505 142 159 169 178 674 909 1,072 1,308 1,465

ex-U.S. 65 93 144 43 47 52 56 173 255 301 367 422

Vidaza WW 705 823 826 148 149 150 155 602 698 741 782 774

U.S. (1) 304 327 298 15 10 7 6 38 30 27 28 29

ex-U.S. 401 496 528 134 139 143 149 565 668 714 754 745

Thalomid WW 339 302 245 58 51 46 41 196 164 151 143 135

Istodax WW 31 50 54 16 18 20 21 75 86 106 122 134

Pomalyst WW 305 136 162 196 241 735 1,212 1,600 1,957 2,192

Otezla (Apremilast) WW 23 48 77 148 481 1,034 1,613 2,146

U.S. 23 48 77 148 378 726 1,116 1,488

ex-U.S. 103 308 497 658

GED-0301 WW 223

Other Product Sales 4 17 - 21 22 23 24 90 97 106 111 112

Total Product Sales 4,673 5,385 6,362 1,708 1,848 1,964 2,113 7,633 9,691 11,714 13,974 15,780

Other Revenue 141 121 132 23 30 29 37 118 110 100 97 97

Total Revenue 4,814 5,506 6,494 1,730 1,878 1,993 2,150 7,751 9,801 11,815 14,071 15,876 1,812 1,901 1,999 2,090 7,802 9,555 11,535 13,732

COGS 303 288 322 80 99 100 126 405 494 586 685 773

Gross Income 4,511 5,218 6,171 1,650 1,779 1,893 2,024 7,346 9,306 11,229 13,386 15,103

R&D 1,240 1,310 1,506 358 398 415 453 1,624 2,082 2,398 2,792 3,150

SG&A 1,099 1,257 1,522 418 448 460 484 1,810 2,156 2,481 2,778 3,134

Total operating expenses 2,642 2,855 3,350 856 945 975 1,063 3,839 4,732 5,465 6,254 7,057

Operating Income 2,172 2,651 3,144 875 933 1,018 1,087 3,912 5,068 6,349 7,817 8,819

Other income (expense), net (23) (65) (64) (30) (12) (12) 5 (48) (32) (30) (28) (28)

Pretax Income 2,148 2,586 3,081 845 921 1,006 1,092 3,864 5,036 6,319 7,789 8,792

Income tax provision 395 424 518 140 147 181 197 665 856 1,074 1,324 1,451

Net Income 1,753 2,162 2,563 704.9 774 825 896 3,199 4,180 5,245 6,465 7,341

EPS, basic (2)(4) 3.85 5.02 6.19 1.74 1.92 2.08 2.27 8.00 10.42 13.02 15.92 18.04

EPS, diluted (2)(3)(4) 3.79 4.91 5.96 1.67 1.83 1.96 2.14 7.60 9.95 12.40 15.25 17.27

2 2 2 2 7 10 12 15 16

Shares, basic (M) 455 431 414 406 402 397 394 400 401 403 406 407

Shares, diluted (M) 463 441 430 423 422 420 419 421 420 423 424 425

Balance sheet items

Cash & equivalents 2,648 3,900 5,687 5,110

Long-term debt 1,276 2,771 4,741 4,224

Expense/Margin Analysis

COGS (% of product sales) 6.5% 5.4% 5.1% 4.7% 5.4% 5.1% 5.9% 5.3% 5.1% 5.0% 4.9% 4.9%

R&D (% of revenue) 25.8% 24.3% 23.7% 20.7% 21.2% 20.8% 21.1% 21.3% 21.5% 20.5% 20.0% 20.0%

SG&A (% of revenue) 22.8% 23.3% 23.9% 24.2% 23.9% 23.1% 22.5% 23.7% 22.2% 21.2% 19.9% 19.9%

Tax Rate 18.4% 16.4% 16.8% 16.6% 16.0% 18.0% 18.0% 17.2% 17.0% 17.0% 17.0% 16.5%

Gross Margin 93.5% 94.8% 95.0% 95.3% 94.6% 94.9% 94.2% 94.8% 95.0% 95.0% 95.1% 95.1%

Operating Margin 45.1% 48.1% 48.4% 50.5% 49.7% 51.1% 50.6% 50.5% 51.7% 53.7% 55.6% 55.5%

Pretax Margin 44.6% 47.0% 47.4% 48.8% 49.0% 50.5% 50.8% 49.9% 51.4% 53.5% 55.4% 55.4%

Net Margin 36.4% 39.3% 39.5% 40.7% 41.2% 41.4% 41.7% 41.3% 42.6% 44.4% 45.9% 46.2%

% Change Y/Y

Revlimid 29.9% 17.4% 13.6% 14.0% 15.7% 15.5% 16.3% 15.4% 17.2% 14.1% 14.7% 8.0%

Vidaza 32.0% 16.7% 0.3% -27.3% -29.4% -31.8% -18.8% -27.1% 15.9% 6.2% 5.5% -1.0%

Abraxane 440.3% 10.5% 52.3% 50.2% 33.1% 30.3% 15.6% 30.4% 37.5% 18.0% 22.0% 12.7%

Total Revenue 33.7% 14.4% 17.9% 18.1% 17.5% 19.0% 22.4% 19.4% 26.4% 20.5% 19.1% 12.8%

R&D 35.1% 5.6% 15.0% 8.5% 15.5% 11.7% -1.5% 7.9% 28.2% 15.2% 16.4% 12.8%

SG&A 30.5% 14.4% 21.0% 25.4% 16.7% 13.7% 20.9% 18.9% 19.1% 15.1% 12.0% 12.8%

Total Operating Expenses 31.7% 8.1% 17.3% 15.5% 17.3% 13.9% 12.2% 14.6% 23.3% 15.5% 14.4% 12.8%

EPS 35.7% 29.5% 21.6% 21.9% 20.6% 25.9% 41.1% 27.4% 30.9% 24.6% 23.0% 13.3%

(1) Includes sales from authorized generics starting in 4Q:13

(2) Non-GAAP, excluding stock option expenses

(3) As of December 31, 2012 Celgene had 42.6M options oustanding at a weighted average exercise price of $58.31

(4) Repuchased 7.5M shares in 4Q12, and as of December 31, 2012, Celgene has $1.800B remaining in its existing repurchase program

Source: Company reports and Stifel estimates

Celgene (CELG)

Income Statement, non-GAAP

($ in M except EPS)


Important Disclosures and Certifications

I, Joel D. Sendek, certify that the views expressed in this research report accurately reflect my personal viewsabout the subject securities or issuers; and I, Joel D. Sendek, certify that no part of my compensation was, is,or will be directly or indirectly related to the specific recommendations or views contained in this researchreport. For our European Conflicts Management Policy go to the research page at www.stifel.com.

Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q230

60

90

120

150

180

2012 2013 2014

07/19/11B:$74

10/28/11B:$76

11/29/11NR:NA

03/14/12B:$87

06/21/12B:$84

11/12/12B:$86

12/18/12B:$89

01/08/13B:$98

01/23/13B:$108

03/01/13B:$116

04/01/13B:$127

04/25/13B:$135

07/11/13B:$142

07/25/13B:$160

10/24/13B:$180

12/19/13B:$185

Rating and Price Target History for: Celgene Corporation (CELG) as of 05-02-2014

Created by BlueMatrix

Rating Key

B - Buy UR - Under Review

H - Hold NR - No Rating

S - Sell NA - Not Applicable

I - Initiation RS - Rating Suspended

D - Dropped

For a price chart with our ratings and target price changes for CELG go tohttp://sf.bluematrix.com/bluematrix/Disclosure?ticker=CELG

Prior to March 14, 2012, a different Stifel research analyst provided research coverage of Celgene Corporation and itssecurities. Celgene Corporation's price chart for the period prior to March 14, 2012 reflects the rating and price targethistory of the former Stifel research analyst for such issuer and its securities.

Stifel makes a market in the securities of Celgene Corporation.

Stifel research analysts receive compensation that is based upon (among other factors) Stifel's overall investmentbanking revenues.

Our investment rating system is three tiered, defined as follows:

BUY -For U.S. securities we expect the stock to outperform the S&P 500 by more than 10% over the next 12 months.For Canadian securities we expect the stock to outperform the S&P/TSX Composite Index by more than 10% over thenext 12 months. For other non-U.S. securities we expect the stock to outperform the MSCI World Index by more than10% over the next 12 months. For yield-sensitive securities, we expect a total return in excess of 12% over the next 12months for U.S. securities as compared to the S&P 500, for Canadian securities as compared to the S&P/TSXComposite Index, and for other non-U.S. securities as compared to the MSCI World Index.

HOLD -For U.S. securities we expect the stock to perform within 10% (plus or minus) of the S&P 500 over the next 12months. For Canadian securities we expect the stock to perform within 10% (plus or minus) of the S&P/TSX CompositeIndex. For other non-U.S. securities we expect the stock to perform within 10% (plus or minus) of the MSCI WorldIndex. A Hold rating is also used for yield-sensitive securities where we are comfortable with the safety of the dividend,but believe that upside in the share price is limited.

SELL -For U.S. securities we expect the stock to underperform the S&P 500 by more than 10% over the next 12months and believe the stock could decline in value. For Canadian securities we expect the stock to underperform theS&P/TSX Composite Index by more than 10% over the next 12 months and believe the stock could decline in value.For other non-U.S. securities we expect the stock to underperform the MSCI World Index by more than 10% over thenext 12 months and believe the stock could decline in value.


http://www.stifel.com

http://sf.bluematrix.com/bluematrix/Disclosure?ticker=CELG

Of the securities we rate, 48% are rated Buy, 50% are rated Hold, and 2% are rated Sell.

Within the last 12 months, Stifel or an affiliate has provided investment banking services for 20%, 9% and 0% of thecompanies whose shares are rated Buy, Hold and Sell, respectively.

Additional Disclosures

Please visit the Research Page at www.stifel.com for the current research disclosures and respective target pricemethodology applicable to the companies mentioned in this publication that are within Stifel's coverage universe. For adiscussion of risks to target price please see our stand-alone company reports and notes for all Buy-rated stocks.

The information contained herein has been prepared from sources believed to be reliable but is not guaranteed by usand is not a complete summary or statement of all available data, nor is it considered an offer to buy or sell anysecurities referred to herein. Opinions expressed are subject to change without notice and do not take into account theparticular investment objectives, financial situation or needs of individual investors. Employees of Stifel or its affiliatesmay, at times, release written or oral commentary, technical analysis or trading strategies that differ from the opinionsexpressed within. Past performance should not and cannot be viewed as an indicator of future performance.

Stifel is a multi-disciplined financial services firm that regularly seeks investment banking assignments andcompensation from issuers for services including, but not limited to, acting as an underwriter in an offering or financialadvisor in a merger or acquisition, or serving as a placement agent in private transactions. Moreover, Stifel and itsaffiliates and their respective shareholders, directors, officers and/or employees, may from time to time have long orshort positions in such securities or in options or other derivative instruments based thereon.

These materials have been approved by Stifel Europe Limited, authorized and regulated by the Financial ConductAuthority (FCA) in the UK, in connection with its distribution to professional clients and eligible counterparties in theEuropean Economic Area. (Stifel Europe Limited home office: London +44 20 7557 6030.) No investments or servicesmentioned are available in the European Economic Area to retail clients or to anyone in Canada other than aDesignated Institution. This investment research report is classified as objective for the purposes of the FCA rules.Please contact a Stifel entity in your jurisdiction if you require additional information.

Additional Information Is Available Upon Request

© 2014 Stifel, Nicolaus & Company, Incorporated, One South Street, Baltimore, MD 21202.© 2014 Stifel Nicolaus Canada Inc. 79 Wellington Street West, 21st Floor Toronto, ON M5K 1B7.All rights reserved.


http://www.stifel.com

celg 301 market opportunity note

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