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Celgene Corporation (NASDAQ:CELG)

Q3 2009 Earnings Call Transcript

October 22, 2009 9:00 am ET

Executives

Dave Gryska – SVP and CFO

Sol Barer – Chairman and CEO

Bob Hugin – President and COO

Analysts

Maged Shenouda – UBS

Geoff Meacham – J.P. Morgan

Brian Abrahams – Oppenheimer & Company

Joel Sendek – Lazard Capital Markets

Yaron Werber – Citi

Steve Harr – Morgan Stanley

John Sonnier – William Blair

Jim Birchenough – Barclays Capital

Geoff Porges – Bernstein

Operator

Good day, everyone, and welcome to the Celgene third quarter earnings call. As a reminder, today’s call is being recorded. I would now like to turn the call over to the CFO of Celgene, Mr. Dave Gryska. 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 third 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 third quarter financial and operating results was issued earlier this morning, and is also available on our corporate Web site.

In addition, today’s conference call webcast will include a presentation which you can access by going to the Investor Relations section of our Web site at celgene.com. Sol will begin our call today with a strategic perspective on 2009. I will then review our third 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 our discussion during this conference call will include forward-looking statements. Our actual results, performance, or achievements could be materially different from those projected by these forward-looking statements.

The factors that could cause actual results, performance, or achievements to differ from our forward-looking statements are discussed in our filings with the Securities and Exchange Commission, such as our Form 10-K, 10-Q, and 8-Q reports. Given these risks and uncertainties, you are cautioned not to place undue reliance on our forward-looking statements.

Also, our discussions during this quarterly conference call will include certain non-GAAP financial measures. Non-GAAP financial measures provide investors and management with supplemental measures of operating performance and trends that facilitate comparisons between periods before and after certain items that would not otherwise be apparent on a GAAP basis. Reconciliation of these non-GAAP financial measures to most comparable GAAP measures are available as part of our earnings release at Celgene’s Web site in the Investor Relations section.

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

Sol Barer

Thanks, Dave, and good morning, everyone. And thank you for joining us today. Over the course of this – the last several years, Celgene has delivered unique science and transformational medicine towards our mission on improving the lives of patients worldwide. We are continuing to advance our commercial and regulatory initiatives, strengthening our rich pipeline, and expanding both the depth and the breadth of our global outreach to patients, as we work single-mindedly to become one of the world’s preeminent biopharmaceutical companies.

Today we are pleased to announce that the third quarter continued our robust growth towards meeting our short and long-term strategic, operational, and financial objectives. I’ll provide a short overview of our strategy and our business with a view of our anticipated near-term progress.

We had another record quarter with non-GAAP total revenue of $692 million, and non-GAAP net income of $260 million or $0.56 EPS, an increase of 40% year-over-year and 22% over the prior quarter. While financial achievement is an important measure of our success, Celgene remains focused on the patients that ultimately benefit from our innovative science and disease altering therapies. During the quarter, we advanced a broad range of therapies, achieved international regulatory approvals, as well as reimbursement approvals, and continued our global commercialization progress resulting in the achievement of record financial results.

I’ll briefly focus on our global commercial progress. We’ve established our presence in all major markets including the US, Canada, Latin America, The European Union and Eastern Europe, Australia, and Southeast Asia, and are currently advancing our commercial infrastructure in Japan, and are on track to have our product available in nearly 100 countries by 2013. Our commercial presence is recognized throughout both the US and EU as being in the very top tier in hematology, reflecting our unique science, disease altering products and our extraordinary people. And we are successfully commercializing REVLIMID and VIDAZA worldwide with continuous gains in market share.

Focusing on REVLIMID, its long-term trajectory continuous to be driven by global expansion, market share gains, and increase in the duration of use. REVLIMID’s international growth was galvanized with recent myeloma launches in the United Kingdom and Canada. REVLIMID has now been approved in multiple emerging markets, and the reimbursement process is now underway on a country by country basis.

We also continue to maximize our global opportunities with the commercial roll out of VIDAZA in Europe and Latin America, in addition to the continued growth in the United States. As we’ve often stated, clinical data is the lifeblood of innovative biopharmaceutical companies. We are fortunate to announce that at the upcoming American Society of hematology Meeting in December, we anticipate an unprecedented volume of data surrounding our promising compounds in a wide range of clinical indications.

Of particular note, we expect to see data on REVLIMID across all spaces of multiple myeloma, from smoldering to salvaged therapy, including preliminary results of the first interim analysis of MM-015 of Phase III, international randomized, double blind, placebo-controlled study in newly diagnosed multiple myeloma.

In addition to myeloma, our strong hematology franchise continues to expand. We are particularly pleased with our upcoming data for VIDAZA in both higher risk MDS and AML, the randomized placebo-controlled REVLIMID trial in dilution 5-Q MDS, and the quite exciting studies of REVLIMID plus RITUXAN in non-Hodgkin's Lymphoma, and chronic lymphocytic leukemia.

Our marketed products are now truly global therapies, which in turn support a deep pipeline with substantial global potential which will additionally bolster our future growth. For example, we are leveraging the biological and clinical activity of REVLIMID with our next generation IMiD compound pomalidomide, an extremely potent agent with the potential to treat a number of hematologic malignancies.

Other hematology-Oncology pipeline products range from small molecules such as kinase inhibitors to biologics such as the ACE-011. In addition, cognizant of this significant unmet needs, and a very significant global commercial potential in the area of immuno-neurologic and inflammatory diseases, we have developed a dedicated franchise that will leverage our science and compounds in this critical therapeutic area.

Our lead compound apremilast, with recent psoriatic arthritis data is currently in the planning stage for potential Phase III registration trials in 2010. Bob will review this further in a few moments. This is an exciting area for the company with significant clinical trial data, encompassing a number of compounds, including both small molecules and biologics to be released over the next 12 months.

In summary, our strategic – our strategy to become the preeminent company focused on the treatment of serious and debilitating diseases is progressing to a global expansion, record commercial performance, and excellence in human resources. Critically balancing this success was a longer term value of advancing our clinical trials and our pipeline. Celgene is well positioned to further secure its leadership role in the biopharma industry.

Now I’d like to turn the call over to Dave Gryska, who will provide more details 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 our exceptional financial results. Non-GAAP total revenue for the third quarter 2009 was a record $692 million, an 18% increase versus the third quarter of 2008. For the nine months ended September 30, 2009, non-GAAP total revenue was $1.9 billion, a 19% increase versus the same period in 2008. Non-GAAP diluted earnings per share for the quarter were $0.56 as compared to $0.40 per share during the third quarter of 2008, an increase of 40%.

Total non-GAAP net product sales increased to $665 million for the third quarter, up 19% from $561 million in the year ago quarter. This is an increase of 12% over the second quarter of 2009. REVLIMID net product sales were $450 million for the quarter, an increase of 31% over the third quarter of 2008, and a 13% increase over the second quarter of 2009.

Turning to VIDAZA, net product sales recorded were $103 million, an increase of 62% from the year-ago quarter, and a 12% increase over the second quarter of 2009. The launch of VIDAZA is progressing well. And by the end of this year, we'll have launched VIDAZA in a large portion of Europe.

THALOMID net product sales were $110 million for the quarter, down 17% as compared to the year ago quarter, and up 5% over the second quarter. The increase as compared to the previous quarter is a result of our ongoing launch of THALOMID outside the US.

For the third quarter of 2009, sales of REVLIMID in the US were $273 million, and international sales were $177 million, representing an increase to 12% and 15% respectively on a sequential quarter basis. REVLIMID international sales represented 38% of total REVLIMID sales for nine months ended September 30, 2009. Going forward, we expect REVLIMID international sales to be a higher percentage of total sales.

Our non-GAAP gross product margin for the third quarter was 92.5% compared to 92% during the second quarter. We are forecasting a 92% gross margin for the full year. The gross margins have improved quarter-over-quarter due to a higher percentage of REVLIMID and international VIDAZA sales, which have higher margins.

Turning to the expenses for the third quarter, non-GAAP R&D expense was $178 million, as compared to $169 million for the second quarter of 2009. For the remainder of the year, we expect R&D expenses will stay at this level as we continue to advance our rich and deep pipeline and accrue multiple, late-stage clinical trials in such areas as NHL, CLL, inflammation, and small cell lung cancer.

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 $172 million during the third quarter, as compared to $157 million during the second quarter of 2009. The sequential increase in expenses can largely be attributed to the timing of our contributions to patient assistance programs. We expect SG&A expense to be in the range of $650 million to $655 million for the year.

Turning to taxes, our year-to-date non-GAAP effective tax rate was 22.1%. We’re forecasting an effective 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. We are hedging approximately 80% of our Euro net earnings exposure to the end of 2010. The impact of foreign currency on top line revenue on a sequential quarter basis was immaterial.

In addition, during the third quarter, we realized approximately $14 million in hedging 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 to earnings from FX volatility.

We ended the third quarter of 2009 with cash, cash equivalents of marketable securities of approximately $2.8 billion. We continue to invest primarily in high-grade US government and government agency securities and money market funds. In addition, we repurchased approximately one million shares of common stock during the quarter. And on a year-to-date basis, we have repurchased 3.2 million shares.

In summary, the overall fundamentals of our business and financial position have never been stronger. Our global financial performance continues to benefit from strong operating leverage, operating efficiencies, an improving tax rate and gross margins, and growing cash flows. We expect non-GAAP diluted earnings per share for 2009 to be in a range of $2.05 to $2.10. We are updating our REVLIMID product sales guidance to a range of $1.65 billion to $1.7 billion. And we expect non-GAAP total revenue to be in a range of $2.6 billion to $2.7 billion.

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

Bob Hugin

Thanks, Dave, and good morning. The results of the quarter were outstanding. Across markets and functions, our teams performed superbly. Our products delivered significant top and bottom line growth, supporting meaningful investments in research and development. The results of the quarter accurately reflect our commitment to both near term execution excellence and to the advancement of key corporate initiatives designed to drive sustained long-term growth and value creation.

In the next few minutes, I’ll provide my perspective on both the strong commercial performance and the important progress made on key value drivers during the quarter. I’ll also highlight some of the important milestones for the remainder of 2009.

Our business has performed well across geographies, producing substantial product sales growth. The very positive REVLIMID and VIDAZA revenue increase outlined on the slide reflects strong performance in both the US and European markets. REVLIMID revenue in the United States increased by 12% quarter-over-quarter, and by 15% internationally. International REVLIMID revenue accounted for approximately 39% of total REVLIMID revenue in line with our expectations of 35% to 40% for the year.

Significant progress was achieved across all areas of the company. New regulatory and reimbursement approvals contributed to the global expansion and growth of REVLIMID and VIDAZA. Important pipeline advances were achieved in all therapeutic areas with clinical trial accruals accelerating in major programs.

Let me give you an update on our progress in our most important market, multiple myeloma. Our products have market-leading positions and substantial growth opportunities. Market share increases, longer duration of therapy, 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. Market share is an important measure of both performance and future prospects. Twelve-month rolling data indicates substantial market share gains in all lines of therapy in the United States, with total REVLIMID share now 34%, up from 31% last quarter, and total REVLIMID and THALOMID frontline share growing to over 64%.

In Europe, significant market share gains are also being achieved with second line market shares now approaching 30%. Duration remains a key driver of long-term REVLIMID revenue growth. Average duration in the US increased over 11 months during the quarter. Duration trends in Europe were also quite positive.

The REVLIMID revenue drivers outlined on the slide highlight the attractive future growth opportunities. Positive new clinical data is far and away the most important long-term growth driver for Oncology products. 2009 has been an exceptional year for Celgene products in terms of data presentation. Year-to-date, over 150 abstracts have been presented in major medical meetings, and nearly 75 peer-reviewed articles have been published highlighting Celgene products.

The outlook for new data is also promising. I’ll soon show a slide that outlines the significant presence that our products and pipeline will have in the upcoming American Society of Hematology Meeting in December. With commercial launches commencing in the United Kingdom and Canada this past quarter, and the Australian launch planned for later this year, our focus is now on preparing for the potential launch late next year in Japan, the world’s second largest individual Oncology market.

The profile of REVLIMID as a highly active oral agent with manageable toxicities, provides the opportunity for continuous treatment. We have numerous trials underway examining its potential and a range of indications and patient populations.

Let me now give you an update on one of these key trials. In late July, we reported that MM-015, our randomized double blind, placebo-controlled Phase III trial, which examines REVLIMID plus melphalan prednisone, followed by continuous REVLIMID versus melphalan prednisone in newly diagnosed myeloma patients. The continuous REVLIMID arm demonstrated a highly statistically significant improvement in progression free survival versus the MP arm.

This pre-specified primary efficacy comparison crossed the O’Brien-Fleming boundary for superiority at the first interim analysis, just 50% of planned events, and with only a ten-month median follow-up. This result is all 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 at least 50% for the completed trial.

These results further illustrate the potential for sustained disease control, which can be achieved by continuous REVLIMID therapy in myeloma. It should be noted that the third arm melphalan, prednisone REVLIMID, followed by continuous placebo was included in the trial to provide the opportunity to fully characterize the benefit of continuous – or continued REVLIMID therapy. Based on our extensive knowledge of REVLIMID's activity, we look forward to this data to even further support the value proposition of continuous REVLIMID therapy.

To enhance the value of the data in this study, the trial has remained unblinded. Sorry, the trial has remained blind. As regulatory strategies have been finalized, planned events have now exceeded 65%, and the regulatory strategy in different markets has been advanced. Preliminary discussions in some markets have begun, with discussions to be held in the US in the near future. Though ASH is only six weeks away, we do expect the presentation of the unblinded data from the initial interim analysis at the meeting.

MM-015 is the third REVLIMID phase re-trial demonstrating a statistically significant advantage for REVLIMID in the newly diagnosed myeloma patient population. Coincidentally, the ECOG continuous Rev/Dex phase re-trial has been published in the Lancet Oncology Journal today. The clinical trial program on the slide is designed to establish REVLIMID as the foundation therapy for all myeloma patient settings, from smoldering myeloma through to relapse refractory patients.

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 and REVLIMID's potential in MDS. VIDAZA global sales increased 62% year-over-year, and 12% quarter-over-quarter, in line with our expectations. In the United States, VIDAZA is the clear market leader in Intermediate-2, high-risk MDS. And in Europe, we made excellent progress executing our commercial plan in launched markets.

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.

Based on 10 years of orphan drugs' exclusivity, the European markets make up a large proportion of the VIDAZA growth opportunity. Our European launch is well underway. We expect positive reimbursement decisions on all major European markets by year-end, with the exception of Italy where negotiations will likely extend, excuse me, into the first half of 2010, and in the United Kingdom where the night's process is unpredictable and could extend as well as in 2010.

To maximize the VIDAZA opportunity, we must continue to successfully penetrate launched markets and increase the awareness of the benefits of active therapy in MDS. Multiple strategies are being employed to effectively communicate the extraordinary survival advantage of VIDAZA treatment. The third quarter results reflect the significant progress that we are making.

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

We're exploring a number of additional important indications that offer exceptional growth potential for REVLIMID. Phase III trials are underway in MDS, mantle cell lymphoma, diffused large B-cell lymphoma, and chronic lymphocytic leukemia. Our chronic lymphocytic leukemia clinical development program has the objective of establishing REVLIMID as a standard of care for the treatment of multiple patient segments within CLL. CLL-008, the origin trial, a global phase III SPA-approved study of REVLIMID versus Chlorambucil in previously untreated elderly patients is the first registration quality trial examining the potential benefit of therapies specifically for elderly CLL patients.

As with our CLL development strategy, our lymphoma development plan is exploring REVLIMID's potential in a range of patient 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 treatment. Enrollment is now underway in the phase III GELA remark trial in diffuse large B-cell lymphoma.

Our pipeline extends well beyond REVLIMID with important trials underway with VIDAZA, Amrubicin, pomalidomide, ACE-011, and other compounds. Our special protocol assessment Phase III trial comparing our third generation ampercycline [ph] – Amrubicin versus (inaudible) in second line small cell lung cancer is accruing rapidly, with accrual more that 80% complete, with full enrollment of 620 patients expected to be completed either late this year or early next.

Our next IMiD pomalidomide is enrolling 212 relapsed refractory myeloma patients in a multi-center 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, has completed a Phase II trial in myeloma patients examining the agent's effect on hemoglobin and on bone lesions. Data from this trial maybe presented as early as this year's ASH. We have also recently initiated a phase II study in chemotherapy-induced anemia breast cancer patients with ACE-011.

As Sol mentioned, clinical data is the life blood of a biopharmaceutical company. Our clinical studies continue to generate impressive data demonstrating new potential uses for our drugs. The American Society of hematology meeting has always been a highlight for us, and this year should be no exception. We believe that a record number of abstracts on Celgene products have been submitted, certainly more than 130. Multiple presentations illustrating REVLIMID's potential for sustained disease control in myeloma, including data from all patient segments, from smoldering myeloma, to newly diagnosed, through relapse refractory patient groups, are expected to be presented.

REVLIMID's potential in CLL, NHL, MDS, and AML will also be highlighted. New data from VIDAZA, pomalidomide, and ACE-011 trials will be presented. It will an informative and exciting meeting in New Orleans in December. Presentations at major medical meetings are an essential opportunity for physician education on emerging therapies.

Peer reviewed publication of presented data is also an important resource for physicians as they stay current with advances in clinical treatment paradigms. Year-to-date, peer review journals have published 71 articles providing data on Celgene products. This slide illustrates some of the important articles published this year, including survival data from VIDAZA and REVLIMID studies.

Our inflammation clinical program has progressed significantly in 2009. Multiple programs are advancing. I'll discuss apremilast in a moment, but do want to highlight that other immune inflammatory programs are also moving forward.

As an example, we recently completed approval and dosing in our Chron's disease clinical trial with PDA-001, our proprietary placental stem cell product, based on the analysis of this trial and encouraging pre-clinical studies, we expect to begin a broad Phase II program with this novel cellular therapy in 2010.

As we press released on Tuesday morning, updated Phase II apremilast data was presented earlier this week at the American College of Rheumatology meeting. The data presented demonstrated a sustained response to 24 weeks, with ACR20, 50, and scores are 40%, 20%, and 15% in the 20 milligrams twice a day arm. The activity of apremilast, which compares very favorably to approved oral therapies, which, by the way, accounts for approximately 85% of the prescriptions, combined with its highly encouraging safety and tolerability profile, has the potential to create an extremely attractive value proposition for apremilast.

Additional data is also expected from apremilast trials in recalcitrant psoriasis and moderate to severe psoriasis early next year. We're expanding our knowledge of the drug's full potential in dermatological, rheumatological, and inflammatory conditions through a wide range of Phase II studies, including trials examining the activity and safety of higher dosing. Based on the product's attractive profile and clinical results to date, we're planning to initiate a Phase III program commencing next year.

Hopefully, our presentation has provided you with an insight on our results and additional perspective on the key objectives and programs that are essential to our continued rapid growth. We've made significant progress in accomplishing many of our key 2009 corporate objectives. We have exceptional people worldwide focused on capitalizing on this momentum.

I hope you can sense the enthusiasm that we have for our prospects. We continue to believe that we're strategically positioned to accomplish our mission of building a preeminent, market-leading, global biopharmaceutical company focused in hematology, oncology, and inflammation. We thank you for your interest.

Operator, we can now open the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) And we will take our first question from Maged Shenouda with UBS.

Maged Shenouda – UBS

Hi. Thanks for taking my question. Can you outline your plans for top line growth over the next few years as we wait for execution on your frontline multiple myeloma strategy.

Sol Barer

Okay. Bob, could you take that please?

Bob Hugin

Sure. Well, I mean the growth strategy I think is consistent with the strategy that we've had for the last few years. Clearly, there are three major areas. We'll continue to benefit for the next couple of years for expansion geographically, both in terms of regulatory approval and, importantly, reimbursement approvals.

As we mentioned, Japan is the second largest individual oncology market. We filed, in accordance with our plans, on time at the end of the second quarter of this year in myeloma. We expect to file an MDS late this year. And we're expecting about 12 months review, and look to commercialize in Japan late next year. And that's a very attractive market. It's one that clearly has a focus on oral therapies, with important side – ability to manage side effects is very important in that marketplace. But we have reimbursement approvals staggered, fortunately or unfortunately, over the next couple of years in different markets and in some of the Eastern European markets, and some of the Asian markets, and Japan.

So global expansion, both from regulatory and reimbursement market access approvals will be a driver for the next couple of years. And importantly, we will continue to also see market share gains, we believe, in all the markets that we've launched. In Europe, we are making good progress in second and third line. But we're not anywhere near where we think the potential is of fully capitalizing on the existing data and the approvals that we have from both regulatory and reimbursement authorities in Europe.

And the United States, frankly, the success that we've had over the past year to continue to grow market share and improve the profile of the drug and its position in the marketplace has – in fact, our internal target as to where we think ultimately will play out in the US is higher than we would have thought for five years ago.

So geographic expansion, important market share gains in all of our markets we think we'll be able to achieve over the next couple of years, and importantly, the theme that we're seeing more and more, and hopefully you can sense it from today's call, is that when you look at the profile of REVLIMID as an oral therapy, with extended duration of response, with tolerability that allows – there are patients that we're aware of that have been on the drug now for seven, eight years, continuous treatment offers an upside for patients and for us also to extend the duration of therapy.

So we're getting new indications which we are incredibly committed to as you've seen from all the investments we're making, expanding in CLL, NHL, MDS, plus the pipeline of pomalidomide and other therapies that we believe – we're certainly hopeful will come to market over the coming years. The existing program of REVLIMID plus VIDAZA to get fully launched in Europe, we think the growth profile over the next couple of years is one that we're always looking to improve, but we think is a very bright one for the next couple of years with the potential for acceleration after that.

Thank you.

Operator

And we will take our next question from Geoff Meacham with J.P. Morgan

Geoff Meacham – J.P. Morgan

Hey, guys, question for you on REVLIMID duration of therapy. You do see a big gap US versus OUS. I'm wondering what the key driver of lower duration OUS is? I know you probably have – assuming less first line use OUS, I'm just wondering impact of reimbursement and maybe guidelines. And then I have a follow-up.

Bog Hugin

There – a couple of issues here, Geoff, that I think are important. One, clearly we launched in Europe after we’ve launched the US. So we’ve got less time in terms of developing the market place. And as you mentioned, we have probably a higher market share in the US in frontline than we do in Europe. But also, I think we have to be aware that we have better data in the US because of steps and Rev assist. So we really can understand the duration. In Europe it’s more challenging. In most markets we don't have that kind of data, so a lot of its estimates and – and we are going to be doing more chart studies to really strengthen the solid nature of that data.

The trend is a positive one outside the United States, but I do think you highlight – your question highlights the point and the importance of all the investment that we’ve been making in these key trials whether it be MM-015, IFM-0502 or the CALGB trial that looks at continuous treatment because MM-015 really is the first trial that demonstrates the very clear benefit of continuous treatment with REVLIMID to patients. And when we get the data from IFM-0502 with this years – at next year's ASCO and next year to that, we think that all these trials will continue to reinforce the value proposition of long-term continuous treatment.

So I think it’s a combination of factors that one, we don't have as good data; two, we haven’t been launched as long as in Europe as we have in United States. And we do need to continue to make that argument and show people new data about the value of continuous treatment. And we’re in a very fortunate position of having invested in these significant trials over the last few years. So there said be a steady flow of data that will reinforce that message of the value and importance of continuous REVLIMID treatment.

Geoff Meacham – JP Morgan

Great. And then a bigger picture question for you. You guys had a tough start to the year, but obviously you’ve seen acceleration of late. And MM-015 is definitely a driver going forward. I’m just – I’m wondering if you can speak to maybe the sustainability of growth on the back of this quarter and looking forward.

Dave Gryska

Yes. I think the sustainability of growth is an issue that – we’ve maintained high growth for a long part of time and we’re optimistic and committed to achieving high growth for a long period of time. And we think that historically there really isn’t a change, in our minds, the trend that we’ve been establishing for growth. It isn’t a straight line. Historically, we’ve seen new data come out and we’ve seen increased adoption of different therapies which have benefited our products and you see it, a rise in prescription and a rise in revenue. And we’ve seen that over the six to nine months. And then things can plateau and then elevate again. And so, I think, we feel very good about the prospects. But we do have to recognize it’s not a straight line.

We feel very good about where we're going to be over the next three to five years in terms of revenue growth. And the trajectory looks good, but we do have to be realistic to understand sometimes, some quarters will go a little bit better than others. But when you put the picture together, putting aside quarter-to-quarter and some factors that one quarter can be slower than another, and we’ll see some plateaus from time to time, we do think over the next couple of years there will be a steady flow of data. And there are some very important facts, like getting a frontline approval in Europe will be very important, and getting the continuous therapy treatment from IFM and the CEALGB out there will be important.

So I think we have to be cautious in the sense that it is not a straight line. They’re all – and it has never been a straight line. We’ve had ups, leveling off, rise again. And we’re going to see that going forward. But in the theme of the trend of where we see the business going, we feel good about it. We’re always nervous, but we’ve got a lot of data that we're going to continue to put out in the market place to give us the opportunity to grow to where we think we can.

Operator

Okay. We’ll next hear from Brian Abrahams with Oppenheimer & Company

Brian Abrahams – Oppenheimer & Company

Hi. Thanks for taking my question and congratulations on the quarter.

Dave Gryska

Thank you.

Brian Abrahams – Oppenheimer & Company

This question is related to MM-015. Bob, you mentioned that you’ve been in discussions with regulators in some of these ex-US markets. I was wondering if you can give us a sense of where you’re thinking right now in terms of frontline multiple myeloma, filing strategy in Europe. And I was also hoping you could clarify exactly what we should expect to see from 015 at the ASH Study? Could you – in particular, whether or not we said expect to see data from the non-continuous REVLIMID arm?

Bob Hugin

Well, I'll start and everybody else will jump in. First, I do want to make sure that I did say – as I incorrectly said on the call, unblinded. The study does remain blinded. But that will ultimately, as we do go forward, will be unblinded. I think the second part of your question, I would think that you’ll see relatively complete, though it will be early data from the initial interim analysis that will give perspective on the different arms in the trial.

And that’s why we feel very good about getting the data out there because we do think this it’s very clear from REVLIMID's profile that staying on the drug is very important to its continued response, or patients continued response. So we think the trial is going to really demonstrate over time, the messages that we wanted to, which is very much that we know that you should treat as early as possible. A number of trials have demonstrated that ECOG and SWAG, and other trials will continue to show that. But this is the first trial to really say how to use the drug. You must – if you really maximize patient response and benefit, you must say on the drug continuously.

But I think that the primary analysis as you know, both from a regulatory point of view is the MPR with continuous REVLIMID versus MP. From a regulatory point of view, I think, the trial as you know, did receive scientific advice from the EMBA before we started. There were changes made to the design before it was started in conjunction with guidance from the EMBA, yet did not have guidance from the FDA. And that’s why we’ll have discussions with the FDA in the near term to look at the whole package of the ECOG, SWOG and MM-015 for regulatory approval. Certainly the EMBA approval is our first priority. But getting worldwide frontline approval with continuous therapy for REVLIMID is a key corporate objective.

Operator

We'll have our next question from Yaron Werber with Citi. And Mr. Werber actually just dropped out of the queue. So we'll take our next question from Joel Sendek with Lazard Capital Markets.

Joel Sendek – Lazard Capital Markets

Thanks a lot. I just wanted to follow up on the last question. I guess I’m confused a little bit on the sequence of events. When you meet with the EMBA of the FDA, will you have unblinded the study or have unblinded data? So will those meetings take place after the ASH meeting? Can you just help us with that and when the filing actually might take place?

Dave Gryska

As a general rule, we think it’s much preferable to discuss the data with the regulatory authorities before it is fully presented in a market place, whether it be a medical meeting or elsewhere. So the expectation is and our strategy is that when you discuss with the regulatory agencies of a real sensitive nature about the programs and how you going to proceed, it would be with unblinded data.

Joel Sendek – Lazard Capital Markets

Okay. And then your best guess on when you would file?

Dave Gryska

I think our objective clearly is in 2010. A lot of it will depend on exactly the guidance that we get from the regulatory agencies in the coming month or two. So as it becomes clear, it’s in our interest to give you as much guidance as we can as to the timeline. But we can't be at this time, until we have finalized those discussions, be more specific than that. Though it is clear, our priority is to ensure that our first filing would be a European filing. We want worldwide filings and worldwide approvals in newly diagnosed myeloma. But the priority first will be with the US. And as soon as we can give you the clarity on what those time lines will be, we certainly will do so.

Joel Sendek – Lazard Capital Markets

Thank you.

Operator

We’ll take our next question from Yaron Werber with Citi.

Yaron Werber – Citi

Yes. Hi. Thanks for taking my question. I have two questions. One, could you just help understand just a little bit, what was the month inventory with REVLIMID this quarter? Were there any changes? And then the second question really has to do – help us to understand a little bit the MM-015 studies, and what both the FDA and EMBA might want you to do in terms of actually unblinding this early? It seems like the MP arm has almost all progressed. So why not the MPR arm – maintenance arm blinded, and maybe unblind the MP arm alone early? Is there an option to protect the integrity of the study? Thanks.

Dave Gryska

On the first question Yaron, it's about – on the inventory levels, the change in inventory between the end of the second quarter and the end of the third quarter for REVLIMID of the United States was negligible, completely immaterial. So I’d say virtually unchanged is the inventory number for the third quarter in the US. And in Europe we really only book revenue based on throughput sales. So we don't have a significant inventory issue in Europe on an ongoing basis. In the US, we do have especially pharmacies that can have inventory, and we do see approximately sort of a little less than two-week inventory out there. But in the third quarter there was virtually no change in inventory in the US.

On the MM-015 question, could you repeat it to make sure that we have the full issue of what you want us to cover?

Yaron Werber – Citi

Yes. Absolutely. Some of the questions or the concerns are that the Europeans or the FDA are going to ask you to unblind the data early, based on the – and the success of the nature of analysis. And as a result, we are not going to have, maybe, a good enough separation given if the study is still pretty early between the MPR, versus MPR maintenance arms. So the question – one would imagine that by now, most of the MP patients have progressed. So why not only unblind that arm? And for those patients who did not progress, maybe give them an option to roll over into another arm. But keep the important arms, the MPR versus MPR maintenance arms blinded. So we can actually get the separation. Thank you.

Dave Gryska

I think that – it’s an important question. I think we feel very good about what the regulatory strategy will be in terms of the data from this trial. It is early in the sense that you recognize that we can cross the O'Brien – Fleming with a very, very high bar. So the REVLIMID continuous arm versus MP is clearly no issue as to how that comparison will ever be. It is never going to be an issue of whether there is the statistical superiority between the key regulatory arms. The MPR with REV continues versus MP.

As far as the other arms go, I tried to mentioned in the call this since the original analysis, which was several part of time, that the number of events have gone up 65%, and which is close to the 70% which was the second interim analysis. And so – that we have gotten more data, or the analysis that would be used in any regulatory filings, if we were to unblind today, would have a significant percentage of the data. And based on our analysis of the blinded data and our knowledge of the product, we feel very good that not only will the regulatory comparisons be effective for us, but the overall data comparisons will be extremely helpful for us for making the case of continuous treatment of REVLIMID is absolutely the right thing for patients. And it’s obviously then beneficial to us.

Sol Barer

And so – and Yaron, the longer – the more data we have, obviously, the strength of the label and the strength of the study increases, because it did cross the interim at a very early point. This was a roughly 450 patient trial, 150 patients in each arm, very high hurdle, which was overcome. It surprised many of us how quickly it happened. So the more data we have that finally will go into the label, I think the better off we going to be.

Operator

And we’ll take our next question from Mark Schoenebaum with Deutsche Bank

Mark Schoenebaum – Deutsche Bank

Hey, guys. Thanks for taking my question. A couple of share-related questions. The 3% sequential uptake in REVLIMID share in the US I found to be striking. Maybe Bob, can you help us understand what drove that? For example, where did the share come from Velcade or THALOMID. And then related to that if it’s possible, could you give us the first line US REVLIMID market share, if that’s possible. And then for Sol, maybe, do you expect the 015 data to actually influence US duration in 2010? Thanks a lot. I appreciate it.

Bob Hugin

In terms of market share, I think that what we’ve said was, just in the short period of time of the last quarter, the overall share for REVLIMID had picked up from 31% to 34%, which really does reflect a very significant near-term trend because it’s not that easy for 12-month rolling averages to change so significantly in the short part of time. And so, a big percentage of that is clearly it’s moved earlier in treatment. So there has been a very positive trend there, where our data suggests that it’s the number one prescribed drug in the early stages of treatment in myeloma.

And I think the encouraging thing was, it’s combined data with THAL and REV that we saw positive signs in total there because THAL is clearly being moved out of frontline into the third and fourth line setting. And that’s key to our success of having the products positioned appropriately. And that’s – or used by positions appropriately, and we’re seeing that trend accelerate.

Sol Barer

And the second part of the question Mark, in terms of the potential impact on duration by 0115 in 2010, it’s kind of difficult to pinpoint the impact. What’s clear – what’s been happening over the past few years indeed and since REVLIMID has been approved in the US, there has been a continuous increase in duration of use in patients. As we get more experienced with the drug, as physicians get more experienced with the drug, and as additional clinical data comes out. So MM-015 is clearly going to be an important piece of the whole overall perspective and that this is really a critical trial in doing exactly what your suggesting, demonstrating that continuous REVLIMID use.

And that was our real objective with this trial, is very beneficial for the patients. That’s going to be part of it. In addition, there’ll be data hopefully coming out on the IFM maintenance trials, of the other trials coming out – smoldering. And I think together that’s going to add up to very positive perspective for patients whether it's going to be the first part of 2010, the second part. I think that the trend is in the right direction. And if we maintain the trend that’s clinically ongoing I think we will do very well.

Operator

We’ll take our next question from Steve Harr with Morgan Stanley.

Steve Harr – Morgan Stanley

A couple of just quick questions. The first one, centers on SG&A. What level of charitable support do you think is necessary going forward just for a modeling? And then when do you think that we’ll see the impact of those co-pays on support on your top line? And then second of all, just so we're crystal clear, you will have some – I'm making sure I understand this, preliminary data of maintenance versus induction at the time of the interim analysis at ASH. But ultimately, if the data – you will wait for the data to mature potentially to file with the FDA and the EMBA. Is that a fair way of summarizing of what you said so far?

Bob Hugin

I don't – I think – well, let me clear up what we’ve tried to say anyway and see if that helps. Our intention is that whatever data is presented at ASH will be whatever is analyzable at the time to make the ASH presentation complete. It would be expected that it would be the initial data from the in – first interim analysis. The regulatory filing, by the time the filing is complete, it will have as much data as is possible.

So once we lock the data base when the database – when we unblind the study, the regulatory filings will have all of the data up to that locked period. So it is very possible that a regulatory filing in 2010 would have more data in it than would be presented at ASH. And that’s what my expectation would be.

And that at subsequent meetings at ASCO and DHA [ph], as that data is been analyzed, you would continue to see updated data that would ultimately then be complete with what is in the regulatory filings. And then overtime, you would see presentations of data that would go beyond what is in the regulatory filings because you’ve got to stop the clock and put the regulatory filings together.

So I think at first you’ll see data that is less than will be in the regulatory filings. Then you’ll see data that, overtime in the coming year, that will be equal to what’s in the filing and then you’ll see more data, more matured data overtime that will be on the files.

Steve Harr – Morgan Stanley

So Bob, just so I'm clear, that’s means – you said before you had not unblinded the induction arm. So we will see data …

Bob Hugin

The whole study is unblinded.

Dave Gryska

It's blinded.

Bob Hugin

Sorry. Blinded.

Steve Harr – Morgan Stanley

I don't understand. So will there be data comparing maintenance from induction at ASH?

Bob Hugin

We will unblind the study. The expectations will be unblended prior to ASH and the data that’s analyzable, which will be up to the interim – the first interim, our expectation is that that would be presented. But the data that is from the initial interim analysis up to the unblinding will probably not be fully analyzed by the time ASH comes on. But it will be part of part of the regulatory filing. So from the 50% of events to the 65% of events or so, wherever we are today or whenever we unblind, that difference is what – is the only difference.

Steve Harr – Morgan Stanley

I got you.

Bob Hugin

On the second question, Steve, on the co-pay, there is not a direct correlation between the co-pay and the top line revenue. What we look at is what – where there is support for patients who need to access therapy. So that's what we look at. Typically, in the past years, there's been a little bit more heavy co-pay. In the fourth quarter this year, it was accelerated a little bit more into (inaudible) into third quarter. The increase over Q2 to Q3 was about $18 million.

But overall, our budget for co-pay overall is in line with what we thought it was going to be. And obviously, what's most important to us is to make sure there's enough moneys and funds in these particular entities to help patients re-enroll in 2010 when the deductible starts all over again.

Dave Gryska

And Steve, just one thing down on healthcare reform, if we do have healthcare reform that includes some coverage in the doughnut hole, we could see a slight impact on revenue if we do have a 50% reduction in revenue for patients in need in the doughnut hole. But we would have some offset to that from the SG&A line because we wouldn't need to make as much contributions to these third party, charitable, non-profit foundations either.

Bob Hugin

Can we have the next question please?

Operator

Our next question comes from John Sonnier with William Blair.

John Sonnier – William Blair

Thanks for taking the question. A nice quarter.

Bob Hugin

Thank you.

John Sonnier – William Blair

This question's for Bob. There were a couple of questions early on about growth sustainability. And I want to talk a little bit about REVLIMID outside of myeloma. You guys are showing some really strong, single agent use data in refractory patients and the aggressive etiological subgroups in NHL. Can you talk a little bit about your NHL regulatory strategy, and whether or not you're currently seeing any off (inaudible) for use there? And also, a little bit of color, if you can, about when we gain additional visibility into some of the solid tumor studies like prostate.

Bob Hugin

Let me start out with that. We're actually very excited about the activity that we're seeing in lymphoma, with non-Hodgkin's Lymphoma, in chronic lymphocytic leukemia. In both of those indications, we've obviously learned a lot from myeloma. And really aren't that far away, hopefully, towards meeting our objective of turning this into a chronic and a powerful – REVLIMID into a powerful agent for that disease.

So in REVLIMID for non-Hodgkin's Lymphoma, we have two trials that are ongoing in mantle cell that hopefully will lead to a quicker approval. Timing is very – as you know, very difficult to estimate in these cases. But there are really compelling leads here, and those are both ongoing.

In addition, we have – we're working with GELA, the major French cooperative group that was responsible in part for recalcitrant actually, for its approval. And we're working with them in the largest histology in lymphoma diffused large B-cell lymphoma on a major Phase III trial that is ongoing, that looks at REVLIMID following R-CHOP, and the REVLIMID again is as a continuous therapy. So we're quite excited by that.

And then, as you mentioned, there is a lot of exciting data both as single agent and in combination with RITUXAN in both – in non-Hodgkin's Lymphoma and in chronic lymphocytic leukemia. And we're going to be seeing some of that information coming out, hopefully, in this ASH. I know it's been submitted.

So there's a lot going on in non-Hodgkin's. There's a lot going on in chronic lymphocytic leukemia. Again, trials are on – trials are ongoing. We're starting new trials. We're excited about the ADCC synergy with (inaudible) and RITUXAN. So that's going on as well.

In terms of solid tumors, there's a number of trials that have been initiated or are being initiated when we – so it designed REVLIMID, and we looked at activity. We did not originally anticipate for it to be a solid tumor drug. However, having said that, we see some promising signs.

We're pursuing prostate. We will pursue in combination with Ritaxatir [ph], colorectal cancer, and a few other cancers in terms of exploratory studies. So it's hard for me to tell you exactly when we're going to see the data, whether it will be at 2010 ASCO or a 2011 ASCO. But nevertheless, that's something that is going on. And we have selected the tumor types consistent with what we know about the mechanism of action. So that could remain a very, very large upside to REVLIMID. We're not counting on it, obviously. And we're in the exploration phase for it.

Dave Gryska

And then on the commercial side, myeloma and MDS continue to comprise about 95% of the prescriptions. There hasn't really been any significant change to that for an extended period of time, though lymphomas have risen to be the number three indication. But I wouldn't – it's not a meaningful impact on revenue at this point.

Bob Hugin

So if we could have two more questions now.

Operator

Yes. We'll take our next question from Jim Birchenough with Barclays Capital.

Jim Birchenough – Barclays Capital

Hi, guys. A couple of follow-up questions. Just on ASH, and the IFM and CALGB post-transplant maintenance stated for REVLIMID, just wondering what you're expecting from that data. And we've got data for Thal post-transplant that suggests the benefit. What kind of Thal use do we see post-transplant and what could be the implications of positive REVLIMID data?

Bob Hugin

Right. We don't specifically know regarding studies. I'll just give the disclaimer first that we don't sponsor. We really don't know the details in sense of what's going to be at ASH. We do understand that maybe some initial data will come out. And with IFM, I don't know, and the CALGB. I do know that 2010 may be a very big year for that trial, be it ASCO or ASH, where, hopefully, a very significant amount of news will come out. So I really don't know in terms of this coming ASH.

I'm sorry, and the second part of the question?

Dave Gryska

The Thal maintenance, which really has a–

Bob Hugin

Right.

Dave Gryska

Because of the neuropathy and the sedation, it really has had limited impact, though trials have shown some benefit in Thal post-transplant. And one of the reasons why we think with the different product profile, with REV being one more active without the sedation, and the neuropathy, it's really an ideal, continuous therapy after transplant, or even before. So I do think that's why the data is very important. But I don't think you can compare Thal with – and Europe has had some use there, less in the US, as any kind of roadmap for us. It really will be a new opportunity for us.

Bob Hugin

The overall theme that you will be hearing about, and seeing again, and what you're implying quite correctly, again and again and again, because of REVLIMID's unique activity and clinical characteristics, its longer term use in the continuous setting, hopefully, having a major impact on patients.

So can we have one more question please?

Operator

Yes. Our final question will come from Geoff Porges with Bernstein.

Geoff Porges – Bernstein

Thanks very much for letting me jump in. Two quick questions, one SG&A, and one on dose. First on SG&A, I just want to get a sense of the comments, Dave, about SG&A then the patient assistance. Is it likely maintained at this level going forward? And will that be enough to offset the seasonal Q1 slowdown that you're anticipating – that you experienced this year in Q1 next year?

And then on dose, if the duration for REVLIMID extends, particularly as you look at continuous dosing, what's happening in the dose trend and what do you think will happen in the future? Thanks.

Bob Hugin

Dave?

Dave Gryska

Yes. Geoff, on the SG&A. Yes, there's enough. We typically have a higher payment in the fourth quarter, and the third quarter this year got a little bit accelerated, so. We have enough in our plan and our guidance that we gave you in terms of the SG&A range. It does anticipate an increase in co-pay, and we factored that in. We're very comfortable with it. And Bob also mentioned, the previous question before, that to the extent that there is some healthcare reform that this co-pay amount may be diminished depending on what happens with healthcare reform and it's on (inaudible) basis.

And on top of that, I think it was also mentioned in the earlier question that that – this is obviously helping some of the co-pay foundations get patients re-enrolled in the first quarter of 2010. They know the funding is there. They can, obviously, identify those patients and get them into the program in the first quarter.

Bob Hugin

Yes. I think, Geoff, just related to the first quarter. I think last January really was an unbelievable time in the economy that people were basically paralyzed as to what to do with their savings, the amount of money, and the expenditures. I do think we – with the first three or four years in Medicare Part D, we were very focused on the double doughnut hole in December, which was a big concern for us. And it did materialize, but not in the way that overwhelmed the revenue and the prescription growth in those quarters.

I do think we need to be cautious going forward with the turmoil in January and changing plans, and the concerns about co-pay until we really have healthcare reform that really minimizes the size of this doughnut hole. I do think we have to be cautious. And we could see, even without the extraordinary economic difficulties of last year, that we're going to be a bit cautious because we want to make sure that we – people have the opportunity for co-payment. And so we provide the source there for assistance if it's needed. But I do think we could see a little bit of turbulence there.

And on the dose, we really have seen modest decline in the dose. We do expect to see dose over time decline as duration extends. And it will be dated as. And we'll talk about, what is the right dose for the first 12 months? What's the right dose after you extend out duration longer term to maintain that response? So it wouldn't be surprising to see some dose response in long term dose reduction, in long term responders. But obviously, flat pricing is a pretty important consideration to ensure that it doesn't have an economic impact, potential impact on us.

Geoff Porges – Bernstein

Thanks very much.

Dave Gryska

Thanks, Geoff. So thank you, everybody, for joining our call. It's obviously been – it's a positive quarter. We look very – we very much look forward to 2010. We look forward to seeing all of you at the American Society of hematology meeting. We'll have more information on the details of our events, our IR events at – that will be forthcoming relatively soon. And we thank you for your interest and for your support.

Bye, bye.

Operator

That does conclude today's call. Thank you for your participation.

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