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Millennium Pharmaceuticals (MLNM)

Q2 2006 Earnings Conference Call

July 27, 2006, 8:00 am EST

Executives

Kyle Kuvalanka - Director, Investor Relations

Marsha Fanucci - SVP, CFO

Robert Tepper - President, R&D

Deborah Dunsire - President, CEO

Christophe Bianchi - EVP, Commercial

Nancy Simonian - SVP of Clinical, Regulatory & Medical Affairs

Analysts

Chris Demetropolis - JPMorgan Chase & Co

Craig Parker - Lehman Brothers

Rachel McMinn - Piper Jaffray & Co

Christopher Raymond - Robert W. Baird

Thomas McGahren - Merrill Lynch

May-Kin Ho - Goldman Sachs

Phil Nadeau - SG Cowen & Co

Tim Smith - Citigroup

Presentation

Operator

Welcome to Millennium Pharmaceuticals second quarter earnings conference call for 2006. At this time all participants are in a listen-only mode. There will be a question and answer session to follow. Please be advised that this call is being taped at the Company's request. At this time I would like to introduce your host for today's call, Mr. Kyle Kuvalanka, Director of Investor and Corporate Communications at Millennium Pharmaceuticals. Please, go ahead, sir.

Kyle Kuvalanka - Director, Investor Relations

Good morning, everyone, and thanks for joining us to discuss our strong financial results for the second quarter of 2006. With me today are Dr. Deborah Dunsire, our President and Chief Executive Officer; Marsha Fanucci, Chief Financial Officer and Senior Vice President of Corporate Strategy; Dr. Bob Tepper, President of Research and Development; Dr. Christophe Bianchi, Executive Vice President of Commercial; Dr. Nancy Simonian, Senior Vice President of Clinical, Regulatory, and Medical Affairs; and Lisa Adler, Vice President of Corporate Communications. The agenda of our prepared remarks is as follows -- Marsha will open with an overview of our financial results, Bob will provide an update from the R&D organization, Deborah will then provide closing remarks on our goals accomplished to date. We will then wrap up with Q&A.

Before we begin, though, let me remind you that we will be making forward-looking statements. When we as a Company discuss our growth, science, products and process, a point of reference is how we think, believe, expect, or hope the future will look based on information as we know it today. No one can predict the future. There are risks that could cause the Company's actual results to differ materially from these statements. You can review a list and a description of these risks in the report we file with the Securities and Exchange Commission. During this call, we will be referring to non-GAAP net income, non-GAAP net loss, non-GAAP profitability, non-GAAP operating expenses, non-GAAP R&D expenses, and non-GAAP SG&A expenses. These financial measures are not prepared in accordance with generally accepted accounting principals. A description of the differences between these non-GAAP financial measures and the most directly comparable GAAP measures is included in the press release we issued this morning. A discussion of why we believe these measures are useful to investors and of the additional purposes for which management uses these measures is included in the form 8-K we furnished to the SEC this morning. The press release and the form 8-K are available on the investor section of our website.

It's important to note regarding our research and development and sales, general, and administrative expenses, Millennium adopted the statement of financial accounting standards numbers 123R and began reporting stock-based compensation expense in our GAAP R&D and GAAP SG&A results as of January 1, 2006. We report these line items on both a GAAP and non-GAAP basis, as our financial guidance for operating expenses is stated on a non-GAAP basis. 2005 comparisons do not include stock-based compensation expense as the Company did not recognize stock-based compensation expense under 123R in any prior period.

With that said, let me now turn over the call to Marsha.

Marsha Fanucci - SVP, CFO

Thank you, Kyle, and good morning, everyone. Today I'm delighted to report that VELCADE's U.S. net product sales reached $59 million this quarter, an increase of 34% over the second quarter of 2005 and a 10% increase over the first quarter of 2006. VELCADE is the market leader in the multiple myeloma relapse treatment setting. Our market share of treated patients in the second line setting increased to 55%, including VELCADE use as induction therapy prior to stem cell's transplant. Our market share is 40% to 50% of treated patient in the third line and beyond setting and we continued to see unsolicited commercial use of VELCADE in the front line setting with a market share of approximately 10% of treated patients. In the second quarter, two additional states began reimbursing physicians for VELCADE use in the front line setting, bringing the total number of states to 14. Our market research shows that responding patients are now receiving approximately six cycles of VELCADE. This is up from the 5.5 cycles previously reported. We believe there is additional opportunity to increase the number of cycles and we continue to educate physicians on the importance of the standard eight-cycle regimen.

Our enhanced sales and marketing initiatives launched in January are continuing to have impact. Physicians are using VELCADE in more patients and increasing the length of therapy in responding patients. In addition, our market research indicates a greater percentage of physicians recall the product unmatched survival advantage and well characterized safety profile. Physicians are also using VELCADE more often in combination, with translates to even better responses for patients. In non-Hodgkin's lymphoma, we continue to see commercial use of the product increase, although we only promote VELCADE for its approved indication. The majority of this use is in relapsed mantle cell lymphoma for which VELCADE is reimbursed nationally. We're also continuing to seek commercial use of VELCADE in relapsed follicular lymphoma albeit to a lesser extent at this time. To date, five states reimburse physicians for VELCADE in the relapsed follicular setting, representing 25% of the total treated follicular patient population. Given the survival advantage provided to patients, VELCADE is prized very favorably compared to new competition. We increased the price per vile by 2.5% on July 1, which translated to an annual cost of therapy per patient of approximately $26,000 for six cycles and $35,000 for the standard eight cycles stated in the label.

Taking a look at other sources of revenue, royalties associated with INTEGRILIN worldwide sales and VELCADE ex U.S. sales were $34 million for the second quarter 2006. We began recording royalties as a separate line in September 2005. Royalties for VELCADE increased significantly this quarter as a result of several successful product launches in countries outside the U.S. by Ortho Biotech and Janssen-Cilag, members of the J&J family of company. VELCADE is now available in 75 countries. Revenue under strategic alliances increased to $27 million this quarter from $19 million in the second quarter of 2005. We did have a slight modification of our relationship with Schering-Plough that will effect the strategic alliance revenue line and the cost of sales line going forward. Starting July 1, Schering-Plough began purchasing raw material for INTEGRILIN directly from the supplier. This change will improve our working capital and we estimate our total cost of sales will decrease by approximately 50% over the quarterly run rate seen in the first half of 2006. Revenue under strategic alliances will be decreased by a corresponding amount. Importantly, there will be no net impact to our income statement.

Turning to expenses, on a non-GAAP basis, R&D expenses in the second quarter of 2006 decreased 16% to $73 million from $87 million in the second quarter of 2005. This decrease is primarily a result of cost reductions associated with our 2005 strategy, refinement, and restructuring efforts, which included our decision to focus our discovery efforts on oncology. The corresponding GAAP R&D expenses in the second quarter of 2006 were $79 million. On a non-GAAP basis, SG&A expenses in the second quarter of 2006 decreased approximately 39% to $32 million from $52 million in Q2 2005. This was primarily a result of the cost savings associated with the 2005 modification of our relationship with Schering-Plough for INTEGRILIN, along with other savings in SG&A from our strategy refinement and restructuring activity. GAAP SG&A expenses in the second quarter of 2006 were $37 million. On a non-GAAP basis, we achieved net income of $4 million, a significant improvement from a loss of $33 million in the second quarter of 2005. This improvement was the result of top line growth driven by VELCADE and our continued management of expenses. I am proud to say that this is the second consecutive quarter that we achieved non-GAAP profitability, putting us on track to achieve our financial objective of non-GAAP profitability for the full year. On a GAAP basis, we reduced our net loss for the second consecutive quarter with a loss of $18 million this quarter compared to $44 million in the second quarter of 2005.

Turning to the balance sheet, we ended the second quarter with $626 million in cash, cash equivalents, and marketable securities after reducing convertible debt by $6 million in June. Outstanding principal amount of convertible debt is now approximately $100 million, which is due in the first quarter of 2007 and is recorded in current liability. In our press release this morning, we reiterated our full year financial guidance. This guidance includes VELCADE U.S. net product sales of $225 to $250 million, non-GAAP net income of up to $5 million, and GAAP net loss in the range of $95 to $115 million. We want to remind you that during this transition year to non-GAAP profitability, quarterly results may fluctuate due to variability in expenses and strategic alliance revenue, including the achievement of milestones. We're very pleased with the Company's financial performance for the first half of 2006. We're building momentum and I'm excited that Millennium has already achieved a significant number of its corporate goals in the first half of the year.

I'll now turn the call over to Bob, who will give you an update on our R&D progress.

Robert Tepper - President, R&D

Thanks, Marsha. The R&D organization had an extremely successful quarter, advancing VELCADE as well as our pipeline. In relapsed multiple myeloma, VELCADE, even as a single agent, continues to provide unmatched survival advantage for patients. VELCADE demonstrated a median overall survival of 29.8 months in the APEX study, our Phase III trial of single agent VELCADE in patients who had received a median of two prior therapies. No other agent has proven to deliver this level of survival benefit in the relapse setting. VELCADE's significant efficacy is delivered with a well-characterized safety profile as demonstrated in over 44,000 patients treated to date. VELCADE delivers this high level of efficacy to a broad patient population, including the approximately 50% of myeloma patients who at some time in their disease will have renal impairment. VELCADE is conveniently administered in a 3 to 5 second IV push for six to eight cycles over a time period of 18 to 24 weeks. This allows responding patients to potentially have a drug-free holiday, while experiencing the powerful survival advantage and without the constant reminder of their disease. Adding to the convenience of VELCADE, supportive care such as anticoagulant prophylactics and hermetic growth factors are typically not required.

As we advance our clinical program with VELCADE, we are seeing these significant benefits translate into the front line multiple myeloma treatment setting. VELCADE in combination with Melphalan and prednisone demonstrated the highest recorded complete response rate seen to date in this treatment setting as reported by the journal Blood in an recent online publication of results from a Phase I/II trial of 60 elderly patients with newly diagnosed multiple myeloma not eligible for transplantation. The VELCADE-based therapy demonstrated an overall response rate of 89%, a complete response rate of 32%, and a complete and near-complete response rate of 43%. The durability of response was strong, with 91% of patients free of disease progression compared to historical control data for MP alone of 66% at a median follow-up of 16 months. The VMP study is just one of several studies of VELCADE in combination with agents typically used in the front line multiple myeloma setting. In these front line studies, the addition of VELCADE has consistently increased the overall response rate and complete response rate of the other agents. It is also important to emphasize that we see the efficacy of VELCADE consistently increase as well. For example, the complete response rate of VELCADE has doubled when you add dexamethasone as observed in investigator trials in the front line setting.

In relapsed mantle cell lymphoma, this quarter we filed our supplemental NDA for VELCADE ahead of our projected filing date based on the final data from our pinnacle trial. The durability of response demonstrated in pinnacle may make VELCADE the standard of care in this disease. The overall response rate was 33% with a complete response of 8%. The durability of response was 9.2 months for all responders and 13.5 months for those who received a complete response. These are impressive results given that relapse mantle cell patients typically have a 12 month life expectancy without VELCADE. An indication in relapsed mantle cell lymphoma will be our entry into the non-Hodgkin's lymphoma market and represent another step forward in expanding the role of VELCADE to meet the needs of patients beyond those with myeloma. Together with our partner J&J, we continue to develop VELCADE in a number of promising areas. Over 200 trials are currently ongoing, Company-sponsored as well as investigator-initiated and cooperative group-sponsored trials.

Now turning to our pipeline, we are excited to announce today that we have brought forward a new molecule from our discovery organization to development candidate status. This is the fifth Millennium discovered molecule to progress through the development pipeline in just a two and a half year period. This molecule MLN6095 is a small molecule inhibitor of a target that plays a key role in inflammatory diseases. This quarter, we announced positive topline results from the Company's randomized double-blinded placebo-controlled Phase II clinical trial of MLN1202, a novel humanized monoclonal antibody to the CCR2 receptor in patients at high risk for artheosclerotic cardiovascular disease. Our preliminary analysis showed that MLN1202 was well tolerated and fully met its primary end point of a statistically reduction in C-reactive protein for a number of months after a single dose of MLN1202. No serious adverse events were observed in treated patients. We believe this is the first public CCR2 antagonist data to show significant and sustained activity in the clinic.

CRP is a critically important inflammatory biomarker of cardiovascular risk. A higher level of this protein is a prognosticator for poor cardiovascular outcome, including death, as shown in landmark clinical studies such as the PROVE IT trial. Patients enrolled in the MLN1202 trial had documented CRP elevations of greater than 3 milligrams per liter as determined by blood tests and were deemed to be at high risk for atherosclerosis by meeting two or more risk factors such as age, history of smoking, body mass index, and previous or ongoing medical conditions including hypertension, elevated cholesterol, and diabetes. Trial results are expected to be submitted for presentation at a medical meeting in 2007. We are currently evaluating our next steps with this program and are actively seeking a collaborator on this indication. As you've heard this morning, we've made tremendous progress expanding VELCADE and progressing the pipeline in the first half of 2006. We look forward to keeping you updated over the remainder of the year.

I'll now turn the call over to Deborah for closing remarks.

Deborah Dunsire - President, CEO

Thanks, Bob, and welcome, everyone. As you've just heard from Marsha and Bob, Millennium delivered strong results for the second quarter and the first half of 2006. With VELCADE, we are more confident than ever in the long-term growth profile of the product. In the relapsed myeloma setting, the overall median survival of of 29.8 months is unmatched and is delivered with a well-characterized safety profile, convenient dosing without the need for supportive care, typically, and a favorable cost to patients and the health care system. We're seeing our share of patients increase and the average length of therapy increase as a result of our enhanced sales and marketing initiative. In front line multiple myeloma, VELCADE has demonstrated the highest complete response rate seen in the treatment of the disease. Financially, we continue to drive VELCADE and manage operating expenses in a disciplined way. Operationally, we are focused on execution and have already accomplished many of the goals we set for ourselves at the start of the year, which are critical to position us for long-term success. You've heard about several of these accomplishments already today, but I want to review them in their entirety, starting off with advancing VELCADE, which is our primary strategic focus area.

Bob already mentioned, we submitted the SNDA in relapsed mantle cell lymphoma ahead of schedule. We expect to hear from the FDA in early August with our producer date. In April, we initiated the Phase III trial of VELCADE in combination with rituximab, an indication in follicular and marginal zone lymphoma in the relapse setting would significantly increase the market opportunity for VELCADE. We've also advanced our front line multiple myeloma program for VELCADE, continuing to enroll patients in three Phase III registration enabling trials and remaining on track for interim data from the ISN trials by year end of 2006. With the publication of the VMP data that Bob mentioned, we're actively building evidence of the strength of VELCADE in the front line setting. We'll use these data to support the compendium listing process.

Turning to our focus area of progressing our pipeline, we're continuing to advance the Company's high priority clinical program for MLN02 our alpha-4 beta-7 integrin inhibitor. We selected a commercially scalable sale line and initiated the preclinical study, putting us on track to initiate the bridging study for this molecule in the front half of 2007. With 518, our front line AML trial continues to accrue patients and we expect NCI trials in neuroblastoma, renal, and prostate cancers will start in the second half of this year. With 8054, our small molecule, selective inhibitor of the aurora A kinase, we initiated the second Phase I trial to bolster this program. As Bob told you, we saw positive Phase II data for 1202 in patients at high risk for atherosclerosis.

Turning to our discovery entry. We're on track to advance at least two new molecules to development candidate status. Today we announced MLN6095 and we're on our way to nominate additional molecules to development candidate status by the end of this year.

Finally, for our third focus area, strategic business relationships, we continue to seek end licensing and acquisition opportunities for late-stage oncology assets and are in active discussions on forming collaboration with our pipeline assets. Our focus with collaborations on our pipeline is to out license U.S. rights to all of the molecules and then find U.S. development and commercialization partners for programs that are outside our commercial areas of focus.

Before we end the call today, I feel it is important to address the announcement that we made last month about an offer we received from a third party interested in acquiring Millennium. It was appropriate to explore this option and as such, we engaged in a time-limited process to look into the value proposition of a strategic sale of Millennium relative to the value of the Company's stated strategy of building an independent sustainable biopharmaceutical company. After a thorough review, the Board of Directors made the determination that the shareholders would be best served by executing on our stated strategy, growing VELCADE, progressing the pipeline, and continuing to actively search for appropriate additions to our portfolio from outside, positioning us to achieve long-term, profitable growth. I believe there's tremendous untapped shareholder value here at Millennium, and since I joined the Company one year ago, we've been focused on execution to ensure that we win in the areas we compete. As evidenced by our many accomplishments already this year, our approach is yielding a desired result. And I'm very, very proud of everything that all of my colleagues at Millennium have achieved. This is an exciting turning point for this Company and we look forward to keeping you updated on our results and progress through the balance of 2006. Thanks for joining us this morning. Over to you, Kyle.

Kyle Kuvalanka - Director, Investor Relations

Thanks very much, Deborah. We are now ready to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions]. We'll go first to Geoffrey Meacham at J.P. Morgan.

Chris Demetropolis - JPMorgan Chase & Co

Hi. Thanks for taking my question. Actually, this is Chris Demetropolis for Jeff. Just wondering if you could discuss what regimens you're seeing VELCADE usage in the front line setting?

Kyle Kuvalanka

Chris, thanks for the question. We're going to have Christophe Bianchi answer the question.

Christophe Bianchi

Thank you for the question. Effectively VELCADE has been used in the front line setting as we indicated in about 10% of the patients. We do not solicit this business. It is generated by interest of doctors in our product and direct outcomes they have seen so far. So we have got a mixed bag of utilization going from single agent medication. We have great data configuration that came in the relapse setting and a lot of doctors are transferring this data to the front line setting as well. In addition to that, we see some utilization of VELCADE in combinations with other active treatment such as dexamethasone.

Chris Demetropolis - JPMorgan Chase & Co

Okay. And in the relapse setting, are you seeing just market share gains, or are you also seeing growth of the overall market with the entrance of a new competitor?

Christophe Bianchi

Well, number one, I think we have been very pleased with the results of VELCADE. We have got 29.8 months survival benefit with VELCADE, which is unmatched by any product on the marketplace. So we are very pleased with those results. For us the combination with multiple myeloma and we are getting growth in effectively tackling this disease. We are seeing some expansion of our market share in the front line setting. As we indicated earlier no market share in front line setting is higher than 50%, and we are also seeing extension of direct treatment which is the results of our campaign and the results of our underlining of the data in APEX indicating the longer the patients get treated, the better the management of their disease. We're seeing doctors utilizing the drugs earlier in more patients and for a longer duration of treatment, all of that because we've got an unmatched survival benefit of about 30 months.

Deborah Dunsire - President, CEO

If I can just also add to that, Chris, I think over time we will see market expansion as we see the lines of therapy potentially increasing for patients, as patients may get more lines of therapy with more available therapies. And I think over time, the survival advantage will translate into potentially, we all hope, a higher prevalence of patients, because they're living longer. The ultimate goal is to cure, but until we get there, if we can have patients survive longer, that's a tremendous advantage. But I don't know that we can yet say that we're seeing that market expansion.

Chris Demetropolis - JPMorgan Chase & Co

Great, thank you very much.

Operator

And our next question comes from Craig Parker at Lehman Brothers.

Craig Parker - Lehman Brothers

Good morning. Bob, I'm wondering if you can review the ISM protocol quickly so that we're all prepared for the data, the interim analysis when it comes out, and also if you just make sure to clarify whether the interim analysis is just the complete response rate for half the patients or is it something else?

Kyle Kuvalanka

Good morning, Craig. We're going to have Nancy Simonian answer that question.

Craig Parker - Lehman Brothers

Hi Nancy.

Nancy Simonian

Hi, Craig. So the ISM study is one of our three registration enabling studies. This is done in the transplant population and the question that we're asking here is the CR rate post-induction prior to transplant, that's the primary end point of the study and we're looking at VAD versus VELCADE-Dex. There will be a secondary end point, a longer term end point that we'll be looking at post-transplant. But as you know the really critical thing out there, if you can improve the number of individuals that go into CR prior to transplant, that overall they will have a better overall progression in survival. We do know that transplant is the one thing that has translated into improved survival over time. So the specific end point, the primary end point is CR post-induction.

Craig Parker - Lehman Brothers

And that will be on half the patients, the interim analysis?

Nancy Simonian

The interim analysis is based on -- there was a pre-received number of patients for the interim analysis. We met that accrual target a month or so ago and then based on the follow-up, we believe we'll have the data for those pre-specified number of patients that was for that interim.

Craig Parker - Lehman Brothers

And sorry, just a few more questions. So everyone goes to transplant?

Nancy Simonian

Yes, everybody that has enough of a -- goes to transplant.

Craig Parker - Lehman Brothers

All right, thanks very much, Nancy.

Operator

Next, Rachel McMinn with Piper Jaffray & Co.

Rachel McMinn - Piper Jaffray & Co

Hi. Yeah, thanks very much. I'm just wondering if you can talk about the landscapes since Revlimid was approved? Obviously you've reiterated your sales guidance but you've had about a month, I know it's really early. Are you seeing any type of initial share loss in terms of new patient starts? And do you expect that your growth is really going to come from myeloma or it's going to be coming from the NHL segment?

Kyle Kuvalanka

Rachel, we're going to have Christophe answer that question.

Christophe Bianchi

Thank you, Rachel. As you indicated, Revlimid has been on the market for only for a few weeks, although it has been on the market since the beginning of the year for MDS. So we are monitoring the situation very, every day. We do not see a share lose, and to the contrary, after the past committee where doctors, physicians looked at the survival benefits and comparing the two agents, effectively we are seeing a lot of interest. 28.9 months of survival benefit is really resonating with the target audience. We know that multiple myeloma as in every other cancer survival is really something, that's effectively why doctors use product. Our survival benefit is resonating very well. We see some usage of Revlimid and demand for Revlimid in third line patients. We also see Revlimid taking some market share in third line, which is effectively good for the patients given that they will have used other treatment before Revlimid and we're seeing them being used in third line. We also see anecdotally reports from physicians indicating that they will substitute Revlimid for Thalidomide. And they are seeing one come in with other's opinions, but again, we are seeing some good growth in second line and extension of length of treatment and a lot of interest in the product. I would like to add one comment, which is also related to safety. We talked about efficacy. We've got a well, manageable safety profile with VELCADE. The drug is given predictably. It's an IV push every week. And the side effects are highly manageable. Generally, we do not have any life threatening side effect, and that's also something that's really important when you consider using a drug in multiple myeloma. All in all, I think we're doing pretty well.

Rachel McMinn - Piper Jaffray & Co

And do you think that, just anecdotally, from physicians that you're going to see a combination VELCADE-Revlimid use? And then just lastly, could you comment at all on kind of the lengthening duration that a couple of investigators have presented data on in terms of the cycles, instead of going from 21 days, going out to longer cycles in the myeloma setting, whether or not you see that being the future for VELCADE?

Kyle Kuvalanka

Okay. So Rachel, two questions, let's start with the second one. In terms of the lengthening of the duration of therapy, just a point of clarification. Are you talking about?

Rachel McMinn - Piper Jaffray & Co

Just the actual cycle. Instead of a 21 day cycle, we're seeing some reports -- a couple of report now going to 28 and 35 day cycles. I'm wondering if you think that's really where VELCADE is going to move to to help increase the number of cycles.

Kyle Kuvalanka

In the front line or in the relapse setting?

Rachel McMinn - Piper Jaffray & Co

Either.

Kyle Kuvalanka

Okay. We'll have Nancy take that.

Nancy Simonian

Rachel, I can comment that there are both in, both in some investigator-initiated studies and other trials as well as just use out there people are both in the front line and somewhat in the relapse setting looking at following the standard three week cycles. Looking at extending treatment, but more on an every week basis. So going out longer in almost a maintenance type setting. So there are physicians that are doing that in some patients that have shown a response to see if they can prolong the benefit. And as I said, there are some studies -- mainly investigator initiated studies that are ongoing that are also evaluating that. So I think it's a -- it's some that there will be forthcoming data as it relates to the potential benefit of that.

Kyle Kuvalanka

And Rachel, your second question was about VELCADE and Revlimid use in the marketplace. We're going to have Christophe answer that question.

Christophe Bianchi

Rachel, we haven't seen much of that yet. I'm afraid Revlimid has been on the market for six months. We are seeing anecdotally some physicians using the two agents. But let's keep in mind that we've got a great, well-established safety profile with VELCADE. Right now physicians are trying to find the best way to use Revlimid and we have seen anecdotally some physicians dosing Revlimid. They're still effectively treating with a dose of Revlimid and also treating with a dose of dexamethasone. At APEX recently there was a lot of discussion as to what was the appropriate dose of Revlimid and dexamethasone in light of the incidents of DVT. So we are not seeing a lot of combination yet, because we're trying to figure out how to use the drug.

Rachel McMinn - Piper Jaffray & Co

Okay.

Deborah Dunsire

If I can add to that, Rachel, I think one of the features we've been so increasingly enthused about with VELCADE is its combinability. We are seeing it being combined with other agents in various front line setting. As Christophe said earlier, it's a mixed bag. So wherever we see VELCADE added to a regimen, it picks that regimen up, picks up the complete response rate. So we know people are understanding that bringing the mechanism of proteosome inhibition to their other combinations really adds for a patient. And I think we'll see the right combination. We've talked to you before about the evolution in lymphoma to a standard four drug regimen, a chop regimen in our own supplies. And I think that will ultimately come over time with myeloma also. But I think we're still in the phase of seeing where is the best combination and how much do you have to add and people also have to consider the cost. So I think we're seeing with our single drug used on its own in the relapse setting, delivering 29.8 months of survival versus -- what do you need to combine it with and how much more cost do you need to spend for the type of results you want to get? And I think people will need data to be able to determine which combinations are going to be best.

Rachel McMinn - Piper Jaffray & Co

Thanks very much.

Operator

Our next question comes from Chris Raymond at Robert Baird.

Christopher Raymond - Robert W. Baird

Hi. Thanks for taking the question. Just an operational one. I'm a little curious and have been impressed to see your SG&A numbers sort of continually going down, but in the face of an announcement you made sometime last year of significantly enhancing your sales force can you maybe talk about what's happening there? Is it just maybe a redeployment and a retooling of the type of sales reps you have, or is there some other area where you're getting these savings?

Kyle Kuvalanka

Good morning, Chris. We're going to have Marsha Fannuci answer the question.

Marsha Fanucci

Hi, Chris. The numbers you see reflected in our SG&A line are of course a combination of a number of forces at work. One of those is that shift from us being responsible for the INTEGRILIN activities to really having a goal focused on VELCADE. The other piece of that are really just our overhead numbers, our more strict overhead numbers. As we manage that expense line, we're constantly looking at how the pieces of the pie are divided and focusing really on controlling those more overhead related expenses so we can free up as much as possible to be invested in the VELCADE brand. Within VELCADE, I think that team also goes through those same reallocations. But we are in a continuous mode of looking at managing the expenses but optimally supporting VELCADE in that context. And of course we're focused on trimming around the G&A pieces that are not specific to VELCADE as a priority.

Christopher Raymond - Robert W. Baird

Are you able to give an update on where you are in your sales force? How many, et cetera?

Kyle Kuvalanka

Sure, Chris, we'll have Christophe Bianchi answer that.

Christophe Bianchi

Yes, Chris. We have the sales force which we recently expanded. Actually, the expansion of the sales forces goes back to January this year. Our sales force is 95 representatives strong plus management and we are making a great impact on that. We have seen the recall of our unmatched survival benefits of about 30 months to be really recorded by physicians. We see physicians using the drug for longer duration of treatment, we see physicians really recording the well-characterized safety profile of the drug. And also being conscious of the benefit that you get with VELCADE. So all in all, I think this sales force expansion is being successful. Of course it could still you a bit more in the territory and we are managing the situation very actively to make sure get the best representatives out there and the best trained people because we feel it's in the best interest of the patient as well.

Christopher Raymond - Robert W. Baird

Maybe one quick follow up, if I can, Christophe. You've seen a market move here in terms of the number of cycles on average that physicians are putting patients on the drug. If you can maybe describe your typical physician who's been using VELCADE, but maybe for a limited number of cycles and then has expanded, what is the number one catalyst, if you can maybe talk about that, or if there's a combination of them?

Christophe Bianchi

There is a combination of things, but I think the number one catalyst is that we are educating the physician to the fact that -- VELCADE works very well, and VELCADE works very reputably. Historically with some physicians, they change their mind so they get some response very quickly and they stop the drug because they think that they have maximized the response. When we look into APEX clinical trial, we found in the patient who responds, they usually achieve their best -- their best response is not responding early, but they achieve their best response at eight, nine, ten cycles of treatment. We've effectively shown to physicians that if they can treat up to eight cycles of treatment, they will effectively get the best chance of maximizing the response of the patient. Because sometimes the patient will start with a partial response after a couple of cycles. What you don't want to do is stop treatment at this time. Because that partial response may eventually evolve and become a complete response over time if you keep giving the product. This is been the single most important catalyst of our growth. In addition, they have also come to realize that neurodeficient tissue was not such a big deal. It could be manageable that with upper grade done dosing, you could deal with neurodeficiency, that neurodeficiency was not a life threatening condition if you would. We have also done some good education in the marketplace out there, explaining to physicians how safe the drug can be and what benefits you can get with the increased length of treatment.

Christopher Raymond - Robert W. Baird

Great, thank you very much.

Operator

Next question comes from Tom McGahren at Merrill Lynch.

Thomas McGahren - Merrill Lynch

Hi. Thanks for taking the question. I'm just looking for an update on the VELCADE in non small cell lung cancer program and also in BAC.

Kyle Kuvalanka

Tom, we're going to have Nancy Simonian answer that question.

Nancy Simonian

Tom, as you know, in the second line setting, we have three ongoing Phase II studies of in in BAC, VELCADE as a single agent, and two randomized studies, one with VELCADE and ALIMTA and the other with VELCADE and Tarceva. Those are all in the progress stage and I think we've said before that we expect to have data available from those in the 2007 time frame. As it relates to front line, as you know, there was data presented by the group at ASCO and we're in the process of evaluating that data and making some decisions as what might be the next steps as it relates to front line.

Thomas McGahren - Merrill Lynch

In terms of timing as to when you might determine those next steps?

Nancy Simonian

We haven't been explicit in terms of the timing. Obviously, it's important for us to really understand as best we can the data, better understand what groups of patient especially in light of the commercial landscape might be most beneficial to go after. Whether we think the data at this point in time warrants moving forward into Phase III or not. I think those are the questions on the table that we really haven't set a time frame, but obviously a lot of active work going on there.

Thomas McGahren - Merrill Lynch

Okay. Thanks a lot.

Operator

And we'll go next to May-Kin Ho with Goldman Sachs.

May-Kin Ho - Goldman Sachs

Hi. Thank you. I have several questions. One is on the IFM trial. What kind of CR do you expect for that alone?

Kyle Kuvalanka

We'll have Nancy answer that question, May-Kin.

Nancy Simonian

May-Kin, the historic data with that as you probably know is clearly less than 10% CR rate, probably closer to 4% or 5%. It's one of the reasons why we've been so excited about the data that we've seen to date with VELCADE. Just think, VELCADE as a single agent and shows a 10% CR rate. Our Phase II date with VELCADE-Dex is 18% to 20%. I think the important thing is all the things that are typically used to induce people prior to transplant like VAD and Dex have single digit CR rates. That's kind of what the historic data would suggest.

May-Kin Ho - Goldman Sachs

And was the study looking for in terms of differences and what's the power?

Nancy Simonian

We haven't explicitly talked about that. You know this is a cooperative group study being done by the IFM group?

May-Kin Ho - Goldman Sachs

Yes.

Nancy Simonian

But -- so we haven't been explicit. But it's a, I think we've said it's a 480 patient randomized study, two arms.

May-Kin Ho - Goldman Sachs

Yes. Should we expect more retreatment data in the next new months?

Nancy Simonian

We did, there was a publication, yes. Retreatment data from the Everest study and also from some retroperspective work that we're doing, we'll likely have in the second half of this year, which what we have committed to.

May-Kin Ho - Goldman Sachs

And on 1202, what is the status for rheumatoid arthritis and MS?

Nancy Simonian

As you know, with the rheumatoid arthritis data, we announced I think it was -- earlier, the beginning of this year that the trial that we did looking at synovial biopsies as a surrogate for inflammation of the joints did not meet our pre-received end points. We did say though that we saw evidence of biologic activity but not anything sufficient as it relates to the biopsy data to move it forward in RA. And as it relates to the MS program, that trial is ongoing and we would expect to have data in the early part of 2007.

May-Kin Ho - Goldman Sachs

Is that a bit later than what we thought? Because I thought it was supposed to be second half of the year.

Nancy Simonian

I think we've always said and announced even at the beginning of the year that it was going to be in the first quarter of '07. Yeah. But the trials enrolling well and we expect to have data then.

May-Kin Ho - Goldman Sachs

And lastly, the question for Deborah, you mentioned that the board decided that it's better for the Company to continue growing by itself? Was that related to the evaluation of the offer?

Deborah Dunsire

Yes. Yes, it was. The primary drivers for this Company are shareholder value creation. So it was a valuation decision.

May-Kin Ho - Goldman Sachs

Thank you.

Operator

Next, Phil Nadeau at Cowen.

Phil Nadeau - SG Cowen & Co

Good morning, thanks for taking my questions. And congratulations on a good quarter. My first question is in regards to Revlimid competition. I was wondering if you have any plan changes to either the sales force or your marketing message or whether you think the changes you made last year are good and going to carry you through?

Kyle Kuvalanka

Phil, thank you so much for the congratulations and we're going to have Christophe answer your question.

Christophe Bianchi

Thank you for the question. Obviously, I'm reviewing the situation very carefully. We think that we've got a great sales force out there. As I indicated earlier, 95 strong people. The size is efficient to compete. We are looking at this as I mentioned. It's right -- plan B is to keep the way it is. While not changing too much the marketing strategy, the effective marketing strategy is to take care of multiple myeloma. We've got a great drug to deal with multiple myeloma, great survival benefit, great efficacy, great safety profile. One area in which we are tweaking a bit as I said is to make sure doctors are fully aware of the clinical benefit they can expect with VELCADE at the price of VELCADE and they can make decisions regarding other agents looking at the pinacle benefit that is provided by those other agents. It is complicated to give them agents because they are used in combination and also the complication not only efficacy in general but also for the patient. One thing that is really important is that VELCADE being a Medicare part B drug, patients can get coinsurance for the copay if they have other insurance. They cannot do that on the Medicare part D and effectively, we've got a drug that's very cost effective.

Phil Nadeau - SG Cowen & Co

Okay. And maybe just a follow-up. One thing we've heard from some of our consultants is they expect to use Revlimid in place of VAL frontline and they said that ironically that could help VELCADE because it means you won't have a neurotoxic drug first line followed by a potentially neurotoxic drug second line in VELCADE. Is there any way that you could take advantage of that situation through marketing? Have you thought about this? Anything you could highlight to bring that to the attention of physicians?

Kyle Kuvalanka

We're going to have Bob Tepper start off that question and then Christophe will finish.

Robert Tepper

Just to orient folks a little bit on the neuropathy, as you know, myeloma as a disease in and of itself, has a baseline neuropathy in a significant number of patients again based on the underlying disease. What we've found in earlier studies, for example, our Phase II summit and crest trials and the APEX trial is the majority of patients coming into the trial had received Thalidomide and a significant number of those patients of course had some neuropathy on that basis. However, we don't necessarily see that patients who got prior neuropathy either from the underlying disease or other drugs will necessarily get neuropathy on VELCADE or necessarily get worsening neuropathy. So we can't necessarily -- I don't think there's a rational necessarily for avoiding the use of VELCADE in patients who may have prior experience with a different drug. The most important thing about the VELCADE neuropathy is that a great majority of patients who get neuropathy, grade I and II, and most patients do not get neuropathy from the drug at all. Those who do have neuropathy of a higher grade can typically have that neuropathy abated or completely resolved with lowering the dose. And then all patients usually, once treatment is completed, the great majority of patients have reversal of neuropathy either complete or significantly lowered in severity.

Christophe Bianchi

I don't have much to add other than that. I think Bob addressed the question. One area of important differentiation I should have also mentioned with respect to your earlier question is the area of renal sufficiency VELCADE can be given safely in people with a renal deficiency and we know in multiple myeloma, depending on the estimation, between one-third to one-half of the patients have got renal insufficiency. And VELCADE can be given safely in these patients and we also know that renal insufficiency is a bad factor in multiple myeloma. So effectively VELCADE being used in renal insufficiency patients which is a large part of the market really helps those patients and physicians who do not have to select specific patients for VELCADE. VELCADE can be given literally to every patient as opposed to other agents which have got significant issues because of inaccuracies and cannot be used in people with renal insufficiency.

Phil Nadeau - SG Cowen & Co

Great. That's helpful, thank you.

Operator

We'll take our final question from Tim Smith with Citigroup.

Tim Smith - Citigroup

Hi, this is Tim for Yaron Werber. Just curious if you could give us the breakdown of market share for VELCADE by treatment lines and then just a brief second question with the VELCADE growth we saw this quarter, if there was any use of mantle cell lymphoma might have contributed to that, if you guys have seen any evidence of use in that area?

Kyle Kuvalanka

Christophe, will answer that question.

Christophe Bianchi

Yes, Tim, number one, I just want to take a moment to indicate that the market share estimates that we derive in interviewing physicians. You know we have a panel of physicians. So we monitor those physicians on a regular basis and sometimes there is viability for more and the next one, but we are fairly comfortable with the results which we communicate to you. In front line treatment, our market share is about 10%. In second line treatment, our market share is about 50% to 55%. And in third line, we have a market share of about 40%. In mantle cell lymphoma, we have a drug which usually we do not promote given that we do not have the indication. We have got a compendium listing but we're seeing physicians are not always fully aware of the reimbursement for VELCADE in mantle cell lymphoma. We estimate our market share to be at about 30% of the mantle cell lymphoma patients. We do not see a big growth coming in this quarter from mantle cell lymphoma; we're seeing the growth coming from the length of treatment and as we've said the market share in multiple myeloma.

Tim Smith - Citigroup

Okay. Great. Thanks a lot.

Operator

This concludes the question and answer session today. I would like to turn the conference back over for any additional or closing remarks.

Kyle Kuvalanka

Thank you very much. We just want to thank everybody for joining us today and we look forward to seeing you throughout the rest of the quarter. We have a very aggressive road show schedule planned and hope to see a lot of you as we go out on the road. Thanks a lot.

Operator

This concludes today's conference, ladies and gentlemen. We thank you for your participation and you may now disconnect.

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Source: Millennium Pharmaceuticals Q2 2006 Earnings Conference Call Transcript (MLNM)
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