Celgene Corporation Q1 2009 Earnings Call Transcript

| About: Celgene Corporation (CELG)

Celgene Corporation (NASDAQ:CELG)

Q1 2009 Earnings Call

April 30, 2009 9:00 am ET


Sol Barer - Chairman and CEO

David Gryska - CFO

Bob Hugin - President and COO


Brian Abrahams - Oppenheimer

Geoffrey Porges - Sanford Bernstein

Yaron Werber - Citi

Geoff Meacham - JPMorgan

Jim Birchenough - Barclays Capital

Jason Kantor - RBC Capital Markets

Sapna Srivastava - Morgan Stanley

Maged Shenouda - UBS

Matt Osborne - Lazard Capital Markets


Good morning. My name is Craig and I will be your conference operator today. Celgene would like you to know that there are slides to accompany this webcast. They are available on the Investor Relations section of the Celgene website, www.celgene.com. One other note, today's call is being recorded. At this time, I would like to welcome everyone to the Celgene Quarterly Conference Call.

I would now like to turn the conference over to Mr. 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 first quarter 2009 conference call.

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 first quarter financial operating results was issued earlier this morning. It is also available on a corporate website. In addition, today's conference call webcast will include a PowerPoint presentation, which you can access by going to Investor Relations section of our website at celgene.com. Sol will begin our call with the strategic perspective of 2009. I will then review our first quarter results and Bob will wrap up discussing our operational and commercial results.

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(NYSE:A) of the Securities Act of 1933, and within the meaning of Section 21(NYSE: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 our 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 of 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 8-K reports, or referred to in the press release issued this morning

Now, I will turn the call over to our Chairman and Chief Executive Officer, Dr. Sol Barer.

Sol Barer

Welcome, everyone, to our quarterly conference call. Today, we will be using slides as part of our presentation and we are optimistic that this new format will enhance the clarity and focus of our messages and ensure that the key issues are addressed effectively.

I would like to make some introductory comments before the more detailed financial and business review.

This quarter, we continue the advancement of our businesses and R&D programs across the world towards our vision of becoming the preeminent global biopharmaceutical company in our areas of focus.

We are currently launching three hematology products internationally that significantly impacts survival, REVLIMID, VIDAZA, and THALOMID, while advancing a robust clinical development program to support and expand our commercial opportunities.

We are also developing new breakthrough products in areas of unmet medical need, creating one of the deepest and most diverse clinical pipelines in hematology and severe inflammatory diseases.

All of this is being done in a very challenging global economic environment that is affecting every industry including ours and including Celgene. Despite the significant challenge, the strength of our fundamental business and of our vital products remain solid and is based on growing patient demand, setting the stage for continued industry-leading growth.

Specifically, our global revenue increased more than 30% year-over-year driven by REVLIMID which increased 26%. Importantly, patient demand and market share growth for REVLIMID was seen both year-over-year and quarter-over-quarter sequentially. Dave Gryska will detail our financial growth and status.

REVLIMID strengthened its position as the global myeloma revenue leader and one of the largest hematology products. It continued to see growth in all lines of therapy as well as in duration of therapy both in the US and internationally. Bob will cover this in greater detail, including the important affirmation of REVLIMID as a unique lifesaving agent by NICE in the UK.

Now, I would like to turn our market-leading MDS treatment VIDAZA, which is based on its unprecedented survival advantage, continued to grow through market share, patient demand and revenue gains. The EU launch commenced during the quarter, starting with Germany and is expected to accelerate in the second half of this year.

The unique and breakthrough nature of this drug was elucidated in a major peer-reviewed publication this quarter. 2009 will feature a substantial number of important milestones. These will include clinical milestones, such as the first interim analysis of our first-line myeloma trial MM-015 and the initial analysis of the major IFM maintenance trial for REVLIMID, our trail that could set a new standard for the treatment of myeloma.

We also anticipate reimbursement approvals in key markets, NDA submissions in the second largest oncology market, Japan, and a host of other key events highlighting REVLIMID's broad clinical activity including in CLL and NHL.

We also look forward to the presentation of important clinical data for a new promising compound include apremilast in psoriatic arthritis and pomalidomide in hematologic malignancies.

Even in these challenging times, which Celgene is certainly not immune to, our pipeline is advancing, our company is taking advantage of new markets and important REVLIMID and VIDAZA are growing in the US and internationally. Based on potential key catalysts occurring throughout the year, we are well positioned to achieve our long-term vision.

Now, I would like to turn the call over to Dave Gryska, who will provide a more detailed view of the financial results.

David Gryska

Thanks, Sol. Now, I'll take you through the financial results.

Non-GAAP total revenue for the first quarter 2009 was $601 million, a 30% increase versus the first quarter of 2008. Non-GAAP diluted earnings per share for the quarter were $0.44.

Total non-GAAP net product sales increased $572 million for the first quarter, up 33% from $430 million in the year ago quarter. REVLIMID net product sales were $363 million, an increase of 26% over the first quarter of 2009.

Based on the first quarter results, REVLIMID continues to be the global myeloma market leader. As Bob will discuss in greater detail, the number of prescriptions written for REVLIMID, patient growth and average duration of therapy continued to increase sequentially worldwide.

Turning to VIDAZA; net product sales for the quarter were $75 million. The launch of VIDAZA in Europe is progressing very well, as the drug is now available in Germany, Sweden, Denmark, Austria, and Finland. Furthermore, we expect to complete the launce of VIDAZA in Italy, France, Spain, and UK, by the end of 2009.

THALOMID net sales were $114 million for the quarter, which is essentially flat as compared to the year ago quarter. While the launch of THALOMID in Europe is on track, we remind you that the price of THALOMID is much lower in Europe versus the US. Therefore, the impact of increasing volumes in Europe is unlikely to offset the decreasing volumes in the US.

In addition, as of March 31, we no longer commercialize ALKERAN due to the conclusion of our agreement with GlaxoSmithKline.

Our sales and returns allowances as a percent of total sales continue to decline versus 2008 levels. As of December 31, 2008, the total returns and allowance balance was $80 million and as of March 31, 2009, it was $13 million.

A majority of our returns allowances in the past quarter relate to US THALOMID. A portion of US THALOMID is sold through retail pharmacies, which results in higher sales returns.

REVLIMID is distributed through specialty pharmacies in the US, and therefore returns related to REVLIMID are low. In Europe, REVLIMID is sold directly to the hospitals and patients and patients acquire REVLIMID at the hospital. This result in de minimis REVLIMID related returns in Europe.

As Celgene continues to expand globally, ex-US sales of REVLIMID will continue to represent a larger percent of our total revenue and US THALOMID revenues will decline. Accordingly, our sales returns reserves are expected to further decline over the next several quarters.

Our product revenues increased quarter-over-quarter and our inventory decreased. These inventories consist approximately 45% of finished goods and a remainder is work-in-process of raw materials.

As of December 31, 2008, inventory was $100 million and it is $97 million as of March 31, 2009. We expect inventory to remain at these levels in 2009.

Our non-GAAP gross product margin for the first quarter was 89% and we're forecasting gross margins for the rest of 2009 to increase about 200 basis points. The projected increase in gross margin is due to an increased mix of higher gross margin REVLIMID sales and the discontinuation of ALKERAN which has a lower gross margin.

Turning to expenses for the first quarter; non-GAAP R&D expense was $168 million, as compared to $154 million for the fourth quarter of 2008. R&D expenses increased as we continue to support our deep and diversified pipeline of 2009 in such areas as NHL, CLL and inflammation.

Taking a look at SG&A; our non-GAAP selling, general, and administrative expenses were $156 million during the first quarter, as compared to $182 million during the fourth quarter of 2008.

SG&A expenses declined as compared to the fourth quarter of 2008, because of one-time Pharmion integration expenses and VIDAZA launch expenses, which were included in the fourth quarter. We expect 2009 SG&A expense to be slightly higher than full year 2008.

Turning to taxes; our non-GAAP tax rate for the first quarter was approximately 23%. We continue to anticipate improvements in the tax rates throughout 2009 and are now forecasting a 22% tax rate for the year.

During the first quarter of 2009, there were significant fluctuations in the dollar to Euro exchange rate. We hedge our balance sheet foreign currency exposures and our company foreign currency transactions and exposure related to certain Euro-based revenue and expense.

For 2009, we are hedging approximately 60% to 70% of our Euro net foreign earnings exposure over a rolling 18-month period. During the first quarter, we realized approximately $33 million in hedging and reevaluation gains. Our hedging activity is incorporated into our overall planning process for the year.

Our goal is to neutralize the impact to EPS from FX volatility and we are not forecasting these types of FX-related gains for the remainder of the year.

Now a few words about our balance sheet; we ended the first quarter of 2009 with cash, cash equivalents, and marketable securities of $2.4 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 the resources and flexibility to achieve our goal of becoming a leading global hematology-oncology company.

In summary, the overall fundamentals of our business and financial position are very good. We are reaffirming our 2009 guidance. We are expecting non-GAAP total revenue to be at the lower end of the range of $2.6 billion to $2.7 billion and non-GAAP diluted EPS is expected to be at the lower end of the range of $2.05 to $2.15.

As you may have seen a press release earlier this week, our board of directors has authorized to repurchase up to $500 million of the company's common stock through April 20, '11. The primary purpose of the stock repurchase program is to offset the dilution resulting from stock options.

Now, I'll turn the call over to our President and Chief Operating Officer, Bob Hugin who will expand on our global commercial, clinical and regulatory plans for 2009 and beyond.

Bob Hugin

Thanks, Dave. It is my objective this morning to review with you the important progress achieved during the quarter in our businesses and the key milestones for the remainder of 2009.

Bottom line, our commercial products, our development programs and our functional organizations are all stronger and better positioned than they were at the beginning of the year.

Our products across all geographic territories are making appreciable market share gains, with preliminary first quarter data demonstrating continued strong increases in both the US and European multiple myeloma and MDS markets.

The expansion of our products in global markets and our developing programs in hematology-oncology and inflammation advanced significantly in the quarter and our plans for the year are on track.

There were challenges in the first quarter, some specific to the quarter and others related to the extraordinary global economic pressures being felt in all markets and geographies.

That being said, our company is stronger and better positioned than ever. Though total revenue increased by more than 30% year-over-year, it was impacted by the extraordinary global economic conditions during the quarter and one-time factors.

The most significant of the factors is being the aggressive management of inventories by pharmacies, not surprising in an environment of heightened liquidity and balance sheet management.

The economic impact is less of a first quarter specific event. Though in the United States the start of a new year for Medicare Part D deductibles certainly led to more demand for copayment assistance and delays in the initiation of treatment.

Though financial aid from independent third parties remained available for patients in need, the process of obtaining the support lengthens the time from prescription to dispense.

The economic conditions also had a slight negative impact on the ratio of prescriptions dispensed to prescriptions written.

In overseas markets, government and hospital budgets are under significant pressure, resulting in delays in some cases in initiation of therapy. Though challenging, our team is managing through this environment with a solid growth trajectory emerging.

My presentation will provide an update on the multiple myeloma and MDS markets and an outlook on the key drivers for growth of REVLIMID and VIDAZA.

I'll also review with you our clinical and regulatory progress in our major development programs and discuss the status of our key clinical programs in myeloma, MDS, CLL, lymphoma, and our broader pipeline including apremilast.

Our products are well positioned in the global myeloma market. REVLIMID became the global revenue leader in myeloma late last year, and the results of this quarter indicate that it further strengthened that position.

The revenue was impacted by some of the factors previously discussed underlying fundamental REVLIMID patient demand was strong in both the US and Europe. Total daily average prescriptions increased in the US by about 4%, with new myeloma patients increasing by more than 10% over the fourth quarter of last year. New patient starts are an important indicator of future growth.

Unit growth was also very strong in Europe with prescriptions growing by more than 15% over the prior quarter. Throughout the globe, the REVLIMID expansion strategy is on plan.

Market share is an important measure of performance and future prospects. Significant market share improvement was achieved in all markets in which REVLIMID is launched and reimbursed.

12-month rolling market shares indicate substantial market share gains in the US in all lines of therapy with total REVLIMID share now above 30%.

Preliminary and less reliable short-term market share indicators from the first quarter point to even more significant recent increases in share. Though the launch of REVLIMID in myeloma in Europe is less advanced than the US, the market share gains are no less impressive.

Strong quarter-over-quarter performance is being achieved in both second- and third-line indications in developed markets.

Territorial expansion, market share gains, and extension of duration of therapy, are all key REVLIMID revenue drivers. The positive trends observed throughout 2008 continued in the first quarter.

In the United States, nearly 25% of patients initiating REVLIMID treatment two years ago remain on therapy today. The benefits of long treatment duration are being recognized in the marketplace.

The commercial success of innovative therapies is increasingly dependent on their value proposition. In an era of increasing demands for evidence-based medicine, the results of the first quarter bode well for the continued global expansion of REVLIMID.

The recent announcement of the UK's National Institute for Clinical Excellence, or NICE, support for the reimbursement of REVLIMID and the advancement of reimbursement discussions in Canada and Australia, accurately reflect the value provided by REVLIMID to patients and to payers.

Though there is now a comprehensive body of clinical evidence of REVLIMID's activity, especially in multiple myeloma, we are committed to fully exploring its potential in myeloma and the range of other hematological malignancies.

In a few minutes, I will update you on these key programs.

Our investment continues to produce new and updated data supporting REVLIMID. Just recently, at the International Myeloma Workshop in Washington, D.C., REVLIMID was featured in approximately 70 abstracts, highlighting its position as a standard-of-care in all patient segments of myeloma.

During the quarter, new dosing guidelines were added to the US REVLIMID label to assist in the treatment of renally impaired patients. Additional discussions were held with the FDA regarding the submission of data from the newly diagnosed multiple myeloma ECOG and SWOG trials to the package insert.

Though we do expect to add clinical data from the trials to the label, it will not lead to a change in the labels indication. A label expansion will be dependent on data from MM-015, our Phase III trial in newly-diagnosed myeloma. Interim data from this trial may be available later this year.

On the clinical front, IFM-0502, a Phase III REVLIMID maintenance trial conducted by the French Cooperative Group completed patient accrual this quarter. This data, if positive, may serve as another long-term value driver for REVLIMID's usage.

THALOMID remains an important therapy in the portfolio of products aimed at transitioning myeloma from a terminal disease to a chronic condition. The launch of THALOMID has been slower than expected in major European markets with heightened sensitivity to the review of its risk management program. We do, however, expect to have all major European markets online by the end of the year.

In the US, we see REVLIMID and VELCADE gaining front-line share from THALOMID, but have just recently begun to see some increase in usage in the third-line setting, an encouraging development.

As we look forward to the remainder of 2009, we see a number of important growth drivers for REVLIMID. Important reimbursement decisions are pending in key markets where regulatory approval has already been achieved.

Reimbursement in the Canadian, the Australian, and the UK, markets are expected in the third and fourth quarters. These approvals and successful launches are essential for us to achieve our REVLIMID guidance for the year. New and updated REVLIMID clinical data will be presented at the multiple medical meetings in June and at the American Society of Hematology in December.

Based on early second quarter trends, sequential quarterly REVLIMID revenue growth appears to be in the 5% to 7% range. The trends are positive. We'll need an acceleration of these trends and the positive impact of key growth drivers in the second half of the year to achieve our annual guidance.

With the launch of VIDAZA in Europe, the global MDS markets are becoming an increasingly important component of our revenue growth. The longer-term growth will be predominantly in the European markets. For the next two years, we expect strong growth in both the US and Europe.

In the United States market share transfer VIDAZA in the new-diagnosed population have risen sharply over the past year and bode well for strong performance later this year.

The recent peer-reviewed publication of the unprecedented survival data from the AZA-001 study should support a much wider dissemination of this data to community physicians.

The data demonstrated a nearly doubling of the two-year survival rate in favor of the VIDAZA arm versus that of the conventional care arm with a nine-month survival advantage.

VIDAZA is the only MDS therapy to ever demonstrate it in overall survival advantage. This data is the key element in our re-launch of the expanded US VIDAZA label.

Germany is the first European major market to conduct a launch with reimbursement. The reception in Germany has been very positive, and the lessons learned position us well to launch effectively in other European markets later this year.

This slide illustrates the expected reimbursement timelines for the major European markets. As you can see, we expect the steady progress of reimbursement approvals throughout the year with key markets, such as France and Spain expected to come online in the third and fourth quarters.

Only following pricing and reimbursement approvals can marketing and promotional activities substantively begin. As we better understand VIDAZA's biological activity, we are increasingly able to identify specific indication and drug combinations that merit additional study. We are commencing numerous studies with VIDAZA, including combination trials with REVLIMID and other new therapies.

As we look forward, the key VIDAZA growth drivers have been highlighted. Broadened European reimbursement, increased awareness of the VIDAZA survival data in all markets, and the heightened productivity of targeted sales and marketing teams in the US and European markets have the potential to drive continued strong revenue growth.

In the United States, we are also hopeful that in the next several months, the guidelines established by the National Comprehensive Cancer Network will significantly differentiate VIDAZA from other therapies, based on published clinical evidence. These guidelines can influence a wide range of pathways in physician practices, and can impact reimbursement priorities.

Earlier second quarter trends indicate that our target for the year of approximately $400 million in VIDAZA revenue seems appropriate, with quarter-over-quarter growth of 25% achievable.

Though we have a comprehensive yet focused commercial and clinical strategy in multiple myeloma and MDS, it is only a part of the Celgene growth story. We have made excellent progress during the quarter advancing our hematology-oncology pipeline, which includes amrubicin and pomalidomide and ACE-011, in addition to REVLIMID and VIDAZA.

Progress was achieved in accruing major Phase III REVLIMID myeloma and amrubicin small-cell lung caner trials. Our pivotal programs in lymphomas and chronic lymphocytic leukemia gained traction with additional Phase II trials initiating.

The next few slides are presented to provide you with a fairly comprehensive overview of the key trials and their objectives for major compounds in a range of important indications.

Let me start with myeloma. The trials on this slide are designed to enroll upwards of 4,000 newly-diagnosed multiple myeloma patients. These trials are being conducted to clearly establish REVLIMID-based regimen as the standard-of-care for all patient segments in the newly-diagnosed myeloma market.

REVLIMID is a major scientific breakthrough that can produce durable remissions with manageable toxicities and has been studied in combination with novel and traditional therapies.

As its product profile allows for long treatment duration, we are studying REVLIMID in continuous induction and maintenance treatment settings, including the early smoldering myeloma disease setting to see if the early onset of the disease can be delayed.

We believe that additional clinical research in myelodysplastic syndromes has the potential to further broaden the applicability of our products. We have important studies enrolling in a wide range of MDS patients from lower risk MDS to those patients with disease transforming through acute myelogenous leukemia. We are exploring numerous combinations to produce the maximum potential patient benefit.

We believe that our products have the potential to have an increasingly meaningful impact in myeloma and MDS, and that their potential extends well beyond these indications. We are exploring a number of important indications that offer exceptional growth potential.

Our CLL, clinical development program, has the objective of establishing REVLIMID as a standard-of-care for the treatment of multiple patient segments within CLL. We are initiating multiple global Phase II and Phase III trials. Our studies are examining REVLIMID's potential role as a therapy for untreated as well as previously treated patients.

We are comparing its effectiveness in elderly patients as a monotherapy versus chlorambucil and its maintenance therapy following second-line treatment. Various combination strategies are underway to examining combining REVLIMID with fludarabine, rituximab, and (inaudible).

As with our CLL development strategy, our lymphoma development plan is exploring REVLIMID's potential in a number of patient subtypes, both as monotherapy and in combination with a range of other agents.

Our program is targeted to establish REVLIMID as a standard-of-care for the treatment of relapsed refractory aggressive lymphomas and to establish REVLIMID as a standard-of-care for patients with diffuse large B-cell lymphoma who respond to first-line R-CHOP treatment.

Additionally, our Special Protocol Assessment Phase III trial comparing our third generation anthracycline amrubicin versus topotecan in second-line small cell lung cancer is accruing rapidly, with a 620 patient accrual completion expected either late this year or early next.

Our next IMiD pomalidomide is enrolling 212 relapsed, refractory patients in a multicenter controlled Phase II trial. Additional data on pomalidomide is expected at this year's ASH meeting.

ACE-011, our active inhibitor being developed in collaboration with our partner Acceleron, is completing a Phase II trial in myeloma patients with bone lesions and the FDA has very recently accepted the filing of our IND for risk study in cancer-induced anemia breast cancer patients. We expect this trial to begin later this year.

We are also very pleased to report that the dosing of our first cohort of Crohn's disease patients with PDA001, a proprietary placenta-derived stem cells has been completed. The overall trial is expected to finish before year-end and assuming an appropriate safety profile, we will commence a broad clinical development program based on encouraging preclinical evidence in a number of major indications.

Our inflammation clinical program has gained traction during the past several quarters with apremilast being studied in a number of severe indications. Having demonstrated activity in a Phase II placebo-controlled trial in moderate-to-severe psoriasis patients, we are examining apremilast potential in recalcitrant psoriasis, psoriatic arthritis, and moderate-to-severe psoriasis.

Key of apremilast trials involve psoriasis and psoriatic arthritis are now fully accrued with top line clinical results expected as early as mid-year in the psoriatic arthritis study with additional data later in the year.

Based on positive results, we are planning to begin pivotal studies in either moderate-to-severe psoriasis or psoriatic arthritis in 2010. At the same time, we are expanding our knowledge of the drug's full potential in dermatological, rheumatological, and inflammatory conditions through wide ranging Phase II studies.

Hopefully, the presentation has given you a better insight on the results of the recent period and to the key objectives and programs that are essential to our continued rapid growth.

We have an exceptional organization focused on maximizing our 2009 opportunities. Many of which are outlined for you. We have a number of clinical regulatory and reimbursement objectives that will significantly impact our financial results in 2009 and beyond.

Despite the headwinds of a challenging global economy, we continue to 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 and bottom line growth, but also affords us potential to offer our life extending therapies to patients around the world.

We thank you for your interest. Operator, we can now open the call for questions.

Question-and-Answer Session


(Operator Instructions). We will take our first question from Brian Abrahams. Please go ahead, sir.

Brian Abrahams - Oppenheimer

Thank you for taking my question. Question on REVLIMID. As you mentioned, your guidance for this year implies that REVLIMID growth will accelerate substantially in the second half of the year. It seems like based on your discussion there is clearly a lot of significant catalysts for longer-term REVLIMID growth.

I'm just wondering based on the trends you saw this quarter, what are the most important growth drivers that we should look toward for the second half of this year? And what gives you the confidence that some of the macroeconomic issues that we saw in the first quarter are not going to impact things by the end of this year?

Bob Hugin

A very important question. I think there are a number of elements that are important to discuss as you look at REVLIMID's growth going forward. First, I think there are a number of economic impacts of the first quarter that are not unique only to the first quarter but have a very heavy significance in a year when a new Part D program starts and the deductible period starts again. So, clearly, January is a tough time for patients, who have to deal with the doughnut hole in that.

So, I think we saw some delays, but we've seen, I think, that being effectively managed and more aggressive education and awareness of the programs that are available for patients, so that we don't see a significant or we see actually a reemergence of the ratio between prescription and dispenses, the time between the prescription and dispense.

So, we haven't seen any worsening of those trends. We've seen stability those. I think some of the economic factors are clearly a first quarter phenomenon. Just having to deal with that, everybody has had to deal with a pretty significant environment. I think that that's being adjusted to in all markets, in some cases.

Going forward, clearly, we have a number of factors that are important. Getting the reimbursement approvals through the NICE was a very important event in the first quarter. We've got to translate that into funding through the different primary care trusts in the UK and the National Health Service there, so that we actually can begin the commercial launch in the UK.

We're in late stage discussions with the Australian government and the Canadian governments, the provincial governments to ensure that those markets where we have very active programs in developing those markets through what we call Phase III programs, so that very high numbers of patients are already on the drug through those programs that will convert to commercial pay products once we have the reimbursement approved.

So, those improvements are very important and we would expect a pretty rapid uptake because of the programs that are already existing in those markets. Additionally, we are encouraged by the duration trends we continue to see. So, we need to have that continue in the second half of the year, not just in the US but also in Europe. And that's why the maintenance studies are important.

We're hopeful the 0502 early preliminary data may be available as early as ASH this year which will continue to demonstrate REVLIMID's usefulness in treating not just the best response but through to progression, and that's important to convince in the European markets and to give further comfort to payer where we've already established a great value proposition for REVLIMID. But, it is something we need to continue to do to ensure that physicians around the world continue to treat for as long as possible then have combinations as the disease does progress.

So, I think we're in challenging markets. We're seeing obviously reemergence of the growth trend, which is important here in the second quarter. We've got important objectives in the third and fourth quarter. We've got a lot of work to do to make sure that we can produce the kind of growth to achieve the guidance. It's not going to be easy, but we've seen the positive signs and we've got to do to achieve it.


We will take our next question from Geoffrey Porges with Bernstein. Please go ahead, sir.

Geoffrey Porges - Sanford Bernstein

Thanks very much. Could you just quickly tell us how much of the effective currency on top line you are going to report, that you were able to hedge? And just secondly, could you talk a little bit, Sol, about IFM-0502 and 015. You highlighted the data that you could potentially get on both of those studies. But, is that data that would enable you to file in the first part of next year? Or do you think you would need more complete data that would come at a later point?

David Gryska

Geoff, it's Dave here. So in effect, our top line and currency was very de minimis, less than $1 million in terms of any currency impact, in terms of our hedging activities in the first quarter.

Sol Barer

Good question, Geoff. We're actually quite excited about both studies. In terms of the IFM study, that's relatively unique study in terms of really accepting the longer-term benefit of REVLIMID. It is also a companion study to that and that associated, which is a very similar, which [CAL2B] study of several hundred patients as well.

That is looking at the same thing in terms of the use of REVLIMID as maintenance therapy. We do know again, neither one of those two studies are Celgene sponsored studies. They're IFM. The first one is an IFM study. That IFM study is being analyzed as we speak.

So, hopefully, we will certainly have some data at ASH and that it could be hopefully very positive. But, I don't know the extent to which we're going to have data for that. When we do get data and hopefully that will be in late 2009-2010. We'll try to assemble the data. If it's positive as we anticipate it will be, we'll submit that data.

MM-015, the first interim analysis as many people know was delayed a couple of months because of the fact that we did not hit the number of events, which is actually obviously a very good thing. It is taking longer for people to digress that's a positive sign, but until the data is unblended at the appropriate point, you just don't know.

The first interim analysis will be occurring later and the interim data monitoring safety board will communicate one of several options to us and then if it is a positive option, we'll obviously talk to the FDA and the EMEA about what the best filing strategy is going to be for that study.

We have a second interim that is scheduled for later this year. So, both of those are very exciting trials. I think they could have significant impact in the marketplace. I think they could set a new standard for myeloma treatment, which should be very important, and we will see depending on the results of the study, what is presented at ASH and we'll obviously file this as soon as possible.


We will take our next question from Yaron Werber with Citi.

Yaron Werber - Citi

Thanks very much for the info and for the slides, it's actually really helpful. I have two questions for you guys. Bob, they're both for you. Don't mean to put you on the spot. But, you really want commercial ops so you're the best to answer these.

So the first question is, just help us understand a little bit, you're seeing demand in scrips actually going up. Duration was up in the US. Duration happened to be flat this quarter relative to last quarter internationally, but sales contracted.

So, is the market contracting here? Or is it just that you believe things got pushed out because of reimbursements? Do you have a sense because [VELCADE] actually was pretty strong in March after being flat for many months? So, we're wondering whether they kept us some share there.

Secondly, can you share us with a little bit, just sequentially, in terms of demand, how was January versus February versus March? And maybe if you can, what are you seeing in April? Thank you.

Bob Hugin

A lot of questions. I think I want to first make sure that it is clear about how we see the positioning of REVLIMID. I think it is dangerous to use shorter-term market share data, but I have to tell you when you compare the shorter-term data versus the longer-term 12-month rolling averages, the 12-month rolling averages are quite positive for how REVLIMID is competing in all lines in the United States and obviously in Europe, a separate analysis. But, I'm glad to cover that.

So REVLIMID and then the shorter-term market share data, the most recent one, which is less reliable, more preliminary shows an even accelerated improvement in the first quarter including March of REVLIMID's relative positioning in the US. I think there is lots of factors in terms of the end of fiscal years and inventory, etcetera. We certainly were impacted by some inventory dislocations.

We had a systems changeover at the beginning of the year to move to an enterprise-wide software system early in January of this year. So, there was potential issues of ensuring that distributors had adequate supplies around the world in late December. There was a price increase in December and inflation-related price increase on REVLIMID in the U.S.

So, I think we did have some positive impact probably in the fourth quarter. Then, we saw a fairly significant tightening of the distributors or especially pharmacies in terms of balance sheet management in the first quarter. So I think there were some of those factors that led to that.

Prescription trends were positive. We did see some delays in January in the sense that as Medicare Part D New Year came along there were pressures on how quickly prescriptions were being filled. The trend has generally been positive as we move from January, February, March and April in both of our major products VIDAZA and REVLIMID, the trend in April was very positive one.

So, if anything, the trend is our friend here as we're going forward, and there were a number of one-time of impacts in the first quarter that account for it. So on a relative basis to other products, we feel REVLIMID, if anything is stronger today then it was two months ago or three months ago and the issues in the first quarter, we think we're moving through.

That doesn't change the fact that it is clearly a very challenging environment and we're going to need a number of important key growth drivers in the second half of the year, including the reimbursement issues, but an extension of the duration.

I also don't think it is fair to characterize the duration in Europe as flat in the quarter. I think that we do have markets in Europe where we are working hard to ensure that people are educated on the importance of treating through to progression, not just the best response.

Some of the economic pressures clearly, about hospitals and other budgets, pressure people to look at that. So, that's why the maintenance study is important. We're hopeful we'll see at least the early preliminary data response rates and something longer-term to get the survival advantage that we think REVLIMID will show in those maintenance studies.

So, I think we feel very good about the data that will be coming out, but it is clearly going to be a challenge to ensure the growth is there to get to the full guidance for the year.


We will take our next question from Geoff Meacham with JPMorgan.

Geoff Meacham - JPMorgan

Thanks for taking the question. I guess the question for each one of you guys, so maybe for Dave. Could you quantify the free drug impact in the first quarter and then what that looks like going into the second quarter?

I have a question on VIDAZA. What do you think is the peak share that you can achieve in the US, in other words how much can you displace DACOGEN? And then the final question maybe for Sol for apremilast. What efficacy do you guys have to see to go aggressively in Phase III, should we thinking about ENBREL as kind of the marker as to clinically meaningful the result?

David Gryska

Geoff, let me just answer the first ones quickly. On the free drug, we began to see an increase in the fourth quarter and the first quarter free good in the US was about 2 percentage points or 1.5 percentage point higher than we had anticipated. That was a little bit of an issue in terms of the decline in the first quarter, in terms of the impact versus our plan in any case.

So, it was about a 1.5% higher than we had expected and probably about 2% higher than we would have seen over the history of the drug since its launch. It wasn't just REVLIMID. We've seen it in THALOMID also.

On the DACOGEN front and the VIDAZA front in the US, we have two years left to regulatory exclusivity. We're focused on making VIDAZA the predominant preeminent virtually exclusive drug in the higher risk MDS setting and we're doing everything we can. I think the AZA-001 publication which really illustrates the differentiated survival benefit of VIDAZA is now getting in community physician's hands and we are optimistic that the National Comprehensive Cancer Network is going to make a differentiation between the products based on the clinical evidence.

So, there have been healthcare systems that have treated the drugs equal on their pathways and on the protocols. So we think that would give us the momentum in the second half of the year, should that be a differentiating factor, to really ensure that insurance companies and practices recognize that the cheaper drug is clearly not the reason to use it, but it is an advantage there and is so differentiated on a clinical benefit.

So, we think the market share in newly diagnosed MDS patient is extremely high and has increased dramatically over the past year. That is going to continue to accelerate as the year goes forward.

Sol Barer

In terms of apremilast, not actually quite decided about the compound, it is very different than a biologic, in terms of mechanism of vaccine, drug administration, and very importantly both for psoriatic arthritis and psoriasis in terms of side effects and the positioning of it would be a very different than the biologic.

So, I think that if we get continue to get the encouragement that we've seen in the dose escalation study of the 30 mg BID and for longer periods of time, I think that would be very positive in psoriasis and it probably will not be the same as the biologic in terms of the [FASB 75].

On the other hand, as I mentioned, it is going to be used in a different manner. It may be used before ENBREL. There may be a price differential between them that third-party payers would pays it insignificantly adverse event so far. Again, you never know until you do the larger trials, but out of hundreds and hundreds of patients that have been dosed with this drug at multiple dosages, they're very mild compared to many other things.

So, I'm very excited about psoriasis and in terms of psoriatic arthritis, we'll have that data soon and we'll see how close to the biologics it comes to that. The endpoint is obviously ACR-20. Again, it offers patients a new oral therapy that hopefully has a very high level of efficacy to safety ratio, which is going to be very important for physicians who treat in that indication.

So, I am really excited about it. With every new drug, you have to see the kind of activity it has. But we'll certainly learn and be relative in the near future, the psoriatic arthritis activity of this novel agent and towards the end of the year, the larger study in terms of psoriasis itself.


We will take our next question from Jim Birchenough from Barclays Capital.

Jim Birchenough - Barclays Capital

A few questions. Just number one, if we put it all together and you look at the inventory effects, the FX impact, hospital buying patterns you saw in Europe and this Part D doughnut hole that you have to deal with. What would you consider to be the true base sales we should consider in the first quarter when we're thinking about our estimates going forward?

Then secondarily, on a clinical point, we've heard positive comments on high dose REVLIMID in AML. And just wondering if you could maybe discuss what data we'll get from ongoing AML trials and how you might think about an accelerated filing there? Thanks.

Bob Hugin

We haven't specifically quantified the different impacts of whether it's short-term, whether it was in the first quarter, but I think the inventory impact between the fourth and the first quarter is likely to have been around the $10 million range.

Then the decline at the end of the first quarter is probably more of a $5 million range. But other than that, we haven't given any specific quantification to that impact. I am sorry, could you ask that second question again, please?

Jim Birchenough - Barclays Capital

Yes. Maybe before that, just quickly, Bob, on the copay issue, we've heard from other companies who have oral cancer drugs that payers in some cases are going from a fixed copay to a percent of drug cost copay. Are you seeing that? And what are you doing to address that issue in terms of copay assistance?

The question on AML was just what data should we expect this year? We've had some positive feedback on some ongoing trials of high dose REVLIMID. Just wondering if you can tell us when we’re going to get the AML data this year?

Bob Hugin

In terms of the AML data, we really don't know. There are so many trials going on at various levels of in patients with AML. At multiple institutions both in 5q and in non-5q in terms of everything from high risk MDS which is pretty close to AML, to AML itself, the newly diagnosed elderly AML, single arm combination. So, I really don't know short term what is going to be presented at, for example, EHA. We're pretty confident that there will certainly be presentations and posters at the upcoming ASH in that area, with all of the trials that are going on. But, I don't have the specifics for you.

Sol Barer

In terms of copayment, it is clearly an issue for all drugs. But Jim, the issue with cancer drugs tends to be that on the oral side that you get into the doughnut hole. So, it is really that issue. It has less of an impact so much on the percentage because you're going to get into that total, into the doughnut hole relatively quickly.

So I think you're seeing programs go to more percentage versus flat copays. We haven't seen a change in the need related to what we do to help support independent third-party nonprofit copayments. We have a commitment to ensure that there is a resource out there for people to go to. That's not affiliated with Celgene, but we certainly support them.

Even throughout this very challenging economic environment, rising unemployment, our commitment has been unwavering and to ensure that those foundations do have the support needed to support myeloma and MDS patients. So, it has proven to be an expense for us. We're hopeful federal unemployment, it will not dramatically rise the rest of the year and will hopeful decline in 2010 and 2011, but we're committed to making that happen.


We will take our next question from Jason Kantor from RBC Capital Markets.

Jason Kantor - RBC Capital Markets

Hi, thanks for taking the question. You said that the UK, Canada, and Australia launched their essential for hitting your guidance. So I'm wondering how much you're assuming that you could book from these markets this year and if they don't come, I guess how much below guidance do you think you could fall?

And finally, is there a scenario where you could come in at the high end and, if not, why not just lower the guidance at this point such that the low end is not your midpoint?

Bob Hugin

I think that we have a quarter of the year in books. It was a challenging quarter in some ways but in a lot of ways, it was a positive quarter in the trends and market share and duration. Specifically, to the Canadian, Australian and UK, we don't give specific numbers country by country, but we are well positioned there. We are beginning to make sales even before the reimbursement.

So, it is an important factor for us. But they're not the only factors. And I think the continued penetration and other markets and duration, etcetera is going to go up and down and be variable.

So, I am personally of the view that with any guidance, there is a range plus and minus to it. And I think at this point, we still have a lot of time to go before we're confident to say it is likely to be the low end of the range or below the range or at the middle end or the higher end.

So I think we're sticking with what we are. And as we see these events happen or trends change, we'll have to reassess it and we'll likely do that at the end of the second quarter call.


We will take our next question from Sapna Srivastava from Morgan Stanley.

Sapna Srivastava - Morgan Stanley

Thanks for taking my question. The two questions I have is, one is, could you help us understand what is the percentage of prescriptions, which are free drug and which may have changed over fourth quarter to first quarter and how do you see that evolving as going forward in the future quarters?

Secondly, give us detail on the myeloma market. REVLIMID nearly used in other indications much less so. Just what other use happens there. I mean I think one thing I'm struggling with is just that fundamental data continues to be strong and still clearly, I mean even factoring in one-time sales impact, it does not seem as Jason mentioned, that you are on track to meet really guidance on the aggressive ramp-up. So, if you could help me understand that, that would be really great.

Bob Hugin

The free goods in the REVLIMID context is, we do believe the first quarter is the most significant quarter if you're going to see an increase in free goods and that is because you want to make sure that patients, as they're navigating different new insurances or etcetera, that need assistance with that, you want to make sure they're on therapy or remain on therapy.

So, you can see that sometimes flip up. But I think the overall economic environment has moved us from 4%, 4.5% to probably closer to be more in the mid 6 percentage on REVLIMID to what we're looking at for the remainder of the year.

Sapna Srivastava - Morgan Stanley

I guess the impact on use and other indications just like MDS, etcetera. I mean, are you seeing economic conditions really impact use that data for unlimited REVLIMID not as compelling as it has been in myeloma?

Bob Hugin

I think general in the usage patterns in the United States which are easier for us to track because of (inaudible) than it is in other markets. The myeloma percentage has been relatively constant. There has been a little erosion but not significant in MDS. There has been a little bit of gain from other indications that might have been in the 4% to 5% range that are now overall in the 6% to 7% range based on some data in Compendia listing.

We do have Compendia Listing in CLL. We do have Compendia Listing now in elapsed refractory mantle cell lymphoma. Obviously, those are challenges for patients and payers in terms of the issues of copayments, etcetera where myeloma and MDS is not so severe. I do think some of what you would might have seen are some of the data on MDS and 004 data is important for us to give the REVLIMID usage a boost to have a confirmatory trial in 004.

We're hopeful to see that data in the next couple of months that trial having been completed. If the results are consistent with the MDS-003 trial, I think that gives us new ammunition to glow there. But generally having the VIDAZA product has allowed the discussion at MDS to be robust. So even though there hasn't been new data, hopefully now that will change with 004, we've held on there.

We haven't grown VIDAZA REVLIMID MDS like we had hoped. So, we have opportunities in terms of duration gains and with the new data and with keeping the VIDAZA momentum going helps us overall also. So, I would not say there is a differentiated economic impact by disease state that we've observed, at least not to this point.

Operator, we have time to take two more questions.


We'll take our next question from Maged Shenouda of UBS.

Maged Shenouda - UBS

Can you talk a little bit more about what you're seeing in fill and refill rates for [Ravenfal] in the first quarter of this year versus first quarter of last year?

Bob Hugin

I've got them here someplace. What we saw was about a 0.5% kind of change over the last few quarters in terms of the rates of prescription versus dispensed. So, maybe 0.5% negative impact over a few quarters. We've seen some erosion in the percentage by probably 0.5% or about a day in terms of the time it takes because of the increased number of people requiring assistance to get insurance coverage and the right copayment assistance in terms between an authorization and ultimate dispense.

So, we've seen some delays. We've seen an increase as I said about 0.5% between written and dispenses which is troubling that there are people out there that get a prescription and then decide that for whatever reasons that hopefully it is for good reasons, not just cost reasons, that they don't fill the prescription.

Maged Shenouda - UBS

Is there any sense of when they will be coming back to refill those prescriptions, so you know of the timing there? Is it transient or are they lost to the system completely?

Bob Hugin

We generally don't seem to be losing patients that once they get on therapy and have reimbursement through copayments, because you get into the doughnut hole relatively quickly, so the major issue of insurance and funding and support of that is addressed very early on in therapy. So, it is not something like you're on three months of therapy and all of a sudden you're hit with this huge copay.

You've been hit with it. When you do enter a new year, that's a factor. We did see a little bit of pressure which we've had not seen before this January of patients on having a delay as they navigate the new copayment and have to maybe seek assistance for the first time, not previously seek. But we haven't seen deterioration in anything because that would ultimately lead to a decline in duration and, in fact, the trends on duration in the first quarter continued pretty much in line with the trends we've seen in duration for the last 18 months.


It appears for our final question, we have Matt Osborne from Lazard.

Matt Osborne - Lazard Capital Markets

Thanks for taking my question here. Sol, just a question on apremilast. Depending on the data in the middle of this year, could you also position this drug as a bridge for patients before going to biologics or are you really trying to displace biologics in moderate-to-severe psoriasis? Thank you.

Sol Barer

No. You hit it on the head. We've had a lot of [KOL] sessions and focus groups and so on and we'll obviously have a lot more, especially in psoriatic arthritis and the draw was positive and in the higher dose, longer dosing trial for apremilast. What we're seeing a lot of the recommendations are exactly what you just indicated that this is in the earlier use for patients, before biologic, it would make sense for the patient individually, the physicians like it better because at least to this point, it is a milder drug that have the potential negative indications associated with the biologics.

So, it may have a unique earlier role in the treatment of psoriasis and psoriatic arthritis as long as the clinical data is there which I'm very hopeful for. But that's exactly right. It could have a unique and new niche in the US and around the world where some of the biologics are not used because of the cost and other issues associated with them, this being an oral drug.

Bob Hugin

Thank you, everyone, for your participation and interest in the call. We obviously would appreciate your feedback to Dave and Brian and any of us as to the format of the call and any advice you give us as to ensure that we look to improve the quality of these calls over time. We look forward to speaking to you again at the end of the second quarter. Thank you very much.


That concludes today's call. Thank you attending. Have a great day.

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