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Celgene Corporation (CELG)

Q2 2006 Earnings Conference Call

July 27, 2006, 9:00 am EST

Executives

Robert Hugin - President, Chief Operating Officer, Chief Financial Officer

Sol Barer - Chief Executive Officer

Analysts

Geoffrey Meacham - J.P. Morgan

Ian Somaiya - Thomas Weisel Partners

Jim Reddoch - Friedman, Billings, Ramsey

Michael King - Rodman & Renshaw

Sapna Srivastava - Merrill Lynch

Presentation

Operator

Good morning, my name is Kanisha, and I will be your conference operator today. At this time, I would like to welcome everyone to the Celgene Quarterly Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. Mr. Bob Hugin, you may begin your conference.

Robert Hugin - President, Chief Operating Officer, Chief Financial Officer

Thank you. Good morning and thank you for joining us today. With me is Celgene's Chief Executive Officer, Sol Barer. Before we begin, I'll review our safe harbor statement. Certain statements made during this conference call may be forward-looking and are made pursuant to the Safe Harbor Provisions of the Securities Litigation Reform Act of 1995. Certain forward-looking statements which involve known and unknown risks, delays, uncertainties and other factors not under our control may cause actual results, performance and 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, our products failure to demonstrate efficacy or an acceptable safety profile, actions by the FDA, the financial position of suppliers, including their solvency and ability to supply product and other factors detailed in our other filings with the Securities and Exchange Commission or referred to in the press release issued this morning. We are very pleased with the second quarter results announced this morning. Excellent progress was achieved across all business units of the Company. Highlighted by FDA approvals for Revlimid and Thalomid in multiple myeloma.

Let me first review the financial results and then Sol and I will provide our perspective. Total revenue for the quarter rose to more than $197 million, a 57% increase over the year-ago quarter excluding the one-time Novartis milestone. This significant rise in revenue was the result of strong Revlimid and Thalomid sales during the quarter. Total net product sales increased to more than $176 million for the quarter, up 67% from the $105 million in the year-ago quarter.

Thalomid sales contributed significantly to the positive results and product sales. Thalomid sales were supported by the FDA approval for newly-diagnosed multiple myeloma and the new myeloma survival data presented at ASCO. The $107 million in net sales is all the more impressive in the light of the introduction of Revlimid and measures taken to allow retail pharmacies to reduce shelf inventories through the introduction of single-sleeve units. Importantly, Revlimid sales grew to $63 million from the $32 million reported in the first quarter.

Prescription trends were similar to first-quarter trends with MDS prescriptions accounting for a little less than two-thirds of dispenses, myeloma shares grew to 25% to 30% and a broad range of other cancer indications producing the remainder. Named patient sales outside of the United States have contributed about 5% of total sales. We expect continued modest benefit from named patient sales prior to European approval.

Alkeran results were reduced by a large increase in government rebates and manufacturing supply concerns. These factors may contribute to significant variability in Alkeran sales for the remainder of the year. Second half sales may in fact be comparable to first half totals. As we remained focused on both maximizing the full potential of Revlimid in a broad range of indications, and accelerating the development of our IMiD and other pipeline programs, adjusted R&D spending increased to $53 million in the quarter.

Adjusted SG&A expense totaled a little more than $63 million in the second quarter a $9 million increase over the first quarter. As we continued our Revlimid MDS launch activities, prepare for the myeloma launch and advance our international capabilities in Europe and around the world. Specifically, we continue to invest in both the educational and promotional activities that support our Revlimid launch and MDS deletion 5Q, our first step in building a franchise in MDS.

We continue to make significant progress in educating and building a global market where for the most part, supportive care has been the only option. At the same time, during the second quarter we made impressive progress refining our Revlimid launch preparations for multiple myeloma. With the actual launch meeting taking place on the 10th through the 14th of July.

We are very fortunate and excited to be in the unique position to have two products and three parallel launches ongoing to deliver innovative oral therapy to patients in need. During the quarter, we made substantial progress in building a world-class international organization to capture our share of a large and growing global market. We now have begun operations in 17 countries around the world. Our global regulatory efforts are focussed on making Revlimid available in all major markets.

It is an exciting time at Celgene International as we build an organization that has the potential to bring our products to many thousands of patients in need around the world and to produce exceptional long-term rewards for Celgene. This balanced combination of revenue expense produced and adjusted net income of approximately $43 million and adjusted earnings per share of $0.11 for the quarter, which compares favorably to the Thompson first call consensus of $0.10.

Let me spend the few minutes updating you on the progress of our commercial activities. As we execute on our plan to make the Revlimid launch the most successful hematological oncology launch in history and to position Celgene over time as the pre-eminent company in this marketplace. We made excellent progress on these objectives during the quarter. The strong growth in Revlimid revenue and the strong Thalomid performance reflects the growing value of our franchises.

We are very pleased with the progress achieved in advancing our MDS strategy during the quarter, as we have previously discussed, we are committed to building a broad global MDS franchise. Our growing revenue reflects the progress achieved in capitalizing on our initial approval in the 5Q deletion segment of the market. There are only limited therapies for transfusion-dependent low and intermediate risk MDS patients. Education on the benefits of active treatment are a centerpiece of our long-term strategy. Peer reviewed publications and an expanding clinical trial program are important pillars of our plan to build this franchise. Our team has done an excellent job this quarter in advancing this strategy.

Though MDS is and will continue to be an important component of our operations, the progress achieved during the quarter in strengthening our multiple myeloma franchise was exceptional. Our commercial team was tasked with continuing the Revlimid launch in MDS while integrating the Thalomid newly-diagnosed myeloma approval with our launch preparations for Revlimid in previously-treated multiple myeloma. A challenging and exciting opportunity. The FDA approval of our Revlimid myeloma application allowed us to put these plans into action on June 29th.

By the end of the first week of July, we had distributed the newly approved 15 and 20 milligram capsules to contracted specialty pharmacies. During the second week of July, we held a national sales meeting which entailed a week of rigorous training programs to ensure that all of our sales representatives had the most current information on product labeling, rev assist and the essential information needed to help maximize their support of treating physicians and to help optimize a total positive product experience for multiple myeloma patients.

Though we are only in the second week of the Revlimid myeloma launch, the preliminary signals are encouraging. We're receiving very positive physician feedback from our launch efforts. We have a long way to go but are off to a very good start. The myeloma launch is clearly benefiting from the efforts over the past six months to ensure that patients have the broadest possible access to Revlimid, including free product through our expanded access program. Commitment to patient access has been and continues to be a hallmark of our operations.

As with the launch of any drug, reimbursement in is a key issue. The first half of 2006 was marked by the introduction of Medicare Part D, the most ambitious program ever designed to provide prescription drug reimbursement for our senior citizens. While initially very challenging, Medicare Part D is clearly helping millions of parents secure access to prescription drugs, including newel, newer oral cancer therapies such as Revlimid. We're encouraged by the increasingly broad reimbursement coverage for Revlimid by many national and regional managed care organizations and insurance providers and expect the multiple myeloma marketing approval to make coverage even more comprehensive.

Though the Medicare Part D program has broadened coverage for American senior citizens, it is not a complete solution. For there remains a subset of senior citizens who are uninsured or underinsured or lack the financial resources to make the co-payments required under these programs. At Celgene, we're committed to the maximum extent possible to offer support and tailored solutions to these patients and their caregivers. Through the over 8,000 physicians enrolled as prescribers in the RevAssist distribution system and our broad base of specialty pharmacies certified to dispense Revlimid, we offer a patient support solutions program to help patients identify all possible sources of coverage to access Revlimid.

We are maintaining our industry-leading commitment to provide free Revlimid and Thalomid to the uninsured who qualify. Though in most, in most cases, the co-payment requirements of Medicare Part D are in total less burdensome to patients than Medicare Part B, high co-payments remain a financial burden for many senior citizens. Throughout the past year and during the past quarter, we have made significant financial contributions to a number of independent non-pay, non-profit co-payment assistance foundations. We expect to continue to support these foundations in a meaningful way in the coming years.

Our RevAssist and STEPS program allow us a unique relationship with our prescribers and patients such that we are gaining a perspective on the requirements of navigating the complex reimbursement procedures of health care today. Based on these insides are people crafting creative and innovative solutions to make the process of obtaining coverage and other support for patients and caregivers as broad-based and straight forward as possible. We believe that the results of the first half of the year accurately reflect our capability to produce both strong commercial results and focus on building a promising future.

The substantial accomplishments and progress achieved in the first half of this year, strong revenue growth, increasing profitability, three important regulatory approvals, significant clinical developments and international expansion provide meaningful momentum as we look to capitalize on the many global opportunities in the coming quarters. Let me now turn the call over to Sol.

Sol Barer - Chief Executive Officer

Thanks, Bob. This was another excellent quarter for Celgene from commercial, regulatory, clinical, research, and strategic perspective as we continue to advance our hematology oncology franchise. The positive second quarter performance was driven by encouraging results from the, initial launch of Revlimid and we are committed to fully exploit the global potential of this powerful drug in a variety of indications. Very importantly, the success of Revlimid further validates our proprietary IMiD compound pipeline as a unique class of orally available compounds having significant potential in a number of serious diseases. For Celgene, long-term value creation continues to be an important corporate priority so we will continue to invest in these compounds and across our entire discovery and clinical pipeline.

This is an exceptional time for Celgene. With three recent regulatory approvals, we are now looking forward to maximizing both the commercial, potential of multiple product launches and further expansion of our clinical and regulatory program. A major corporate objective is to Celgene to have the preeminent global franchise in providing new and better treatment options for patients afflicted by hematologic malignancies and cancers.

We have initially focused on multiple myeloma and MDS where we have obtained unprecedented clinical data with our products. Meaningful clinical data will continue to play a central role to expand Revlimid's label and to maximize its potential. Clinical studies are underway in all stages of multiple myeloma including newly diagnosed patients and at all stages and types of MDS including low, intermediate and high-risk disease. In multiple myeloma alone, more than 2,000 patients are participating in Revlimid clinical trials worldwide. Results from clinical studies including unprecedented survival data in myeloma from Phase 3 Revlimid and Thalomid trials were presented during this past quarter at the 42nd American Society of Clinical Oncology Meeting and the 11th Congress of the European Hematology Association.

Specifically, researchers presented updated data from the pivotal North American Phase 3 trial and the pivotal international Phase 3 trial that evaluated the oral regiment of Revlimid plus dexamethasone versus dexamethasone plus placebo in previously treated patients with multiple myeloma. The updated study results demonstrated a significant increase in overall survival, in addition to prolonged time to disease progression for patients receiving the Revlimid arm. Also at ASCO, updated data from a European study that evaluated Revlimid as an oral combination therapy with Malfalan and Prednisone in elderly newly diagnosed patients with multiple myeloma revealed that after the completion of seven treatment cycles with Revlimid, Malfalan and Prednisone, all patients showed evidence of response with no further disease progressions observed with 9.6 months of follow-up.

At the European Hematology Association meeting, results were reported from an ongoing multi-center single arm open label phase two study of Revlimid in patients with relapse or refractory aggressive non-Hodgkins lymphoma where 31% of the patients experienced objective responses. Encouraging results also continue to be reported from studies of Thalidomide and multiple myeloma. In an Italian study presented at the recent ASCO meeting, a statistically significant difference in event-free survival of 68% versus 32% was reported after 26 months, the patients treated with Malfalan, Prednisone and Thalidomide versus Malfalan and Prednisone alone. In addition, updated clinical data from a French study reported that Thalidomide plus Malfalan and Prednisone compared to Malfalan, Prednisone and otologist stem cell transplantation led to a statistically different and significant improvement of about two years in overall survival for the Thalidomide containing arm.

We expect newer mature and clinical data to continue to be reported at upcoming major medical meetings, including ASH and ASCO and in major peer reviewed publications. To date, in 2006, there have been 11 peer reviewed publications on clinical studies and reviews of clinical studies of Revlimid in myelofibrosis , multiple myeloma, MDS and chronic lymphocytic leukemia and a number of additional Revlimid clinical studies have been accepted for peer reviewed publication.

In addition, we're finalizing preparations for the submission of our Revlimid MDS non-deletion 5Q trial, that's MDS 002, in primarily low to intermediate 1 MDS where a greater than 40% dispose rate was seen with more than half of the responders achieving transfusion independence for over 40 weeks and a 3.1-gram hemoglobin increase in those responders. MDS remains an important focus with our placebo-controlled Revlimid trial in deletion 5Q approaching full enrollment and our MDS non-5Q deletion protocol being finalized for submission to the FDA under SPA and to the EMEA, to the Scientific Advice working group later this year. A number of trials are evaluating Revlimid in combination with other agents for the treatment of higher-risk MDS and AML.

We are rapidly and rigorously pursuing opportunities to evaluate the clinical potential of Revlimid with a major focus on the treatment of chronic lymphocytic leukemia and aggressive non-Hodgkin's lymphomas. Based on preliminary findings in clinical studies, we are now conducting Phase 2 trials in both of these indications and are working to initiate control double blind regulatory studies. We expect to have such studies activated later this year for CLL and are finalizing our NHL protocols this year.

I'll focus on CLL first. We're currently conducting trials evaluating Revlimid monotherapy in previously-treated CLL, Revlimid and Retuxan in combination for relapsed refractory CLL and Revlimid as monotherapy in untreated symptomatic CLL. In addition, we are planning to initiate several Phase 2 studies this year, including Fludarabine with Revlimid in previously untreated CLL. Revlimid in combination with Retuxan for patients with CLL who relapse or progress after Retuxan, induction therapy followed by six months of Revlimid as first line CLL therapy, Fludarabine, Revlimid, Retuxan in untreated CLL, Revlimid as initial treatment for elderly CLL patients and Retuxan and Fludarabine followed by Revlimid in previously untreated CLL.

Importantly, we have had significant and extensive discussions with leaders in CLL treatments and have a regulatory plan that includes major randomized control double-blind studies. Our objective is to activate the program later this year. The first randomized multi-arm study is in relapsed or refractory CLL with a protocol currently being finalized. As we finalize such, we will discuss the design and other parameters. We're also finalizing protocols for submission under the SPA program for an international study of Revlimid versus placebo to determine whether this treatment can delay progression of CLL in patients who have completed a standard Fludarabine based treatment for relapsed CLL. And a double-blinded control trial evaluating Revlimid as a first-line CLL treatment in newly-diagnosed elderly symptomatic patients.

The observed significant clinical activity of Revlimid in aggressive NHL including in follicular and Mantle cell lymphoma has resulted in an aggressive regulatory program for this important indication. The randomized studies in NHL are being planned to be conducted in relapsed aggressive NHL and will include evaluation of Revlimid in combination with Retuxan compared to Retuxan alone. We are planning to submit the SPA for this before the end of the year and we'll talk more about it as we get feedback from the FDA.

Additional trials evaluating Revlimid both as monotherapy and in combination in aggressive NHL are also planned. A randomized control trial of Revlimid with Retuxan has also recently been activated by the Cal-GB and follicular non-Hodgkin's lymphoma. In addition, we're currently evaluating Revlimid in a number of other hematological malignancies, including MDS and myeloma, of course and of course, myelofibrosis, myloproliferative disease and solid tumors such as melanoma, prostate cancer, renal cell carcinoma and thyroid cancer. We're pleased that the major cancer oncology cooperative groups are very interested in Revlimid as well and they're evaluating this drug in a number of important major ongoing trials.

Including a Phase 3 SWAK (ph) study comparing Revlimid plus dexamethasone versus dexamethasone in newly diagnosed multiple myeloma, a major control Phase 3 Cal-GB study in myeloma post transplant, a major ECOG (ph) Phase 3 controlled study comparing Revlimid and high dose dexamethasone versus Revlimid and low-dose dexamethasone, a phase two ECOG trial evaluating Revlimid plus Prednisone in myelofibrosis and a COG study of Revlimid in refractory solid tumors. A number of additional Revlimid studies are in the process of being planned or implemented including a controlled SWAK study in AML patients.

It's important to note that although the Revlimid opportunity is significant, it is but one compound in our IMid class of compounds. During the quarter, we also made substantial progress in advancing our strategy for our next IMid compound, CC-4047. We're moving forward on a regulatory track toward its evaluation in several areas of unmet medical need, including myelofibrosis and small-cell lung cancer. In addition, we plan to evaluate the potential of 4047 in diseases where induction of hemoglobin-f could be beneficial, such as sickle cell anemia and beta thalassemia.

Additionally, this year, we expect to initiate clinical trials for our next generation IMid CC-11006 in MDS and we are working towards a clinical development plan for CC-10015, another unique IMid We also continue to evaluate our oral TNF alpha inhibitor, CC-10004, in an ongoing multi-center, multi-national phase two controlled trial in patients with moderate to severe psoriasis. Additional trials of 10004 are being planned in other TNF alpha associated diseases. Preliminary results from a Phase 1 open labeled psoriasis trial for 10004 have been presented in the March meeting of the American Academy of Dermatology and are presented this week actually, again, at the summer meeting in San Diego.

We've also advanced our Revlimid international regulatory strategy. The Revlimid marketing authorization applications are under review by the EMEA and in Switzerland to the treatment of patients with previously treated multiple myeloma and for patients with deletion 5Q MDS. Our regulatory strategy remains. Our multiple myeloma filing that is based on two large randomized controled Phase 3 studies and our higher risk regulatory strategy is the open label Phase 2 deletion 5Q filing. We are continuing our work to further expand our Revlimid regulatory filings in multiple myeloma and MDS through ongoing dialogue with many regulatory agencies worldwide, including Japan, Australia and Canada.

Substantial progress was made in the earlier stage and discovery programs during the second quarter. We expect to complete enrollment and finish our dose ranging pharmaco-dynamics Phase 1 clinical trial with the JNK inhibitor CC 401. The data from the study will help us to evaluate the impact of this compound on the JNK pathway in AMO. Two additional JNK inhibitors, CC 359 and 930 are in preclinical development and are slated for clinical trials and indications such as ischemia reperfusion injury and pulmonary fibrosis. We are also intentively investigating unique and proprietary placental derived stem cells as the potential treatment for certain hematological conditions, as well as in other settings.

Furthermore, based on collaborative specific research programs at Celgene Summit and Celgene San Diego, we have discovered a new class of compounds that we are currently calling rapid transcriptional modulators. They are potent, psytocy-modulators (ph) as well as having a variety of additional desirable properties. These compounds are still in the early stage of biology and chemistry development but are nevertheless, quite exciting. You'll be hearing more about this as we firm our intellectual property position and start developing lead compounds to future clinical development. We expect to nominate additional selective kinase inhibitors, such as proprietary IKK-2 and B-Rath inhibitors for clinical studies in oncology and inflammatory diseases in the next year.

We strongly believe there is a significant opportunity for a deep and diverse diverse discovery pipeline to provide a steady stream of promising new product candidates at future clinical evaluation. It's been an extraordinary quarter for Celgene. We've had major achievements in all areas of our corporation. We achieved three major regulatory approvals for Revlimid and Thalomid over the past six months. These approvals are unique achievements. Thalomid being the first-ever specific FDA approval for newly diagnosed multiple myeloma and Revlimid, the first approval of an oral agent in previously treated myeloma and the second approval for Revlimid in six months.

Overall, the regulatory achievements are extraordinary and a tribute to the entire organization. In addition, we made significant commercial progress with record product revenues, particularly with Revlimid increasing 97% over the first quarter, making it one of the most successful, if not the most successful hematological launch in history. We expanded our international presence towards becoming a truly global company with infrastructure in 17 countries and staffed by some of the very best pharmaceutical talent in the world. We achieved another quarter of profitability and growth while investing heavily in research and development, the lifeblood of the Company. In the research area, we made substantial progress in the advancement of our pipeline and regulatory plans, the discovery of a new series of compounds and the advancement of both clinical and preclinical candidates. Overall, this is a significant time for Celgene as we continue to grow towards our goal of being a world leading pharmaceutical company. Everyone here at Celgene is focused to advance the progress achieved to date across all business units worldwide. We understand that execution will be critical to that achievement of our significant milestones for 2006. That said, we look forward to updating you on our operational and financial progress throughout the remainder of the year. Operator, let's open the call to questions.

Question-and-Answer Session

Operator

[Operator instructions]. Your first question comes from Geoffrey Meacham.

Geoffrey Meacham - J.P. Morgan

Good morning and congratulations on a good quarter. Question for on you gross margins, they were pretty strong in the quarter. How should we read into this? Are we seeing the effect this early in the Revlimid launch of -- of the economics associated with Rev flowing through the income statement?

Robert Hugin

Yes, that was the gross margins have improved because of Rev primarily and that's something we would expect to see continue. Because, obviously, with a 1% royalty and a very low cost of goods requirement for Revlimid compared to where we have about a 10% royalty and higher cost of goods with Thal, generally, we're going to we expect as Rev continues to grow, improvement there. And on the other thing was that Alkeran sales were lower and that has also has a higher cost of goods. But the most important factor, clearly, is the benefit of Revlimid increasing as a percentage of our overall revenue and that's what we expect to continue to see and then, therefore, continued improvement in that gross margin.

Geoffrey Meacham - J.P. Morgan

Just a follow-up for you on the off label use of Rev in the quarter, you broke out MDS and in myeloma. Just wonder if you could give us a little bit more color on use in CLL, NHL or perhaps even solid tumors?

Robert Hugin

Yeah, I mean there were some solid tumor uses, we're consenting setting budding prostate has been the number one of the solid tumors that where Rev has been used and CLL and NHL are also seeing use, but I think we're really looking to build the clinical trial as Sol outlined with CLL and NHL we’re pushing people there and the investigators that are leading that charge. We want to really open up to get those Phase 2 trials and ultimately the Phase 3 trials enrolled as quickly as possible. Because over time, the as Sol mentioned, we also have the CLL peer reviewed publication. We want those peer reviewed publications from the Phase 2 trials which ultimately lead to compendia listing which then enhance the potential for reimbursement for patients if physicians decide that it's appropriate to treat them in CLL or NHL the potential for reimbursement goes up dramatically. It’s obviously not a promotional issue for us, we’re focused on the label indications, but broadening out Revlimid to CLL and NHL is clearly a very, very high corporate priority beginning with the clinical trials.

Geoffrey Meacham - J.P. Morgan

Great. Thank you.

Robert Hugin

Thank you.

Operator

Your next question comes from Ian Somaiya.

Ian Somaiya - Thomas Weisel Partners

Thank you for taking my questions, and again congratulations. The first question is just related to your expanded access program for Revlimid in myeloma. I was wondering if you could just update on the number of patients in that program and at what point are you allowed to transition these patient to commercial drug, as post label for myeloma or is there another trigger?

Robert Hugin

Yeah, EAP, as everyone knows and most people know is we for the first time, ever after an approval of a drug, continued an expanded access program to provide free drugs for previously treated myeloma patients following the MDS approval. It was put in place, last fall, so certainly nine months ago, maybe even closer to 10 months ago, and certainly with more than 1,000 patients benefited from the program. When the approval came, people were obviously were on drugs, the people who were on drug would continue on therapy and were we would provide one additional prescription, 30 days of drug following that. So, if you have a June 29th date, you'd have potentially people getting another, another therapy or another prescription as late as July 28th and so you could have people still on the program who had reimbursement capabilities as late as late August. We are going to be extremely sensitive to both the physicians that are treating these patients and those patients that we're working with them to find reimbursement and we will continue with those patients if there are people there that did not enroll in Medicare Part D. We'll help them enroll in November if it's appropriate or our third party people that we have helping physicians and patients get reimbursement and get through to January on it. So, it has obviously, a benefit to us. Now some of the patients have been on therapy a fairly long time if someone started last fall. they're on drug nine, 10 months already. So hopefully they'll stay on the drug for a long period of time. So, it's a positive for us, but we're going to handle it to be very sensitive to those physicians and patients that have, that have supported those patients and so, I think you'll see gradual benefit to us. It's something that we'll see increasing our patient numbers this quarter and next quarter, hopefully.

Ian Somaiya - Thomas Weisel Partners

And just a question on the free drug program for Thalomid and Revlimid, can you just quantify that for us what the size is now?

Robert Hugin

Yeah, we're over the past, four or five years with Thalomid, we averaged between 15% and 20% of free good in an environment where there was no broad-based oral prescription drug benefit under Medicare. So, we’ve clearly going to benefit on that, that people have access now to a broad based program, though the co-payments are still an issue. We will we're our view is that in terms of the eligibility criteria for free goods and the eligibility criteria for the foundations that we will financially support, those independent third party non-profit that support co-pay assistance, we will not support foundations that don't provide the most liberal or the most patient-friendly access to the therapy on co-payment assistance and on the free goods program, we are clearly at the industry leading edge in terms of what it takes for someone who is uninsured in terms of income and assets to get access to both Thal and Rev. We will continue to be at the most generous possible that doesn't mean every single person is going to be covered or get free goods if they don't have insurance, but we're going to be continue to be, I think over time, you're likely to see the industry average, which I think is around 3% or 4%, we'll probably be in the 5% to 10% range over time and hopefully as, as people and, and caregivers and patients realize that they have goods choices under Medicare Part D to provide the gap coverage or lower co-payments and manage the donut hole mole effectively over the next couple of years, you're going to see reimbursement even improve there and maybe kept free goods to the lower end. But we'll always be what we think is at the leading edge in terms of being the most accommodating in terms of providing access to the drug, drugs.

Ian Somaiya - Thomas Weisel Partners

Thanks, Bob.

Robert Hugin

Thank you.

Operator

Your next question comes from Jim Reddoch.

Jim Reddoch - Friedman, Billings, Ramsey

Good morning, thanks. Two quick questions. Of the second quarter sales in myeloma. Is it safe to assume that most of that was first line for Revlimid? And then also, just to follow-up on the extended access, is there anything about these patients or the program that makes it take longer to convert those into paying patients? I'm going to get back in the queue after that. Thanks.

Robert Hugin

Sure. The first question about the percentage of the of the myeloma patients that were commercial drug in the second quarter, we though RevAssist is a great system for us to understand 100% market information, the indication that comes through is myeloma. So the so we don't know and it's really just a guess on it, and we think there is probably a mix of patients in there that are both previously treated and patients that are newly diagnosed. I, my own personal view is that it's probably more likely previously treated patients that are looking for something that they need a therapy immediately and are not going go through any of the programs. So, again, we don't have direct information on that. On the EAP program that the instructions or the guidance that was given when the program was started was very clear. That once the drug is approved in myeloma, that we the patients could continue to the drug and they could receive one additional month supply or one additional prescription. That was clear at the time of the trial. We notified all the sites a month before the approval of myeloma Rev myeloma, that would continue to be the case. But nevertheless, we are not going to do something to damage our relationship with thought leaders and the major centers that agreed to take on the burden of an expanded access program. And those patients that traveled a long ways to go from one changed doctors to get access to expanded access. We're not going to do something that is not appropriate in terms of managing those relationships. So, we are seeing good progress in transitioning patients from expanded access and many of those patients do have insurance coverage and are being transitioned in the timeline that we expected at the initiation of the program. But for others that are in a more difficult situation, we have a patients solution program that is designed to help them find coverage and will continue to be very patient focused to ensure they get coverage and we'll provide them free goods through the end of the year if that if that's required.

Jim Reddoch - Friedman, Billings, Ramsey

Yeah. May be another point of clarification. What percentage of the total addressable myeloma patient population program would you say is actually in the EAP right now just so we can get a sense of scale?

Robert Hugin

I said, I mean it's a very small percentage. Over 1,000 patients have benefited from the expanded access program in the 60 or so sites that were active when the program was going. So, it's a very small percentage. Especially when you look at what the addressable market is in newly diagnosed. It's tiny, if it's 5%, it's about it.

Jim Reddoch - Friedman, Billings, Ramsey

Okay.

Robert Hugin

The reason it's a nice positive for us to have physicians experience using the drug, et cetera, and getting, and getting as many patients access as possible. But it's not some it was not some type of financial measure to dominate the market. It's it was just a patient accommodation and we'll benefit from that patient accommodation but it's, but it's not any part our strategy in terms of what we think the number of myeloma patients we're going to achieve over the next year is, well, we expect a fair put that as will pale in comparison to what the commercial numbers turn out to be over time.

Jim Reddoch - Friedman, Billings, Ramsey

Great, got it. Thanks.

Operator

Your next question comes from Michael King.

Michael King - Rodman & Renshaw

Good morning and thanks for taking my questions and let me add my congratulations to you. Bob, can you just clarify your comments about Alkeran. I wasn't quite sure what you meant by the large rebates and significant variability going forward but large rebates and manufacturing concerns. Just expand on that for us because the number you reported didn't jive with what we saw coming out of IMS.

Robert Hugin

Right, it's a little bit more difficult, obviously, because Alkeran does go through wholesalers as opposed to RevAssist, et cetera. A couple of things, we have raised the price of Alkeran over the last couple of years. And so therefore you see a several quarter lag off in terms of public health service, VA and Medicaid also in terms of the price that the government pays for those programs versus the labeled or the indicated price on the product. And we also have had for the last couple of years difficulty in terms of the reliability the predictability of the supply from manufacturing. There have been issues and this is not something we manufacture. We receive it from our partner that manufactures or gets a contracted manufacturing and that there has there appears to have been some speculative buying in the second quarter. We saw the fact that with the price increase there was in a very significant amount of rebates for what people paid in the first quarter. So, some of that's transient and we'll see improved lower rebates in the second and third quarter. Sorry, in the third and fourth quarter going forward but we're in a situation where we don't control the manufacturing and so we're going have to be careful and expect variability. We do think the government reimbursable will be a little bit better in the second half of the year but nowhere near like it was in the second quarter. But, so I think that's why we want to be cautious about the outlook. It is not as and the positive side is not that it's critical to us because the cost of goods are fairly significant, so it's not a major impact from the bottom line. It's nice to have a, to have it as an additional product to be carried in the bag. But it's not --

Michael King - Rodman & Renshaw

Right. I understand. I don't want to dwell on it either. I just was wondering what the catalyst was there. A couple of all Revlimid related questions. I'm wondering if you could in myeloma, talk about maybe the proportion that came from front line and if you have any information on average dose and in MDS, can you talk about proportion of patients with 5Q minus that you believe are on therapy and maybe move through the low and intermediate one, patient penetration numbers.

Robert Hugin

Yeah I think first on the myeloma, the history has been a very positive one from clinical trials and from what we're seeing in the expanded access program and from any of the commercial sales subsequent to the approval that 25 milligrams was the dose in the clinical trials, there was 20 or so, 25% of patients that saw some type of dose reduction. But I think even on the clinical trials, 22 milligrams was the average total dose. So you saw very insignificant dose reductions in the clinical trials. Since approval, 25 milligrams has been the significant, very high percentage of what we believe that the dispenses are going out there and we think that's the right dose in the settings for that. Again, we don't know the indications in terms of beyond myeloma, what's front line, what's previously treated. We will, over time, get market research on that as we do with Thalomid where we continue to see very positive results from the third party market research as to how Thalomid is doing in front line and we'll track that going forward with Revlimid but we will not get that through RevAssist. On MDS, the situation is a similar one where the indication that comes through on the RevAssist program is MDS. It does not specify 5Q. Clearly, the only thing we can promote is the 5Q deletion indication. That's absolutely what we're doing and we're having, I think, very significant success in getting that clinical message out there that if you have 5Q minus low and intermediate risk MDS, the data shows two-thirds of those patients have become durably transfusion independence with a significant rise in hemoglobin. As Sol mentioned, we are working hard to get the data from the 002 MDS trial, which is talk Sol talked about the results there, which I don't think there's been any better data with that kind of high transfusion independence response rates in non-5Q low and intermediate MDS. And so getting that peer reviewed public published, getting compendia listing is a very important component to broadening out the MDS strategy. Additionally, Jerry and the rest of the clinical team are working to get important controlled trials underway in the non-5Q low and intermediate risk MDS transfusion, dependent MDS population. Because just the activity of getting lead thought leaders and investigators involved in those trials, broadens the awareness of the 002 data and then if they were to decide that it was appropriate to prescribe it in the commercial setting, that's obviously their choice. Something we couldn't promote and then we'd have even more medical education information through the medical education people to provide information to the physicians that inquire about data in Revlimid in the non-5Q setting. So, the MDS strategy as far as I'm concerned is very much on track. It's one that we outlined, really last fall and at the launch of the drug that education is a big part of it. I think you're seeing in some of the transcripts I've read from other company's conference calls, it looks like the MDS market is growing and as awareness there is increasing of the sense of the benefit of treating actives in the past where supportive care has been, really the only activity with transfusion-dependent low and intermediate risk patients. We're feeling very good about what's going on and we're doing the right things in terms of promotion. Clinical and medical education and we're going to continue that over the next number of quarters next year. I think we appreciate everybody's interest and attention and we don't want to take more time than is appropriate. So operator, why don't we take one more question.

Operator

Your next question comes from Sapna Srivastava.

Sapna Srivastava - Merrill Lynch

Hi, thanks for taking my question. The first question is just on Revlimid. Could you help us understand how much was in myeloma and how much in MDS and when exactly do you launch the drug? And the second is on Thalomid. If you can quantify the impact of changes in rentaries and if you saw any conversion of Thalomid patients to Revlimid in this quarter.

Robert Hugin

A number of issues there. Just to make sure we clarify it, that with the approval of Rev in myeloma on the 29th of June

Sapna Srivastava - Merrill Lynch

Right.

Robert Hugin

To get the package inserts printed and everything done, there were no sales in the second quarter from the 15 and 25 milligram capsules. Those were delivered to the contracted pharmacies about a week after approval but certainly in July, so no revenues comes from that. And the and in the quarter, the commercial sales were along the trends that we outlined about 25% to 30% of the prescriptions up from the low 20s or around 20% in the, in the first quarter. So, we saw a good growth in MDS. There was growth clearly in myeloma in the quarter but very good MDS growth and again not knowing which specific within those indications were the usages. Something we'll hopefully find out over time through our own research and third party market research. In terms of Thal, we did introduce with looking from a customer focus that instead of requiring pharmacies to carry boxes of the 50s, 100s and 200s, we implemented a program in June that allowed pharmacies to order single sleeves so that they can manage inventory more effectively as Revlimid comes on. That it's not surprising that pharmacies may want to be more effective in cash management and managing the Thal inventory. And we provide them in the past where it probably wasn't as big a deal but over the last six months as other products, Revlimid specifically, coming in to multiple myeloma, we want to provide these people the opportunity to have 50s, 100s and 200s. But to carry as lean inventory as appropriate. So we have seen in the first and second quarter increased sales returns and that also makes, I think, the results for Thalomid on a net basis even more impressive and we've responded to our customers to allow them to be more cost-effective by providing the ability to buy an individual one prescription single sleeve shipping it to them and then they can order as patient demand arises. So, I don't think there's anything significant there except, I think, a positive reaction both on 107 million and doing a customer-friendly strategy to ensuring the best way to handle things.

Sapna Srivastava - Merrill Lynch

But you mentioned it decreased inventories this transition.

Robert Hugin

Well, I think when you look at pharmacies, remember, there is no wholesaler inventory --

Sapna Srivastava - Merrill Lynch

Right.

Robert Hugin

Revlimid or Thalomid, that you do see inventory in retail pharmacies for Thalomid. And to allow them to not to order a box of 10 yet they know instead of having three Thalomid patients that they have two Thalomid patients and a Revlimid patients and they're not going to have to dispense Revlimid from that pharmacy, they may don't want to order a whole box of 10 sleeves. They can order three sleeves and really accommodate the patient demand very effectively and carry the appropriate inventory they want and so it's just, I think, just being very proactive to ensure that we provide the right service to the customer. So, I think we have seen over the last six months a reduction in the inventory in the pharmacies for Thalomid in anticipation of Revlimid. But not anything that's anything but a normal and very modest, moderate change. Thalomid is still widely available in thousands and thousands of pharmacies across the country.

Sapna Srivastava - Merrill Lynch

Thank you.

Robert Hugin

We want to thank everybody for their attention. We look forward to updating on you at the end of the third quarter as we advance the Revlimid launches and the Thalomid progress. So thank you very much. Have a great day.

Operator

This concludes today's teleconference. You may now disconnect.

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Source: Celgene Corporation Q2 2006 Earnings Conference Call Transcript (CELG)
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