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Executives

David Gryska – CFO

Sol J. Barer, Ph.D. – Chairman and CEO

Robert J. Hugin – President and COO

Analysts

Geoffrey Meacham – JPMorgan

Eun Yang – Jeffries

[Yoram Gerber] – Citigroup

John Sonnier – William Blair

Michael Aberman – Credit Suisse

[Jim Butchenel – Unidentified Company Name]

Rachel McMinn – Cowen & Company

[Maged Shinuda ] – UBS

Maykin Ho – Goldman Sachs

[Dave] – Morgan Stanley

Celgene Corporation (CELG) Q4 2008 Earnings Call Transcript January 29, 2009 11:00 AM ET

Operator

Good morning. My name is Kevin and I will be your conference operator today. At this time I would like to remind you that today's call is being recorded, and I would like to welcome you to the Celgene quarterly conference call. At this time I will turn things over to David Gryska, Chief Financial Officer. Please go ahead, sir.

David Gryska

Good morning, everyone, and thank you for joining us today. I am Dave Gryska, Celgene's Chief Financial Officer, and I would like to welcome you to Celgene's year-end conference call for 2008. With me are Celgene's Chairman and Chief Executive Officer Sol Barer, and President and Chief Operating Officer Bob Hugin.

The press release reporting our fourth quarter and yearend financial operating results was issued earlier this morning. It is also available on a corporate website. Dr. Barer will start the call with an overview of accomplishments and a strategic outlet for 2009 and beyond. I will take you through our financial results from 2008 and our financial outlook for 2009, and then Bob will review our operational and commercial results from 2008 and share with you his perspective on our operational and commercial prospects moving forward.

Before we start, we want to remind you that certain statements made during this conference call may be forward looking statements within the meaning of Section 27(A) of the Securities Act of 1933, and within the meaning of Section 21(E) of the Securities Act of 1934. Certain forward looking statements which involve known and unknown risks, delays, uncertainties, and other factors not under our control, may cause actual results, performance, or achievements, to be materially different from the results, performance, or other expectations implied by these forward looking statements. These factors include the results of current or pending clinical trials, research, and activities, our products' failing to demonstrate efficacy, or an acceptable safety profile. Actions by the FDA, EMEA, and/or other US or international regulatory bodies, the financial conditional suppliers, including their solvency and ability to supply product, and other factors detailed in our filings with the Securities and Exchange Commission such as our form 10(K), 10(Q), and AK reports, are referred to in this press release issued this morning. Now I will turn the call over to Sol.

Sol J. Barer

Thanks, Dave. Good morning, everyone, and thank you for joining us on our fourth quarter and year end conference call. 2008 was an exceptional year for Celgene, as we continued to build a major global biopharmaceutical company, indeed a preeminent company focused on the discovery, development, and commercialization of our science creating innovative treatments for cancer and serious immune inflammatory disease.

We made extraordinary progress this past year. We delivered impressive financial results, we significantly grew our global hematology business with record revenues, our acquisition of Pharmion, our continued global expansion, the advancement of our clinical programs, and the strengthening of our earliest stage pipeline via our internal R&D and exciting collaborations.

I will make a few points regarding this past year, 2009, and the longer term. First, from a financial perspective, our total revenue in 2008 increased 59-percent to over $2.2 billion, driven by significant growth in REVLIMID to $1.32 billion, and VIDAZA revenues of $207 million.

Our adjusting EPS grew to $1.56 and we ended the year with approximately $2.2 billion in cash. Dave will provide significantly more year and the quarter.

Second, from a strategic perspective, we made an important step forward in 2008 in our evolution with the acquisition of Pharmion. Rapidly integrating their excellent people and their commercial, financial, and clinical assets, to create a seamless organization that brings together REVLIMID, VIDAZA, and the global thalidomide franchise.

These important therapies that extend survival for patients with serious hematological malignancies are now together in one company. This was done while growing our business in dozens of countries, and advancing our pipeline and research and development programs. Bob will provide additional perspectives on this.

Third, our commercial progress was significance. Our vision for REVLIMID is to make it the leading global brand for hematological malignancies, and indeed, REVLIMID became the global leader in multiple myeloma in 2008, with strong growth both in the United States and overseas. Driven by increasing number of patients, duration of therapy, market share, and its global expansion to more than 55 countries.

REVLIMID's performance to date has been extraordinary. It has been one of the fastest growing hematology oncology drugs, but this is really just the beginning. REVLIMID's unique mechanism of action and clinical profile position it to have an unusual breadth of activity in a large number of malignancies and indeed this is being aggressively pursued. There are multiple studies ongoing into currently unserved indications because REVLIMID is long-term maintenance and myeloma, a potentially game changing indication, smoldering myeloma, and pivotal trials and maintenance therapy in chronic lymphocytic leukemia, newly diagnosed myeloma, previously untreated chronic lymphocytic leukemia and methyl cell lymphoma.

Looking ahead, we currently have initiated, or in the process of initiating, several dozen trials in non-Hodgkin's lymphoma and chronic lymphocytic leukemia alone, and are investigating a range of additional trials.

Our breakthrough products for patients with MVS, VIDAZA, was relaunched in the US with a new label that incorporates the drugs unprecedented survival benefit. VIDAZA was approved in the European Union for MDS and AML in late December, making it the first drug ever approved in Europe for MDS. Bob will provide more detail on our progress for both REVLIMID and VIDAZA.

Fourth point is our pipeline progress. We continue to deepen and diversify our pipeline towards developing therapeutics for important unmet medical needs. This includes our proprietary image category of oral compounds with multiple and unique mechanisms of action. Notable is Pomalidomide the most potent of all of the IMiD compounds to date, which demonstrated significant and unique clinical activity in multiple myeloma and in myelofibrosis. You will hear more about this from Bob.

We also continued to advance our antiinflammatory franchise with our lead compound Apremilast, currently being evaluated in psoriasis, psoriatic arthritis, and multiple other indications. We expect top line data beginning this year and based on these trials, expect to initiate a pivotal program to enter this billion dollar plus market.

We also made significant advances in our early stage pipeline, including our stem cell and our various kinase programs. Additional, we are partnering with companies with cutting edge science, accessing unique, power, potentially truly breakthrough therapies, in our strategic areas of focus.

Fifth, as we look into 2009, we will continue to build on 2008's momentum, setting the stage for sustained growth over the next five years. In 2009 we expect our revenues to be in the $2.6 to $2.7 billion range, with REVLIMID approximately $1.7 billion, based on continued growth and myeloma and MDS.

We expect our earnings per share to grow to the $2.05 to $2.15 range, an increase of approximately 35% with cash flow from operations of more than $1 billion in 2009. Dave will provide additional detail on our financial assumptions for 2009.

In addition, we anticipate the year to be quite eventful, encompassing the continued global expansion of REVLIMID and VIDAZA, regulatory progress with REVLIMID, the NDA submissions for REVLIMID and in multiple myeloma and MDS in Japan.

By the way, Japan is the second largest oncology market after the United States.

Top line results for Apremilast in psoriasis, initiation of additional REVLIMID pivotal trials in CLL and NHL, important data at major medical meetings encompassing REVLIMID, especially as a breakthrough maintenance therapy and in combination with antibodies, VIDAZA, the initiation of additional REVLIMID studies, including a potential pivotal program in a solid tumor, results from collaborative agreements, the first clinical safety and tolerability results for our proprietary stem cells and additional potential milestones.

My sixth point is the next five years. We envision ourselves as being in three major franchises; hematology, oncology, and immuno inflammatory. We see REVLIMID as being the number one global brand for hematologic (inaudible).

We see ourselves as having product revenues of approximately $5 billion, producing earnings with a compound annual growth of approximately 25 to 30% per year. We see ourselves as having diversified products encompassing small molecules, biologics, and cellular therapeutics. We see ourselves as being productive in our research internally, and in partnerships with companies having cutting edge science leading to breakthrough molecules in areas strategic to Celgene.

It is important to note that the operational and financial results that we reported today are exceptional in a normal global economy, and are especially noteworthy given the current global economic environment. Indeed, even under these conditions we see a very positive 2009 and an even more promising five year outlook.

In summary, we delivered exceptional operational and financial results. We strengthen our global hematology franchise. We delivered our unique science and innovative therapies to more than 65 countries. We advanced multiple clinical programs to maximize our global commercial potential. We expanded our groundbreaking research of next generation therapies. We acquired and integrated Pharmion, we have expanded our gross profit margin, and improved our tax rates.

All of these accomplishments and more, fortify our prospects for a bright future. Most importantly as always, we are fully committed to improving the lives of patients worldwide. We remain focused on a global population that continues to age where there are diseases such as blood cancers which are increasingly prevalent. And with the global needs of patients, their families, and their physicians, continue to expand.

I will now turn the call over to our Chief Financial Officer, David Gryska.

David Gryska

Thanks, Sol. 2008 was another great year in which Celgene delivered record operating performance. despite challenges from their global economic environment and foreign currency headwinds, total non-GAAP revenue increased to a record $2.2 billion. This increase was driven primarily by exceptional growth from our REVLIMID franchise and from the addition of VIDAZA to our product portfolio.

We continue to see substantial gains in market share for REVLIMID due to increases in treatment duration and a successful European launch. In the fourth quarter, REVLIMID became the global myeloma market leader. Non-GAAP net income for the fourth quarter was 201 million, and non-GAAP earnings per share was $0.43. Non-GAAP net income for 2008 was a record 719 million, and non-GAAP earnings per share increased to $1.56.

Now I would like to discuss some expense trends as compared to the prior quarter. During the fourth quarter, non-GAAP R&D expense was 154 million as compared to 150 million for the third quarter. Even though R&D expense was somewhat flat quarter-over-quarter, due to the timing of certain clinical trials, we expect R&D expense to increase in a range of 10 to 15% in 2009.

We will continue to provide significant support to our R&D efforts of 2009 as we seek to advance a very deep and diverse product pipeline. We are making significant progress with key proprietary development programs including REVLIMID and multiple myeloma, smoldering myeloma, newly diagnosed and maintenance therapy, as well as in NHL and CLL.

Our non-GAAP selling, general, and administrative expenses, increased to $182 million during the fourth quarter as compared to 152 million during the third quarter of 2008. This increase was primarily due to support launch activities for VIDAZA and increase patient co pay programs in the US.

For the full year 2008, non-GAAP SG&A expenses were 626 million. We expect SG&A expenses in 2009 to increase slightly as compared to 2008, and the first quarter of 2009, SG&A expense to be less than the fourth quarter of 2008.

It is important to note that we had approximately 30 million in onetime Pharmion integration expenses in 2008, and most of these expense related to SG&A. All integration activities are now complete. We expect no integration expenses in 2009.

Our non-GAAP gross margin for 2008 was approximately 89-percent, and we expect expansion in gross margin primarily due to a change in product mix and the buyout of the royalty related to international VIDAZA sales as we reported in the fourth quarter.

We are forecasting a gross margin of better than 90-percent in 2009.

Turning to taxes, our tax rate in 2008 was approximately 24%. We anticipate an improvement in the tax rate to approximately 23% for 2009 and a further improvement in the tax rate for 2010.

Now I would like to discuss foreign exchange. As many of you know, the dollar strengthened significantly as compared to the Euro in the fourth quarter of 2008. The sequential negative impact of foreign exchange on fourth quarter 2008 revenues, represents about 3.5% of total revenue.

For the fourth quarter, we had a positive outcome from hedging outcomes which is reflected as a reduction in expense and an increase in other income for the fourth quarter. We hedge our balance sheet foreign currency exposures, intercompany foreign currency transactions and exposures related to the Euro based on revenue and expense.

For 2009, we are hedging approximately 60 to 70% of our Euro net foreign earnings exposure over a rolling 12 month period. Based on the hedging programs in place, our goal is to minimize the impact to EPS for (inaudible 00:19:30) for our 2009 forecast.

Now a few words about our balance sheet. We ended 2008 with cash, cash equivalents, and marketable securities, of $2.2 billion. We continue to invest in high grade US government and government agency securities and money market funds. We expect to generate approximately 1 billion from global operations in 2009. We view our strong cash position as an important strategic asset, particularly in the current economic environment. Our strong balance sheet, with no debt, provides us with the resources and flexibility to achieve our goal of becoming a leading global hematology oncology company.

Our capital expenditures for 2009 are expected to be approximately 60 to 70 million. For 2009, we expect total revenue to increase approximately 20% versus 2008 levels to a range of 2.6 to 2.7 billion. We expect revenue product sales in 2009 to increase approximately 1.7 billion, driven by our efforts to expand the worldwide commercial potential of product, continue global market share gains, and longer treatment durations.

That said, we anticipate approximately 95-percent of the REVLIMID product mix in the US will be generated for multiple myeloma and MDS indications similar to 2008. Also, we anticipate that VIDAZA sales will nearly double to approximately 400 million.

In addition, our 2009 revenue guidance includes global thalidomide sales and despite a decrease in US Thalidomide sales, this franchise remains an important part of our 2009 forecast.

Furthermore, our 2009 total revenue forecast assumes international revenue of approximately 35 to 40%. To appropriately compare total revenue for 2008 to 2009, it is important to note that as a result of the strengthening dollar compared to the Euro over the past six months, our 2009 revenue forecast was negatively impact by over $100 million.

In addition, as of March 31, we will no longer commercialize Alkeran, due to the conclusion of our agreement with GlaxoSmithKline. Revenues for Alkeran were 82 million in 2008, and we expect a $50 million reduction in these product revenues in 2009.

We anticipate that non-GAAP diluted earnings per share will increase approximately 35% in a range of $2.05 to $2.15 in 2009.

So, in conclusion, we believe the aggressive global expansion of our hematology and oncology franchise, characterized by multiple product launches in various countries, combined with significant operating leverage in the form of synergies from the Pharmion acquisition, improving gross margins, and tax rate, should facilitate significant bottom line growth in 2009 and beyond.

Now I will turn the call over to our President and Chief Operating Officer, Bob Hugin.

Robert J. Hugin

Thanks, Dave. The 2008 results were outstanding, both in terms of delivering excellent top and bottom line results, and positioning us well for continued strong growth in 2009. Celgene teams in all functions and regions contributed to these exceptional results, which position us well for meeting or exceeding our key 2009 corporate objectives.

Let me give you my perspective on a number of key events and accomplishments that contributed to these successes. It was no accident that REVLIMID became the global multiple myeloma market leader in 2008. The unique and meaningful activity of a molecule, the exceptional clinical data, and the superb medical and commercial execution, has led to its overall success, and positioned us well for significant further growth in myeloma in 2009.

REVLIMID has strengthened its market leading position in the United States during 2008, driven by market share and duration gains. REVLIMID's overall multiple myeloma market share increased by 30 to 35% last year. Year-over-year prescriptions grew by more than 50% with total patients treated up by nearly 35%. Sequentially, myeloma prescriptions grew by about 7.5% over the third quarter, reflecting strong post (inaudible 00:24:15) December prescription trends.

REVLIMID's ability to produce durable disease control has led to significant increases in the average number of cycles per patient. Average duration increased every quarter in 2008 with average duration exceeding 10 months at year end, a greater than 25% increase from the prior year.

The progress achieved in Europe in 2008 was no less impressive. We are now launched with pricing and reimbursement in all major markets in Europe, excluding the United Kingdom where we are expecting a near term decision from Nice (ph) regarding its support for REVLIMID's reimbursement, and are now expanding into central Europe.

Though we have been on the market in many European countries for only about a year post pricing and reimbursement approvals, market shares have grown dramatically. Our market share in the developed markets in second-line myeloma is estimated to have doubled to approximately 20%, while our third-line market share has increased to nearly 40% of the treatable market.

Importantly, duration has also begun to advance in several countries in line with the US experience. These countries increased in 2008 by about 40% to approximately seven months, very positive results with significant upsides yet to be achieved.

Substantial opportunity remains in the myeloma markets in both the United States and European markets, with the additional benefit of continued expansion into meaningful international territories including Japan, Canada, Australia, and others.

Clinical data remains the key element in the success of any cancer drug. Our optimism on the growth potential of REVLIMID and myeloma, and other indications is based on the continuing flow of new and updated data. Let me quickly review some of the key results presented at this past December's American Society of Hematology Meeting.

Celgene products were featured in over 150 abstracts, including 41 oral presentations, with myeloma data highlighted in 21 oral presentations and 54 poster presentations. Updated survival data was presented in both the newly diagnosed and the previously treated patient segments with unprecedented three year survival rates in up front patients, and greater than 35 month overall survival in the previously treated population, the longest survival data ever presented in previously treated myeloma patients.

Additionally, as we advance the penetration of REVLIMID in myeloma, the distinct subsets of patients become increasingly important to maximize market share. Data on multiple subsets of patients were presented to enable more refined individual patient treatment strategies. Important data was presented in poor prognostics of the genetic subsets, and patients with renal insufficiency.

We are optimistic that as this data is published and disseminated, patient care in these subsets will improve.

We are also investing heavily in REVLIMID's future in myeloma, especially in a newly diagnosed maintenance settings. Important cooperative group trials in both the US and Europe examining REVLIMID's potential as a maintenance therapy post transplant, have either fully accrued, or are rapidly accruing, with data expected as early as late this year.

Our Phase III 1,590 patient MM0-20 trial, also known as the first trial comparing Revdex (ph) versus MPT, Melphalan, Prednisolone, Thalidomide, in newly diagnosed multiple myeloma patients, is moving forward expeditiously, with upwards of 800 patients expected to be enrolled this year.

With over 4,000 myeloma patients either enrolling or plan to be enrolled in Phase III REVLIMID trials. We expect to see a continued flow of new and updated REVLIMID data in the coming years.

Regulatory label expansions are also an important component of the REVLIMID growth story. Updated data from the MM009 and MM010 trials, the trials that supported the current myeloma approvals, are being submitted to insure that the latest available survival data are included in the package insert.

We are hopeful that in 2009 we will make significant progress in advancing our efforts to expand the existing myeloma label to include newly diagnosed myeloma. We have worked hard to assemble the ECOG and SWOG data to ascertain whether it can withstand regulatory scrutiny, and expect to review this data with the FDA in the near term.

Our Phase III, newly diagnosed multiple myeloma trial MM015, examining MPR, Melphalan, Prednisolone, and REVLIMID, versus Melphalan and Prednisolone, completed patient accrual last summer, and there is an expectation of data this year that if positive, could also lead to regulatory action in the European Union and the United States.

Additionally, we're on track for myeloma reimbursement action in Canada and Australia in the first half of this year. We also expect to file a REVLIMID myeloma application in Japan this summer, followed shortly thereafter by del (ph) 5Q MDS.

Though myeloma remains an important component of our REVLIMID growth strategy, it is in no way the most significant aspect of the growth story. We are encouraged by the progress our team responsible for advancing our REVLIMID strategy in CLL, chronic lymphocytic leukemia, has been making, especially in the second half of last year.

We have now obtained two special protocol assessment agreements with the FDA for pivotal Phase III trials. The first trial, known as CONTINUUM, was initiated last fall, and examines REVLIMID as a maintenance therapy following second line treatment. This 680 patient trial will be a global study.

The second study, titled the Origin trial, which we'll initiate shortly, will also be a global study, comparing REVLIMID to Chlorambucil in 428 previously untreated elderly CLL patients.

At last, eight REVLIMID CLL abstracts, including three oral presentations, were reported. The data illustrated REVLIMID's activity in a range of CLL patients including previously untreated, relapsed refractory, and those with poor prognostic factors, very encouraging data, especially in the previously untreated population. A greater than 90% disease control result was observed in two Phase II trials.

Multiple peer-reviewed publications also led to the drug deck's compendia listing of REVLIMID as a potential therapy for CLL.

Through more than 35 Celgene sponsored cooperative group and investigator initiated trials, we are expanding our knowledge of REVLIMID's potential usefulness in a wide range of combination therapies and disease states in CLL.

Along with CLL, non-Hodgkin's lymphoma, and lymphomas broadly are a key development target for Celgene. At ASH, a wide range of data demonstrating REVLIMID's activity both as a single agent in combination with Rituximab in various subtypes, including diffused large B cell lymphomas, mantle cell lymphoma, indulin, and Hodgkin's lymphoma, was presented.

Based on these datasets and others previously reported or published, we have developed a strategy to optimize the clinical regulatory and commercial potential of REVLIMID in lymphomas.

Our first FDA trial, Emerge, is currently initiating. It studies REVLIMID in the relapsed refractory mantle cell lymphoma indication. The Emerge trial is designed to gain regulatory approval in the US while the Spring trial in mantle cell, which is expected to initiate this quarter, is a European targeted registration trial.

To study REVLIMID's potential in diffuse large B cell lymphoma, which is the largest single market opportunity in NHL, we recently announced that the premier European lymphoma cooperative group GELA, has selected REVLIMID for a 450 patient maintenance study following first-line artiad (ph).

There are 19 active trials investigating REVLIMID in lymphomas, with more than 25 in the planning stage. These studies comprise all lines of therapy, including maintenance with REVLIMID both as a single agent, and in various combinations across a wide range of histologies in both aggressive and indolent lymphomas.

REVLIMID commercial and clinical development has tremendous momentum, and has become increasingly valuable with the recent issuance in the United States of significant additional patent coverage extending REVLIMID's US patent protection until 2026.

2009 should be another exciting year as we strive to achieve our goal of making REVLIMID the number one hematology drug in the world.

Our next (inaudible) CC40-47 Pomalidomide was also highlighted at ASH with presentations in relapsed refractory myeloma and myelofibrosis. Based on the positive hematological responses in myelofibrosis, additional studies are being planned, designed to lead to a registration track program.

The results of the myeloma trial were striking. In a previously treated population, an overall reponse rate of 58% was demonstrated with a combined very good partial response plus complete response rate of 25% with significant activity in REVLIMID refractory patients. The positive results of this trial are accelerating our plans to establish a registration track clinical program for Pomalidomide.

Our hematology franchise has been substantially strengthened by the addition of VIDAZA to our portfolio last year through the Pharmion acquisition. The potential of VIDAZA was tremendously increased by the presentation of the survival data from AZA001, which demonstrated a nearly doubling of the two-year survival rates in favor of the VIDAZA arm and by a nine month overall survival advantage. This data was added to the US label late in the third quarter, and resulted in VIDAZA's first approval in the European Union in late December.

Subsequent to the European approval, the launch process began. Before commercial sales can commence, pricing and reimbursement approvals in each individual country must be obtained. We are optimistic that over the next 12 months we will accomplish these approvals in the major western European countries.

We have launched in Germany this month. The reception among physicians has been very favorable. This is the first active treatment approved in the EU for the treatment of high risk bio dysplastic syndromes and a subset of AML patients.

Our launch strategy involves both promotion and education. We are working to help physicians identify appropriate patients and to recognize the benefits of active treatment. We are off to a very good start, but have a long way to go.

VIDAZA market shares are rising in the US. At ASH, the EORTC decitabine trial which failed to produce a survival advantage, was presented. It was the first time that the stark differences in the results of these trials were reported. VIDAZA is the only therapy that improves overall survival in higher risk MDS patients.

In 2009 we will expand our clinical trial program as we seek to expand our knowledge of VIDAZA's activity in other indications by combination with other therapies including REVLIMID.

And Rubicin, a third generation anthracycline, also came to Celgene via the Pharmion acquisition. Our FDA Phase III pivotal trial in small cell lung cancer will continue accrual this year with close to 90% of the planned 620 patients accrued by year end.

During 2009 we also expect to significantly advance three programs in our developing immune inflammatory franchise. Importantly, we expect to see top line data for multiple trials in our oral TNF alpha inhibitor Apremilast program.

Trials in recalcitrant psoriasis and psoriatic arthritis are projected to complete and announce results later this year. Data from these trials, combined with the results of PSOR005, the 348 patient placebo controlled Phase IIB trial in moderate sever psoriasis with increased dosing and duration based on the completed positive Phase II trial, should provide the direction we need to determine our pivotal program strategy late this year.

JNK930, which successfully completed its first single dose Phase I trial, should complete multiple ascending dose and PK studies with the intention of initiating a proof of principle study in fibrotic disease late this year or early in 2010.

The first clinical trial for a proprietary placental stem cell product PDA001 has recently been initiated. Dosing is expected to begin this quarter in the Phase I study in Crohn's disease patients. Results of the study are expected later this year, and we also expect to delineate our broader clinical program for this promising therapy.

Importantly, PDA001 is the subject of a recently issued US composition of matter patent.

We will also be advancing our in license compound ACE-011, in collaboration with our partner Acceleron. This new biologic targets the activin receptor, and is designed to increase bone formation while decreasing bone resorption.

The compound is currently being studied in a multiple myeloma trial examining its impact on lytic bone lesions. ACE-011 also appears to increase hemoglobin levels, and will be tested in a chemotherapy induced anemia indication later this year.

I hope that you can sense the enthusiasm that we have for our programs and prospects. There is significant momentum at Celgene. The excellent operating of financial results achieved in 2008 accurately reflect our focus on maximizing the near-term commercial potential of our products, while at the same time investing in the future as we strive to sustain the high growth trajectory that we've achieved over the past few years.

Despite the headwinds of a challenging global economy and the ongoing assaults on healthcare innovation, we believe that we are strategically positioned to capitalize on our opportunities, and build a great company over the next five years.

Our global organization not only creates operating leverage to drive top-line growth, improve margins, and enhance tax efficiencies, but also affords us the potential to offer our life extending therapies to patients around the world.

We sincerely appreciate your interest and support. Thank you. Operator, we can now open the call to questions.

Question and Answer Session

Operator

Thank you very much. (Operator's Instructions). And we will go first to Geoffrey Meacham at JPMorgan.

Geoffrey Meacham – JPMorgan

Hi, guys. Thanks for taking the question. A couple of financial questions, maybe one for Dave; can you help us with the co pay assistance, how you guys are thinking about this for this year and what your expectations are for growth in these expenses in '09? And then I have a follow up on the REVLIMID guidance.

Robert J. Hugin

Jeff, it is Bob.

Geoffrey Meacham – JPMorgan

Okay.

Robert J. Hugin

On the co pay assistance, again, as everyone knows, it is independent third-party nonprofit foundations not affiliated with Celgene that do provide assistance to patients that aren't able to afford the co pay. And most of these foundations provide support to patient sup to seven times the poverty level.

Clearly, as the economy weakens, and hopefully it does not weaken much more than the pretty weakened state it is in today, that we are going to see more patients that may qualify for this kind of need. Our focus as Celgene in the US is that we support these foundations in a way to ensure that they do have the assets to provide the support for patients in the disease states that we are involved in, in myeloma and MDS.

So, it isn't something that we can directly forecast. It will depend on the economy, it will depend on the mix of patients, but I think it is safe to say we have made significant contributions in 2007 and 2008 and our forecast does include increased contributions in 2009, but we are not going to get more specific than that.

Geoffrey Meacham – JPMorgan

Okay. And then just on REVLIMID, you guys mentioned maintenance as an exciting opportunity. I am wondering if that is at all baked into your guidance? Can you tell us what percent of myeloma use could be characterized formally as maintenance and then how do you guys think about this opportunity from a duration perspective versus first-line myeloma? Thanks.

Robert J. Hugin

Well, I think we do not get specific data as to what is maintenance or what is exactly what line of therapy, but certainly now that we have been in the market in the U.S. for a few years — for two-and-a—half years anyway, and in Europe we have a full year of launch in most countries, though not a full year even in every country — we are seeing some very encouraging signs that as patients respond, the responses often tend to increase or are quite durable.

And the percentage of patients that are on the drug for an extended period of time is certainly increasing and that — we certainly see it as we talk about the duration gains. And in Europe especially in certain countries where we have established stronger market shares that we have seen the similar type of duration gains.

And long term, the ability to turn myeloma into a chronic disease and REVLIMID being a significant part of it, is a major benefit to patients and is a significant revenue driver, long term, for us.

Sol J. Barer

Geoff, it was actually an excellent question. One of the things that excites us about REVLIMID is this unique mechanism and its clinical activity which allows patients to potentially take this for longer periods of time and hence a significant potential in maintenance therapies.

This is being evaluated right now, as you may know, in two major trials. There is a CALGB trial and there is a IFM trial that looks at REVLIMID in maintenance therapies, post stem-cell transplant. It is a controlled trial, and hopefully the results of that are going to be shown at ASH.

And we are pretty excited about it because what it could really do is change — if the trial is indeed positive, it could start changing the way people think about myeloma, certainly after a stem-cell transplant, in that it could be a disease that is controlled for a long, long period of time. We just do not know how long right now, but maintenance therapy for us, is a very exciting concept.

Operator

We will move on to our next question now from Jeffries. This is Eun Yang.

Eun Yang – Jeffries

Thanks very much. David, based on your guidance for FX revenue and looking at the current consensus of 2.85 billion — I guess the larger portion of the difference can be explained by the effects impact that you mentioned earlier in your remarks.

But, if I remember you correctly, Celgene's started its currency hedging program last summer last year and we had anticipated it may take a couple of quarters to see the full impact from the hedging program and you saw 30.5% FX impact on the revenue last quarter and your guidance seems to be about 4% this year.

Can you comment on what your assumptions are for the impact from the hedging program in your guidance this year? Thank you.

David Gryska

Sure. Let me just go back to Q4 for a minute. We did have a negative impact from foreign currency, as I said in the prepared remarks, about 3.5% of total revenues. However, in some of the other hedging activities we did, we ended up with a positive impact of about $20 million that is either shown as an increase in other income or a reduction in expense.

So we did lose something in the top line greater than 20 million because of the sequential FX impact. What is important to note is when you look at 2008 versus 2009, in 2008 we started our hedging program at the end of the third quarter, and when you look at how the Euro and the dollar has moved over the end of '08 into '09, as I said that impact to us in our forecast was over 100 million.

When you look at that 100 million and say it is a 90% margin at a single digit tax rate, because our tax rate internationally is low, that is an impact on EPS of about $0.10 to $0.12, which is not insignificant. And then when you couple that also with the Alkeran agreement not going forward after March 31st, that is a lower margin product at about 25%, but again that is an impact on EPS of about $0.02.

So, when you take the loss of the revenue, whether it is through FX or the Alkeran, you are looking at about $0.10 to $0.15. And as I said in the prepared remarks, we have hedged out over a 12 month period of looking forward and our intent is to minimize the effects of FX on EPS.

Operator

We have our next question now from Yoram Gerber (ph) at Citi.

[Yoram Gerber] — Citigroup

Yeah. Hi are you doing? Thanks for taking my question. I have two questions. One, do you assume that Nice will actually give you reimbursement right now in Q1? Is that baked into your REVLIMID guidance or is that outside?

And then secondly, just, Dave — can you help us? I am just plugging the numbers in including — without a lot of work on currency — including currency, and we still get a lot higher than your guidance in the bottom line. So, could you help us understand Thal, and what do you assume from the generic challenge to Thal for this year? Thanks.

David Gryska

Let me specifically address the generic part of it in our budget. In the budget number, the forecast we have does assume in the US, a small decline in Thal based on its movement to third and fourth line from where it had historically been in the frontline. But it assumes that that product will be online a long time as we are obviously in litigation and we cannot discuss the specifics, but we feel very good about our patent portfolio and will vigorously defend that portfolio to the full term of all our patents.

And let me cover the Nice portion of it. In the guidance there are some revenues in our forecast for the UK based on either private insurance and the expectation that sometime this year we would have some type of positive outcome with Nice depending on what line of therapy it is and what all the conditions of it could be.

But even after you get a favorable Nice, there is a multiple month period of time of finalizing the Nice agreements, the documents, etcetera, and then it has to be translated through the public health system which has its own reimbursement mechanism which takes a period of time to get. So, I do think if we are fortunate to get a favorable Nice in any line of therapy, that the impact will be significantly greater in 2010 than it would be in 2009.

Operator

Next up from William Blair, this is John Sonnier.

John Sonnier – William Blair

Thanks. Just a couple of quick REVLIMID questions; the first one is for David. There was a lot of discussion late in the year on pricing in the EU. Can you talk a little bit about what happened in '08 with European pricing, and I guess more importantly, anything that you can point toward that would help us think about forecasting pricing in Europe would be helpful.

Robert J. Hugin

Yeah. It is Bob, John. In 2008, and obviously the launch of REVLIMID has been incredibly well adopted by physicians. In virtually all the countries in Europe there has been a very positive reception in finding the right place for it, and getting reimbursement is always a challenge.

But in terms of pricing, we were very fortunate to get a high price benefited by an appreciating Euro during the launch period of time. I think in 2008 we did see some actions in some countries that we were actually positively surprised when we thought some people would not let us achieve a ceratin price level for REVLIMID in certain countries, but we did achieve. And there are other countries we thought might take more aggressive action quickly to push or cap the amount of spending in a current year — a total dollar amount or Euro amount in a year in a country — so, there were some positive surprises.

There were some others that took some action a little bit earlier, a little bit more strongly in terms of capping the amount of spending on REVLIMID in a specific fiscal year. But overall, 2008 in terms of where we came out both in price and total reimbursement, though not from exactly the countries we would have forecast, overall was in line with what we anticipated before 2008 started.

And in our forecast for 2009, we do have different forecasts for different countries, depending on the total investment they are willing to make in REVLIMID for the year or there will be some potential price negotiations every year, or every other year in certain countries. So, our forecast does have in some countries, either a volume restriction or a slight price reduction. But we do not have anything that — we would think our guidance is reflective of what the growth prospects are in Europe, and overall volumes we expect to increase very, very significantly and have strong revenue growth in spite of any type of actions that might happen in Europe over time.

Our strategy overall was tos tart the REVLIMID price at higher level, which it still is generally outside the United States, and then over time approach or about the same as we hopefully get inflation price increase in the US, and then over time the price of REVLIMID is likely to be lower outside the United States.

But our philosophy is that in the developed world over time, we believe there should be an equitable process here that whether it is an insurance company in California or the Dutch government, the developed country should, over time, pay about the same for the effective treatment of myeloma patients.

So, the philosophy that we went into it — the planning has not been perfect, but it has been pretty much in line with what we anticipated in the aggregate and in 2009 we think there will be some challenging economic times in certain countries that may lead to some extraordinary actions. It may or may not happen, we hope not, but we think the value of the product has been very well established in Europe. It is incredibly highly regarded and its value to patients is very much appreciated. So, we think we have good negotiating leverage.

So, in line with our expectations, the guidance reflects that, and we are hopeful we can meet or exceed that guidance.

David Gryska

So, John, what we do is we essentially put some probabilities on all these things that Bob mentioned, and outside of Europe and the other parts of the developing world we make assumptions on when the reimbursement is going to come in, in other parts outside of Europe and then put some assumptions around that too. So, we do make assumptions around, as Bob mentioned, pricing and levels of reimbursement in the different geographic regions.

Operator

Next up we have Michael Aberman, Credit Suisse.

Michael Aberman – Credit Suisse

Hey, guys. Thanks for taking the question. I have a couple of questions as well. Just quickly on the SG&A side, slightly higher than 2008, can you quantify that a little bit on percentages? Are we talking 5 to 10%, 0 to 5%, can you give us a little more color on the SG&A guidance?

David Gryska

It is almost flat. I mean, when I say slight, I mean less than 5%.

Michael Aberman – Credit Suisse

Okay, great. Thank you.

David Gryska

Obviously there will be some estimation processes involved, but it is less than 5%.

Michael Aberman – Credit Suisse

Great. And can give you an update on ECOG SWOG FDA discussions, or are those completed and are we now waiting for MM015?

Sol J. Barer

This is Sol. The ECOG SWOG data, as you know, we have spent a good deal of time and effort in obtaining all of the data. One of the problems with cooperative oncology group trials in general as opposed to company sponsored trials, has always been the quality, the completeness of the data, the follow up, so we spent a good deal of time on that. And we think we have pretty much what we can get right now, and it is really not bad in terms of the quality, the amount, the follow up, and so on.

So, as we speak to schedule a meeting with the FDA to discuss the data that we have and get their guidance in terms of how they see it is — do they see it as of the quality and the amount in order to support a filing? Do they want it in combination with 015 or afterwards or part of it? So, we have a discussion with them, and we will let everybody know, obviously, post that discussion. It is still a lower probability clearly than 015 which is fully enrolled and which we expect an interm analysis this year.

But it is something that we are going to discuss with the FDA and hopefully we will have a positive result, but we will see.

Operator

We will move on now to Jim Butchenel at (inaudible) Capital.

[Jim Butchenel – Unidentified Company Name]

Yeah. Hi, guys. Just a couple of follow ups from prior questions. Just in terms of actual price capping in Europe, can you maybe discuss what percent of the patient population is at risk from that kind of price capping? And where you have seen the price capping, is it capped at a level where you cannot really benefit from any extended dosing duration beyond the seven months, or is there still some room to grow even where you have got some price capping?

David Gryska

No. I think each country has different metrics for managing pricing and reimbursement, we do not foresee any situation, certainly in the foreseeable future, that the opportunity for the drug is going to be limited. We are going to have to manage how we negotiate this and do things, especially with hopefully CLL and NHL coming on that we want to make sure that our strategies do provide for the benefit so that patients can get the drug for a long period of time and we share in that benefit along with the patient benefit.

So, there really is not anything that we are troubled by a specific country with a total or the strategy they have embarked upon. And the discussions are always challenging ones, but they are not ones that the country or the payer do not recognize the value to the patients, and they want the drug to be successful. They have got their own issues, so I not see no nine or 10 something that we think is an impact to what the growth, both on top line or units is going to be.

Operator

Rachel McMinn is next from Cowen.

Rachel McMinn – Cowen & Company

Yeah. Thanks very much. I was hoping you could provide a little bit more color on the international revenues? I think you mentioned that total revenues outside the US would be 35 to 40%. Can you break that down for REVLIMID and VIDAZA and maybe give us a sense of US sales growth year-on-year as well? Thanks.

Robert J. Hugin

Yeah. Rachel, basically we are not going to break down the composition of REVLIMID versus VIDAZA in the international arena, because it is a VIDAZA launch year in the international arena. But most of that growth is in REVLIMID. Obviously VIDAZA is more important now that it has an approval, but it is in a launch period and it is somewhat difficult to give you some granularity on that.

David Gryska

I mean, certainly in the US, the targets that we have for REVLIMID growth in the US is very positive, and I think when you think about the overall percentage of the revenue, which includes a slight decline in Thalidomide in the US, that is offset by both higher growth in VIDAZA and REVLIMID in terms of revenue.

So, we are very optimistic about the position we have in the US, but we still see in a number of different areas, the opportunity for increased market share and increasing benefits from duration. So, we are still in the growth mode in the US.

Robert J. Hugin

And I think also one point, Rachel. Moving beyond the revenue line, in an international arena, now that we have VIDAZA approved, Thal approved, Rev approved, we are seeing operating leverage now in the international arena. Pharmion's synergies are coming into effect. We now have three hematology drugs that are preapproved in Europe, and we are sitting at a huge amount of operating leverage there, and also as I said before in my other comment, we have got a very nice low tax rate in the international arena, and then expansion into other parts beyond Europe.

Operator

Moving on now to a question from Maged Shinuda (ph) at UBS.

[Maged Shinuda] – UBS

Sure. Hi. I just have a couple of questions. Following up on that last question, can you just outline your US multiple myeloma market shares for REVLIMID in the fourth quarter and how they compare to the third quarter?

Robert J. Hugin

Yeah. We have not seen — Maged, it is Bob. We have the Rev assist and the steps data, but we use that data in combination with third party data. Certainly our data was very positive, especially the December post ASH trends were very encouraging on the prescription front. So, it was a nice growth track in the fourth quarter over the third quarter on our own data. We will then compare that with what we see over the next couple of months over the external data, but there were not trends in our internal data that were anything but encouraging to us about the positive reception both of the newly diagnosed data, potential for maintenance data, and the ability to use the drug effectively over a long period of time.

So, I do not think we have any information that would be anything, but certainly our own internally encouraging, but we will look at all the data as it comes in over the next couple of months.

David Gryska

It is almost 10 o'clock, so why don't we take a couple of more questions.

Operator

All right. Next from Goldman Sachs we have Maykin Ho from Goldman Sachs.

Maykin Ho – Goldman Sachs

Hi. I have two questions. One is that can you tell us what the price of VIDAZA is in Germany, and what have you learned from your REVLIMID experience in terms of price negotiations that you are going to apply to VIDAZA?

And then, secondly, can you give us a split in terms of reimbursement; Medicaid, Medicare, and private insurance for REVLIMID in the US?

Robert J. Hugin

Yeah. I mean, the price in Europe in Germany is about €3.50, which we think is a very attractive and very fair price and represents the value that it provides in terms of survival benefit and those negotiations went obviously very quick and smooth and we are going forward in every other country as we move forward now.

And we have the same strategy to keep it in a narrow global price band so that we can maintain the right strategy for the commercialization of it. What was the second question, Maykin?

Maykin Ho – Goldman Sachs

The reimbursements — I mean, the gist of the question is really trying to gauge the impact of the economy. So, what is the split of Medicaid, Medicare, and private insurance, for REVLIMID?

Robert J. Hugin

Well, in terms of REVLIMID, the Medicare private split is harder to look at in a sense that so much of the Medicare Part D is done through private insurance, whether it is (inaudible 01:01:35) Medicare or private, we do not know that difference. We do not see that.

But obviously this is a population of heavy senior citizens so our own internal estimates which are fairly — a majority of the patients are most likely Medicare. The Medicaid component of it, from what we have seen historically, is quite low, but obviously if the economy were to get much worse, we might see more Medicaid patients. We certainly hope that isn't the case, but again, historically, Medicaid has been quite low, but Medicare overall, being generally a population of elderly patients in myeloma is reasonably high, a majority.

Operator

We will take our last question today from Savna Tribostava (ph) from Morgan Stanley.

[Dave] – Morgan Stanley

Hi. It is Dave calling in for Savna, thanks. Just two pipeline questions, the first on Pomalidomide. What is the strategy with MF versus myeloma? Is one registration plan taking priority over the other? Are you going to run those in parallel do you think?

Robert J. Hugin

I am sorry — so the question is in terms of the — the gist of the question is the overall plan and priority and so on. The intent right now is to run — we are in a Phase II trials and in a couple of larger ones and several others in multiple myeloma in the relapse or refractory setting, and the relapse and refractory resetting in myeloma. And we think with that information, we will be prepared to go to a pivotal trial in myeloma, given the kind of activity we have frankly seen. And that will be reported in 2009 this year in all sorts of patients, those who are relapsed and refractory, relapse or refractory, including those who had previously had REVLIMID.

And in addition, we will run a larger Phase II trial in myelofibrosis. We are quite excited, as Bob indicated regarding the hematological effects of this drug which appear to be unique. So, we are going to run a Phase II to that and then proceed as quickly as we can to a pivotal trial for it.

Okay. So, I want to thank everybody for tuning into this conference call. We are obviously very excited about 2008. We had a great year from all perspectives. We are extremely excited about 2009 as we indicated, and over the next few years, as we grow, to a major biopharmaceutical company, and hopefully a preeminent company in our strategic areas and we look forward to the next call that we have for the Q1 in late April.

David Gryska

Thank you.

Robert J. Hugin

Thank you, everybody.

Operator

Thanks again for your participation today. That will conclude today's conference call. Once more, have a good day.

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