Celgene's CEO Discusses Q1 2014 Results - Earnings Call Transcript

| About: Celgene Corporation (CELG)

Celgene Corporation (NASDAQ:CELG)

Q1 2014 Earnings Conference Call

April 24, 2014 9:00 AM ET

Executives

Patrick Flanigan – VP, IR

Bob Hugin – Chairman and CEO

Jackie Fouse – EVP and CFO

Mark Alles – EVP, Global Head Hematology and Oncology

Scott Smith – Global Head, Inflammation and Immunology

Analysts

John Sonnier – William Blair

Matt Roden – UBS

Mark Schoenbaum – ISI Group

Geoff Porges – Sanford Bernstein

Robyn Karnauskas – Deutsche Bank

Eric Schmidt – Cowen & Company

Geoff Meacham – JPMorgan

Yaron Werber – Citi

Chris Raymond – Robert Baird

Howard Liang – Leerink

Josh Schimmer – Piper Jaffray

Brian Abrahams – Wells Fargo Securities

Michael Yee – RBC Capital Markets

Matthew Harrison – Morgan Stanley

Ravi Mehrotra – Credit Suisse

Joel Sendek – Stifel Nicolaus

Mike King – JMP Securities

Operator

Good morning and welcome to the Celgene’s First Quarter 2014 Earnings Conference Call. All participants will be in a listen-only mode until the question-and-answer session at the end of the conference. I would like to remind you that this call is being recorded.

I would now like to turn the conference over to Patrick Flanigan, Vice President of Investor Relations at Celgene. Please go ahead.

Patrick Flanigan

Thanks, Nicole and welcome everyone to our first quarter earnings conference call. The press release reporting our financial results in addition to the presentation for today’s webcast can be accessed by going to the Investor Relations section of the corporate website at www.celgene.com.

Joining me in the room today with prepared remarks are Bob Hugin, our Chairman and Chief Executive Officer; Jackie Fouse, our Chief Financial Officer; Mark Alles, who is Global Head of our Hematology and Oncology franchise and the Global Head of our Inflammation and Immunology franchise, Scott Smith.

As a reminder, during today’s call we will be making forward-looking statements regarding our financial outlook, in addition to regulatory and product development plans. These statements are subject to risks and uncertainties that may cause actual results to differ from those forecasted. A description of these risks can be found in our most recent 10-Q on file with the SEC. These statements speak only as of today’s date and we undertake no duty to update or revise them.

Finally, reconciliation of the adjusted financial measures to the most comparable GAAP measures are available as part of the earnings release.

I would now like to turn the call over to Bob.

Bob Hugin

Thank you, Patrick and thank you everyone for joining us this morning. It’s an important and exciting day for us as we announced a very promising addition to our late stage pipeline. The attainment of significant regulatory milestones, demonstrable progress in advancing our internal and external pipeline programs and solid first quarter results.

Our teams across the globe produced excellent results while advancing strategic corporative initiatives. Our commercial teams increased product sales by 19% year-over-year, with total revenue rising by 18% to $1.73 billion. The leverage of our operating model was further demonstrated by the 113-basis point improvement in our operating margin which contributed to a 22% year-over-year increase in adjusted earnings per share.

These excellent results were achieved while absorbing the full impact of generic azacitidine in the U.S. another first quarter specific events that Jackie will review. Based on solid first quarter results and the strong underlying demand across our product portfolio, we’re confident on our outlook for the remainder of the year.

Several important achievements through the quarter strengthened our growth outlook. We announced the U.S. approval of OTEZLA for the treatment of psoriatic arthritis on March 21. In a moment, Scott will review the progress of the launch.

We also announced this morning that we have accomplished the important milestones of submitting regulatory applications in both the EU and in the United States for REVLIMID as a treatment for newly diagnosed multiple myeloma.

Tangible progress was achieved in multiple pipeline programs. Partnered programs from Agios and Acceleron were highlighted at recent medical meetings, very promising data were presented at the American Association for cancer research meeting on AG221, the first in class potent inhibitor of the IDH2 mutant protein implicated in multiple malignancies.

Our teams are accelerating development plans right now. Encouraging interim Phase II data were presented at the National Kidney Foundation meeting treating chronic kidney disease with Sotatercept or ACE-11.

We’re advancing our Acceleron collaboration in not only chronic kidney disease but also MDS and beta-thalassemia.

Important late-stage programs studying REVLIMID oral azacitidine and ABRAXANE, numerous indications advanced during the quarter.

Our internally generated early-stage pipeline achieved milestones including the initiation of clinical studies with our JNK inhibitor targeting Fibrotic diseases and the completion of dose range finding studies for CC-220, our new and inflammatory directive image. We plan to initiate Phase II trials in Sarcoidosis and Lupus with 220 later this year.

Exciting new collaborations would abide in FORMA Therapeutics were established, further enhancing our diverse and deep pipeline.

This gives frequent opportunity to be able to add a potentially transformative late stage asset to a pipeline. We are very excited about the potential of GED-0301. 301 is an oral antisense DNA oligonucleotide compound that recently completed the 166 patient multi-center Phase II study in Crohn’s disease.

The phase II data has been submitted to a major medical journal and will be presented at an upcoming medical meeting.

We acquired the rights to 301 from Nogra Pharma Limited, a private pharmaceutical company that specializes in the early stage development of gastrointestinal targeted therapies. They have the track record of having successfully developed a currently marketed product in this therapeutic category.

We believe the 301 has the potential to redefine the standard of care in Crohn’s disease. We plan to initiate a Phase III registration program this year. Our investment in GED-0301 not only reflects our belief in the succession of potential value to patients but also reflects our confidence in the future of our I&I franchise.

We’re energized by the progress achieved during the quarter and are committed to delivering on our goals for the remainder of the year. Jackie, Mark and Scott led their perspective on our results and on the conservable opportunities in the coming quarters.

Let me now turn the call over to Jackie.

Jackie Fouse

Thank you, Bob. Good morning everyone and thanks for joining us on our Q1 call. We’re off to a great start for the year and produce results in-line with our plan for Q1. We were very pleased with our product sales performance and saw an acceleration in net growth for the quarter’s year-over-year comparison of 19% versus the past couple of years.

As we exited the quarter, we saw strong momentum across the commercial metrics for REVLIMID, ABRAXANE and POMALYST/IMNOVID and Mark will speak more about those in a moment.

We are seeing those drivers benefiting Q2 sales as we are now about a month into the second quarter. In addition, we are very excited about the Psoriatic Arthritis approval for OTEZLA that received in March and the I&I team is busy launching the product this quarter. Scott will give you more details on his team’s activities after Mark’s update.

We’re also quite pleased with our overall P&L performance with adjusted earnings per share growing by 22% for the quarter’s year-over-year comparison, faster than our 18% total revenue growth.

We remain focused on shareholder returns and we continue investing for the future in both new R&D collaborations and other opportunities like the late stage product acquisition we announced this morning.

In addition, we bought back $1.7 billion of our own stock in Q1 and obtained approval from our board for an additional $4 billion authorization to continue repurchasing shares.

Here, you can see the acceleration and product sales for the quarterly year-over-year comparison with a 19% growth for this quarter exceeding the rates for Q1 in the prior two years, despite the entry of generic competition to VIDAZA in the U.S.

In addition, our portfolio of sales is more diversified than ever with POMALYST/IMNOVID, pancreatic cancer for ABRAXANE, OTEZLA to come, starting with revenues in Q2. And more geographies coming into the mix.

We expect to recognize revenues from OTEZLA in the U.S. starting in Q2, as patients make their way through titration packed product and we subsequently see revenue generating scripts.

We have taken a conservative accounting approach with respect to distribution top-line field and for nail or using a sell-through approach recognizing revenues and scripts are filled and we’ll move to a sell-in approach when we have enough experience in this market to feel comfortable with that.

For quite some time, our product sales growth at Celgene has been mainly volume driven. And this quarter was no exception with 16 percentage points or 84% of the 19% growth coming from volume. We additionally saw a global 3% increase from price in the quarter.

At $1.67 for the quarter, fully diluted, adjusted earnings per share grew faster than revenues, up 22%. We produced a strong profit growth while investing in our I&I infrastructure mainly in commercial capabilities and launch preparations for OTEZLA and while investing behind key hematology, oncology launches for ABRAXANE and pancreatic cancer in both U.S. and Europe and IMNOVID in Europe.

Essentially all of the $0.30 year-over-year increase in Q1 earnings per share came from operating income growth.

REVLIMID’s growth was solid in Q1 with particularly strong performance outside the U.S. And the product posted 14% year-over-year growth for the quarter globally and 1% sequentially in-line with our plan.

Brand VIDAZA was impacted by generic competition in the U.S. and this caused the declines in U.S. in total sales for both the year-over-year and sequential comparison. Outside the U.S., VIDAZA’s growth continues to be strong at 14% year-over-year.

Buying patterns by our distributors impacted the sequential international comparison. And finally as a reminder, sales of generic azacitidine are included in other total sales.

On a year-over-year basis, ABRAXANE grew over 50% with similar performance from each of the U.S. and international. Momentum behind the product is excellent following last year’s approvals for pancreatic cancer in the U.S. and Europe.

Sequential growth in the U.S. was affected by buying patterns as with some degree (inaudible), we now recognize that in Q4 of 2013 there was across the board customer buying in advance of higher expected base demand driven by pancreatic cancer. Though the demand metrics was a product that was very good and you will see these in March lines, the level of demand expected going into Q1 was not immediately realized.

ABRAXANE is off to an excellent start in Q2, and we are highly confident in our full year estimates for its sales.

POMALYST/IMNOVID’s position in relapsed refractory myeloma continues to strengthen and sales grew over 375% as we move into our first full year on the market in the U.S. and as launch ramps up across Europe.

REVLIMID’s 14.1% year-over-year growth for Q1 was 77% volume driven with that growth at 10.8%, plus the 3.1 percentage point contribution globally from price. This growth was very solid in light of the gross to net in typical first quarter dynamics, we often see in REVLIMID’s quarter to quarter sales pattern particularly in the U.S. and was in-line with our payments.

All of the commercial metrics for REVLIMID are quite positive and we’re seeing that reflected in REVLIMID’s performance so far in Q2. Only look back at REVLIMID’s historical sequential pattern, we see that Q1 of this year was in keeping with what we would expect. And we are happy with the global 1% sequential growth over Q4 of 2013.

The key line items in our P&L are performing well. Gross margins improved by 70 basis points versus a year ago and 30 basis points sequentially driven by mix. R&D expenses came down as a percentage of revenues but grew on an absolute basis by 8.5% year-over-year, as we continue to make productive investments in R&D.

Q4 2013 R&D spend included $52 million in collaboration related milestone payments and this is the main reason for the sequential reduction in Q1 expense as a percentage of revenue. The quarterly pattern of R&D spend will be impacted by the timing of clinical trial activity across the portfolio and the timing of milestone payments.

SG&A expenses grew 25.4%, an increase like percentage of revenues for the quarter with our investments in I&I and product launches. We still expect these to come in around 22.5% of revenues for the full year.

Our strong revenue growth in these expense dynamics drove our adjusted operating margins of 50.5% in-line with our full year guidance. Our balance sheet and net cash from operations generation, both remain very strong. As of March 31, we had just over $5 billion of cash on our balance sheet after repurchasing 1.7 billion of our own shares and investing in business development opportunities to support the long-term growth of the business.

In the quarter, we finalized two new R&D collaboration agreements with NantBioScience and Abide, and added a new collaboration to our partnership with FORMA.

Upfront payments for these three deals totaled $309 million. In addition, we’re very excited about our late-stage product acquisition from Nogra Pharma and Scott will speak more about that deal in a moment. The deal includes a $710 million upfront payment upon closing as well as potential regulatory and sales related milestones.

We expect our strong operating execution, business model and capital deployment strategy to generate improving returns on invested capital over time and we have a good track record in this regard.

We use GAAP based income to calculate our ROIC metrics and we show you these on a gross invested capital basis, the dotted lines in our ROIC chart and on a net invested capital basis, excluding cash, the solid line in our chart.

You can see the general trend to improving returns with any given quarter or short period, sometimes impacted by upfront investments and business development activities or short-term cash accumulation.

Our target is to produce sustained improvements in ROIC overcome as one metric to demonstrate the long-term productivity of our R&D and capital investments, the quality of our operational execution and the soundness of our financial strategy.

Our performance continues to be solidly rooted and strong top-line growth and operational execution on the larger and larger base of business with increased diversification in our revenue stream. All of our metrics remain favorable.

We are performing well now and investing for the future with an eye on improving returns and providing value to our shareholders.

Q1 has given us a great start to the year and today we are reaffirming our full-year guidance for both revenues and earnings per share. Thank you.

And let me now turn the call over to Mark.

Mark Alles

Thanks very much, Jackie. Good morning everyone. First quarter net product sales were in-line with our plan up 19% year-over-year to $1.708 billion. Our brand fundamentals are strong. Globally, more patients began therapy in the first quarter on REVLIMID, POMALYST/IMNOVID and ABRAXANE than ever before. Each of these products have achieved market leadership and have become backbone therapies for the development of additional novel agents were virtually all subsets of multiple myeloma, myelodysplastic syndromes and pancreatic cancer.

Market share gains and duration therapy increases for REVLIMID and the ongoing global commercial launches for POMALYST/IMNOVID in relapsed and refractory multiple myeloma and ABRAXANE for metastatic pancreatic cancer are key drivers for our full year outlook and beyond.

Early second quarter, product sales trends are very positive. In the first quarter, our teams produced strong results that offset much of the unfavorable impact of three variables. First, gross to net adjustments including the expected seasonal increased rebates for REVLIMID tied to the Medicare of party coverage GAAP.

Second, the continued impact of generic azacitidine sales in the United States and third, buying patterns for ABRAXANE in the U.S. and Japan. At the same time, we made significant progress on multiple high value programs. As Bob mentioned, we submitted the REVLIMID newly diagnosed multiple myeloma regulatory industries in Europe in February and in the U.S. in April, securing worldwide approval for REVLIMID in newly diagnosed multiple myeloma remains one of our most important corporate objectives.

Key clinical trials are being initiated for our in-line and pipeline products. Our research collaboration strategy is beginning to yield active, promising molecules. Among them is the Agios compound, AG-221, a first in class inhibitor of the IDH-2 mutant protein, promising but preliminary Phase I data were presented this month at the AACR meeting.

AG-221 demonstrated high response rates and an excellent safety profile in a molecularly defined group of patients with relapse and refractory acute myeloid leukemia. With our development partner Acceleron, we are advancing both Sotatercept or ACE-536 in beta-thalassemia and MDS. We expect to select one of these agents enter a Phase III study in beta-thalassemia later this year.

Returning to our first quarter results. REVLIMID sales were $1.144 billion, representing 14% year-on-year and 1% quarter-on-quarter growth. Key demand fundamentals remain strong in the U.S. Importantly, the average daily number of new patients increased by 7% quarter-on-quarter, an all-time high of more than 34,000 unique patients were treated with REVLIMID in the United States during the quarter.

This large volume of patients on therapy at the start of the year is a very positive indicator of our full-year opportunity. As previously mentioned, sequential quarterly sales in the U.S. were negatively impacted by the expected seasonal increased rebates for REVLIMID.

Led by our team in Europe, quarter-on-quarter international sales of REVLIMID grew 6%. We continue to strengthen the product profile REVLIMID beyond multiple-myeloma. The results of the REVLIMID MDS-005 Phase III study and non-deletion 5Q minus low risk MDS and the MCL-002 randomized Phase II study in relapsed and refractory mantle cell lymphoma are expected during the second half of this year.

We completed enrollment in the REMARC Phase III study testing REVLIMID as maintenance therapy for patients with newly diagnosed diffuse large B-cell lymphoma. We are on track to complete enrollment in RELEVANCE, our Phase III study of REVLIMID plus Rituximab in follicular lymphoma late this year.

As 2014 could mark another inflexion point for REVLIMID in multiple myeloma as we may start to see the initial data from several Phase III trials with novel agents being developed on the R&D backbone.

The POMALYST/IMNOVID launch continues to exceed our first full-year expectations. Driven by the U.S. market, sales grew 376% year-on-year and 12% quarter-on-quarter to $136 million. We are very encouraged by the performance of IMNOVID in Europe where key metrics just an adoption curve, similar to or better than the 2013 adoption of POMALYST in the United States.

Momentum should accelerate as reimbursement has achieved in several major European markets from this quarter through the end of 2014 and the start of 2015. We remain on track to submit the POMALYST regulatory industry for the relapsed and refractory multiple-myeloma in Japan by the end of the third quarter.

ABRAXANE year-on-year sales grew by more than 50% to $185 million. However, as Jackie mentioned, the negative impact from quarter-on-quarter buying patterns in the U.S. and Japan contributed significantly to a sequential quarterly decline of 8%.

It is clearer now that the sharp increase in the total number of patients treated per month was ABRAXANE in the United States during 2013 and the anticipation of early 2014 demand led excess inventory to build at the very end of last year.

Demand continued to grow in Q1 2014 but not enough to couple with the offset this inventory built. A similar quarter-on-quarter pattern developed in Japan, causing our partner Taiho to reduce their plans first quarter ABRAXANE orders. We are very confident that we will deliver 2014 ABRAXANE sales consistent with our forecasted $850 million to $900 million.

Following the release of the results from the Phase III study of ABRAXANE plus gemcitabine in metastatic pancreatic cancer and the FDA approval in September of 2013, this novel combination has rapidly become the new standard of care.

In less than one year, the market share of ABRAXANE plus gemcitabine in the first line treatment of metastatic pancreatic cancer grew from approximately 5% to approximately 36%. We continue to expect big share of this combination in the United States to exceed 55%. Our experience in U.S. and now in Germany suggest that we should achieve rapid market adoption and share gains across global markets, immediately following reimbursement.

We have successfully initiated our Phase III agilent pancreatic study and our pivotal study testing of ABRAXANE and gemcitabine in triple negative metastatic breast cancer is enrolling very well.

With five weeks to go before the start of ASCO, we are aware of approximately 70 abstracts that have been submitted featuring our in-line and pipeline agents across several major cancers and multiple patient subsets.

We are pleased with the number and quality of the REVLIMID abstracts in multiple myeloma and lymphoma, POMALYST abstracts in multiple myeloma and ABRAXANE abstracts in pancreatic cancer and breast cancer.

In summary, our first quarter results delivered robust year-on-year growth of 19% and were consistent with our 2014 forecast. Key product value drivers, such as market share, duration, commercial launches in International markets and new data that can expand our core indications, are advancing.

And most importantly, we successfully submitted marketing applications for REVLIMID plus low-dose dexamethasone for the treatment of newly diagnosed multiple myeloma in Europe and in the United States.

We are executing well, we are very confident in our outlook and we are committed to helping patients with cancer worldwide. Thanks very much.

And I’m pleased to welcome Scott Smith to the call.

Scott Smith

Thank you very much, Mark. And good morning to you all. 2014 has already been a milestone year for Celgene and I&I marked most importantly by the U.S. approval for the treatment of psoriatic arthritis. We have a strong and highly differentiated label. The indication is broad and inclusive for dull patients with active psoriatic arthritis supporting use across a wide variety of PSA patient segments.

Early feedbacks from prescribers have been very encouraging, especially notary inclusion of language confirming and treatment of OTEZLA was also an improvement not only in five new systems of PSA but also an improvement to emphasize some direct license as well as fiscal function patients with active PSA.

Feedback was also strong, OTEZLA could represent a completely new paradigm from the treatment of PSA by providing a product without black box and worrying about malignancies or serious infections nor any requirements of TB testing or routine laboratory monitoring.

We are very encouraged by the initial feedback of OTEZLA for both physician and patient communities. The commercial organization is executed on the launch plans exceptionally well. And we are pleased with the positive momentum generated in a very short period of time.

We are focused on two key near term objectives, one, broad and frequent reach to target physicians and two facilitating patient access to OTEZLA. Our sales representatives were in the field calling on customers within three days of approval and have reached virtually 100% of targets many repeatedly. The total we’ve given over 12,000 OTEZLA details so far in April.

Our account management teams have been engaging with pairs to secure formulary acts of reimbursement, a process that we expect will take 3 to 12 months that is typical for products in this category. We have already achieved our first formulary approvals and are happy with our early progress.

In the meantime, we believe our reimbursement of patient assistant program OTEZLA Support Plus, working with conjunction with Specialty Pharmacy is well positioned to provide assistance to physician’s office to get patients started on therapy as quickly as possible. For patients of OTEZLA Support Plus provides access to a team of advocates including notes focusing on copy assistant and a free drug program for those who are insured.

Our team is well prepared to accomplish their objectives and we look forward to discussing initial results and prescription trends over the next few months.

We believe Celgene and I&I is well positioned for significant growth in the coming years. Following last month’s PSA approvals, we anticipate a U.S. survives this approval of OTEZLA in September.

In Europe, we expect to combine PSA to survive this opinion by year end with an approval in Q1 2015. We are also focused on geographic expansion beyond the U.S. and EU. Our Phase III registration trend is rapidly enrolled. And we anticipate a submission in 2015 and approval in 2016. In addition, we have initiated our global expansion plans for OTEZLA anticipate approvals in Canada, Australians with one over the next six to 18 months.

We believe OTEZLA has the potential to have broad utility across a spectrum of inflammatory diseases. Top line results from our Phase III Ace trial are expected later this quarter. We will also initiate a Phase III trial of the chest disease and Phase II trials of OTEZLA and IBD and atopic dermatitis later this year.

A key objective for us in 2014 is to enhance and accelerate the I&I portfolio. We are encouraged about the potential of other Phase II compounds in the pipeline specifically Sotatercept and multiple myeloma and CCT-20 and I&I specific index.

Furthermore, today’s announcement of our acquisition of GED-0301 from Nogra is very, very exciting. This therapy truly fits of our mission to bring innovative treatments to patient scenarios of high unmet medical needs.

We believe that the 301 with the unique mechanism and profile has the potential to significantly transform the treatment of Crohn’s disease, a chronic disabling disease that affects over 1 million patients worldwide.

Exciting results were seen in both Phase I-b and 166 patients Phase III trials from consistently high response rate and rate of remission after just four weeks of trading. Data from the Phase II program should be available shortly through publication as well as presentation at appropriate medical meetings.

As Bob stated earlier, we will work aggressively towards meeting the Phase III trials later this year. We are very pleased to have reached agreements to develop and commercialize these Phase III compound.

These are exciting times for Celgene and I&I, our team is working passionately to help ensure we can bring that not only to OTEZLA but other transformational treatment options to patients worldwide in the near future.

Now, I’d like to turn it back to Bob.

Bob Hugin

Thank you, Scott. And thank you Mark and Jackie. I hope you can sense our enthusiasm and optimism about the future of Celgene. Our teams around the world are committed to maximizing the significant potential of our deep and diverse portfolio.

We are well positioned to achieve our key 2014 milestones and to deliver on our long-term targets. Thank you everyone for joining us this morning. Operator, please open the line for questions. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from the line of John Sonnier of William Blair. Your line is now open.

John Sonnier – William Blair

Hi, thanks for taking the question and congratulations on the progress and in particular the filing, the REVLIMID filing in Europe. And I’m wondering if you are able to give us any granularity on what the breadth of that filing looks like any age limits, transplants, status, etcetera?

Mark Alles

Thanks for the question John, its Mark. As we’ve said, our base case is that we would get a label for transplant ineligible patients and by definition elderly patients. But we’re at the start of the process and we’d still be looking to get the broadest possible label.

John Sonnier – William Blair

Thank you.

Operator

Thank you. Our next question comes from the line of Matt Roden of UBS. Your line is now open.

Matt Roden – UBS

Great. Thanks very much for taking the question, good morning. I realized you maybe a little bit constrained in what you can talk about with the NATCO situation. But I was just wondering if you can talk about how a market outcome would actually impact the way you’re dealing with the challenger? And is there any outcome in your opinion from the market and that could swing a resolution one way or another?

Bob Hugin

Thanks for the question Matt. Obviously, in litigation we’ll limit about what we can say. We have spent a long time building expensive intellectual property estate for REVLIMID. We intend to vigorously defend our rights. And we’re confident about the outcome and we don’t believe there is anything in the near-term that will be this positive on the case through market hearing. But we’ll let you know as that, progresses.

Matt Roden – UBS

Thank you.

Operator

Thank you. Our next question comes from the line of Mark Schoenbaum of ISI Group. Your line is now open.

Mark Schoenbaum – ISI Group

Hi guys, thanks a lot for taking my question. I had a couple of questions on OTEZLA if I might or just one question really, just sort of sounds like two. But first is, Scott, is it possible that you could actually get the payers to require the patient’s step through OTEZLA, new patients step through OTEZLA before receiving CNS.

So, I just like you to talk through that how realistic is that as a possible goal for the franchise that would obviously be I think correct me if I’m wrong, pretty transformative for adoption. And then just a quick one, a yes or no, are you aware or do you plan on sampling?

Scott Smith

So, just to answer the first question. Certainly our mid-to-long term goal is to get at advantage position that’s better than head of CNS and the certain number of plans. Right now for 2014, we’re really focused on solidifying the initial footprint, making sure that we’re a non-disadvantage position. And then if we can move that forward to more advantage position, longer term that depends on how much demand we can drive in the volumes drive and how well we execute.

But certainly our mid-to-long term goal is to be in an advantage position relative to CNS in the number of plans, in the mid-term.

The second question, we are sampling titration packs at the moment. These are patient starter kits, 14 days requirement to get patients. That’s the focus of our sampling right now is initiation of patient trials. So that’s being done at the physician level.

Mark Schoenbaum – ISI Group

Thanks.

Operator

Thank you. Our next question comes from the line of Geoff Porges with Bernstein.

Geoff Porges – Sanford Bernstein

Hi, I think I’m on the call. Quickly, just housekeeping, could you give us a sense of exactly what the swing in ABRAXANE was between Q4 and Q1 and whether the Q1 results actually reflect demand or whether there was some shortfall?

And then Jackie, could you just comment how are you accounting for the fluctuations in the value of the equity positions that you’ve accumulated. Do you market-to-market or do you just cater on the books at the acquisition cost? Thanks.

Jackie Fouse

Yes Geoff, let me start with the second question. So, if the incentives are public companies these stakes are mark-to-market at the end of the quarter. However, the gains on those flow-through other comprehensive income and not through the P&L. If we would have a sustained loss on any of those, we would take that loss through the P&L.

On the private company equity stakes, those are also run through valuation models and tested for impairments essentially. And those, if we have gains on those, they will not run through the P&L unless we sell the stakes. And if we have losses on them they are taken through the P&L. So, it’s a pretty conservative accounting treatment.

Geoff Porges – Sanford Bernstein

Well, Jackie is that through the pro forma P&L or just the GAAP P&L?

Jackie Fouse

Both of them.

Geoff Porges – Sanford Bernstein

Okay, thanks.

Mark Alles

The first part of the question Geoff, its Mark. The swing in inventory we estimate to be in the $15 million range, but it’s not exactly clear. But it’s in that range. And then, as you saw on the slide that I presented, the first quarter patient demand curve moves sideways a little bit but as you see in March, the last data point, it has returned to growth. So, it’s a little bit of a combination, mostly the inventory swing, a little bit of sideways demand curve but it’s back on track.

Geoff Porges – Sanford Bernstein

Great. Thanks very much.

Operator

Thank you. Our next question comes from the line of Robyn Karnauskas of Deutsche Bank. Your line is now open.

Robyn Karnauskas – Deutsche Bank

Hi guys, congratulations on the performance. So, I guess, I just want to ask a little bit more about the pipelines, and very active in business development. So, first of all, I think we’ve been trying or answering for a while, maybe you can talk a little bit about what gives you comfort and then nothing is in for 301?

And then a broader question around pipeline acquisition, when you’re thinking about adding value to the company, do you have peak years in mind, like when do you see your multiple products, when do you see these really peaking or really add value to the company? Thanks.

Scott Smith

Relative to the other world, antisense of drugs which have gone through a variety of different places. I think you see here the coupling of the antisense technology with delivery system that delivers the drug, right on site and they got for absorption at the side of the path of physiology.

But these and then when you see the clinical data, the Phase II data, you can see very robust response. And we’re looking forward to getting that data. But clearly the data, the clinical data and the evidently look at gives you a feeling of the magnitude of effective.

Jackie Fouse

Robyn, its Jackie. Just on the top line question and I think the timing of contribution of revenues. Just as a reminder for everybody out to 2017, the numbers that we’ve given you, I think you have very good visibility to – the drivers behind the growth embedded in those numbers.

And we’ve highlighted on numerous occasions, some of the things that could happen over that timeframe that would lead to revenues that are not included in our financial model. And I would say the last sort of item on the check-list there was the filing for REVLIMID newly diagnosed in both U.S. and Europe which is now done. And then we’ll see those approvals come.

So, when you think about that I think it’s pretty clear what’s driving that and what potential upside may. These, when we look at other major indications that could come or REVLIMID for example and Non-Hodgkin’s Lymphoma, when we look at the late-stage product acquisition that we announced today.

All of those things would be contributing after 2017, so they could start to kick-in in somewhat meaningful way in 2018, 2019. ACE-11 is another one that we haven’t talked too much about from coming simply. It could come out in that ‘19, ‘20, ‘21 timeframe. And all of those products then would be contributing significantly to growth beyond 2017 while REVLIMID and ABRAXANE another products are continuing to grow. They expand from an indications standpoint. So we’re really trying to have things come into the portfolio and layer in nicely with respect particularly to that sort of mid stage timeframe that would be kind of 2018 to 2021.

Robyn Karnauskas – Deutsche Bank

Great, thanks.

Operator

Thank you. Our next question comes from the line of Eric Schmidt from Cowen & Company. Your line is now open.

Eric Schmidt – Cowen & Company

Thanks for taking my question. I just wanted to ask a few more about GED-0301. Was this a competitive auction and can you talk about what stimulated your interest and was it just the Phase II data or is there something about the target or the indication or something else that you guys had your eyes on? And lastly, do you have the necessary IT, and this is an antisense?

Bob Hugin

Yes, just to maybe answer the second question, certainly Crohn’s disease is a target IBD in general that we’ve been very interested in. We will be initiating as I stated in the prepared remarks and a program in IDB with OTEZLA that we think has the right profile. Very significant unmet medical need particularly in Crohn’s where the remission rates from TNS therapy are very, very low. Patients don’t maintain that remission very long.

So there really is need for new approaches and new therapies there. Relative to the other question.

Jackie Fouse

It was a competitive process and I think it would be right to characterize that as having been highly competitive.

Eric Schmidt – Cowen & Company

And the license?

Mark Alles

We believe that there is appropriate installment IP through a significant period.

Bob Hugin

Significant diligence on that as part of the whole process.

Mark Alles

Yes, we feel quite good about the RP and there are some differences that we could see with respect to extensions and things like that. But it would go beyond the 2027 timeframe.

Eric Schmidt – Cowen & Company

Thanks a lot.

Operator

Thank you. Our next question comes from the line of Geoff Meacham of JPMorgan. Your line is now open.

Geoff Meacham – JPMorgan

Good morning guys. Thanks for taking the questions, just a couple of related ones on the REVLIMID filing in Europe. Do you guys expect any benefit from the prior review or this new filings, this is so completely different. And then on the new – what’s the next step I guess filing the recent nice guidance for REVLIMID of the U.K., does this impact for you guys, is this just less relevant now that you have the first line filing in the Europe in the book? Thanks.

Jackie Fouse

Hi Geoff, its Jackie. So, on the timing for the review, we’ve assumed that it would be standard review time and go to full timing cycle for purposes of the financial model in both the U.S. and Europe. So if it happens a little bit after the net that’s very believe assume that they’ll take the full standard review time.

Mark Alles

Geoff, its Mark. This one will be clear we’re talking about the recent headline from nice about REVLIMID (inaudible) in these reimbursement correct, that’s what you’re referring to?

Geoff Meacham – JPMorgan

That’s right, yeah.

Mark Alles

Right. So, it’s a great question. Thank you for it. We had thought to expand the utilization of REVLIMID and the reimbursement for REVLIMID to a more second line population under the nice reimbursement umbrella. This was not a newly diagnosed discussion at all.

In that setting and as part of the process that’s ongoing, nice issues, their declaration that it was not cost effective at that time. We continue to go through this process and are optimistic that notwithstanding the newly diagnosed indication and approval later, that we could expand utilization and reimbursement for REVLIMID in the U.K. to second line. So that’s ongoing.

Bob Hugin

And just as a reminder, we received the same preliminary negative opinion before we got the very positive position we have with nice for REVLIMID today.

Mark Alles

Correct.

Geoff Meacham – JPMorgan

Okay, thanks guys.

Operator

Thank you. Our next question comes from the line of Yaron Werber of Citi. Your line is now open.

Yaron Werber – Citi

Great. I have two questions. Jackie, first one is for you. Just give us a little bit of a sense, it looks like R&D I believe you got to need to potentially ramp up a lot into the backend of the year and SG&A then. I’m just trying to understand exactly how do you get there from here and SG&A will have to go down and R&D has going to have to go up to hit your guidance. How do you get there?

And then two, I don’t know if you can answer it with, when you look at what NATCO, their own IP that they filed relating to their essentially anhydrous Lenalidomide that the one without water. It actually speaks to the form A, which is one of your polymorphs. And so, it’s specifically the anhydrous polymorph.

You guys are also alleging or you’re using the form B, which is having the hydrate. So what’s going on, I mean, they’re saying that they don’t have water in their polymorphs that you guys are asserting your polymorph that does have water. So give us a little bit of sense kind of where you’re going with this, if you can. Thank you.

Jackie Fouse

Thanks Yaron. So, with respect to the timing out of the expenses, I mean, I think we had always characterized the SG&A is very likely being frontloaded to the early part of this year given the timing of the investments and the I&I unit and the build up, we think that we needed to do there ahead of OTEZLA approval. So you see that reflected in the numbers.

And as well of the timing on the loss related expenses for the other products that we’ve discussed in the hematology oncology area. So you got pretty significant frontloading of the expenses in SG&A. And the revenues will be accelerating over the course of the year as Mark mentioned in his comments. And that’s how we think that that is going to play out to get us to the full-year guidance number of 22.5% per SG&A versus where we are today.

On the R&D expense side, again, I think that it looks a little bit light at the beginning of the year, especially coming out of the end of last year when we had a pretty significant number of milestone expenses in there. We do include collateral – collaboration related milestone payments in our adjusted P&L. And we had a lot of those in the fourth quarter.

The absolute dollars still grew 8.5% and we’ve got a big base of R&D spend and a big portfolio where you have some clinical trial activity ramping down some other ramping up. And that’s all taken into consideration in our forecast and we’ll see how that plays out over the course of the year. But we’re at where we expected we would be with that.

With respect to the NATCO question, I mean, that was a pretty detailed question there, some things that we really can’t comment that much on given the ongoing nature of the process and the impending market hearing. But there is some things that we’re happy to take up offline in terms of the specific patent coverage and things like that if that’s okay.

Yaron Werber – Citi

Thank you.

Operator

Thank you. Our next question comes from the line of Chris Raymond of Robert Baird. Your line is now open.

Chris Raymond – Robert Baird

Hi, thanks. Just a question on POMALYST. So, with the U.S. being sort of flat, I guess maybe down a little bit sequentially quarter-on-quarter. I’m just kind of struck by the fact that this is two drugs now when you take POMALYST and Kyprolis that are indicated for later lines of therapy and multiple myeloma that were down sequentially. Is that just, are you seeing something broader in the market or is that just a coincidence or is there something else going on? Thanks.

Mark Alles

Thanks for the question Chris, its Mark. I agree with you, the third plus fine market seems to have consolidated a bit here in the last let’s say three to four months. That said, I wouldn’t draw any conclusions about the uptake of POMALYST.

We see great patient demand, physician experience on, in particular the response rate and then the safety profile where we see duration increasing nicely. It’s something that I think over this year will realize potentially some upside. And the reason is clear. The patient base is growing as duration and you’re very familiar with the sort of REVLIMID would be better than expected. And we are seeing early signs of duration will be better.

We think not only will we achieve our base kits for the year but there might be upside. But I think for POMALYST, the dynamics are good. We did see a little bit of sideways movement here but we’re very, very optimistic based on patient experience, physician experience and our own analysis of what’s happening with duration.

Chris Raymond – Robert Baird

Thanks.

Operator

Thank you. Our next question comes from the line of Howard Liang of Leerink. Your line is now open.

Howard Liang – Leerink

Thanks very much. I got a question on the two REVLIMID and Rituxan, our square study that you’re initiating. Can you talk about the considerations that one and two, starting in these files was the initiation based on anything from the current files including the phase, current Phase III studies remark and relevance?

Mark Alles

Sure, I’m not exactly sure I understand your question. But we have for, as you know for many, many years believed that the combination of REVLIMID plus Rituxan as a chemo free approach to the treatment of all histologic subsets in lymphoma is a major advance to the treatment of disease.

So, the remark study first is building on the maintenance paradigm to try to extend the benefit of Rituxan based therapy. In this case, our job – we’re very excited about, this is the large study, it’s fully enrolled. And if one tracks the biology of what would be expected to happen with these patients at high risk of relapse after responding to art shop, we would be looking for readouts perhaps earlier than expected. And remember the control on placebo.

With respect to REVLIMID Rituxan in follicular lymphoma again being chemo free for these patients within the disease, we think it brings a very effective safe approach of treating patients over time. And we think the combination is going to be quite good.

So, optimizing REVLIMID’s clinical potential as a single agent, were in combination with antibodies, Rituxan, other antibodies is a high clinical priority and we’re very excited about the future.

Howard Liang – Leerink

Thank you.

Operator

Thank you. Our next question comes from the line of Josh Schimmer of Piper Jaffray. Your line is now open.

Josh Schimmer – Piper Jaffray

Thank you. Few questions from now serious who believes that the retrofit method of using patents in Europe may be at risk here, so maybe you can give us a sense of the current status expectations for 2014 updates, address these concerns for us? Thank you.

Jackie Fouse

Josh, it’s really hard to hear you. Could you say that one more time please?

Josh Schimmer – Piper Jaffray

Sorry, can you hear me better now?

Jackie Fouse

A little bit.

Josh Schimmer – Piper Jaffray

Sorry, phone problems. So I had questions from investors who believe that the REVLIMID method of used patents in Europe may be at risk this year. So perhaps you can address their current status, expectations for 2014 and address those concerns?

Bob Hugin

We are taking a long time to build the portfolio. Internationally we feel very confident about where we are with those patents. And there is going to be challenges from time to time with our patents. We feel very confident about where we stand and that they will be enforced above and we’ll achieve the outcomes that we expect.

Jackie Fouse

Yes. I mean, the patents are continued to be enforceable during this process. So I think that’s one thing to keep in mind. And so far, other grounds that have been put forth and the original proceeding were not found to be sufficient for in-depth validation of the patent so.

Josh Schimmer – Piper Jaffray

Okay, thank you.

Jackie Fouse

Sure.

Operator

Thank you. Our next question comes from the line of Brian Abrahams of Wells Fargo Securities. Your line is now open.

Brian Abrahams – Wells Fargo Securities

Hi, thanks for taking my questions, just couple on 301. I was wondering if you could talk a little bit about the timelines and potential costs for Phase III program, clarify, is that already incorporated in your long-term guidance?

And then, maybe just generally speaking over the long-term based on the remission response rate you’re seeing so far here. Do you envision this being positioned as suitable replacement for biologics or more an earlier line option sort of where you’re positioning POMALYST and psoriatic arthritis? Thanks.

Jackie Fouse

Hi Brian, let me start with the cost question and hand it over to Scott. So, probably the total development cost and we’re so working through the plan and we’re filing the numbers a little bit. So, I would say these expense range I’m going to give you is probably on the conservative side until we know a little bit more. But it would be multi-year expense, about five years of $250 million to $300 million.

So, it’s on a per year basis, it’s quite a digestable number in the grand scheme of our overall portfolio because it is new. I can’t tell you that it’s specifically included in our long-term guidance. But what I would say is we estimate those that portfolio of R&D expense over in the long period of time in such a way that an amount like this is probably absorbable within what we’ve already gotten in the financial model.

Scott Smith

And in terms of the structure of the Phase III program I think we would like to work aggressively to initiate by the end of this year. And we’re thinking about that the data in itself is – we’ve noted is very striking and very different than anything you see in the market today.

We think that can help enrollment, as well we get an opportunity to get that out. And in terms of positioning, you’d like to work through sort of the normal Phase III trial before you fix some position. But certainly we see, because of the overall nature of the drug, because of the type of efficacy we see because of the differentiated side-effect profile that you see relative to Remicade and other traditional agencies here.

We see an opportunity for it to be used in the pre-biologic space aggressively somewhat to the opportunity we see for OTEZLA. I mean, we can talk more fully about it when the deal is out there and in the world, I can’t right now. But I think it will be striking in obvious as to what direction we’re going to take the model care when we get the chance to get the data out.

Brian Abrahams – Wells Fargo Securities

Thanks.

Operator

Thank you. Our next question comes from the line of Michael Yee of RBC Capital Markets. Your line is now open.

Michael Yee – RBC Capital Markets

Hi, great thanks. In regards to business development you’ve done a ton of deals, 21, 22, 23 cut them all. But this one was particularly large at $700 million plus upfront. Can you talk to your appetite for business development that’s even more I guess numerically this year in the dollar business than last year? Where do you think it’s sort of going, I’m sure you can’t have a specific target number but maybe you can talk rather about your appetite and where that’s going to be going over the next year or so?

Bob Hugin

Thanks for the question. We don’t have a target for what we plan to do going forward this year or future years. We certainly do understand the financial constraints of what we want to be able to do, what we can achieve. But it’s really driven by the opportunity that we fundamentally believe having a strong internal research capabilities gives us insights into programs that would really extend those franchise and really produce synergies that we can then really build campaigns in different areas to produce disruptive technologies and breakthrough therapies.

And so, it is fundamentally driven from an internal perspective where we believe a transformational impact on patient can be achieved. We then have to put what’s out there in the context of what we can financially support etcetera. But so far, the opportunities as we’ve seen them have been supportable under the financial model that have been built for Celgene appropriately.

Obviously, late stage assets are going to be more expensive than earlier stage assets. But when you find one that like this one that we believe can be really transformative so the way the medicine is practiced and this unmet area of medical need, we’re going to act on them. And but again, we don’t have many things that we’re looking at today. But we’ll be opportunistic as we see things arise.

Jackie Fouse

And I think consistent with that and what we’ve talked about and done in the most recent past is, it can be a combination of collaboration agreements that you saw that couple of ones that we did in the first quarter as well as what we would characterize as both on maybe the wrong word. But more modest sized acquisition this deal has the nature of an acquisition of a product. And yeah, it’s a little bit more of an upfront amount.

But if you think back to the average acquisition that we did a couple of years ago, it was much, much, much earlier for $350 million upfront. I think you can put it in perspective and it’s got as that we see the data. I think you’ll understand why we were so interested in this acquisition.

Michael Yee – RBC Capital Markets

Got it, thank you.

Operator

Thank you. Our next question comes from the line of Matthew Harrison of Morgan Stanley. Your line is now open.

Matthew Harrison – Morgan Stanley

Great. Thanks for taking the question. I want to ask a follow-up on ABRAXANE. It looks like from a market share chart that you gave that your market share penetration is starting to flatten out a little bit. But you also pointed to that your expectations that market share will be above 50%. So, I just wonder if you could talk a little bit about those dynamics and then maybe just talk about the country-by-country rollout in Europe? Thanks.

Mark Alles

Thanks for the question. Certainly a dynamic growth rate on share and patient volume over about a one-year period. So it’s not surprising that there was a little bit of a sideways trends going into Q1. On pancreatic cancer and lung cancer we have two growth drivers. Pancreatic cancer, we are being used almost exclusively and performance status patients who are in the zero to one category.

We’re using patients where ABRAXANE gemcitabine and the data that we produce offer an idea match. The expansion of the opportunity isn’t to performance side of patients who are not as, let’s say well off. And we see that happening and we do some research to support that.

In addition, we had as I said, opened our agilent pancreatic cancer trial in the quarter. And we think that this segmentation clinically and in the market will continue to see very, very nice up-tick in pancreatic cancer.

In lung cancer, our program for Squamous Cell Non-small Cell Lung Cancer is boosted by a medical fair sponsor trial of maintenance ABRAXANE in the studying of Squamous Cell Non-small Cell Lung Cancer. And that program is ongoing.

In addition, the tenacity program, again ABRAXANE gemcitabine and triple negative metastatic breast cancer is an important way to think about the future of the brand also. So, we’re going to have periods where we don’t have the dramatic growth that you see historically, but we have high hopes that the brand will grow and become a blockbuster in our portfolio. And the clinical programs and the execution are there to make that happen.

Jackie Fouse

I think we have time for about three more questions. So if we can – if they are really fast, then we can take another one. So let’s probably target three more questions.

Operator

Thank you. Our next question comes from the line of Ravi Mehrotra of Credit Suisse. Your line is now open.

Ravi Mehrotra – Credit Suisse

Hi, thanks for taking my questions. I was looking on focusing on 301. Scott, I know you gave us a little bit of Phase II color and I know that we’re going to see the data a little bit more. But I guess, everyone is just trying to tie-up the highs and paid. You talked about higher remission and response rate.

Was there something else in that phase to such just fast onset of action? I think you said four weeks, three, and then it’s just to say, is it to face it that they talked about before they were treated for two weeks and measured maintenance of four. I guess, I’m trying to say is, is response rate in the speed of response actually driver for your optimism here?

Scott Smith

So I think both, thanks for the question. I think both of those were key drivers here, response rate, high number of patients into remission. How quickly that remission was achieved. And then the duration of that remission like I said, durability of response were three important things to be looked at.

And again, we’ll have to – we could take a look at the data but it is very, very different than you see in the marketplace today. And I think there is a completely different benefit risk in this product. They will see the existing marketplace today.

Safety plays into it as well, because of the absorption nature you see a very different safety profile emerging. So a combination of all those things together, sort of led us to believe that this could be really a transformational asset in the same market space.

Ravi Mehrotra – Credit Suisse

All right, thank you.

Operator

Thank you. Our next question comes from the line of Joel Sendek of Stifel Nicolaus. Your line is now open.

Joel Sendek – Stifel Nicolaus

Hi, thanks. I have another one with 301. I’m wondering if the – the size of the payments and the continued payments as well, which suggest that the royalty rate would be relatively well. If you can just give us some sense of that?

And then in the side, towards the end where you say it could meaningfully diversify whole revenue in 2019 and 2020. I guess, I would – I just want to be clear you’re not saying that the driver wouldn’t come on the market until 2019, presumably you could get it on before then, if you can just give us some clarity on that? Thanks.

Scott Smith

Yes, just sure maybe on the second first, this is Scott, thanks for the question. We’ll obviously try and develop the drug as quickly as we can. We need to get it up and because we could get the studies up and going, we can see normal rates working as quickly as we can. Well, 2018, ‘19, ‘20 we can provide more clarity on exactly that one to be finalized, they get more interactions and have the finalized Phase III plan. So we’re initiating. So in some time we can give you some more clarity on the exact time when we expect to have the data launch in that.

Jackie Fouse

And just with respect to the royalty rates, and they are double digit but and they’re tiered. We would consider them for customary for particular, this particular market.

Joel Sendek – Stifel Nicolaus

Thanks.

Operator

Thank you. And our last question comes from the line of Mike King of JMP Securities. Your line is now open.

Mike King – JMP Securities

Yes, thanks for squeezing me in guys. Just a couple of quick questions in terms of upcoming milestones. Are you willing to disclose the PDUFA date for the U.S. approval for duly diagnosed multiple myeloma? And then where are we with regard to readouts and topline for OTEZLA for Ankylosing spondylitis and CC-46 for AML?

Mark Alles

Mike, its Mark. And I guess the question goes to Scott on the PDUFA for ABRAXANE duly diagnosed in U.S. As soon as we have the PDUFA date, I’m sorry REVLIMID.

Mike King – JMP Securities

REV yes.

Mark Alles

REVLIMID, and newly diagnosed myeloma. As soon as we have the PDUFA date we’ll disclose it.

Scott Smith

Some of the name respond there is something wrong and we will have data in first half of this quarter, Q2 have some topline data.

Mark Alles

To specifically Mike, 46.

Mike King – JMP Securities

Yes, I though you really having a readout for the AML study for?

Mark Alles

Yes, as I said in my prepared remarks we have two studies. It’s not 46 it’s AZA in AML. And then, REVLIMID in the non-delta Q. These data are expected in the second half of the year. Now they are then driven like all of our pivotal trials. And we look forward to probably EHA at the earliest we will be in the medical meeting. But then again, it could be ash depending on the gating. And the timing of events.

Mike King – JMP Securities

Thank you.

Jackie Fouse

And with that, thank you again everybody for joining us today. And we look forward to seeing you relatively soon at ASCO and other events. Thank you.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program. You may all disconnect. Have a great day everyone.

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