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Celgene Corporation (NASDAQ:CELG)

Q4 2009 Earnings Call Transcript

January 28, 2010 9:00 am ET

Executives

David Gryska – SVP and CFO

Sol Barer– Chairman and CEO

Bob Hugin – President and COO

Analysts

Brian Abrahams – Oppenheimer & Company

Geoff Meacham – J.P. Morgan

Steve Harr – Morgan Stanley

Yaron Werber – Citi

Geoffrey Porges – Bernstein

Chris Raymond – Robert W. Baird

Rachel McMinn – Bank of America-Merrill Lynch

Mark Schoenebaum – Deutsche Bank

May-Kin Ho – Goldman Sachs

Eric Schmidt – Cowen & Company

Jim Birchenough – Barclays Capital

Operator

Welcome to the Celgene fourth quarter earnings call. I’d like to turn the call over to the CFO of Celgene, Dave Gryska.

David Gryska

Good morning everyone, thank you for joining us today. I am Dave Gryska, Celgene’s Chief Financial Officer, and I’d like to welcome you to Celgene’s year-end conference call for 2009. 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 fourth quarter and full year financial operating results was issued earlier this morning, and it is also available on our corporate website.

In addition, today’s conference call webcast will include a presentation, which you can access by going to Investor Relations section of our website at celgene.com. Dr. Barer will start the call with an overview of accomplishments and strategic outlook for 2010 and beyond. I’ll take you through our financial results for 2009 and our financial outlook for 2010, then Bob will review our operational and commercial results for 2009, and share with you this perspective on our operational and commercial prospects moving forward.

Before we start, we want to remind you that discussions during this conference call will include forward-looking statements. Our actual results, performance, or accomplishments 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 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 fluctuate 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 at celgene.com in the Investor Relations section.

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

Sol Barer

Thank you, Dave, and good morning, everyone. In many ways 2009 with the transformational year facility, we took major steps towards building a preeminent global biopharmaceutical company. And we are pleased to report those accomplishment are not only reflected in the advancement of our therapies for cancer and immuno inflammatory diseases, they are also reflected in our commercial, operational and financial results. We make extraordinary progress across all package of our business including continuing to grow as a global company with the therapies available in nearly 70 countries.

Our product as a global market leaders and their indications, REVLIMID is a global leader in treatment of multiple myeloma and it sharing the market price continues to grow.

Over the past six months, a continuous flow of positive clinical data has been released demonstrating the breadth of REVLIMID’s activity. These studies have shown there is potential but developing a REVLIMID’s become the foundation of myeloma therapy from smoldering to salvage as well as in new indications, creating the opportunity for changing treatment paradigms.

We are also expanding the base, the global market leader in MDS through market share gains and geographic expansion in Europe and the rest of the world. Importantly we are making substantial progress in the development of our deep and diversified pipeline by advancing more than 30 clinical programs to address high unmet medical needs in more than 25 serious and debilitating diseases.

Some recent highlights include the reporting of positive clinical data in myelofibrosis and myeloma at major medical meetings and in peer review journals for our new hematologic agent, pomalidomide. We plan to enter pivotal clinical trials with pomalidomide this year for both multiple myeloma and myelofibrosis.

As we expand our hematology oncology franchise, we recently added a new and strategic product ISTODAX through the acquisition of Gloucester Pharmaceuticals. Last quarter ISTODAX received FDA approval for the second line treatment of Cutaneous T-Cell Lymphoma and will be our first entry into the important lymphoma market.

We look to expand ISTODAX and Peripheral T-Cell Lymphoma and potential in a number of other diseases while leveraging our current infrastructure. Our lead product candidate in our immune-inflammatory franchise, Apremilast, has made significant clinical progress. Apremilast reached the primary end point into Phase II Trial, one is Psoriasis and one is Psoriatic Arthritis. We look forward to starting Phase III registration Trials in these indications this year.

This is an exciting new area of multibillion dollar potential for Celgene and we are proud to have developed apremilast in our own laboratories. This quarter we planned to announce results from each [ph] Trial of PDA-001. Our cellular therapy and patients with Crohn's Disease and potentially expand this new therapy to other serious diseases with unmet medical need.

This will mark the first time this new therapy has been studied in human. This new area of medicine places Celgene at the forefront of drug develop in this area for many areas to come. So, why am I excited about Celgene's future? We’re consistently performed in all aspects of our business ranging from science to clinical to manufacturing to commercial to financial. Demonstrating we have the entrepreneurial culture and capabilities to continue to grow and sustain a leadership position in our industry. We have made and we’ll continue to make significant investments in our pipeline.

We are exploring next generation program that include small molecules, biologics, cellular therapies and vaccines. We have 20 Phase III in Pivotal Clinical Trials underway, few by our prolific research and translational efforts towards the objective of ensuring the virtue cycle of innovation continues to provide results for patients and Celgene's stakeholders around the world. Our robust pipeline strategically positions us to consistently produce unique therapies to seriously ill patients. We will continue to grow our leading hematology franchise which has one of the broadest portfolios of disease altering therapies for blood cancers, both internally where we have an excellent track record and via business development where we continue to demonstrate strategic partnerships and acquisitions.

We will continue to expand in ways that will transform treatment paradigms such as with our IMiDs compounds, cytogenetic therapeutics, HDAC inhibitors cytokine inhibitors, kinase inhibitors, active inhibitors, cellular therapies and more. We are opening the door to a new franchise, our inflammatory business, where our current product candidate have the potential to treat millions of people in addition to our hematology franchise where we can impact the lives of over 2 million patients worldwide. We have the financial resources, the operational excellence, the scientific and clinical capability, the geographic breath and most importantly the excellent people with commitment to make a positive impact on the industry and lead to changing treatment paradigms.

We will continue to grow our current products, while we acquire and develop new ones. We have delivered leading financial results year after year and 2009 was no different. Our innovative and entrepreneurial culture is helping us grow into one of the premier global biopharmaceutical companies in the world. We are energized by this momentum and look forward to 2010 and beyond.

Here to tell more about our record financial results from 2009 and give you guidance on our 2010 outlook is our Chief Financial Officer, Dave Gryska.

David Gryska

Thanks Sol. 2009 was an exceptional year in which Celgene again delivered record operating performance. Despite challenges in the global economic environment total non-GAAP revenue increased approximately 20% year-over-year to a record 2.7 billion. This increase was driven primarily by exceptional growth from our REVLIMID franchise, the continued growth of VIDAZA in the U.S. and a strong launch of VIDAZA in Europe.

During the fourth quarter of 2009, total non-GAAP revenue increased approximately 22% year-over-year to $758 million. Non-GAAP net income for the fourth quarter was 290 million and non-GAAP diluted earnings per share was $0.62.

Non-GAAP net income for 2009 was a record $971 million and non-GAAP diluted earnings per share increased to $2.08. Total non-GAAP net product sales increased to $722 million for the fourth quarter, up 22% from $591 million in the year-ago quarter. This is an increase of 9% over the third quarter of 2009. Fourth quarter REVLIMID net product sales were $497 million, an increase of 35% over the fourth quarter of 2008 and 11% increase over the third quarter of 2009. Full year 2009 REVLIMID net product sales were $1.7 billion, an increase of 29% from 2008 sales of $1.3 billion.

Turning to VIDAZA, net product sales recorded for the quarter were $117 million, an increase of 68% in the year-ago quarter and a 13% increase over the third quarter of 2009. Thalomid net sales were $108 million for the quarter, down 15% as compared with the year ago quarter and down 2% over third quarter.

For the fourth quarter of 2009 sales of REVLIMID in the US were $291 million, and international sales were $206 million, representing an increase to 7% and 17% respectively, on a sequential quarterly basis.

For the full year 2009 REVLIMID international sales represented 39% of total REVLIMID sales. We expect international sales of REVLIMID to be approximately 45% of total revenue sales for 2010.

Our non-GAAP gross profit margin for 2009 was approximately 92%. For 2010, we expect an improvement in gross margin for approximately 100 basis points.

Now turning to expenses. Non-GAAP R&D expense during the fourth quarter was $182 million, slightly higher than R&D expense of $178 million during the third quarter of 2009. Non-GAAP R&D expense was $696 million for 2009. We will continue to strategically invest in our R&D in 2010 as we seek to advance our very deep and promising product pipeline.

During 2010, our development efforts will evaluate multiple compounds in more than 20 Pivotal and Phase III clinical trials. Our key development program regarding REVLIMID in all stages of multiple myeloma as well as Pivotal Phase III Trial NHL and CLL.

We will also conduct late-stage trial for Apremilast, Pomalidomide, Amrubicin, VIDAZA and we will continue to advance other promising compounds the clinic including AZA-001, PDA-001 in our kinase inhibitor program. All of these development efforts are expected to contribute to our long-term revenue growth. As a result of our continued commitment to R&D, we expect 2010 R&D expense to increase approximately 20% versus 2009.

Taking a look at SG&A, non-GAAP, selling, general administrative expenses increased to $193 million during the fourth quarter as compared to $172 million during the third quarter of 2009. For 2009, non-GAAP SG&A expense were $679 million. We expect SG&A expenses in 2010 to increase approximately 5% versus 2009 as we continue our global expansion of REVLIMID and VIDAZA in new markets and in particular REVLIMID in Japan.

Turning to taxes, our non-GAAP tax rate for 2009 was approximately 21%. We anticipate to reduce non-GAAP tax rate by approximately 100 basis points for 2010. As you are aware, we hedge our balance sheet foreign currency exposures in our company foreign currency transactions and exposure related to certain Euro based revenue and expense. The impact of foreign currency on top line revenue on a sequential quarter basis was immaterial. In addition, during the fourth quarter we realized approximately $7 million in hedging and evaluation gains which is included in other income.

In summary, this was an exceptional year with record revenue earnings. We ended 2009 with cash and marketable securities of approximately $3 billion. In addition, we repurchased approximately 1.2 million shares in common stock during the quarter. On a year-to-date basis we have repurchased 4.3 million shares.

For 2010, we expect our operations to generate approximately 1.2 billion in cash, and expect to spend approximately $115 million on capital expenditures.

Turning to our financial outlook for 2010, we expect total revenues to increase by approximately 20% versus 2009 to a range of 3.2 to 3.3 billion. We expect REVLIMID net product sales will increase approximately 25% year-over-year to a range of 2.1 to 2.2 billion. We also anticipate that non-GAAP diluted earnings per share will increase approximately 25% to a range of $2.55 to $2.60 for 2010.

In conclusion, our company has never been in a stronger position to execute on the global expansion plan for our hematology, oncology and inflammation franchise. As you can see we have further improved our operating efficiency and leverage during 2009. Our clinical, regulatory, manufacturing and financial execution as well as our investment in information technology has delivered one of the best operating margins, gross margins and tax rates in our peer group. We are truly well positioned to achieve our goals in 2010.

Now I’ll turn the call over to our President and Chief Financial Officer, Bob Hugin, to expand on the global commercial clinical and regulatory achievements in the year, and discuss the key objectives that will lead to continued success in 2010 and beyond.

Bob Hugin

Thanks Dave. As you’ve heard 2009 was an extraordinarily successful year for Celgene. We achieved or exceeded major corporate objectives across all areas of the company. Dave highlighted the exceptional fourth quarter and full year 2009 financial results.

I’ll review our most significant accomplishments in 2009 and outline the key drivers or objectives for continued excellent performance in 2010.

At the beginning of 2009, we identified the strategic initiatives and activities required to deliver outstanding performance. We executed against these imperatives in 2009.

Our results this past year are clear reflection of operational excellence across the globe and across functions. Continued market penetration, market share gains and increased duration of our products grow year-on-year revenue growth.

Our international expansion significantly contributed to our operating results with new markets filling revenue growth during the second half of 2009. We are beginning to realize the operating leverage from our investments to build the global franchise. With international markets contributing an increasing percentage of our revenue.

In 2009, we advanced multiple, late-stage clinical program with 20 Pivotal Trials now either underway or planned to start in 2010. Our medium term pipeline is also more robust now that it was 12 months ago. With several key programs advancing to Phase II this year.

Our teams advanced 12 compounds and development and numerous preclinical programs, and we expand an important collaborations with our external partners. 2009 was an exceptional year for Celgene and advancing these key strategic initiatives.

In the following slide, I will share my perspective for these results in greater detail and describe the key drivers for 2010. The result of the fourth quarter were outstanding. Total revenue increased by more than 20% year-over-year driven by strong REVLIMID and VIDAZA sales. The quarter was also highlighted by significant new data on REVLIMID, Apremilast, VIDAZA, THALOMID and pomalidomide. And in December we announced the strategic acquisition of Gloucester Pharmaceuticals.

Our commercial themes performed well in all geographic territories. Global market penetration, increasing the treatment duration and international expansion all contributed to the outstanding fourth quarter and full year REVLIMID performance.

Total US REVLIMID market share in the multiple myeloma market grew to approximately 37% and in major European markets second lion share increased by more than 35% during the year.

In the United States, duration grew to roughly 11.8 months and in Europe to approximately 7.5 months. Late in the fourth quarter, the commercial launch in Australia continued our track record of successfully securing REVLIMID pricing and reimbursement agreements across the globe. Japan is our next major opportunity with a regulatory decision expected mid-year and reimbursement and commercial launch targeted for late this year.

Fourth quarter REVLIMID results provide a strong foundation for 2010. Share gains in earlier lines of therapy across major markets, full year sales in the UK, Canada, Australia and Latin America and increasing treatment duration remain the key growth drivers. The recent positive announcement by US Co-operative Group CALGB and the French Cooperative Group IFM, regarding Phase 3 myeloma studies provided additional support for continuous REVLIMID therapy. We expect this important new data to be presented at major medical meetings later this year.

Our position in the global MDS market has never been stronger. In 2009, our focus was on continued growth in United States, while executing a best-in-class commercial launch in Europe.

VIDAZA global sales increased 68% year-over-year and 13% quarter-over-quarter. In the U.S. VIDAZA is the overwhelming market leader in higher risk MDS. And in Europe we are rapidly establishing a treatment standard for the disease. Following regulatory approvals in 2009, we’re seeking VIDAZA reimbursement in Canada, Australia and Latin America.

The presentation of the data from MDS-004, our controlled study of REVLIMID and del 5q MDS at the American Society of Hematology Meeting confirmed a significant clinical benefit of REVLIMID for the treatment of transfusion-dependent low-risk del 5q MDS. We are actively developing regulatory strategies for key global markets with the combined MDS-003 and 004 studies.

Continuing the rapid adoption of VIDAZA in Europe for the treatment of all classifications of MDS and a subset of patients with AML is the most important growth driver in 2010. Our teams are focused on following the successful European launch in other markets as the recognized standard of care VIDAZA continues to be the subject of intense clinical investigation.

We expect and look forward to additional results of single agent and combination studies, including those with REVLIMID at major medical meetings later this year.

Data presented at the annual American Society of Hematology Meeting has historically been a major catalyst for our products. At the 2009 past meeting, a record 218 abstracts and over 50 oral presentations were delivered on Celgene products. Leading investigators in the cooperative groups presented significant new REVLIMID data across all stages of myeloma. As Sol mentioned, from smoldering to relapse refractory.

The interim data from the Phase III MM-015 Trial highlighted the benefits of continuous REVLIMID therapy by significantly prolonging progression free survival compared with a fixed course of therapy. In patients with high risks smoldering myeloma early results show the REVLIMID significantly delayed the time to active disease. REVLIMID is the first treatment to show benefit in this patient population. We expect digital updates of these studies in 2010.

Building on a preclinical hypothesis of antibody dependent cellular cytotoxicity or ADCC encouraging Phase II data of REVLIMID with RITUXAN was presented ASH. This combination produced high response rate in first line and relapsed refractory in indolent lymphoma. Including a 94% complete response rate in untreated follicular lymphoma. Promising data from this combination was also reported in chronic lymphocytic leukaemia. It heavily pretreated CLL patients the overall response rate was 64% with generally manageable side effects.

We’re optimistic that the data from ASH 2009 were again be a catalyst for our clinical commercial and regulatory programs. Immediately following ASH the two cooperative groups that mentioned earlier CALGB and IFM reported initial data from randomized Phase III studies evaluating REVLIMID compare to placebo in multiple myeloma patients following stem cell transplant.

The independent data and safety monitoring boards reported that the trial had met their primary endpoints of statistically significant improvement and progression free survival. Together with the MM-015 results the IFM and CALGB Trial add to a growing body of clinical evidence that continues REVLIMID therapy significantly prolongs PFS in patients with newly diagnosed myeloma. We will continue to work with these groups as they fully evaluate and present these trials off this year.

While there is great progress in the treatment of early stage Myeloma there is a growing pool of Myeloma patients who have failed all existing therapies. Pomalidomide (inaudible) positions this next generation IMiD compound as potentially the most important therapy in development for these patients. In heavily pre-treated patients, including those previously treated with REVLIMID, Thalomid and Bortezomib, pomalidomide demonstrated a 50% overall response rate which is the highest reported rate of all drugs in development for this indication. These responses were durable and side effects were generally manageable.

We are actively working with investigators and regulatory authorities to advance our pivotal trials. Additional S data highlighted pomalidomide’s activity in Myelofibrosis. Today, patients with this debilitating disease rely on blood transfusions to treat chronic refractory anemia. Pomalidomide generated 25% to 40% response rate with more than 60% of responders achieving durable transfusion independence. Again, side effects were generally manageable. We are rapidly moving Pomalidomide in the pivotal mode.

In December, we announced the acquisition of Gloucester Pharmaceuticals. This strategic transaction provides Celgene with an entry into the US lymphoma market. We will launch ISTODAX in the second quarter in the United States for the treatment of cutaneous T-Cell Lymphoma. The pivotal US trial for Peripheral T-Cell Lymphoma is now fully accrued and we are evaluating global regulatory strategies for ISTODAX in CTCL and PTCL.

Data presented at major medical meetings and published in peer viewed journals throughout 2009 substantially strengthened the clinical and commercial profile of REVLIMID in myeloma, MDS lymphoma and CLL. With intellectual properties protection through 2026 is the key corporate objective to fully capitalize on REVLIMID’s unique clinical profile.

This slide reflects our continued investment in multiple Phase III program in numerous hematological and oncology indications. As we pass the four year mark since the first FDA approval of REVLIMID, we would expect as a normal course of their business and abbreviated new drug application filing by a generic manufacturer.

We are well prepared to successfully defend our significant intellectual property. Beyond REVLIMID, the hematology and oncology pipeline continue to strengthen and deepen in 2009. In the fourth quarter we completed the enrollment of the Phase III study, they’re moving to then second line small cell lung cancer.

This trail compares (inaudible), the reference drug in this setting. We expect data to be available sometime late this year. Preliminary data reported as on ACE-011 are now a active inhibitor in developing with our partner Acceleron showed increases in hemoglobin and improvement in bone lesions in multiple myeloma patients. A Phase II study in chemotherapy induced anemia in metastatic breast cancer patients is ongoing and other areas of clinical investigations are active.

Our inflammation and immunology franchise gain significant attraction in 2009. The franchise is a national expansion of our preclinical, clinical and overall research platform and fits well with our specialty focused hematology oncology business. Serious inflammatory and immunologic diseases are also predominantly specialist treated. Celgene is indeed fortunate to have several promising programs in the Inflammation and Immunology field.

Let me briefly update you on our lead compounds including the old kinase inhibitor 930, PDA-001, our cellular therapy and the non-oncology applications of ACE-011. In 2009, we concluded proof of concept trials for CC-930, which demonstrated significant suppression of the kinase JNK in healthy volunteers.

Based on these results we plan to initiate a Phase II study in Idiopathic Pulmonary Fibrosis later this year. We are optimistic on the therapeutic potential of cellular therapy across multiple indications. Our team made excellent progress in 2009, advancing our proprietary program into the clinic.

The treatment Phase of the PDA-001 Crohn's Disease Trial concluded in September and the six months follow-up will be completed early this year. Our goal for 2010 is to initiate a Phase II study in Crohn's Disease and Trial for at least two other diseases.

In addition to the cancer indications as previously discussed we are moving ACE-011 four in non-oncology indications. Based upon our preclinical and clinical work we plan to study ACE-011 as the potential treatment for chronic kidney disease. With multiple compounds and programs in Inflammation and Immunology, we see 2010 is an important year to execute on our late stage trail advance our Phase I and II pipeline and keeping our research initiatives in this area.

Let me spend a minute showing my perspective on Apremilast. With the completion of two important placebo controls Phase II Trials in 2009, Apremilast potential has become clear. The data from these trials lead us to aggressively pursue Phase III Trial in psoriatic arthritis and psoriasis. Apremilast has shown a unique combination of activity and safety and has the potential to be a meaningful therapy for these conditions. We have studied the Apremilast in approximately 1000 patients with psoriasis and psoriatic arthritis.

This slide summarizes the results from the Phase II Trials. In the psoriatic arthritis 001 study, 44% of patients with moderate-to-severe psoriatic arthritis achieved an ACR 20, the key clinical measure of effectiveness.

In the second study, Psoriasis 005 showed that 41% of patients with moderate-to-severe plaque psoriasis achieved a positive 75 score in the range of biologic efficacy. This level of activity together with the encouraging safety profile is compelling. If a comparable level of activity and safety is demonstrated in the Phase 3 trial, there will be a major opportunity to access at a minimum the 85% of the market held by existing oral therapies. We'll continue to update you throughout the year as we advance our pivotal programs with apremilast.

The future of any biopharmaceutical company is only as good in its pipeline, the source of future growth. At Celgene, we significantly advanced our hematology, oncology, inflammation and immunology pipelines in 2009. Our investment in R&D has lead to the broad pipeline of 12 compounds in clinical developments that you see here.

We'll have 20 pivotal clinical trials ongoing in 2010 and we are also advancing 16 preclinical programs in 25 serious and debilitating diseases with this foray to reviewing the progress and potential of our pipeline with you at our R&D Day on March 4th in New York City.

In summary, 2009 was a great year for Celgene. Our products made an increasingly meaningful difference in the lives of ten of thousands of patients around the world and because of this we produced strong operating results.

Our pipeline is more advanced, broader and deeper and our global organization expanded and strengthened. Our talented and dedicated team succeeded in converting 2009 objectives into exceptional accomplishments.

The momentum that was built throughout the last year positioned us well to capitalize on many opportunities outlined on this slide. In 2010, we are focused on key drivers of value creation, maximizing REVLIMID’s global potential, extending our leadership in MDS, and accelerating the clinical development of our early and late stage pipeline. 2010 will be an exciting year with clinical, regulatory and commercial milestone that have the potential to significantly enhance our short and long-term results. We very much look forward to updating you on our progress throughout the year, thank you.

Operator we can now open the call to questions.

Question-and-Answer Session

Operator

(Operator instructions). We will take our first question today from Brian Abrahams at Oppenheimer & Company.

Brian Abrahams – Oppenheimer & Company

Hi thanks very much for taking my question. I was wondering if you talk about what the drivers were for the significant increase in SG&A expenses this quarter. I know you’ve seen seasonal uptick in the prior fourth quarters but maybe if you could help us understand what proportion of SG&A expenses this quarter relative to prior quarters, what’s for patient assistance with REVLIMID, and then if you could also talk about the inventory changes quarter-over-quarter for REVLIMID? Thanks.

David Gryska

I’ll address the first question for you Brian on the SG&A and then Bob can address the inventory level of REVLIMID. When across the fourth quarter has a higher SG&A expense because some of the congresses that we are involved with such as ASH, so there was a little bit of increase there and also there is an increase in our SG&A expenses in the fourth quarter because some of the patient call pay groups, needed some funding. So that is -- the plan is somewhat typical to way our SG&A expenses go. If you look in 2008 you will see that there was an increase between Q3 and Q4. Bob, will address the inventory.

Bob Hugin

Yeah, sure. First just on the inventory front, outside the United States the revenue recognition is close to, we call really a pull through that it really reflect the underlying demand at the marketplace. You don’t see much of an impact on inventory outside the United States in any case, in any quarter on our revenue.

In the United States we do deal through a limited number of special pharmacies [ph], but we do have some inventory and that channel averages generally around two weeks. There was a very modest increase in inventory in the fourth quarter, less than the seasonal increase that we have seen in other fourth quarters generally. So, I think a very modest minor impact in this quarter.

Operator

And we’ll take our next question from Geoff Meacham of J.P. Morgan.

Geoff Meacham – J.P. Morgan

Thanks for taking my question, guys. Question for you on your REVLIMID guidance, I just want to go over to the extent that you can, some of your assumptions. So, have you assumed any impact from do eligible [ph]? And then what trends and durations have you assumed? And then the last part of it is Japan in the guidance at all. Thanks.

Sol Barer

The guidance tends to be a compilation of multiple different scenarios, some with the upside and some with concerns on the downsize. Japan is in the forecast in a very modest way because with the filing of the mylemona application in the middle of last year we're hopeful that the middle of this year we’ll have approval and then have a number of months to deal with getting the pricing and reimbursement done with the government et cetera. So, we have I would say, generally modest revenue late in the year in Japan. In terms of impact on healthcare reforms, we have different scenarios that go into the scenarios, some of which do have some negative impact on healthcare reform and some that don’t.

I wouldn’t say that we do anticipate doable eligible to become treated as Medicaid versus Medicare and Part D this year or really in the foreseeable future, but there are things that may be addressed in healthcare reform that could have a negative impact on us and for those of you and us that follow closely, it’s pretty unclear how that’s all going to play out and whether there will be some of those negative impacts coming this year, in the future or ever.

One of the key things for us when we think about healthcare reform clearly is the donor hold, and that one of the positive things about the progress of healthcare reform which is unfortunately slow from this one perspective is that there is recognition knocking at all sides of the political landscape, but more importantly in the medical community and in the healthcare community generally that excessive kinds of deductibles and copays are not good for patients. And so, one of the side benefits was really there is a recognition that we need to close that stronghold as a positive.

So, I think our guidance takes in effect a number of positives that we talked about, but also takes in effect some of the concerns that outside United States the economy, and the economy is generally not very strong in the United States or outside in the developing world. And this continued economic pressure, so though we were successful in 2009 to navigate the pricing and reimbursement issues. And we are not aware of specific challenges that are going to happen in 2010 on the pricing and reimbursement front, but we are always cautious that with this kind of economic condition we could see unexpected things happen too on that pricing and reimbursement front.

So bottom-line is, we think the kind of growth projecting of the 30% with REVLIMID year-over-year and strong VIDAZA growth. On a year-by-year basis we think it’s very robust, and there are scenarios were we could potentially do better and there are scenarios that could impact us and we’ll have more challenging outlook. But overall we try and put those together and come up with what we think is a fair base case.

Operator

And we’ll take our next question from Steve Harr of Morgan Stanley.

Steve Harr – Morgan Stanley

Dave, just a quick question, because I have a really hard time getting the model towards your EPS guidance without. It’s going the very bottom of your revenue range and putting pretty significant. It’s going the high-end of anything that you discussed around OpEx. Is it something around one times in the operating income or suspension this year buybacks that might be missing or was it something else there?

David Gryska

Well, during the year, Steve, in 2009 we had approximately $60 million in revaluation and hedging gains and other income and expense, which are non-repeatable on a go forward basis because obviously those deal was the fluctuations of foreign currency, which we can't repeat. So, when you look at that line and also the interest income that line right now has roughly $135 million to $140 million and we’re projecting that for that particular item investment income and other which fix up the evaluation hedging gains plus investment income assessment be kind of in the $60 million or $70 million range right now. So, there will be a reduction in that for sure year-over-year.

Bob Hugin

And I think also Steve that one of the key priorities for 2010 for us is to accelerate the 20 Pivotal Trials that are underway or planned because when we think about Celgene and the opportunity for value creation and over period of time in the 2013, 2015 timeframe we want to be the company that has the highest growth rate out there to justify the premium positioning in the marketplace that we would like to have in 2013, 2014 or 2015. So, I think it is important that our team really focus on the execution accelerate the accruals in the launch of those trials because that is the opportunity for us to have very differentiated growth for the long-term.

Operator

And we’ll take our next question from Yaron Werber at Citi.

Yaron Werber – Citi

Thanks for taking my questions. So, I have two questions. One, help us understand the little bit last year the economy completely went down here in Q1 and so Q1 was a big challenge for you. What do you expecting, I think previously you have been saying kind of Q1 could be down sequentially or flat kind of what your thoughts now? And then secondly, can you actually give us, it's for Bob, what would actually the market share in the US in first line and second line and then the actual market share is for have again second and third line in Europe. Are you kind of give us just the overall in the US and then just the year-over-year growth in Europe? Thanks.

Bob Hugin

On the first quarter versus last year's first quarter. Certainly the real angst and the real concern in the main street economies globally in the first quarter of the last year was more severe than the economic situation that we have today. But it is not a robust economy in any shape or form in terms of employment and the nervousness in the economy. I think we are as well positioned as we can. I think we've learnt some lessons as to how to manage that in different markets including United States. I think we are generally well positioned. I think we don’t have quite the small level of anxiety, and it is early in the quarter to be able to have a firm outlook and we are not here to give quarterly guidance. I would say clearly it is our goal to target a growth in REVLIMID and in total revenue for the first quarter over the fourth quarter.

So, I think the first quarter is though still a challenging quarter as new budgets come in place, there are new plan years for patients. We are starting new copays et cetera. So it is a challenging quarter, especially when economic conditions are not strong. I think it is to say it’s not as challenging as the dire circumstances of last year, but I don’t want to paint an overly rosy picture either. So, I think that’s why we are trying to give a very balanced view and the first quarter is always challenging, but we think our target is to do as well as possible.

On the second front of our market share, the market share situation continues to be a very positive one. In the frontline, in the United States from independent third party data that we and other people can get, it appears that physicians continue to prescribe REVLIMID as a leader in the first line Myeloma. I think the most recent data lights off, [ph] put it around 37% of the market share in first-line myeloma, and overall increasing in second-line also. So positive trends there, outside the United States the real focus for us, as it is the United States is to build second-line share where the labeled indications are. And ultimately getting approvals with MMO-15 to broaden the label for us, so we can actually take an active role in the promotion of frontline.

The trends are positive also, I mean, we have basically seven percentage point increase in the main part of Europe over the course of last year in second-line, and good increases in third-line. So, I think overall the tone continues to be positive, the trend is positive there. And frankly our ambitions are going to be higher than they would have been a year or two as to where we think ultimately REVLIMID will top out in market shares in myeloma around the world.

Operator

And we’ll take our next question from Geoff Porges at Bernstein.

Geoffrey Porges – Bernstein

Thanks very much for taking the question. But just to sort of follow-up a little bit on that. Could you give us a sense of the distribution of your REVLIMID revenue between myeloma and MDS, and then just a sort of rough gauge as to what proportion right now is being used in first-line and maintenance, I am sure you have some insight into that. And just related to that, do you think Thal use is going to continue to decline or do you think that will reach a plateau with sort of increased use in the third-line setting? Thanks.

Sol Barer

We do get through our systems in the United States the percentage of prescriptions by indication. And we have not seen a big change in those scripts over time. It’s approximately 85% for myeloma, about 10% for MDS and then lymphoma is the next and then leukemia is after that, but around 95% for myeloma and MDS. We do not get any further granularity as to which line of therapy and its maintenance.

We are trying to call that out and so we understand what the upside potential is that if we're able to get reimbursement and access and then active usage of REVLIMID and it's continuous therapy following stem cell transplant which I think is generally the one segment in the United States and there is the market around the world where we have not had a significant market share because the paradigm there is do stem cell transplant, watch the patient until you see a relapse and then treat aggressively REVLIMID or potentially other therapy. And so I think there is a good upside there.

So in terms of percentage of our revenue from one part of where its four time to the last segment. We don’t have that data. We do measure internal estimates but that's only our internal estimates. And then it lead to THALOMID, I think people have different views on it. I happened to be in the view that it continues to be an important therapy myeloma and that -- I think overtime we’ll see the patients who progressed through different stages of myeloma we’ll look at THALOMID more in the third, fourth, fifth line type of therapy.

So, I think it's going to continue to have a place in there. I would say what we’re very excited about is hopefully accelerating development of pomalidomide. VIDAZA [ph] patients that really ultimately, eventually, we hope it's long time before they go through REVLIMID for test IMiDs [ph] but used pomalidomide that could be based on the data we have seen one of the most beneficial aspect of myeloma patients in the next few years.

Operator

And we'll take our next question from Chris Raymond at Robert W. Baird.

Chris Raymond - Robert W. Baird

Thanks for taking the question. Just, I know a few people sort of have asked around this question, but I am not sure if I heard the answer that I am looking for, you guys have shown some really nice duration trends quarter-on-quarter, and can you maybe, at least directionally kind of delineate how much of that is being driven by earlier lines of therapy versus sort of inter therapy -- inter line increases, that is, are you seeing in front line an increased duration or should we, maybe think of some of that is also being driven by maintenance use. If you could, sort of, generally delineate some of that growth that would great?

Sol Barer

Chris, we definitely share your perspective, this is a very important issue when it comes to the growth of REVLIMID, and clearly the data that we have been developing through many, many different clinical trials is really designed to produce the evidence that really demonstrates to physicians, to patients, to payers the value of continuous therapy.

So, I think there is a couple of issues here. One, I think the trends so far over the last couple of years have certainly benefited from an earlier treatment of the disease. Healthier patients have clearly the capability of staying on drugs longer and REVLIMID and myeloma is no exception to that general rule. And so we have benefited from that. Where duration will go, what the opportunity is and sort of the continuous post transplant therapy is unclear, and we have different assessments internally here whether we look at different markets and different individuals or functions that come with different conclusions. But we don’t have one specific outlook that we believe from a guidance point of view we would be comfortable discussing publicly, because it isn’t certain enough from us and we don’t have the data to support some of the projections in conjuncture that we have as to what the trends will be the next couple of years.

But clearly we continue to recognize the value of it, and I think you’ll see more and more data on this front. We are very hopeful at ASCO, EHA and (inaudible) this year. There will be steady flow of more mature and new data that will really make it so clear about how to use REVLIMID and for what period of time and what stages. So, I apologize that we can’t give you a specific guidance, because we are still trying to accumulate the data. And the data is going to continue to evolve we think in a very positive way.

Operator

We’ll take our next question from Rachel McMinn at Bank of America/Merrill Lynch.

Rachel McMinn – Bank of America-Merrill Lynch

Yeah. Thanks very much. I am wondering if you can clarify your regulatory strategy for front-line myeloma in Europe. And I guess specifically we know that MM-015 is the core data set but, what’s the gating factor? Are you looking for an overall survival benefit? Are you looking to include additional studies like (inaudible) part of the package?

Sol Barer

Rachel, thanks for the question, because it is very important. We have a great opportunity outside the United States to get a label in newly diagnosed myeloma or market share there outside United States is in the basically middle single digits an opportunity for real growth over the next four or five years and that indication is very important to us. There wasn’t any change in what the gating factors are for MM-015 as the platform for regulatory approval in Europe, it was a trail that was done with scientific advice working group advice and we executed the trial the way they ask for PFS as the endpoint. We are in the process now as you know with essentially adjudication [ph] of all the responses in a bit data we have passed, as we mentioned earlier last -- in late last year that we went passed to 70% of events.

We hope in the next few months second quarter to fully get the adjudication of those 70%. Put the package together and in the second half of the year get so the EMEA we’ll review. And following that we do want to use MM-015 and hopefully (inaudible) data is the comprehensive package for approval outside of Europe, all around the world including United States. And ultimately when we do get the CALGB and IFM post transplant continue its therapy data with REVLIMID which obviously all the signals are extremely, extremely positive data.

We would make those decisions about our regulatory implications of that data and after expand the label with that data, but they are not linked and we are going to go forward with the existing strategy. We had no reason that we are aware of that we would change the strategy then which is on execution of getting it done as quickly and accurately effectively as we can to get MM-015 with a 70% of events adjudicated put together. And as we have pointed out our desire to get that trial quickly done it is not an electronic data captured trial. So it is a manual collection of the data. But there isn't anything that we’re aware of that, should only just the execution of it, give us to go forward next future regulatory strategy.

Operator

We will take our next question from Mark Schoenebaum at Deutsche Bank.

Mark Schoenebaum - Deutsche Bank

Hi, guys. Thanks for taking my question, I appreciate it. I also wanted to ask about duration. I mean coming out of ASH, obviously the MM-015 data were very positive and there was some debate about the meaningfulness of the induction arm, but I thought was clear, I mean if MM-015, thought anything thought that if someone -- just was going to use REVLIMID in the first in the line setting, should be used as a treatment until progression. So, maybe you can help us what is -- why isn’t every US physician today that’s using first line REVLIMID using it in the maintenance setting today. What's the pushback you are getting in. Correlated to that is reimbursement completely on line in the US for treatment to progression. And then if there is time, I was just wondering if you could clarify when you are thinking about starting your Apremilast Phase 3 program, please?

Sol Barer

Let me deal with the first part of the question. In terms of the use in the US, obviously we don’t have a label. We don’t promote first line. Clearly physicians understand the data or they wouldn’t be prescribing it in the kind of the way they are in first line myeloma where REVLIMID is the leading therapy in first line myeloma. And we do have an extensive team of people that work to ensure that physician offices and patients have effective support to ensure that they get reimbursement. Reimbursement is never easy and insurance companies et cetera are going to always keep the pressure on. But based on the compelling data, a very proactive effort by our team to ensure that payors are very well informed about whether it would be NCCN guidelines compendial listing, but also most importantly the quality, the date of the impact on patients we really have not seem any impact or pushback in a sense of patients not being able to be reimbursed in the United States for continuous therapy in REVLIMID and myeloma.

So, not to say that there are cases and challenges everyday and it’s a thankless path that people do to ensure that patients have access for the right therapy. But there isn’t anything that we are aware of that is a hurdle in the coming time that as we see more and more continuous therapy usage that we think reimbursed and United States should be a challenge. The second part was on Apremilast.

Bob Hugin

Phase III. Yeah. Just in answer to that, we’re obviously very excited by that, we think that Apremilast has the very significant potential in a number of diseases, the two that we will be going to Phase III within this year in 2010 for psoriatic arthritis and psoriasis. We’re discussing the trials as we speak the design endpoints with the FDA and with the European regulatory authorities. We are also by the way going to proceed with the Phase II trail in rheumatoid arthritis. Right now our anticipation is that we have approximately four trails that would encompass both psoriatic arthritis and psoriasis, get the appropriate patient population, get the appropriate endpoints, and make sure that this regulatory buy-in.

The other thing that is important to recognize and it’s a bit of a sedulity, is that our latest results in psoriasis were at the 30 milligram dosing, which was obviously very exciting and starts overlapping with the biologic range of activity. The previous results in psoriatic arthritis were with the 20 milligrams. So there is a significant potential at least to get even better results in our pivotal trail, now that we’ve demonstrated at least in the Phase II placebo controlled trail that the 30 milligrams can be a potentially better dose, more active while maintaining the very nice safety profile that it appears to have in Phase II Trial. So, we will be looking at 30 milligrams in the pivotal trials and that could give us some upside as well. So, in answer to the question we anticipate four trials for Phase III Trials psoriatic arthritis and psoriasis. We are in discussion with regulatory authorities. We are finalizing those and we will start Phase II Trial rheumatoid arthritis this year as well.

Operator

And we will take our next question from May-Kin Ho with Goldman Sachs.

May-Kin Ho - Goldman Sachs

Hello, can you hear me?

Sol Barer

Yes, very clearly.

Operator

And it looks like May-Kin removed herself from the queue. We will move to our next question from Eric Schmidt.

Eric Schmidt - Cowen & Company

I was going to ask Mark Schoenebaum's question a slightly different way. Do you have any data on the percent of patients who are today not getting REVLIMID in continuous treatment [ph] paradigm? And secondly, is there any chance toward the end of this year that you could file for REVLIMID in the post maintenance, sorry, the post transplant setting based on the IFM and CALGB data?

David Gryska

Thanks, Eric, important points. We are not aware of circumstances where physician that want to describe the progression or continuous therapy to (inaudible) with the patients that are not getting reimbursement in that area. It's through scientific and medical exchange we identify patient or physician that may have these concerns we love to bring them in contact with peers and educate them on some of the data if they are interested. But we really think for the most part in the US that paradigm of immunomodulatory therapy of treating to produce more durable responses is something that has gotten pretty good traction. I think there is still an opportunity that there are segments out there that have a more chemotherapy type thing if the patient is hard as possible, give him a break, try and knock the disease down without killing them, and then wait for the disease to come back and hit it again.

So, I think there are probably pockets of that. I do think the ISM and CALGB data is very, very important obviously because it is segment of population that is generally not treated globally. And so, we think we have a label that already deals with continuous therapy after one prior therapy, but getting them the label I think has big advantage for us. Obviously no one really has the data yet, it was just a fact that the data monitoring board saw the tremendous impact and thought these trials should be unblinded early because clearly the placebo patient was at a significant disadvantage from a hazard ratio and risk perspective than those type of people treated with REVLIMID following the transplant.

So, we are very hopeful and if anything we can do, whether it’s financially or anything we are going to support those co-operative groups to ensure they get the data as soon as possible and present it at major medical meetings so that we then can get access to the data. And, obviously with co-operative groups you got to be cautious and really review the quality of the data to ensure that it’s a meet the kind of regulatory scrutiny that will be required. But it certainly is our intention to get when we believe to be incredibly important and promising data into our label globally in one way or another.

Operator

We’ll take our next question from Jim Birchenough with --

Sol Barer

Operator, I apologize, but we have time for one last question.

Operator

Okay. And our last question will come from Jim Birchenough from Barclays Capital.

Jim Birchenough – Barclays Capital

Hey guys, so just three questions. One on the post-transplant setting NCCN recommends values right now. Give a sense of what percent of post-transplant patients get valve? And do you expect NCCN to pickup REVLIMID maintenance post-transplant?

Second question is just on the 015, do you expect the RMP and MP induction arms to separate? And when should we see that? And if they don’t can you still file? And final question, just you mentioned the ANDA filing to REVLIMID that you expect. Why shouldn’t we worry about that, there are companies that traded much lower multiples where people worry about the ANDA. So maybe give us a strong case for your patterns and why you think they are so strong?

Sol Barer

Yeah, couple – I think three or four questions here. First, I don’t think Thal on a post-transplant setting has gotten any real traction in that. And if you think about the profile, the drug that has neuropathy is a very difficult situation to use that in a newly diagnosed post-transplant setting where the patient that’s had a remission and as a high quality life in concern to the ability to use those therapies later on if you induce neuropathy and sedation and the kind of side effects that comes from drugs that have that kind of situation.

I do think once the data is presented at a major medical meeting whether it’d be guidelines, pathways, compendia listings at The National Comprehensive Cancer Network et cetera type situations, we’ll very expeditiously move to have REVLIMID as an important therapy in those guidelines, and obviously that’s up to them to do that. But we knew, to help support, get the information in the public domain as quickly as possible because I think I certainly believe anybody who is patient focus is want to ensure those guidelines are going to incurred. And as far as MM-015 goes from a regulatory point of view, the pre-specified regulatory objectives and end points for A versus C, or the MPR versus MP, a fixed duration. So, we are not aware of any reason why there should be any concern. From a regulatory point of view, we do as we look at that data and gets more mature. We do think it will be good analysis that will come out to give people perspective of A versus B, and B versus C, and C versus A on continuing basis.

I think there will be more clarity overtime and I think that’s -- it will be easier to understand the issues. But again in the trial to answer multiple endpoints sometimes to get some information that will be complex to understand, but we don’t see a regulatory issue. And we do think hopefully in the relatively near term major medical meetings we’ll see more mature better analyzed data MM-015, which will continue to support the important paradigm of continuous REVLIMID treatments. On the -- in the question with REVLIMID, we are in extensive the long-term on the sales front and that continues to move quite slowly, so we’re very pleased the way that it's all litigation [ph] has gone over these past three to four years.

On REVLIMID [ph] it's a very different situation though. We have composition, the amount of patterns. We’ve got dozens patterns in the orange [ph] book wide range. And also this is the strategy that we have been preparing for the long time. By the way, we are aware of any generic filing and let's be clear about that, if that’s were to occur we would make a proper notification of that. It never can be 100% guarantee anything, but I can tell you that, that we think we have the best internal and external support. We have multiple firms. We are prepared; we’ve got all the preparation that can be done if this would have happened, and we will vigorously defend our property and we feel very confident about what will happen in the end.

David Gryska

And thanks very much for everyone’s participation in the call. As we did mention we will have an R&D Day on March the 4th, in New York City which will be webcast for those of you that don’t attend. We have our conference call at the end of March for the first quarter results. We thank you very much for your interest and look forward to continue to update you.

Operator

That does conclude today’s conference. Thank you for your participation.

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