Celgene Q1 2010 Earnings Call Transcript

 |  About: Celgene Corporation (CELG)
by: SA Transcripts


Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Celgene Corp. First Quarter 2010 Earnings Conference Call. [Operator Instructions] I would now like to introduce your host for today, Dr. Sol Barer, Chairman and CEO. Sir, please go ahead.

Sol Barer

Thank you, and welcome, everyone. We had two news releases today, one reporting another record quarter with excellent financial and operational results, and the other detailing our succession planning. Let me briefly comment on the latter, and then we'll transition to the results of the quarter.

I have been with Celgene for most of my career, where I've had the privilege of working with a superb management team and with exceptional people. Together, we built a remarkable global company with extraordinary financial, research and development, commercial and operational results and prospects. Indeed, we are the fastest growing biopharmaceutical company and one of the fastest-growing companies in the S&P 500.

I'm most proud that we develop products that profoundly affect the lives of seriously ill patients around the world. After decades at Celgene, I've decided that it is time for me to start pacing out of my responsibilities towards retirement. I am transitioning from my position as Chief Executive Officer at the upcoming annual meeting in June, when I will assume the position of Executive Chair, focusing on the overall management transition, board oversight and strategic initiatives. On January 1, 2011, I will become Nonexecutive Chair and a consultant to the Corporation. It is a bittersweet event for me. On the one hand, I am transitioning from the company I love and the people I had great admiration for. On the other hand, I now can spend more time with my family, including my wife, my four children, and my 12 grandchildren, as well as devoting more time to charitable pursuits.

I am especially pleased to pass the leadership of Celgene on to Bob Hugin, with whom I have worked closely over the last 11 years. Bob brings strong leadership acumen, along with his strategic, financial and commercial capabilities. He has been instrumental during his tenure in building Celgene's success and transformation on a global scale and he will provide the continuity to our business plan to enable Celgene to continue our mission to become the premier global biopharmaceutical company. Under Bob's leadership as CEO, I believe Celgene has the unique opportunity to continue to accelerate our continued delivery of strong financial and commercial results, and importantly to maintain an unwavering commitment to research and development, and the delivery of therapies for unmet medical needs to improve the lives of patients worldwide.

Robert Hugin

Sol, all of us at Celgene are extremely grateful for your visionary leadership and guidance throughout our history. The impact on patients lives and the business results have been extraordinary. Through your leadership, Celgene has prospered, and most importantly, your values, principles an unwavering focus on the patient will be enduring legacies. I very much look forward to continue working together through our transition and beyond. Celgene has great momentum, and I'm excited to continue working with our superb teams across the globe to accelerate our progress and to seek new opportunities to continue to fulfill the promise of Celgene.

Sol Barer


David Gryska

So good morning, everyone. Now I'd like to commence with our first quarter conference call activities. The press release reporting our first quarter financial and operating results was issued earlier this morning, and is also available at our corporate website. In addition, today's conference call webcast will include a presentation, which you can access by going to the Investor Relations section of our website at celgene.com.

Before we start, we want to remind you that our discussions 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-K reports. Given these risks and uncertainties, you are cautioned not to place undue reliance on our forward-looking statements.

Also, our discussions during this 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 comparison between periods before and after certain items that would not otherwise be apparent on a GAAP basis. Reconciliations of these non-GAAP financial measures to the most comparable GAAP measures are available as part of our earnings releases at Celgene's website at celgene.com in the Investor Relations section.

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

Sol Barer

Thanks, Dave. I'll now turn briefly to our results for the quarter, where we continue to deliver on our promise and potential as the global pre-eminent biopharmaceutical company. Our financial metrics were once again at record levels, with total revenues growing 31% year-over-year to $789 million, and revenue growing 46% year-over-year to factor the $30 million.

We continue to aggressively invest in research and development while achieving the record non-GAAP EPS of $0.63, a 43% increase year-over-year. We also see a continued strengthening growth in our business as you will hear from Bob, notwithstanding the challenges related to the economic issues in Europe and rest of the world, as well as the potential financial impact to our business from recently passed healthcare reform legislation here in the U.S. Dave and Bob will provide significant color to our results in a moment.

I'd like to provide a strategic perspective on the quarter. We are fully committed on a fundamental level to innovative science and transformational medicine that delivers better health care for better outcomes. This is reflected through our new state-of-the-art research facility in San Francisco, and the recent establishment of a world-class translational effort with our CITRE [Celgene Institute of Translational Research Europe] center in Spain. These centers will serve to drive and enhance our early-stage research capabilities, capabilities that are already producing multiple product opportunities across our key therapeutic areas: Hematology, oncology and inflammation immunology.

As you recently heard at our R&D day on April 8, Celgene is very fortunate to be strategically positioned from multiple perspectives: To continue its industry-leading growth potential for years to come based on a sustained pipeline of paradigm-changing innovation. We've expanded our pipeline to encompass approximately 30 programs addressing high unmet medical needs in approximately 25 serious and debilitating diseases. This progress was highlighted at our recent R&D day, which focused on a sustainable innovation paradigm, demonstrating the breadth and scope of both the pipeline and our global leadership team responsible for advancing our discovery, clinical regulatory and commercial strategies that we believe will serve as the basis for the delivery of excellent clinical and commercial performance for years to come.

We have multiple products with significant revenue potential that may enter the market over the next five years, including apremilast for psoriatic arthritis and moderate-to-severe psoriasis, and pomalidomide in multiple myeloma and myelophytosis. We are also conducting multiple pivotal trials evaluating REVLIMID in NHL and CLL.

To accelerate our entry into the lymphoma market, we acquired Gloucester Pharmaceuticals. And it's important therapy, ISTODAX. ISTODAX is approved for continuous (sic) [cutaneous] T-cell lymphoma in the U.S., and we're working to gain approval for patients with peripheral T-cell lymphoma, and also to make it available on a global basis.

Our next major geographic expansion will be the second-largest oncology market, Japan, where we anticipate to have regulatory action for REVLIMID in multiple myeloma in the middle of the year and potentially launched by the end of the year. Our commitment to innovative science and the drive to be bold in bringing even new treatments to patients is a mindset that drew us to Agios Pharmaceuticals. Just two weeks ago, we announced our collaboration with Agios related to their innovative cancer metabolism research platform. This collaboration is another example of Celgene's commitment to continually be at the forefront of new trends in medicine to sustain a pipeline of innovation for the future.

We also look forward to the important data on Celgene products that will be presented at numerous international meetings this year, including ASCO, EHA and ASH. The most important aspect of all of this is the fundamental understanding that the patient is the ultimate beneficiary of what we do. Our success as an organization and as a company will always be in direct proportion to the effort we make on behalf of our patients. We are today an industry leader in investing in research and development, which has positioned Celgene as the new paradigm for innovative, sustainable and profitable biopharmaceutical companies.

I've been fortunate to be part of establishing a unique company based on science and innovation at all levels and in all aspects, where people and ideals are valued, where extraordinary achievements are expected and delivered, and a sense of understanding the direct impact that each of us has on patients the world over is clear. The paradigm is doing well by doing good.

Now I'd like to turn the call over to our Chief Financial Officer, David Gryska, who will share the details of our financial accomplishments in the first quarter. Dave?

David Gryska

Thanks, Sol. Now I'll take you through our record financial results. Non-GAAP total revenue for the first quarter was $789 million, a 31% increase versus the first quarter of 2009. Non-GAAP net income for the first quarter was $295 million, and non-GAAP diluted earnings per share was $0.63.

Total non-GAAP net product sales increased to $757 million for the first quarter, up 32% from $572 million in the year-ago quarter.

First quarter REVLIMID net product sales were $530 million, an increase of 46% over the first quarter of 2009. Turning to VIDAZA, net product sales for the quarter were $120 million, an increase of 60% from the year-ago quarter. THALOMID net sales were $104 million for the quarter, down 9% as compared to the year-ago quarter.

For the first quarter, sales of REVLIMID in the U.S. were $305 million, and international sales were $225 million, representing an increase of 5% and 10% respectively on a sequential quarter basis. And when compared to the first quarter of 2009, an increase of 32% and 71% respectively.

As many of you are aware, Congress recently passed healthcare reform legislation. Key components of this legislation include an increase in Medicaid rebates and the extension of Medicaid rebates to managed care organizations. Consequently, first quarter results were negatively impacted by approximately $4 million due to this legislation. We expect these two components of healthcare legislation will negatively impact full-year revenues by approximately $35 million to $40 million. Beginning in 2011, biotechnology and pharmaceutical companies will be required to provide a 50% discount to Medicare Part D patients as they fund the doughnut hole. Collectively, the increase in the Medicaid rebate, the extension of this rebate to managed care organizations and the 50% discount for Medicaid Part D patients in the doughnut hole are expected to negatively impact 2011 revenues by approximately $80 million to $90 million.

It is important to note that a lack of clarity exists around several components of the healthcare legislation. Our estimates are based on assumptions that may change as legislation details are further communicated. Consequently, the effect on earnings-per-share beyond 2010 is difficult to quantify at this time. Not only do the uncertainty regarding how legislation will ultimately be implemented, but also due to the potential offsets to some of these elements, such as decreased co-pay business funding to nonprofit entities and the added benefit of patients getting healthcare coverage.

Now getting back to our first quarter results, our non-GAAP gross profit margin for the first quarter of 2010 was approximately 92.6%. For the current year, we expect gross margins to improve to approximately 93%, primarily due to a change in product mix.

Turning now to expenses. Non-GAAP R&D expense during the first quarter was $186 million, an increase of 2% over the fourth quarter of 2009. As we discussed at our recent April R&D presentations, we will continue to strategically invest in developing new products that will enhance our long-term growth, and we expect non-GAAP R&D expenses to be in the range of $860 million to $885 million for the full year.

During 2010, our development efforts will evaluate multiple compounds in more than 20 pivotal and Phase III trials. Our key development programs are evaluating REVLIMID in all stages of multiple myeloma, as well as pivotal Phase III trials in NHL and CLL. We are also conducting late stage trials for apremilast, pomalidomide, amrubicin, VIDAZA and ISTODAX, and are completing international approvals of REVLIMID in major markets such as Japan. In addition, we are continuing to advance more than 16 promising compounds in preclinical and early stage development and expect all of these activities to accelerate in the second half of the year.

Taking a look at SG&A, non-selling, general and administrative expenses was $188 million during the first quarter, down nearly 3% from the fourth quarter of 2009. The decrease was primarily due to activities relating to ASH, and to a limited extent, international launch activities in the fourth quarter. We expect non-GAAP SG&A expenses to be in the range of $745 million to $765 million for the full year as we continue our international commercialization of REVLIMID and VIDAZA.

Turning to taxes, our non-GAAP tax rate for the first quarter was approximately 22%. We continue to expect the non-GAAP effective tax rate to improve approximately 100 basis points from 2009 levels to approximately 20%. As for our share count, we expect fully diluted shares outstanding to be approximately $469 million for the year.

As you are aware, we had hedge our balance sheet foreign currency exposures, and our company foreign currency transactions and exposure related to certain revenue expenses in foreign currencies. The impact of foreign currency on top line revenue on a sequential quarter basis was immaterial. We are well-positioned with our hedging program to minimize the impact of various foreign currencies on our earnings for the year. In addition, other income includes approximately $4 million and hedging re-evaluation gains realized during the first quarter.

In summary, this was an exceptional quarter with record revenue and earnings. We are updating our 2010 financial outlook. REVLIMID net product sales are anticipated to increase to a range of $2.2 billion to $2.3 billion, up from a previous range of $2.1 billion to $2.2 billion. Total revenue is now expected to increase to a range of $3.3 billion to $3.4 billion, up from the previous range of $3.2 billion to $3.3 billion. And Non-GAAP diluted earnings per share are expected to increase to a range of $2.60 to $2.65 as compared to a range of $2.55 to $2.60 that was previously reported. We had a strong first quarter and ended the quarter with cash and marketable securities of approximately $3 billion. It is important to note this updated 2010 guidance includes the anticipated impact to our business relating to U.S. healthcare legislation.

In summary, we continue to execute from the global expansion plan for hematology, oncology and inflammation franchises. Our business model is driven by strong operating efficiency and leverage, as evidenced by industry-leading operating margins. We are truly well-positioned to achieve our goal in 2010 and beyond, and deliver record operating results.

Now I'll turn the call over to our President and Chief Operating Officer, Bob Hugin, who will give you his update.

Robert Hugin

Thanks, Dave. It certainly was an exceptional quarter especially impressive in the context of challenging economies and numerous markets around the world. The quarter was strong financially, and operationally in all functions and regions. We made excellent progress towards achieving our 2010 corporate objectives.

Let me review our recent accomplishments and outline the major growth drivers for continued strong performance in 2010. The first quarter results provide an outstanding start to the year. REVLIMID was the key growth driver, with positive trends and critical metrics across markets. Global REVLIMID sales were up 46% year-over-year. U.S. REVLIMID sales increased 5% quarter-over-quarter, while international sales rose approximately 10%.

Growth was balanced across regions, with significant contributions from multiple international markets. VIDAZA global sales are also off to a good start for the year, up 60% year-over-year. Our European team continues to rapidly establish VIDAZA as the treatment standard for high-risk MDS. And the United States, VIDAZA continues to be the clear market leader.

Market expansion through new regulatory approvals in additional geographies and expanded labels indications in existing markets remain important growth drivers for REVLIMID in multiple myeloma. As Sol mention, the regulatory review process for our REVLIMID application in Japan is on track. We're targeting a midyear approval and are hopeful of a relatively rapid pricing and reimbursement process that would allow a fourth quarter commercial launch. Our team in Japan is doing an excellent job preparing to maximize the clinical and commercial potential of REVLIMID in this very important market.

During the quarter, we advanced our newly diagnosed myeloma filing strategy. Our first priority is to ensure that we expeditiously compile a high-quality European application that supports regulatory approval and expanded reimbursement across the region. We are making substantial progress aggregating, preparing and analyzing the new data cut from MMO 15, which now includes 70% of planned events, up from the 50% presented to ASH in December. It's our intention to complete central adjudication and analysis of the updated data in time for presentation at the European Hematology Association meeting in early June. And our European submission is on track for the second half of the year, followed by the U.S. submission as soon as possible.

Our clinical and regulatory teams continue to execute on our priority trials. In the first quarter, we reached agreement with the FDA and European authorities on the trial designs for the Phase III pomalidomide studies in the last refractory myeloma and in myelofibrosis. Enrollment in our Phase III prostate cancer trial accelerated. And we initiated a global Phase III trial in MDS non del 5q patients. We're moving forward with our plans to initiate the apremilast Phase III trials in psoriatic arthritis and moderate-to-severe psoriasis. These trials are planned to start during the second half of this year.

I believe that the exceptional results achieved during the quarter across functions in regions of our company actively reflect the operational excellence achieved by our teams. Celgene is stronger and better positioned than ever before.

I'd like to take a minute or two to expand on Dave's comments on the impact of U.S. healthcare reform on our business. As Dave noted, there was a minor impact on the first quarter, and we're comfortable with the $35 million to $40 million estimated impact for the year. Our best estimate for 2011, with all the caveats, there needs to be and will be clarifying implementation guidance and technical corrections in the legislation over the next nine months, is that our revenue could be reduced by as much as $80 million to $90 million next year.

There are also benefits from healthcare reform. Millions of additional Americans will eventually gain access to coverage. And importantly, the legislation addressed the challenging coverage gap or doughnut hole in Medicare Part D. For those patients enrolled in Medicare Part D plans, the legislation provides a significant reduction in the coverage gap beginning in 2011. I'm optimistic that over time, there will be a real benefit to patients, physicians and caregivers who will be able to focus less on deductibles and co-payments and more on appropriate patient care. I would also expect that foundations that support patient assistance will see a gradual decline in demand as the coverage gap shrinks. All in all, we expect that over time, the 2010 Healthcare Reform Act will have a modest impact on Celgene.

Now let me turn back to the first quarter operating update. The strong momentum that we saw at the end of 2009 carried over into the first quarter. Our commercial teams continue to deliver impressive results. U.S. fundamentals were strong. New patient starts, total patients on therapy and greater treatment duration were all key growth drivers. Total U.S. REVLIMID share in the multiple myeloma market grew to approximately 40% and to nearly 45% in the second line. Duration increased to approximately to 12.1 months.

Improved planning and patient support programs contributed to enhanced patient access to reimbursement, certainly as compared to the first quarter of 2009. The slight decline in the percentage of free goods in the first quarter reflects the overall improved environment for patient access.

First quarter growth was also strong in core European markets. Second line share increased to more than 35% in major markets where REVLIMID is indicated for second line therapy. Third line share increased to approximately 45%, driven by share gains in the United Kingdom. But we don't have access to the United Kingdom. But we don't have access to the same data in Europe as available in the United States through RevAssist , duration trends also appear favorable in Europe. We're conducting market research and expect updated data in the coming quarters.

While the first quarter in Europe was strong, challenging economic circumstances exist in numerous countries. Significant pressure to reduce budget deficits is growing in many countries. As an example, legislative proposals to cut growth prices in Germany have been in the headlines. We're indeed fortunate that our growth have excellent value proposition supported by strong clinical data. Nevertheless, our financial outlook does reflect some impact from changes in reimbursement policies. And we are monitoring developments closely.

A range of other markets including Australia also made key contributions to the first quarter results. The fundamental drivers on our REVLIMID business are worth briefly repeating. Share gains in earlier lines of therapy across major markets, global expansion, including Japan in late 2010, and increasing treatment duration remain the engines of growth. Important new data, with the potential to further support additional growth, will be presented at major mid- and late- year medical meetings such as ASCO, EHA and ASH.

Our head of clinical development, Dr. Jean-Pierre Bizzari, highlighted the full range of data and clinical' trials supporting the development of REVLIMID in all stages of myeloma at our R&D day earlier this month. We're specially looking forward to the oral presentations of the Phase III results from the major cooperative groups, IFM and CALGB at the upcoming America Society of Clinical Oncology Meeting in about a month. Together with MM-015, these trials add to the growing body of clinical evidence that continuous REVLIMID therapy significantly prolongs progression-free survival in patients with newly diagnosed myeloma.

We also extended our MDS leadership position in the first quarter. In the U.S., VIDAZA hit a market share peak among patients with high-risk MDS and REVLIMID increased its leadership position in MDS del 5q. VIDAZA growth in Europe was strong and on plan for the quarter. Though despite VIDAZA's overwhelming survival advantage in the AZA-001 trial, the U.K.'s NICE [National Institute for Health and Clinical Excellence] recommended against the reimbursement of VIDAZA. And we're appealing this decision with a hearing scheduled in June.

Our global launch continues with our teams in Canada and Australia, now in the final stages of launch preparation. Our regulatory teams are preparing the MDS-004 data set for submission in Europe later this year. The recent initiation of our Phase III MDS-005 trial and the non del 5q MDS is an example of our continued investment to sustain our long-term growth in the MDS market.

We're making excellent progress in building a major MDS franchise in Europe. Our largest competitor remains best supportive care. Continued share gains and extending duration of therapy are keys to our success in 2010. On the clinical front, we expect additional results of single agent and combination studies, including with REVLIMID at medical meetings late this year.

As Sol mentioned in mid-January, we closed the acquisition of Gloucester Pharmaceuticals providing us a strategic entry into the U.S. lymphoma market. We're now launching ISTODAX in the United States for treatment of cutaneous T-cell lymphoma. Initial results are encouraging. In the first quarter, we also completed enrollment of the U.S. SPA trial in patients with relapsed refractory peripheral T-cell lymphoma. Based upon positive data from this trial, we plan to file for U.S. approval late this year.

This year's ASCO meeting is shaping up to be an important congress for Celgene, where we have more than 50 abstracts that have been accepted, and expect more than 10 oral presentations to be delivered. Among these, we look forward to the updated data from the Phase III study comparing melphalan, prednisone and REVLIMID versus high-dose therapy plus autologous stem cell transplantation in newly diagnosed myeloma patients, and follow up data on pomalidomide and REVLIMID in bortezomib refractory myeloma.

In addition to myeloma, we anticipate data in CLL and lymphoma. CLL front leaders [ph] from Indiana [ph] soon will present updated data on the use of REVLIMID for previously untreated elderly CLL patients. This data should support our Phase III registration studies, CLL-008, in that patient population. We also expect to see data from Phase II studies of REVLIMID in diffuse large B-cell lymphoma patients with a non-GCB biomarker. And importantly, in combination with Rituxan in untreated Follicular Lymphoma. We're confident that the data from ASCO will be the ongoing catalyst for our clinical and regulatory programs.

At our recent R&D day, we articulated our strategies to build important franchises in hematology, oncology and inflammation immunology. We detailed many of the more than 20 pivotal trials that we're conducting and the numerous programs across multiple platforms targeting serious and debilitating diseases.

We look forward to updating you throughout the year as we advance clinical program, especially for REVLIMID in smoldering myeloma, in lymphomas and CLL, pomalidomide and myeloma in myelofibrosis, and importantly, apremilast in psoriatic arthritis and moderate-to-severe psoriasis.

We have strong momentum and are committed to realizing the full potential of our deep and diverse pipeline. It is only through innovative research that we can produce the breakthrough therapies that will change the course of serious diseases. And it's by making a meaningful difference in the lives of patients that we create value for Celgene.

Our outstanding first quarter results accurately reflect the soundness of our strategy, our focus on excellence and execution, and the high quality and dedication of our teams around the world. As we've outlined for you, 2010 is a year with many important events and milestones. The strong start to the year positions us well to achieve or exceed our major corporate objectives. The promise of Celgene is extremely bright. And we look forward to updating you further on our progress in our next call in July. Thank you very much.

Operator, we can now open the call to questions.

Question-and-Answer Session


[Operator Instructions] And our first question is from the line of Geoff Meacham of JPMorgan.

Geoffrey Meacham - JP Morgan Chase & Co

I wanted to ask you a couple of things, one with respect to the longer-term use. When you guys see duration increasing, how would you see it playing out with respect to pricing? Would you expect to see some sort of lifetime cap? Would you expect some sort of more aggressive patient assistance programs? I mean this is probably the next sort of wave when you see REV duration increasing in the maintenance setting.

Robert Hugin

I think it's a very important question and it's certainly something that we have in our plans, the important consideration as we model out the future. I think the reality of it is that we've got to see the data, we've got to see the market practice and see how duration extends and to what it extends to. And I think that our reaction in our plans are likely to be a very differentiated depending on the market and the conditions in those markets, the regulatory approvals, the reimbursements in those markets. So I absolutely do agree with you. It's critical for us to manage that effectively, have a plan. And we do have a plan for many, many different markets. But it will not likely be one silver bullet plan globally. It'll be targeted depending on the conditions in the market. But it is something that, as that evolves, we'll both from a duration point of view, as the duration evolves, and our plans to deal with that and how we affect them, relate to other markets, we'll keep you informed as it becomes clear.


And our next question is from the line of Steven Harr of Morgan Stanley.

Steven Harr - Morgan Stanley

Verification on the 2011 impact of healthcare reform, you mentioned the impact on the top line. Do you have any sense for the impact of the tax and what the overall impact on your bottom line do?

David Gryska

Steve, more likely than not, we do not think the tax will apply to us. There's going to be some clarifications coming out from the Department of the Treasury over the next several months, and we'll get more clarity on that. But our belief right now, based on the read we have, over time is that, that will not be the case.


Our next question is from the line of Jim Birchenough of Barclays Capital.

Jim Birchenough - Barclays Capital

I just wanted to come from the maintenance angle differently. And that is, when you look at current practice, do you have sense of what percent of physicians are not using maintenance therapy? Is that different between the transplant and non-transplant setting? And just as a follow up, incrementally, what should we be looking for at ASCO and NHA for IFM, CLGB and MM-015 data?

Robert Hugin

First to deal with the IFM and CALGB and the impact on continuous therapy and maintenance therapy, it's very important at ASCO because those are all presentations. It will be the first time that, that data's presented. So in the post-transplant setting, which is really the one major segment of the market certainly in the United States, that we really have, where REVLIMID has not become market leader, because the conventional paradigm has been to not treat post-stem cell transplant generally. So once that data is presented, we're optimistic that we could see a change in that paradigm with treatment. Obviously, in other markets around the world, there are going to be specific regulatory and reimbursement changes that need to be made as that data becomes available and can be published and included in our label and negotiations, et cetera. So we think there's significant upside from both the post-transplant setting, where today REVLIMID is not actively used as a therapy. And hopefully, post the data, it will begin to be used. And in the non-transplant settings, we can see continued progress which contributes to a significant part of the duration extensions. But we also think when we get the data from IFM and CALGB at ASCO, and likely that 70% cut off the data of MM-015 at the European Hematology Association Meeting, we're optimistic that, that could have a positive impact on the non-transplant setting also, as the value of continuous therapy is made even clearer and clearer.


Our next question is from the line of Geoff Porges of Bernstein.

Geoffrey Porges - Sanford C. Bernstein & Co., Inc.

Bob, could you give us a sense of, first of all the distribution or REVLIMID between myeloma and other indications, any change there? But then also how it split up between first line, later lines? And then what proportion of REV revenue are you seeing in maintenance? I know its hard to separate it, but is that driving your growth already?

Sol Barer

Geoff, on the components of it, the percentage of myeloma has been fairly constant for a period of time in the low 80s as a percentage of prescriptions. And yes, clearly being the second in the -- it's been in the 10% to 15% range. And other indications has been sort of in the 5% to 10% range for a considerable period of time. We haven't seen a dramatic shift in that. Specifically, within indications, we do not get any kind of delineation between different stages of disease. We do subscribe to third-party market research, as a lot of people do, but our own data only gives myeloma MDS and different other indications like that.


And our next question is from the line of Yaron Werber of Citi.

Yaron Werber - Citigroup Inc

I want to discuss a little bit, in the U.S., do you actually need to file for approval to market REVLIMID in the post-transplant setting? Or is that actually already a second line label? And because at this point, once the data's out and published, you can actually market it?

Sol Barer

I think when we look at the data, we got to understand and get avid -- be peer-reviewed, presented and published, and we've got to make judgments. And we'll get some clarification from experts in that area to make sure we do the right thing. But our expectation is the data will be very widely disseminated and available to physicians to make judgments on how to best treat patients. From a regulatory point of view, we would like obviously to have the data, assuming it continues to be as positive as what we've seen from the preliminary topline results. So we definitely want to get that data into our label, so we can aggressively specifically promote it. But I think that our view is that the data will be widely available. And physicians will continue to make the judgment as to what's best for patients and prescribe the therapies that are most efficacious and beneficial to the patient.

Yaron Werber - Citigroup Inc

As a follow on the European pricing, I mean we're looking at Germany talking about a 10% price decrease, we're looking at price decreases in Turkey, in Ireland. Can you give us a little bit of sense as to, and potentially Spain, what do you guys have modeled or what is a good placeholder for us to model on price?

Sol Barer

Yes, and I think our outlook is based on a number of various scenarios that have different scenarios, some of which will likely be more positive in some markets and something maybe more challenging in other markets. So we look at lots of different scenarios that make up the composite of our outlook and the guidance. We're going to see some pressures. We've been very fortunate. 2009, we saw very little change. And in the first quarter of 2010, things have continued to go well for us. The value proposition for REVLIMID and VIDAZA are both very strong in all markets. And so despite the pressures, we still feel good about how this will play out. And our strategies are very country-specific, very payor-specific, to ensure that we ensure the maximum patient access. But yet, we're sensitive to ensure that we don't make things difficult for the long-term success of REVLIMID. So I can't give you a specific answer, but I think our plans do recognize that there will be some pressures in different markets, some we think will be at more success than others. But overall, despite the pressures, we got a great value proposition, and in the scheme of, of along the spectrum of products and services that are going to be under pressure, we're fortunately at the end with the value proposition that we have.


And our next question is from the line of Rachel McMinn of Bank of America.

Rachel McMinn - BofA Merrill Lynch

Can you clarify just a little bit of a $35 million to $40 million from a healthcare reform? Can you break that down? How much of that is related to THALOMID versus REVLIMID? And then my second question is, given the impending loss of orphan status for VIDAZA in 2011, can you give us a sense of what proportion of VIDAZA sales are either in the quarter or where we should expect that to end by the end of the year in the U.S.?

Sol Barer

On the first question, we don't give out the breakdown by product. But Obviously, it is specifically as Dave said, really primarily from the expansion of the Medicaid rebate to the Medicaid programs that are managed by managed care organizations, is where the greatest impact is. And the fact that REVLIMID is such a bigger product, it has a bigger impact, though the impact on THALOMID is slightly higher than it is on REVLIMID. But overall, the impact is great on REVLIMID just because of the sheer size of the market and the product. And the second question, Rachel, about VIDAZA, was what? The regulatory exclusivity on VIDAZA extends to May 2011 for VIDAZA in the U.S. And it's 10 years of exclusivity in Europe from the end of 2008.

Rachel McMinn - BofA Merrill Lynch

Right, but the sales proportion of the U.S.?

Sol Barer

We're pretty even. Yes, the first quarter, it was virtually even between the U.S. and x U.S.


And our next question is from the line of Brian Abrahams of Oppenheimer.

Brian Abrahams - Oppenheimer & Co. Inc.

A pipeline question, you mentioned that you've reached final agreement with rate agencies on the pivotal trials for pomalidomide and multiple myeloma and myelofibrosis. I was wondering if you can give us some additional details on what these trials might look like, particularly the regimen in endpoints for myelofibrosis? And if we can get any sense of when we might see data and what the launch time looks like?

Sol Barer

We'll continue to see data regularly at meetings in June, and then certainly throughout until end of the year. As we have the investigative meetings in the pivotal trials when those are completed, we will give very clear updates and transparency on what the designs are. But until we have the investigative meetings and ensure that we've got everybody's buy-ins, this is exactly what we're going forward with, we're going to hold off going through the details of those plans. But once we complete the investigative meetings, we'll go through them very clearly with you.

Brian Abrahams - Oppenheimer & Co. Inc.

Maybe just on timelines for potential Phase III data?

Sol Barer

Brian, the key thing is we will start these trials this year. And we're optimistic that the accrual will be very rapid. And in some markets, we think we have the opportunity for even potentially accelerated filing, not that, that would be the timeline that we'd use for the base case. But we're going to look at the data we get throughout the course of this year, especially in myeloma, and look at markets and see if that data might be potentially useful as an accelerated filing. But we will use the base case for the Phase III that we're beginning this year.


And our final question comes from the line of John Sonnier of William Blair.

John Sonnier - William Blair & Company L.L.C.

Bob, you stopped short of quantifying the EU duration. I think last quarter it was 7.5 months, that's historically been a metric you have provided us with, I'll be curious, what it changed. And for Dave, Celgene for a long time has had really great assistance programs, with co-pay assist, free goods. And I'm trying to better understand the mechanics as you move into 2011. The doughnut hole discount, is it possible that your co-pay assist payments actually go down? I'm trying to get a balance, the revenue versus expense impact.

Robert Hugin

Let me handle the second one of the co-pay. Again, it's contributions, it's the independent third parties who's mission is to really assist the patients with financial needs to support deductibles in co-pay. And it's our view that when you reduce the doughnut hole by 75%, 50% through discounts from the branded manufacturer and 25% from the government, that our expectation is, that you would see a decline in demand or the need for co-payment assistance. I think it will be gradual as it's phased in. As people understand the programs, et cetera. It will still exist because there still are people seven times the poverty level that have to put up a significant co-pay of 25% in the doughnut hole and other deductibles, et cetera. So I think the important role of independent third-party co-payment providers, those foundations are still going to be very valuable in the marketplace. We're still going to have co-pays and deductibles. I think also over time, the financial impact where our contributions probably will go down. When and how and the exact timing of it, it's not completely clear. But as it becomes clear, we'll certainly forecast it in our guidance for 2011 when that time comes. But none of this comes into being until January 2011.

David Gryska

And one more thing, John. It's important to note that when we do make contributions to non-profits from the co-pay, that ends up in the SG&A line. And obviously, the expense there is a discount given the doughnut hole, that would affect the net revenue. So there's a different area in the income statement that it's recorded at.

Robert Hugin

As I mentioned John, with RevAssist in steps in the U.S., we have very good data that helps us quantify the number of prescriptions a patient gets. So we have a good understanding of what's happening with duration. Where in most markets in Europe, we don't have that same kind of specific data. So we do chart studies and we do different programs in different markets to really get a good sense of try and make the data similar to what we get in the U.S. And it's something that's important to us when we launch in markets to get a feel, and we will continue to do periodically. And so we haven't done any new studies in this past quarter. We will do other studies in markets throughout the course later this year and in future years. So as that new data comes available, we will certainly update you on what it looks like, what we learn. But during the quarter, the trends that we see that don't have any kind of independent research attached to them, seems to be quite favorable also in Europe on the duration front.

Sol Barer

So thank you, everyone. It's been a great quarter. And obviously, an important quarter for us. And we look forward to seeing you at ASCO and the other medical meetings, where we will have exciting data. Thank you.


Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day. Thank you.

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