Celgene Corporation Q2 2009 Earnings Call Transcript

| About: Celgene Corporation (CELG)

Celgene Corporation (NASDAQ:CELG)

Q2 2009 Earnings Call

July 23, 2009; 9:00 am ET


Sol Barer - Chairman & Chief Executive Officer

Dave Gryska - Chief Financial Officer

Bob Hugin - President & Chief Operating Officer


Jim Birchenough - Barclays Capital

Mark Schoenbaum - Deutsche Bank

Ian Somaiya - Thomas Weisel Partners

Geoff Meacham - JP Morgan

Yaron Werber - Citi

Eun Yang - Jefferies

Charles Duncan - JMP Securities

Geoffrey Porges - Sanford Bernstein

Maged Shenouda - UBS

Sapna Srivastava - Morgan Stanley

Aaron Reames - Wells Fargo Securities

John Sonnier - William Blair

Brian Abrahams - Oppenheimer & Company


Good morning, my name is Matt and I will be your conference operator today. At this time I would like to welcome everyone to the Clegene second quarter conference call. This call is being recorded Clegene would like you to know there are slides that accompany this webcast. They are available on the Investor Relations section of the Celgene website, www.celgene.com.

I would now like to turn the conference over to David Gryska, Chief Financial Officer. Please go ahead, sir.

David Gryska

Good morning, everyone and thank you for joining us today. I am Dave Gryska, Celgene’s Chief Financial Officer, and I would like to welcome you to Celgene’s second quarter 2009 conference call.

With me are Celgene’s Chairman and Chief Executive Officer, Sol Barer and President and Chief Operating Officer, Bob Hugin. The press release reporting our second quarter financial operating results was issued earlier this morning. It is also available on a corporate website.

In addition, today’s conference call webcast will include a PowerPoint presentation, which you can access by going to Investor Relations section of our website at www.celgene.com. Sol will begin our call today with a strategic perspective on 2009. I will then review our second quarter results and Bob will wrap up by discussing our operational and commercial results for the quarter.

Before we start, we want to remind you that certain statements made during this conference call may be forward-looking statements within the meaning of Section 27(NYSE:A) of the Securities Act of 1933 and within the meaning of Section 21(NYSE:E) of the Securities Act of 1934.

Certain forward-looking statements, which involve known and unknown risks, delays, uncertainties and other factors not under our control, may cause our actual results, performance or achievements to be materially different from the results, performance or other expectations implied by these forward-looking statements.

These factors include the results of current or pending clinical trials, research development activities; our products failing to demonstrate efficacy, or an acceptable safety profile; actions by the FDA, EMEA, and/or other U.S. international regulatory bodies; the financial conditional of suppliers, including their solvency and ability to supply product and other factors detailed in our filings with the Securities and Exchange Commission such as our Form 10-K, 10-Q, and 8-K reports are referred to in the press release issued this morning

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

Sol Barer

Good morning, everyone and thank you for joining us today. We’re quite please to announce that the second quarter was exceptional for Celgene. We advanced our global clinical regulatory research and commercial initiatives, with support continued robust growth and further positioned us to successfully achieve our short and long term corporate and financial objectives.

I’ll briefly review our results and then highlight some key recent items. For the quarter, we reported record non-GAAP total revenue of $626 million and record non-GAAP net income of $216 million or $0.46 earnings per diluted share. This represents an increase of more than 24% year-over-year. This significant growth supports our focus to effectively and efficiently execute our long term plan to drive global, clinical, regulatory and commercial momentum.

I’m particularly pleased to see REVLIMID revenue grow this quarter to $397 million, a 10% quarter-over-quarter and 22% year-over-year increase. This growth is global in scope and reflects increasing patient demand, driven by market share and duration increases. It also reflects the unique clinical characteristic of this drug, evidenced by the continued flow of important data in myeloma and other indications.

I’ll turn now to a very significant event that occurred this past Monday. The first interim analysis of a newly diagnosed myeloma trial, MM 015; personally speaking I have to say I was quite surprised and quite impressed that it’s the first interim analysis after a relatively short follow up period.

The independent data monitoring committee notified Celgene that the pre-specified efficacy analysis comparing melphalan, prednisone, REVLIMID followed by continues REVLIMID to melphala, prednisone followed by placebo demonstrated a highly sophistically significant improvement in the primary efficacy end point of progression-free survival.

This difference caused the O’Brien-Fleming boundary for superiority. In addition, there were no safety concerns reported by the independent data monitoring committee. This is clear an exciting development, yet it is still early with much to do as we gather and evaluate the data and speak to regulatory authorities around the world. We anticipate this data to be presented at the American Society of Hematology meeting and look forward to discussing the results further at that time.

We also continue to expand our drugs globally, with REVLIMID approvals in Eastern Europe and Latin America, our MVA filing in Japan and reimbursement approvals for the data and THALOMID in Europe. We are become truly international company, offering three major therapies to hematology patients that impact survival.

Now I’ll turn to our pipeline, the future of our company. We are in the fortunate position of having a robust, deep and differential pipeline with tremendous global potential. We continue to invest in our future by advancing promising compounds in hematology, oncology and information.

As a result, over the next several quarters, we expect to report clinical trial data on more Celgene compounds than ever before, including our anti-inflammatory franchise which encompassing among other drug candidates apremilast and [Inaudible] and our hematology, oncology franchise encompassing THALOMID and amrubicin the active inhibitor 8011 and others.

The result of these trials are expected to lead to important pivotal studies such as THALOMID and critical blood cancers of stem cells in Crohn’s disease and other severe conditions apremilast indebilitating and inflammatory conditions.

Focusing on apremilast, during the quarter we announced initial data from a phase II randomized controlled study of apremilast in psoriatic arthritis showing promising activity with an encouraging safety and tolerability profiles. These phase II results reinforce the significant potential of this novel oral therapy in a range of inflammatory conditions and indeed of our entire inflammatory franchise.

Turning to our financial status, as is clear from our statements we are one of the strongest companies in our industry. Cash flow is very positive, our COGS among the lowest in the industry and our tax rate is one of the lowest in the industry. We are quite leveragable globally, and all this continues to improve in the quarter.

Finally I’d like to review our guidance; based on recent developments in current global trends, we are reaffirming our top and bottom line 2009 guidance and targeting REVLIMID revenue of approximately $1.65 billion, a growth of approximately 25% from the previous year, making REVLIMID one of the fastest growing oncology products to date.

Looking ahead, I can truly say I’ve never been more optimistic about our company and the role we play in delivering critical therapies to patients around the world. Our global opportunities, our opportunities with our unique commercial products in labor expansions to new indications, our opportunities with a deep and promising pipeline in our two franchises, our financial strength and leveragability and our exciting earlier stage research opportunities make us a uniquely strong and potentially pre-eminent bio pharmaceutical company.

Correspondingly, we expect the second half of the year to yield multiple commercial, clinical and regulatory catalyst to drive our performance and help us achieve our near and long term goals. Now I’d like to turn the call over to Dave Gryska who will provide more detail about our financial performance for the quarter and our outlook for the rest of the year.

Dave Gryska

Thanks, Sol. Now I’ll take you through the financial results. Non-GAAP total revenue for the second quarter 2009 was a record $626 million, a 10% increase versus the second quarter 2008. As you know, in March 2009 we concluded our agreement with GlaxoSmithKline related to sales of ALKERAN.

If I exclude ALKERAN, non-GAAP total revenue increased 14% as compared to the second quarter of last year. For the six months ended June 30, 2009, non-GAAP total revenue was a record $1.227 million, a 19% increase versus the same period in 2009. Again, if I exclude ALKERAN, non-GAAP total revenue would have increased 21%. Non-GAAP diluted earnings per share for the quarter was $0.46 as compared to $0.37 during the second quarter of 2008, an increase of 24%.

Total non-GAAP net product sales increased $596 million for second quarter, up 11% from $538 million in the year ago quarter. This is an increase of 4% over the first quarter of 2009. If I exclude ALKERAN, non-GAAP net product sales would have increased 8%. REVLIMID net product sales were $397 million, an increase of 22% of the second quarter 2008 and 10% increase over the first quarter of 2009.

Turning to VIDAZA, net product sales for the quarter were $92 million, an increase of 54% from a year ago quarter, and a 22% increase over the first quarter of 2009. The launch of VIDAZA in Europe is progressing well. The drug was launched in Spain and several other countries during the second quarter and we expect to complete the launch of VIDAZA in Italy and France by the end of 2009.

THALOMID net sales were $105 million, first quarter down 20% as compared to year ago quarter and down 8% over the first quarter. The launch of THALOMID in Europe is on track. However, the price is down as much lower in Europe versus the U.S., therefore the impact of increasing volumes in Europe will not offset the decrease in volume in the U.S.

The second quarter of 2009, sales of REVLIMID in the U.S. were $244 million and international sales were $153 million, representing an increase of 6% and 16% respectively on a sequential quarter basis. REVLIMID international sales represent 38% of total REVLIMID sales to six month ended June 30, 2009.

Our non-GAAP product gross margin, the second quarter was 92%, compared to 89% during the first quarter. We are forecasting a 92% gross margin for the full year. The gross margins have improved due to higher percentage of REVLIMID and international VIDAZA sales, which have higher margins and discontinuation of lower margin ALKERAN.

Our sales returns and allowances as a percent of total sales continue to decline as compared to last year. As of June 30, the total returns and allowance balance was $9 million, compared to $13 million during the first quarter, because sales returns and allowances are primarily related to U.S. THALOMID sales. We expect U.S. THALOMID volumes to decrease, in accordingly our sales returns and reserves are expected to further decline.

Our inventory on the balance sheet decreased $20 million, as compared to the prior quarter. The decline in inventory was primarily due to a decrease, the ALKERAN inventory, due to the conclusion of the ALKERAN agreement as well as the decrease in the FOCALIN inventory. Our inventory consists of approximately one third of finished good and remainder of working process raw materials. We expect inventory to be in the $80 million to $90 million range for remainder of the year.

We ended the second quarter of 2009 with $354 million in accounts receivable, which represents a $14 million increase as compared to the prior quarter. The day sales outstanding or DSO increased from 50 to 51 days during the quarter, due to increased sales in Europe. The collection process tends to take longer in Europe than the U.S. As we continue to gain further penetration of our products throughout Europe, we expect our accounts receivable and DSO to increase.

Turning to expenses for the second quarter, non-GAAP, R&D expense was $169 million, as compared to $167 million for the first quarter of 2009. For the remainder of the year, we expect R&D expenses will stay at this level as we continue to initiate and accrue multiple late stage clinical trials in the areas such as NHL, CLL, inflammation and small cell lung cancer.

Therefore, we expect R&D expenses to be in the range of $680 million to $690 million for the year. Our non-GAAP selling, general and administrative expenses were $157 million during the second quarter, as compared to $157 million during the first quarter of 2009. We expect 2009 SG&A expense to be in the range of $615 million to $620 million for the year.

Turning to taxes, our year-to-date non-GAAP tax rate was 23.1%. We continue to anticipate, improvement in the tax rate for the last six months of 2009 and are forecasting a tax rate of approximately 22% for the year. As you are aware, we hedge our balance sheet foreign currency exposures and our company foreign currency transactions and exposure related to certain euro based revenue and expense.

For the remainder of 2009, we are hedging approximately 80% of our euro net earnings exposure over rolling 18 months period. The impact of foreign currency on top line revenue on a sequential quarter basis was immaterial. In addition, during the second quarter, we realized approximately $5 million in hedging and revaluation gains, which is included in other income. Our hedging activity is incorporated into our overall planning process for the year and our goal is to neutralize the impact of earnings from FX volatility.

Now a few words about our balance sheet; we ended the second quarter of 2009 with cash, cash equivalents and marketable securities of $2.5 billion. We continue to invest primarily in high-grade U.S. government and government agencies securities and money market funds. In addition, we repurchased approximately $2.2 million shares of common stock during the quarter and entered into $40 million collaboration with global immune.

In summary, the overall fundamentals of our business and financial position have never been stronger. We have some of the best operating leverage, gross margin, tax rate and cash flow in our industry. We continue to expect non-GAAP total revenue to be at the lower end of the range of $2.6 million to $2.7 billion, additionally non-GAAP earnings per share is expected at the lower end of the range at $2.05 and $2.10. We are updating REVLIMID product sales guidance to approximately $1.650 million.

Now I’ll turn the call over to our President and Chief Executive Officer, Bob Hugin, who will expand our global, commercial, clinical and regulatory plans.

Bob Hugin

Thanks, Dave. Good morning. Across markets our team effectively executed our plan, producing strong results. Our products performed well, generating significant top and bottom line growth despite continuing challenging economic conditions. In addition to delivering on our financial targets, major progress was achieved in advancing key corporate incentives, that will drive sustain growth and build long term value.

Sol will outline some of these key developments such as the myeloma filling in Japan, the MM 015 results, the encouraging of apremilast data and others. I’ll provide more perspective on the strong commercial performance in the quarter, the progress made on important value drivers and key milestones for the remainder of 2009.

Before I review the specifics of our quarterly performance, let me add my perspective on the very positive news introduced by Sol, and announced in our press release this morning regarding our pivotal trial, MM 015 in newly diagnosed multiple myeloma.

It is both exciting and impressive that the NPR followed by continuous REVLIMID® demonstrated a highly, sophistically significant improvement in progressing free survival versus the MP arm.

This pre-specified primary efficacy comparison across the O’Brien-Fleming boundary for superiority at the first interim analysis. This result is all of the more compelling in light of the relatively small trial size and the high bar for efficacy required in the trial, a pre-specified improvement in PFS of 50% for the completed trial with a significantly higher standard for interim analyses.

These results further illustrate the potential for sustained disease control, which can be achieved by continuous REVLMID therapy in myeloma. We look forward to discussing the data with regulatory agencies around the world in the coming month and to the presentation of the data at ASH in December.

Our businesses performed well across geographies, producing substantial product sales growth. The very positive REVLMIND data revenue growth outlined on the slide reflects strong performance in both the U.S. and European markets. As Dave noted, REVLMIND revenue in United States increased by 6% quarter-over-quarter and by 16% internationally, with international REVLMIND revenue accounting for approximately 38% of total REVLMIND revenue, inline with our expectations of 35% to 40% for the year.

Though global economic conditions did not materially improve in the second quarter, our results did benefit from operating lessons learned in the challenging first quarter. Second quarter results were also less impacted by the dislocations experienced by patients in January, with the start of new insurance plan years, especially high co-payment plans in Medicaid Part D.

Underlying fundamentals remain strong with REVLIMID in VIDAZA patient demand growing in the both, United States and Europe, U.S., REVLIMID myeloma prescriptions increased by approximately 9% over the prior quarter.

Unit growth was very strong internationally, with prescriptions growing by more than 12% over the first quarter. Market shares are an important measure of performance and future prospects. Meaningful share growth was achieved in all markets during the quarter. 12 month rolling data indicates substantial market share gains in multiple lines of therapy in the U.S., with total REVLIMID share now 31%, and REVLIMID front line share growing to 30%.

Rolling six month data reflects even stronger recent market penetration gains. In Europe, significant market share gains are also being achieved, with second line growth of approximately five percentage points attained this quarter in developed markets.

Duration remains a key driver of long term REVLIMID revenue growth. Duration in the United States increased to nearly 11 months during the quarter. Duration trends in Europe were also positive for the quarter, with duration estimated at slightly longer than seven months in developed markets.

Market share increases, longer duration, international market expansion and enhanced reimbursement and market access are all key revenue growth drivers. During the quarter significant progress was achieved in all of these important categories.

We recently announced the REVLIMID filing as a treatment for multiple myeloma in Japan, bringing REVLIMID one step closer to serve the unmet medical needs of myeloma patients in the world second largest oncology market. This major compliment was achieved by a Celgene team let by our clinical, regulatory and commercial group in Tokyo.

We expect the regulatory review of approximately one year. Of all of the drivers of product sales growth, positive new clinical data has by far and away the greatest long term impact own oncology products.

During the past few months, over 150 abstracts featuring Celgene products have been presented at major medical meetings. With our commitment to fully exploring the potential of our products, we expect the continued flow of clinical data to be presented at upcoming medical meetings, including data from the CALGB and IFM maintenance studies and of course MM-015.

The outlook for continued strong REVLIMID revenue growth remains promising, with multiple key growth drivers. Our discussion and the drivers outlined on the slide highlight several of the future growth opportunities.

We are making steady progress in achieving reimbursement in key international markets, where regulatory approvals have been granted. Despite government budgets pressured by the global recession, we do expect to begin meaningful reimbursed sales in countries such as the United Kingdom, Canada and Australia late this year.

The global MDS markets are becoming an increasingly important component of our revenue growth as we seek to capitalize on the unprecedented VIDAZA survival data. VIDAZA global sales increased 54% year-over-year and 22% quarter-over-quarter. In the U.S. VIDAZA is the clear market leader in Intermediate-2, high-risk MDS and in Europe, we made excellent progress executing our commercial plans with second quarter launches in Spain, Austria and Greece.

Based on our increasing knowledge of VIDAZA’s unique biological activity, we are identifying specific indications and drug combinations that merit additional studies. To-date there are nearly 60 studies worldwide in various stages of planning enrollment, evaluating VIDAZA in combination trials with REVLIMID and other new therapies in MDS, AML and other cancers.

This slide illustrates that our European launch of VIDAZA is well underway. We expect positive reimbursement decisions in all major European markets by year end with the exception of the U.K., where the nice process will likely extent into 2010.

We must continue to successfully penetrate launch markets and increase the awareness of the benefits of active therapy and MDS. Multiple strategies are being employed to effectively communicate the extraordinary survival advantage of VIDAZA treatment. We are making significant progress.

While REVLIMID in VIDAZA in myeloma MDS are our principal near term growth drivers, this slide illustrate that these indications are only two components of our overall growth strategy in hematology and oncology. We made excellent progress in the first half of the year, advancing a number of these promising programs, including accelerating the accruals of a number of key trials and initiating several regulatory track studies.

The next few slides will illustrate the progress achieved in advancing these programs. We hope that you’re finding useful to review the status of our most important clinical trials, which comprise our major development programs.

The exciting news regarding MM-015 highlights the continued upside potential of REVLIMID and multiple myeloma. We have a comprehensive program to fully explore REVLIMID’s opportunity in the up front myeloma setting.

The trials on this slide are designed to enroll upwards of 4,000 newly diagnosed multiple myeloma patients. These trials are being conducted to clearly establish REVLIMID based regiments, as the standard of care for all patients segments of newly diagnosed myeloma. When the MM-015 data is presented, it will be the third REVLIMID phase III study at newly diagnosed myeloma to demonstrate overwhelming superiority.

The phase III evidence supporting REVLIMID as the standard of care for all patients segments continues to grow. Several phase III studies are also examining the benefits of extended continuous REVLIMID therapy, with new data beginning to be reported as early as this year’s ASH meeting. During the quarter, the 514 patient CALGB maintenance study completed enrollment. We’re also REVLIMID in smoldering myeloma to evaluate if the early onset of the disease can be delayed.

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

We do expect that the initial analysis of the data from our phase III MDS-004 study, to be presented at ASH. We are exploring a number of additional important indications that offer accessible growth potential for REVLIMID. Our CLL, clinical development program has the objective of establishing REVLIMID as the standard of care for treatment of multiple patient segments.

During the second quarter, we initiated CLL 008, a global phase III SPA approved study of REVLIMID versus [KORAMBICIL] in previously untreated Elderly patients. This is the first registration quality trial examining the therapeutic benefits specifically for Elderly CLL patients. Additional new data from our extensive clinical program may begin to emerge as early as this year’s December ASH meeting.

As with our CLL development strategy, our lymphoma development plan is exploring REVLIMID potential in a range of patient’s subtypes within lymphoma. Our program is targeted to establish REVLIMID as a standard of care for the treatment of relapse, refractory, aggressive lymphomas and to establish REVLIMID as the standard of care for patients with diffuse large B-cell lymphoma who respond to first line R-CHOP treatment.

The phase III [GELA] trial in diffuse large B-cell lymphoma initiated enrollment this past quarter. Our special protocol assessment phase III trial comparing our third generation anthracycline and amrubicin versus topotecan in second-line small cell lung cancer is accruing rapidly, with enrollment of 620 patients expected to be completed either late this year or early next year.

We expect amrubicins final data from phase II studies in relapsed refectory small cell lung cancer to be reported in all sessions at the International Association for the study of Lung Cancer Conference in San Francisco next week.

Our next IMiD pomalidomide is enrolling 212 relapsed, refractory patients in a multicenter controlled Phase II trial. Additional data on pomalidomide is expected at this year’s ASH meeting. ACE-011, our active inhibitor being developed in collaboration with our partner Acceleron, is completing a Phase II trial in myeloma patients with bone lesions.

Also the FDA recently accepted the IND filing for a phase II study in chemotherapy induce the anemia breast cancer patients. This trial is expected to commence in the next month or two. We are also very pleased to report that the dosing of our first cohort of Crohn’s disease patients with PDA001, a proprietary placenta-derived stem cells has been completed. The overall trial is expected to finish before year-end and assuming an appropriate safety profile, we will commence a broad clinical development program based on encouraging preclinical evidence in a number of major indications.


Our inflammation clinical program has gained significant traction during the past several quarters. On June 15, we announced a positive top line data from a randomized controlled phase II study of apremilast and psoriatic arthritis. This encouraging data is expected to be presented at the American College of rheumatology conference in October.

Having now demonstrated a meaningful clinical activity in two phase II placebo controlled trials, one in psoriatic arthritis and one in moderate psoriasis, we’ve accelerated the development of potential phase III programs designed to begin in 2010.

Additional data is also expected from apremilast trials in psoriasis and moderate to severe psoriasis over the next few quarters. We’re expanding our knowledge of the drug full potential in dermatological, rheumatological and inflammatory conditions through a wide range of phase II studies.

Hopefully, our presentations this morning have provided you with better insight into the results for the first half of the year, and the key objectives and programs that are essential to our continued rapid growth. Many of the remaining 2009 key deliverable both are listed on this slide. We have exceptional people worldwide, focused on accomplishing these goals and maximizing our 2009 clinical regulatory and commercial opportunities.

I hope that you can sense the enthusiasm that we have for our prospects and the significant momentum of our programs. The excellent operating and financial results achieved during the second quarter accurately reflect our focus on maximizing our near term potential, while at the same time investing in our future to ensure that we sustain high growth for the long term.

We continue to believe that we are strategically positioned to capitalize on our vision of build a pre-imminent market leading global biopharmaceutical company focused in hematology, oncology and inflammation. We thank you for your interests. Operator, we can now open the call for questions.

Question-and-Answer Session


(Operator Instructions) Your first question comes from Jim Birchenough - Barclays Capital.

Jim Birchenough - Barclays Capital

Just on 015, I just want to conform that that the pre-specified interim analysis was focused on the MPR, plus maintenance versus MP, and not MPR induction alone versus MP. Just wondering on that second comparison, if you got interim data on that?

Sol Barer

Yes, you are correct. It was the melphalan and prednisone, REVLIMID followed by continuous REVLIMID versus the placebo arm. The data we have is essentially the data that we talked about, and we are going to be getting a lot more data on this arm and other arms as time goes on Jim. But you are right, that is the regulatory end point with an increase in progression free survival with obviously a higher hazard ratio, so that was two arms.


Your next question comes from Mark Schoenbaum - Deutsche Bank.

Mark Schoenbaum - Deutsche Bank

I was wondering Sol, if you could just comment on, and thinking big picture about the MM-015 results, it sounds like you got a hit on the maintenance arm. Given a profound PFS benefit for maintenance regimen for REVLIMID, the first line setting, how do you think this trials actually going to change physician practice? Do you think the trial has got a shot in showing an overall survival benefit? Does it matter?

Sol Barer

First of all, I have to say that this is really great news for patients. The objective of all companies, while we’re doing work in myeloma is to take this almost inevitably fatal disease and turn it into a chronic treated disease and I think that this trial in REVLIMID has a role in that, and that we’ve taken a step forward with that.

I think that an important advantage of this trial will be certainly internationally, especially in Europe where melphalan and prednisone are more usually used in the United States. We have very good first line use, based on physicians prescriptions from data. That’s less the case in Europe.

So if the question is, “Where do we see the primary commercial impact? Well of course it will be helpful to have first line in the United States and so on. I think the primary commercial impact will be overseas and especially in Europe.


Your next question comes from Ian Somaiya - Thomas Weisel Partners.

Ian Somaiya - Thomas Weisel Partners

This is obviously stellar data and gives us all a reason to go to the ASH this year. Just on the 015 data, can you just talk about the stopping criteria? I know Bob you mentioned that, 50% improvement was required at the end of the trial. What was the requirement of the first interim analysis? And then I had one follow-up question?

Bob Hugin

Obviously, the hazard ratio for the completed trials as I said was 50% improvement, but clear the interim analysis has a significantly higher bar, and the P-value would need to be 0.0015 and a hazard ratio of 1.825 to cross the O’Brien-Fleming boundary.

So, it had to be better than those two parameters to have the independent data monitoring committee report these results to us.

Ian Somaiya - Thomas Weisel Partners

Just a follow-up was, do you know at this point, what the average duration was in this trial? Maybe if you can point us to the Phase I, II data with the average duration was in that trial?

Sol Barer

As we said, Ian is we just found out about this clear, literally a couple days ago and there’s a limited amount of information that we have, and that we are going to spend the next few months obviously harvesting, analyzing the data, with that data, speaking to regulatory authorities.

So there’s really not much more additional information that we can provide other than the very exciting news with respect to the fact that we close the O’Brien-Fleming boundary.


Your next question comes from Geoff Meacham - JP Morgan.

Geoff Meacham - JP Morgan

A couple of questions here; first, are you crossing patients over in the study in MM-015? And then the second question is; why do you think from a commercial perspective there’s a delta between the U.S. and international duration of therapy for REVLIMID. Would you expect this to reach parity in the near term?

Bob Hugin

The first one, I think any kind of crossover is really not relevant in this study, in the sense that, the control arm of the melphalan and prednisone has reached the nine cycles before the event.

So the course of the trial will just continue on with the normal progression of it, following it. So there isn’t any need for any type of activity in that regard. On the second question, could you repeat that, Geoff?

Geoff Meacham - JP Morgan

The duration question

Bob Hugin

Obviously we’d launched earlier in the U.S, so we have the opportunity to penetrate the market more significantly. We continue to see very positive duration, the trends in the U.S.

In Europe, I think it’s earlier in the development and the commercialization of the drug, but also I think the reason the MM-015 data has impact in Europe, as we’ve got to continue to convince people of the value of treating to and through progression and that’s probably one of the most important significances of 015 is to demonstrate the value and the important of REVLIMID to really have sustained disease control through continuous treatment.

I think in Europe, there’s more of a pressure to try and treat towards best response and I think this data will help move us to identifying that many cancers can become chronic therapies, if they’re continuously treated with the right regimen.

So this is the first step, and you saw in the slides the commitment we have to really producing data to demonstrate the value of sustained disease control to continuous treatment with REVLIMID.

Geoff Meacham - JP Morgan

I just have the follow-up on that? You have in the slide, 11 months duration of therapy for the U.S., and that’s mostly Relapsed/Refractory and that’s what the data support in Relapsed/Refractory. Where would you see duration in first line going, if you were to speculate just on MM-015?

Bob Hugin

I don’t think it’s appropriate for us to speculate, what we’ll see is the trends look good. I do think, if you notice to the markets here that we talk about we are getting an increasing percentage and the trends in the front line setting for myeloma and REVLIMID are very encouraging. So I do think we’re going overtime, see that as an increasing component of the revenue model in the U.S.

I think the key strategy for us is to really convince everyone that treatment with REVLIMID as early as possible, for as long as possible is in the patient’s best interest and that ultimately then duration will be a beneficiary of that, if that kind of treatment regimen is to continue to advance, but I think it would be speculation and we just don’t speculate on it.


Your next question comes from Yaron Werber - Citi.

Yaron Werber - Citi

I had two questions and just a quick clarification. Give us a sense as to how long would take you to actually crunch this data and be able to talk to the Europeans and then submitted both in the U.S. and Europe?

Then the second question is, just help us to understand, you’ve already filed ECOG and SWOG with the FDA, and you have a hugely positive study? Just help us understand how this would impact the current filing for ECOG and SWOG, which presumably was based on safety? And then just clarifications for Bob, did you say the P-value was 0.0015 or 0.00015?

Bob Hugin

Let me start that, and just a clarification the 0.0015 was the pre-specified statistical boundary that we have to cross in order to have the situation we have now, so that was the O’Brien-Fleming boundary, so that’s number one. That’s now what we had, but that is what we have to cross and obviously we had significantly better than that.

In terms of where we’re going now is we have not really had a look at the data. We want to get the best, most matured data that we can get, year on and we are going to be doing that over the next several months.

During that period of time obviously, and as appropriate we’ll be talking to regulatory agencies around the world so there will be a better able to give you specific timing at the upcoming ASH meeting in terms of filings.

You are correct, the ECOG, SWOG data set is there. I think that part of what will happen will be that one potential outcome. Again there’s a bit of speculation here in my part, because we have not talked to the agency regarding the fact that we have essentially three trials here, is to combine those trials in a subsequent filing, for first line and continuous use. That’s going to have to really wait until we have those specific conversations with regulatory agencies.


Your next question comes from Eun Yang - Jefferies.

Eun Yang - Jefferies

On the pomalidomide side, you have a Phase II in myelofibrosis and recently inside head objective in [Inaudible] SBA for Phase III for that indication. So could you actually comment on, what your development strategy for this product in myelofibrosis is going forward?

Sol Barer

I’m sorry, was the question, the strategy going forward to this?

Eun Yang - Jefferies

Yes, with the pomalidomide.

Sol Barer

So pomalidomide is a very different agent than the [Jack Huse] for example inside for myelofibrosis patients. Obviously, the mechanism is different. The clinical affects are very different. The clinical affects with pomalidomide are largely from a hematological perspective. Jack Huse, certainly have some hematological, but do affect screen size and other organs.

So in many ways they are complimentary to each other, as opposed to competitive and I think that’s an ideal situation for patients, is you want different mechanisms operating. So what we are doing is we are designing pivotal trial or trials for pomalidomide in myelofibrosis. We think it will offer patients a great potential therapy for the disease, which really has a high unmet medical need, and hopefully it’ll be complimentary and patients can benefit from more than one mechanism.


Your next question comes from Charles Duncan - JMP Securities.

Charles Duncan - JMP Securities

I wanted to first of all comment, great execution on the quarter and congratulations on the data. I had a question for Bob perhaps. As you look out to 2010 and ‘11. You did a great job planning out the growth strategy for the near term, but if you look out over the course of the next couple of years, what can we point to as the top, call it two or three elements of the growth strategy to support the growth expectations?

Bob Hugin

I think the growth strategy fortunately for us has multiple factors to it. Clearly continued geographic expansion is one of the important ones, as we move into Japan with the announcement of the filing there. That’s about a one year review and then you do expect a period of time for negotiations for price and reimbursement. So whether it would be late in 2010 or early 2011, we begin to see revenues from the second largest oncology markets there.

We’ve got just recent positive news in some Eastern European countries, including Russia, where we’re hoping in early 2011. We’ve get added to the formulary there. That is an attractive market for indication like myeloma. So we’ve got upside in some of those geographies, getting reimbursement in late this year in Australia, getting Canada on and the U.K., benefiting hopefully late this year from the positive nice announcement, so clearly one is the general continued international expansion that will rollout 2010 and ‘11.

Then we obviously, in older markets we don’t think we are anywhere near, the market shares so that the drug can achieve. In the U.S., we are more advanced, we talk about a 30 plus percent overall market share, and we’ve talked about long term before we launched REVLIMID.

We thought a 40% overall market share was the right target, and we continue to have that here. That’s going to always be more challenging as you get closer and closer to your targeting at market share, but we still get upside in the data that we talked about today, helps us in that regard in terms of market share, the benefit of REVLIMID.

In Europe, clearly much earlier we talked about where we are with market share, and especially in the front line setting. Getting the front line approval in Europe, helps to have a much larger patient population and significantly supports the duration argument as obviously, earlier patients should treat, you’d expect that longer duration there.

So I think the growth drivers for the next couple of years are REVLIMID and myeloma, are both international expansion and proved reimbursement. In certain markets, we have the market share gains, the duration gains and the investment that we’ve made in clinical trials over the last few years and continue to make.

We went through with number of the trials on the slides today, to really continue a steady flow of new clinical data, which we think will continued growth and in the outer years, we expect to have more indications for REVLIMID outside of myeloma and MDS.

So I think there’s a combination of many factors staggered over the course of years. We’ve got execution, we’ve got to do the maximize the potential and we’ve got some regulatory and clinical risks that we’ve got to manage to make sure we can fully maximize to get the peak sales 10 years from now.


Your next question comes from Geoffrey Porges - Sanford Bernstein.

Geoffrey Porges - Sanford Bernstein

Thanks very much for the question and also congrats on the 015 coming sooner that we though. Bob, you talked about Europe, just wondered if you would tell us what’s the comparable to the 30% you have in the U.S. is for rev in the major markets in Europe?

Secondly, you didn’t mention anything about prospect counts? There was some positive data; you’re going ahead with that and then lastly, could you just talk about co-pay reimbursement? There’s been a lot of scrutiny about that and if you had to go to 50% of all party co-pays, would that be an incremental cost or a saving?

Bob Hugin

Hopefully, I have written down most of those questions, but we may need to reiterate one or two of them. On the market share issue, in the U.S. we talked about an overall market share in the 30 plus percent range and we also talked about market share significant in the upfront setting.

That’s a big difference than in the U.S. and Europe, where the market share is in the lower single digits in an upfront setting, because of the different market conventions in the U.S. and Europe.

The second line setting in the developed markets, we’re getting into the mid 20s and upper 20s market shares. So we would expect a higher market share and second line in Europe than we would in the U.S., because of the higher front line market share that we would expect, and our targets are internal targets that are appropriate and recognize the convention in the reimbursement and regulatory issues in the different markets.

So I think, we’ve ambitious targets in the U.S. and around the world, but they do recognize the convention in the markets. So that’s why I think Sol said the significant in MM-015 is more valuable to us internationally, because of the way reimbursement and the regulatory approvals impact the product there, so that’s one.

On the co-payment issue, that if we were to have healthcare reform that would, I don’t think it would simply mandate, but it would be in our economic interest to provide a 50% reduction for patients that are in a 7.5 times the poverty level and below.

When they were in the doughnut hole would be a -- we don’t quantify the exact number, because we don’t know exactly who is in that economic category, but it is fair to say that today we support independent third party co-payments foundation that support patients in the doughnut hole and co-payments up seven times the poverty level.

So, the types of resources we are allocating to these third party co-payments are already significant in regards to that relationship to the potential healthcare reform of the 50%.

Clearly we’d lose some revenue, but we have an offset in the bottom line. I have to tell you frankly, I couldn’t quantify it, but if we could put some of the pressures on senior citizens and focus away from the co-payments, because they can focus on the clinical benefits. The benefit is clearly to ensure that clinicians and patients get the right therapy for them, not focused on what the deductibles are in the co-pay.

So we do think that kind of reform that having a 50% reduction in the co-pay is a cost savings to the healthcare system, because we will come out of our pockets in some ways, but it’s important for patients, and there’s a long term benefit for the whole system, and on prostate cancer.

Sol Barer

Yes. Just on that note, thank you for bringing that up, Geoff. This is clearly Castration-Resistant Prostate Cancer, AIPC the old terminology. We have a trial that we’ll be starting later this year. It is approximately a 1000 patient trial and there are two arms, docetaxel prednisone plus rev and then docetaxel prednisone without rev plus the placebo with the primary end point of overall survival.


Your next question comes from Maged Shenouda - UBS.

Maged Shenouda - UBS

Congratulations on the MM-015 data. My question has to do with the healthcare reform in the U.S.; I know you’ve been following this closely. Just wondering, what your views are of the current developments in Washington? How you think, things will play out this years and what that means for Celgene?

Bob Hugin

I think it’s certainly one that gets tremendous coverage, and I think if people following this closely as we are, I do think that we’d hope, and our view is we do hope that there is healthcare reform. We do think there is lots of changes that can be made to the system that benefit all parties to the system.

We’ve got to make sure we’ve got a sustainable system, so that we can maintain the focus on innovation. We think our products and products from our industry can be a big part of reducing long term costs through innovation by dealing with some of the chronic therapies that add so much to healthcare costs in our country, where that be diabetes and cancers that can be diagnosed and treated earlier and have a significant impact on patients.

I think it’s very uncertain. Clearly there’s a big concern of tackling the problem right now in such a comprehensive way, it is the complex problem. We do think that our pharmaceutical industry has really been proactive and engaged to be a positive force for change here.

It was a little discouraging to hear, I guess the President says that the amount that the pharmaceutical industry has offered was a starting point, when the fact the starting point was much lower and it was very difficult for the whole industry even get close to the kind of numbers that are $80 billion in potential savings to the healthcare system.

So I think there’s a lot of risk that people are going to need to come together in the next month or two, otherwise it could fall apart and we’re hopeful it won’t, but we’ll just have to see.

Sol Barer

Just to be clear, as we step back let’s always remember what the objectives are and the objectives truly are to provide the best medical care for citizens of this country as broadly as we can, hopefully everyone while encouraging innovation, because it is truly innovative therapies and it innovative medical approaches that we truly will affect the economics and the quality of healthcare in the country.

So this is clearly a very complicated situation, and it is a turbulent situation in the sense that things change very quickly. We are very confident regarding the fact that as a company, we focus on patients with serious debilitating diseases and our primary focus is to develop breakthrough new innovative therapies to help those patients.


Your next question comes from Sapna Srivastava - Morgan Stanley.

Sapna Srivastava - Morgan Stanley

Most of my questions have been answered, and this is probably little trivial, but just in terms of alluring REVLIMID guidance. Last quarter, when everyone expected you to do so, you did not, and I know it’s modest, but looking at the macroeconomic factors which are going positively for you now and also the price increase and clearly this data, why do you choose this time point to lower it?

Bob Hugin

I think that, long term we really focus on annual guidance. So we don’t like the idea of giving specific product guidance and trying to do it on a quarterly or semiannual basis, but I think you look at the results, and we’re trying to give a sense of where the outcomes are likely to be for the year.

I think the minor changes that we might have seen this quarter versus what we could have expected at the end of the first quarter. We’ve had some minor delays in certain European markets for reimbursement that we were counting on for the third and fourth quarter, that are clearly now going to have a potential bigger impact in the fourth quarter.

I don’t think there’s anything fundamental about whether they will get reimbursed or not in Australia, but clearly Australia is a country that requires cabinet approval for expenditures of $10 million or more, and we’re not going to see the approval for reimbursement in the next month or two. It’s going to take a little bit longer.

I think with the budget pressures in a number of countries, a couple of months delay is not unexpected as they look to reallocate revenues to support the new products and different budgets. So I think that we’re trying to give just an estimate of where we think the likely outcomes are. We prefer to keep it an annual focus, but we try to reflect the realities in the marketplace.


Your next question comes from Aaron Reames - Wells Fargo Securities.

Aaron Reames - Wells Fargo Securities

I have just a couple of minor questions about trial design. In some of the earlier studies with REVLIMID in combination with melphalan and prednisone, there’s a slightly higher rate of marrow suppression that was seen. I know in this particular trial, there were some changes and modifications to the protocol to address that early on, kind of as a sued prophylaxis.

So I was wondering if you could remind us of the ANC criteria and the protocol around, when you would see G-CSF implemented, and how that would effect the marrow suppression? Also I was wondering if you could touch upon the differences in the way that the CR will be measured in this particular study versus the way it was measured in the VISTA study.

Bob Hugin

I think it’s important to recognize that this is a very different study in design than VISTA, both in terms of the number of patients. I think the VISTA study had almost 700 and this study has 500. This is a more rigorous design in some ways, because it’s randomized double blinded study and the fact that the end point is the progression free survival end point, as opposed to the time to progression.

So there are differences in terms of the studies and just let me say, broadly in terms of safety, without getting too granular regarding it, because we just don’t have the data, but we do know and it was very explicit from the independent data monitoring committee, whose primary goal usually is safety, that it was explicitly said “there were no safety concerns expressed.”

So I think in terms of getting in more detail, and what was the rate of this and that, and all these criteria. I think it would probably be best to wait until we have a full presentation and a data set at ASH, so we can answer all of the questions appropriately rather than just react at the last couple of days.


Your next question comes from John Sonnier - William Blair.

John Sonnier - William Blair

A couple questions for Bob. I just want to ask the duration question a bit more broadly, because I still think duration is probably the most under appreciated variable in the REVLIMID calculus.

I guess independent of the front line trial in data, you have clinical strategies and maintenance myeloma and lymphoma that are being tested, which could have a profound impact on duration. So can you talk a little bit about, what the experience has been patients who have been on REVLIMID way beyond the average? Where do we see duration going realistically over the next couple of years?

Separately, we’ve seen some seasonality, and given that Europe now is kind of a disproportionate amount of your growth, how do we think about Q3?

Bob Hugin

We’ll start with the second part, the seasonality. I do think that there are historical analysis that point out that currently we see a slowdown in August, especially in Europe, and you have to be very careful as to what conclusions you draw, because July tends to be stronger, and is it underlying fundamental patient demand or is it a buying in, so people can manage August without having to have issues of supply, unless people on staff to manage all the process. So I think, we would expect to see seasonality consistent with what we have in the prior years.

2009 is a different year than we’ve seen. We clear saw in January, more significant concerns about new plan years and co-payments, so I think that our signals indicate we shouldn’t see anything more significant that we’ve seen in prior years, but we’re carefully watching it every day. So far in July, the trends look favorable and inline with what we should expect in the third quarter. Again, it’s a good message for people to be aware, but it is not uncommon to see the oncology products, especially in Europe and August to have seasonality.

On duration question, I really think you raise it as an important growth drive for REVLIMID, and we certainly agree that, but it is a complicated metric in dynamic, and it is very different in every marketplace and segment of disease and there are complicated strategies regarding to reimbursement pricing, all the issues that go into that.

It is very, very important. It’s not a simple analysis and it’s one that we take very seriously, set the right goals, and have strategy market-by-market. We do in the big picture agree, it’s a critical growth driver for us; it’s one we’re very focused on, but it is a complex one nevertheless.

Sol Barer

Just to add on top of that, it’s a great question. In part of REVLIMID uniqueness is from a mechanistic perspective, which translates clinically, is that it does not appear to have dose limiting toxicities from a cumulative perspective.

So we really don’t know how long patients can continue to be on the drug, and there have been as you indicated, patients on the drug from the early days of treatment of myeloma. So we really don’t know the limits of how long patients can be on REVLIMID.

We do hope that we can extend patients lives for a long, long period of time, and indeed turn this into a chronic disease. As we learn more about the drug, as this trial indicates, we will hopefully be able to do that.


Your final question comes from Brian Abrahams - Oppenheimer & Company.

Brian Abrahams - Oppenheimer & Company

To what extent do you expect to be able to get reimbursement from front line REVLIMID use in Europe from label expansion on the 015 data, prior to the 020 study readout? Can you help us understand how the MPR plus placebo arm of 015 fits into your filing strategy if at all?

Bob Hugin

Clearly our discussions are going to be had with the regulatory agencies in Europe, other places around the world, and the U.S. over the next couple of months, but it is our view that it’s our intention to make sure that everybody understands the value of MM-015 as the significant part of the filing packet that would not require additional data from MM-020 to support it. So those are the discussions we’re going to have.

On the other part of the question which was, the pre-specified efficacy analysis in the trial was MPR plus continuous REVLIMID versus MP, so that was the focus of discussion with the regulators in advance of the trial in Europe, and that’s the discussions we’ll be having over the next couple of months.

Sol Barer

What I’d like to do is, with that thank everyone for joining us on this call. Obviously this is an important conference call from us on a commercial perspective, as well as from the MM-015 news, that it’s clearly very positive for this company, but I think even more importantly, it is positive for patients. It is another step towards our making myeloma chronic disease and hopefully many other diseases. So we look forward to seeing many of you at ASH and certainly on the next conference call. Thank you very much.


That does conclude today’s Celgene second quarter conference call. Thank you for your participation.

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