Celgene Q2 2010 Earnings Call Transcript

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


Good day, ladies and gentlemen, welcome to the Celgene's Second Quarter Earnings Call. [Operator Instructions] I would now like to turn the conference over to Tim Smith, Director of Investor Relations at Celgene Corporation. Tim?

Tim Smith

Good morning, everyone, and thanks for joining us this morning. I'd like to welcome you to Celgene's Second Quarter 2010 Conference Call. The press release reporting our second quarter financial and operating results was issued earlier this morning, and is also available on our corporate website. In addition, today's conference call webcast will include a presentation, which you can access by going to the Investor Relations section of our website at www.celgene.com. Joining me this morning are David Gryska, our Chief Financial Officer; Bob Hugin, our Chief Executive Officer; and Dr. Sol Barer, our Executive Chairman.

Before we start, we want to remind you that our discussions during this conference call will include forward-looking statements. All such forward-looking statements exclude the effects of the proposed acquisition of Abraxis BioScience unless noted. 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 comparisons 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 on Celgene's website at www.celgene.com in the Investor Relations section.

I will now turn the call over to our Chief Executive Officer, Bob Hugin.

Robert Hugin

Thank you, Tim. The second quarter was an outstanding quarter for Celgene across all functions and geographies. Our exceptional global team produced full of excellent operating results and achieved multiple significant milestones that has a potential to create meaningful benefits for patients and strong returns for shareholders for years to come. Early this morning, we announced record-financial results with total revenue growing 36% year-over-year to $850 million and non-GAAP earnings per share increasing 50% year-over-year to $0.69.

Before we review the specific operating and financial results of the quarter, I'd like to highlight several of the key strategic developments of the last three months. Though not yet completed, the announcement of Abraxis BioScience acquisition broadens our therapeutic focus into the solid tumor market. Their lead product, ABRAXANE, which is approved for the treatment of metastatic breast cancer in the United States and international markets, has also shown significant promise in pancreatic and non-small cell lung cancer clinical trials. The transaction provides the opportunity for us to leverage our global, commercial, clinical and regulatory organizations and further strengthens our pipeline, which multiple candidates from the Abraxis' proprietary Nab Technology portfolio.

Advancing our hematology pipeline is also a strategic imperative. At the American Society of Clinical Oncology and European Hematology meetings in June, there were many presentations that highlighted important new data supporting our key products and programs. Perhaps the most significant data were results from three Phase III studies, demonstrating the substantial benefit achieved by multiple myeloma patients receiving continuous REVLIMID therapy.

Our international expansion strategy continues to be an important growth driver for our products. On June 25, REVLIMID was approved in Japan for the treatment of second-line multiple myeloma. Governmental reimbursement was achieved in less than a month following approval, actually reflecting the importance of REVLIMID therapy in myeloma and a validation of the quality of the planning and execution of the Celgene team in Japan.

We are now in the early stages of a thoughtfully-planned commercial launch in this, the second largest oncology market in the world. The investments we have made in Japan and in other international markets will enable us to capture the full value of REVLIMID and the many other opportunities in our pipeline in all major markets.

During the quarter, substantial progress was achieved in advancing multiple pipeline programs, highlighted by the initiation of our first pivotal Phase III trial for our lead anti-inflammatory product, apremilast, in psoriatic arthritis, and the initiation of our Phase I cancer clinical study of our novel dual mTOR Kinase Inhibitor CC-223, a product of our research labs in San Diego. The significant progress in this quarter further strengthens our belief that sustained long-term growth comes best through an unwavering commitment to invest in multiple programs designed to produce breakthrough therapies for patients with serious unmet medical needs. I'd like now to hand the call over to Dave Gryska, our Chief Financial Officer, who will review our second quarter financial results. Dave?

David Gryska

Thanks, Bob. Now I'll take you through our record financial results. Non-GAAP total revenue for the second quarter was $850 million, a 36% increase versus the second quarter of 2009. Non-GAAP net income for second quarter was $323 million, and non-GAAP diluted earnings per share was $0.69. Total non-GAAP net product sales increased to $821 million for the second quarter, up 38% from $596 million in the year-ago quarter.

Second quarter REVLIMID net product sales were $587 million, an increase of 48% over second quarter of 2009. Turning to VIDAZA, net product sales for the quarter were $132 million, an increase of 43% from the year-ago quarter. THALOMID net sales were $98 million for the quarter, down 7% as compared to year-ago quarter.

The second quarter sales of REVLIMID in the U.S. were $351 million, representing an increase of 15% on a sequential-quarter basis, and a 44% increase when compared to second quarter of 2009. International sales were $236 million, representing an increase of 5% on a sequential-quarter basis and a 54% increase when compared to the second quarter of 2009.

Our non-GAAP product gross margin for the second quarter of 2010 was approximately 92.4%. Gross margins were slightly negatively impacted from the quarter by nonrecurring inventory manufacturing charges. It is important to note that inventory levels are virtually unchanged as compared to the first quarter. We continue to expect gross margins to be approximately 93% for the full year.

Turning now to expenses. Non-GAAP R&D expense during the second quarter was $202 million, an increase of 9% over the first quarter of 2010. We are continuing to strategically invest in developing new products that will enhance our long-term growth. During 2010, our development efforts will evaluate multiple compounds in more than 20 pivotal and Phase III clinical trials. Our key development programs are valuing 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.

In addition, we're continuing to advance more than 16 promising compounds in pre-clinical and early-stage development and expect all of these activities to accelerate in the second half of the year. We now expect non-GAAP R&D expenses to be in a range of $845 million to $865 million for the full year.

Taking a look at SG&A, non-GAAP selling, general, administrative expenses were $197 million during the second quarter, an increase of approximately 5% from the first quarter of 2010. We now expect non-GAAP SG&A expenses to be in a range of $675 million to $785 million for 2010, as we continue our international commercialization of REVLIMID, VIDAZA and our patient support programs in the U.S.

Turning to taxes, our non-GAAP tax rate for the second quarter was approximately 18%. This improvement in the tax rate is the result of a onetime benefit from the settlement related to state taxes. We expect the 2010 non-GAAP effective tax rate to improve to approximately 19.5% for the year.

As you were aware, we hedged our balance sheet, foreign currency exposures in our company, foreign-currency transactions and exposure related to certain revenue expenses based on foreign currencies. The impact of foreign currency on total revenue on a sequential-quarter basis was immaterial. We are well-positioned with our hedging programs to minimize the volatility of various foreign currencies effects on our earnings for the year. In addition, during the second quarter, we realized approximately $5 million in hedging and re-evaluation losses, which are included in other income and expense.

This was an exceptional quarter with record revenue and earnings. We ended the quarter with cash and marketable securities of approximately $3.1 billion. We repurchased approximately 1.9 million shares of common stock during the quarter. We are updating our 2010 financial outlook. REVLIMID net product sales are anticipated to increase to a range of $2.3 billion to $2.35 billion, up from a previous range of $2.2 billion to $2.3 billion. Total revenue is now expected to increase to a range of $3.4 billion to $3.45 billion, up from a previous range of $3.3 billion to $3.4 billion. This update of revenue guidance does not include Abraxis BioScience. Non-GAAP diluted earnings per share are expected to increase to a range of $2.65 to $2.70, as compared to a range of $2.6 to $2.65 that was previously reported. We updated non-GAAP EPS guidance includes approximately $0.05 dilution from the proposed acquisition of Abraxis BioScience.

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

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

Robert Hugin

Thank you, Dave. Quite a quarter. The operating results of the quarter were highlighted by strong REVLIMID revenue growth, with sales growing 48% year-over-year and 11% over the last quarter. Sales were up 15% quarter-over-quarter in the U.S., with 4% sequential growth internationally. Many factors contributed to this excellent performance, most notably recent data highlighted at ASH, ASCO and EHA, all supporting continuous REVLIMID therapy. VIDAZA growth accelerated in the quarter. Year-over-year, global sales increased 43% with 10% growth quarter-over-quarter. Europe was the primary driver of this growth, and international sales now represent greater than 50% of total sales.

In addition to new markets, label expansion has a potential to be a major growth driver for REVLIMID in multiple indications. At EHA in June -- new markets are important to our expansion and growth. Label expansion also has a potential to be a major growth driver for REVLIMID in multiple indications. At EHA in June, positive updated data from MM-015 was presented. The Phase III trial in newly diagnosed myeloma patient will be the backbone of our submission to European Regulatory Authorities later this year.

As we deliver on our near-term value drivers, we're also focused on long-term value creation. We remain committed to maximizing the full potential of REVLIMID worldwide with pivotal studies ongoing in lymphoma, CLL, MDS and prostate cancer. Recently, we enrolled our first patients in our Phase III trial, PSA-002, for apremilast and patients with psoriatic arthritis. We're optimistic that we'll be able to close the Abraxis acquisition in the coming two to three months. We look forward to updating you on our strategy for capitalizing on the opportunities and synergies of the combined companies, as we clear regulatory hurdles.

The fundamentals in our core Myeloma business remained very strong. Growth in the U.S. was driven by increasing new patient starts and duration gains. Our core European markets also produced robust results despite an increasingly challenging economic environment. Second-line market share increased to nearly 40% in the four major European markets where REVLIMID is reimbursed. In the United Kingdom, where REVLIMID is reimbursed in the third line, market share is over 50%. We're monitoring the environment closely and believe that our guidance appropriately reflects the current economic reality.

In other international markets, we also saw a strong sequential growth and are making good progress. The approval in Japan represents the most significant commercial development in the quarter. As I mentioned earlier, we're in the process of initiating a well-planned launch in Japan, which includes the introduction of our proprietary risk management system, RevMate, to nearly 250 sites across Japan. We believe that our long-term interest are best served by ensuring that hematologists in Japan are well educated on the effective and safe use of REVLIMID to ensure a positive first experience. A proper foundation will pay significant long-term dividends.

Physician practice in oncology is data-driven. New data is the lifeblood of hematology/oncology products. In early June, data was presented for more than 100 posters and more than 20 oral presentations at the ASCO [American Society of Clinical Oncology] and EHA [European Hematology Association] meetings. By every measure, these meetings were a great success for Celgene products. Data from three pivotal studies demonstrated the continuous treatment with REVLIMID for patients with multiple myeloma has the potential to become the standard of care.

In addition, abstracts were presented to demonstrate REVLIMID's activity in lymphomas and leukemias, and exciting new data, our pomalidomide in relapsed/refractory myeloma was also highlighted. Based on the clinical and commercial potential of these results, we continue to accelerate the development of these products and indications as rapidly as possible.

We believe that we're just seeing the beginning of the impact of the paradigm changing data that supports continuous use of REVLIMID. In the IFM and CALGB studies presented at ASCO, continuous REVLIMID therapy demonstrated unprecedented reductions in the risk of disease progression in the post-stem cell transplant setting, with 54% and 58% risk reduction respectively. A week later, updated data that included 70% of advanced MM-015 were presented at the EHA, and the results were consistent, a 58% reduced risk of overall progression in the non-stem cell transplant population. The data presented from the podium from MM-015 and the IFM and CALGB studies all illustrated the progression-free survival advantage of continuous REVLIMID therapy.

The three Phase III studies represent a pillar of our myeloma strategy, the generation of supportive data for early and continuous treatment of the disease. In addition to MM-015, IFM and CALGB studies, other presentations at ASCO presented data demonstrating that REVLIMID, combined with dexamethasone, is a highly inactive induction therapy, and that REVLIMID may even represent an alternative to stem cell transplant in certain patient populations.

We're continuing to develop our clinical strategy for the treatment of high-risk smoldering myeloma, while at the same time accelerating the development of pomalidomide for the treatment of relapsed/refractory myeloma, where studies have demonstrated a 50% response rate, representing the highest response rate of any single agent in relapsed/refractory disease. We're committed to improving the treatment options in all lines of therapy for patients with multiple myeloma.

Paradigm-changing data, increased market share and duration and global expansion, all of these factors contributed to the very strong results that were produced this past quarter. As we seek to broaden our labeled indication and as physicians become more aware of this new data, we're optimistic that our strong performance in this market will continue.

VIDAZA also produced excellent results in the second quarter. International VIDAZA growth was particularly strong as we continue to establish a leadership position in major European countries and other key markets. In United States, revenues were up 3% quarter-over-quarter, maintaining market share leadership. VIDAZA remains the only agent in this class worldwide that demonstrated survival advantage of MDS/AML. We have a number of ongoing studies to strengthen VIDAZA's role in the treatment of MDS and AML.

Positive trends continue in the MDS del 5q market with REVLIMID. We're optimistic that we'll receive regulatory approval in Japan later this year and are on track for an MDS del 5q submission in Europe, soon after the MM-015 myeloma filing in Europe.

The international launch of VIDAZA is ongoing, with global expansion and share gains, coupled with increasing duration, driving growth. Additional data on both REVLIMID and VIDAZA in MDS is expected at this year's American Society of Hematology Meeting in December.

In addition to the outstanding REVLIMID data and multiple myeloma the was presented at ASCO, there were numerous other abstracts that highlighted the potential of REVLIMID and our broader hematology/oncology pipeline. Groundbreaking data from a study that evaluated the novel R2 [ph], REVLIMID plus Rituxan, combination of patients with follicular lymphoma, demonstrated 97% response rate, which included a complete response rate of 86% with duration now greater than six months. This represents a significant opportunity for REVLIMID in lymphoma, and we expect to begin a pivotal Celgene sponsor study in the coming months.

We also recently initiated an adaptive design study in patients with diffuse large T-cell lymphoma. The concept for this study was based upon the differential response rate data seen in the biomarker defined subset of the patient population. In addition to these studies, we'll continue to maximize the potential of REVLIMID in lymphoma with additional pivotal studies of mantle cell lymphoma and diffuse large B-cell lymphoma. In leukemia, positive data was presented at ASCO that illustrates the potential of our pivotal CLL-008 trial, which is evaluating REVLIMID as a first-line therapy in elderly CLL patients.

In addition to REVLIMID, our hematology/oncology pipeline has seven compounds in all stages of development. We expect to have results from our pivotal studies evaluating ISTODAX in relapsed/refractory peripheral T-cell lymphoma in the next coming few weeks.

With approximately 15 pivotal in Phase III trials from the hemo pipeline, there will be a steady flow of important new data for the next several years, leading to what we believe will be another five to 10 new indications in this period. I do look forward to our next presentation when we should be able to add Abraxane and the Abraxis pipeline to this slide.

Speaking of Abraxis, we're on track with all of our regulatory filings related to the transaction. Both companies submitted the required Hart-Scott-Rodino filings two weeks ago and the explore proxy statement was submitted earlier this morning. Once the filing is declared effective by the SEC, there will be an Abraxis shareholder meeting to approve the transaction. The transaction is expected to close shortly after that meeting. We do expect this transaction will close before our next conference call in late October and look forward to updating you on our progress and plans at that time.

In addition to hematology/oncology discussions, we continue to feel a substantial portfolio of assets in our inflammation and immunology franchise. We now have six candidates in clinical development. This pipeline was a major focus at our R&D day in April, and it continues to make excellent progress since then. We're now initiating our first trial with ACE-011 in renal anemia, moving rapidly into Phase II in Crohn's Disease with our cellular therapy, PDA-001, and advancing our JNK inhibitor in idiopathic pulmonary fibrosis.

Our most advanced program is Apremilast. In just the past few weeks, we have dosed our first patients in PSA-002, the first of our pivotal trials. We have an extensive development program for Apremilast in psoriatic arthritis, moderate-to-severe psoriasis, rheumatoid arthritis and other serious immune/inflammatory diseases. All of our pivotal trials in psoriatic arthritis and psoriasis are targeted to be initiated before the end of this year.

It was an exceptional quarter both in terms of financial and operating results and also in terms of positioning Celgene for the future. While producing strong bottom line results, we're also investing the future to sustain the success and high growth that we've achieved. We're executing on our plan and managing the challenges of healthcare reform in the U.S. and budgetary pressures in the EU, while making the sound strategic decisions to extend our capabilities around the world and to expand therapeutic franchises that capitalize on our existing strengths.

As we close, I want to recognize and thank the Celgene team worldwide, who all contributed to these extraordinary results of this past quarter, superb results achieved in the challenging global economy. It's their dedication, their passion for the patient, their creativity and expertise that make us so optimistic about the future. Thank you for joining this morning, and we look forward to answer your questions. So operator, please, you can now open the call to questions.

Question-and-Answer Session


[Operator Instructions] Our first question is from Chris Raymond of Robert Baird & Co. [Robert W. Baird & Co.].

Christopher Raymond - Robert W. Baird & Co. Incorporated

Just curious on the new REVLIMID revenue guidance. Just kind of doing the math, quarter-on-quarter. Even at the top end of the guidance, I know it's still early days here in terms of looking at the second half, but if you do the math, there is an implied decrease in quarter-on-quarter growth, and I'm wondering if there's something specific that we should be thinking about or it's just a level of conservatism in that number?

Robert Hugin

No. Good question, Chris. I mean, clearly, we wanted to raise the guidance. We think the results of the quarter were very, very strong. I think we do need to be careful that there could be summer seasonality in some markets. There clearly are some budgetary pressures in Europe. We're managing it quite well so far, and I think our own outlook is that we'll continue to do that in an effective manner. So I think it's just appropriate that we're here. With the uncertainty in the marketplace, we certainly wanted to increase the guidance, the second quarter in a row. So the guidance for the year, the beginning of the year, has turned out so far to be fairly conservative. And so, I think, no, there isn't anything out there that we're seeing that other people aren't seeing. The trends are very positive. We're optimistic about the future. But I think we just wanted to -- we do want to raise the guidance. I think it's appropriate to do so. I think you do reflect that there's hopefully better opportunity the guidance indicates, but we don't want to be cautious with the environment that we're facing. But there isn't any we know that is not out there.


Our next question is from Jason Zhang of BMO Capital Markets.

Jason Zhang - BMO Capital Markets U.S.

Bob, have you provided us the average duration of REVLIMID in the U.S. versus the European countries? And also if you could share with us your current rate of the market share with regard to REVLIMID or REVLIMID together with THALOMID in a multiple myeloma market?

Robert Hugin

Yes. I mean the market share combined is about 65% overall in the U.S. when you put our products across the lines in myeloma, which has continued to be very strong. And clearly, REVLIMID is being the most widely prescribed drug in the U.S., and THALOMID moving more towards second, third and fourth-line therapy overtime.

In terms of duration, we've made the decision for competitive reasons, to ensure that we retain the full negotiating leverage in all of the markets that we seek reimbursement, et cetera. So we don't think it makes sense for us to give specific duration information out. I think on the quarter, the trends in the U.S. were positive on duration, and we saw positive duration trends in the major developed markets outside of the United States. So continuation of a very positive trend, but the specifics of the things that we just don't think is on our interest to publicly give out any longer.

Jason Zhang - BMO Capital Markets U.S.

In the past, if you guys just follow up on that, we have seen, in a half month, duration increase per quarter. At some point we're going to see that slowing down, but you said, still positive, still increasing. Are we still in the same ballpark as half of month increase per quarter? Or it's a little different there than what we have seen in the past?

Robert Hugin

I think the trends continue to be quite consistent with what we have seen in the past. The IFM and CALGB data were only presented in June. So if we were to see the acceleration of that trend, it'd be early to see that. But so far, what we saw in the second quarter was consistent with the very positive trends we've seen before that.


Our next question is from Geoffrey Porges of Bernstein.

Geoffrey Porges - Bernstein Research

First, you've got a lot of studies where you have a primary end point of PFS. Could you comment on your interpretation of the significance of the FDA advisory committees' discussion of the PFS signal for ABRAXANE in breast cancer, whether that changes your expectations? I mean just following up on that, you seem to imply that your filing in Europe is just going to be MM-015. Is that correct? Or will you still be including CALGB, IFM data and then some of the early cooperative group studies as well?

Robert Hugin

First, on the latter question about the European filing. No, certainly the MM-015 will be the backbone of the filing, but we intend to include in that filing as much data. And we have so many successful Phase III trials supporting newly diagnosed and maintenance therapy for REVLIMID. So we will be including multiple trials in that package to ensure the most robust data package and the most robust label as possible in that review package. So there's no change for that. And I think, we're more convinced to ensure that we've got all that data included in there, and the time line is unchanged to get that done before the end of this year. On the first question about PFS data, et cetera. I do think it is always important to ensure that you got a close dialogue with regulatory agencies regarding endpoints of clinical trials, and we certainly would not pursue regulatory strategies without a good intents of robust discussion with regulatory authorities in advance of initiating those trials.

And I think the specifics, I think just to be careful of extrapolating one market segment to another, very much depends on what therapies are available out there and what's available to be explored and examined in clinical trials in a particular patient setting. So again, it's always instructive to learn and listen, but we feel good about the direction that we're headed, and that we're engaged in a very robust discussion to ensure that our clinical trials meet the kind of criteria that are going to be important for both regulatory and reimbursement positive outcomes upon successful completion of the trials. So I think we feel that our segments and our market indications are very well understood, and I think we're targeting the right endpoints.


Our next question is from Howard Liang of Leerink Swann.

Howard Liang - Leerink Swann LLC

Regarding the development plan for R2 [ph], the physical trial for lymphoma that you highlighted, is this going to be a Phase III trial or is that similar to what you were outlining at the R&D day, I think, which was kind of a [ph] Phase II trial?

Robert Hugin

In the relatively near term, we'll be able to give you a little bit more clarity. We're in the process of finalizing regulatory discussions. That's exactly what will be required in both of the design of the trial in multiple markets. So the data is very, very positive. It really encourages especially when you look at the duration of those very, very strong responses. It's a subject of a pretty robust discussion right now with regulatory agencies. Well, as soon as we have clarity, and we begin to initiate those trials, we'll give you a full disclosure of what that design is.


Our next question is from Charles Duncan of JMP Securities.

Charles Duncan - JMP Securities LLC

Bob, with regard to the Japanese commercial rollout, you mentioned RevMate. Could you tell us how that is different, if it is, from RevAssist in terms of the cost or the adoption curve impact that it may have? How is that really a different risk mitigation system?

Robert Hugin

Well, the RevMate system in Japan is clearly consistent with our very strong global philosophy of ensuring that REVLIMID is appropriately distributed in each individual market, and then markets clearly have differentiating characteristics. Japan is a market with a very, very significant sensitivity to past effects of drugs, with birth defects, and overall, end market, very sensitive to side effect management. And so we're being very prudent here to ensure that we've got the right risk management system. It's something that we've developed, and our team has developed in very strong concert with important other constituencies in Japan, including the ministry and patient groups, et cetera. So it's been thoughtfully done. It's well planned out. We do not think it will have any long-term negative impediment. We've got people confidence that it's a very safe system and its going to be well controlled and managed. That being said, putting the risk management system aside, Japan is a great market, and REVLIMID is spectacularly well-situated compound that fit extraordinarily well with the conditions in market of Japan. At oral therapy with very manageable side effects with strong effectiveness demonstrated in the labeled indication. And so that's very important for us to establish Japan early on and make sure that physicians are very comfortable with having administrative drugs, how to safely do it, how to manage the side effects. And that's the marketplace that you establish a strong initial presence and physicians are comfortable with having used the drug with the initial one, two, three patients. You're going to see a very rapid uptake over the longer term. But in the near term, even we're talking about, we want to make sure that people don't get overly enthusiastic to see a dramatic ramp. We're playing Japan and we're positioning ourself for very strong long term excellent performance. But we're going to do it the right way to ensure education is there, good solid risk management systems so that physicians, patients and the government and we are all comfortable that it's being done in a very prudent manner. And that's not to say that we are just incredibly excited about having the approval on June 25, and to get pricing and reimbursement in such a short period of time really does reflect, I think, a few things. One, the importance of the new therapy for myeloma in Japan, the need for REVLIMID to get out to patients and also, I think, the execution, the planning, the strategy of our Celgene team in Japan to produce that in such a short period of time. So we're excited, but we're going to do it in the best way position for long-term success.


Our next question comes from Geoff Meacham of JPMorgan.

Geoffrey Meacham - JP Morgan Chase & Co

What can you tell us about the IMF guidelines for maintenance? And what impact the data or guidelines could have on European first line or maintenance used prior to a formal approval?

Robert Hugin

Yes. I think, it's still early to tell that how rapid and what market specifically we're going to see the impact from the IFM, CALGB data. But there's no doubt when we look at our medical and information resources, there's a strong interest in understanding and learning about the data from many markets around the world. I do think in some markets we'll be successful. Unlike the U.S, the people will understand the data and hopefully, relatively rapidly use it appropriately to where the physician thinks it's appropriate to use. Certainly, it's had an impact already in terms of maybe dispelling some physician's reluctant to treat only the best response and not to treat through the progression. So I mean, there's a strong positive impact about continuos therapy from MM-015, IFM and CALGB and all sectors in myeloma that we're going to see over the first half of this year. I think specifically to the post-transplant maintenance setting, it'll be market to market, and I think it's a little bit early for us to have a strong view as to how and what that uptake will be.


Our next question is from Yaron Weber (sic) [Werber] of Citi.

Yaron Werber - Citigroup Inc

One, can you give us a little bit of sense of what the impact of Healthcare Reform was in the quarter? If I recall, it was about negative $4 million last quarter. I'm just trying to get a sense there. And then, also I don't know if you can, but help us understand a little bit how all the price concessions in Europe will impact your businesses as we look to next year.

David Gryska

Yaron, it's Dave. I'll answer the first part and then Bob, well, can take the second part. The impact on Healthcare Reform in Q2 between $9 million to $10 million, and that's the same kind of estimates we gave you last quarter, the revenue impact.

Robert Hugin

And then in Europe, I mean, the one impact we have in this past quarter was the 4% price rebate, the increased rebate in Spain for orphan drugs, 7.5% growth at there, but we were at the 4% level starting June 1, of the rebate in Spain. That was the only meaningful event in the second quarter. Clearly, people are focused on Germany for later this year with a 10% increase in the rebate in Germany, and the specifics of that is still being finalized but that looks pretty clear. I mean, as we lookout past 2010, our marketplace -- we'd look at it country by country and clearly, there's lots of pressure. I think the impact is more on just budgetary pressures, less on specific price declines but we're going to see continued price decline and that's the reason why when we started REVLIMID internationally, we established the benchmark price that we did. And so on our regional forecast, we were expecting to see pressure just in normal course of events in 2011. So in some respect, we're not going to be as dramatically hit by their all other price increases. So I think as we look out, it's a little early for us to get too granular and specific about 2011, but our outlook at this far and advance, using all of the information we have and the outlook for pressures in Europe, is pretty consistent with what we've seen. Their expectation is in line with our plans, what we think the growth of revenue will be over the next five years. So again, these are tough times out there, but our team in each individual market, I think, are crafting a very unique and specific strategy to the market. It is part of our strategy. We have got to manage price and duration overtime, and there's nothing unusual in terms of what we were expecting and we're ready to manage the circumstances, though, it's certainly is a challenging environment, but we think 2011 initially looks pretty encouraging to us.


And our next question is from Eric Schmidt from Cowen and Company.

Eric Schmidt - Cowen and Company, LLC

I'm wondering if you could talk a little bit about the accelerating U.S. trends on REVLIMID quarter-on-quarter, and maybe also comment on some of the deceleration on x U.S. growth, so a little bit more on the geographic split there? And then Dave, I was a little bit confused as to what is in the 2010 guidance vis-a-vis Abraxis. Do I understand it that your SG&A and R&D guidance include expenses, something the merger closes in the second half but any ABRAXANE revenues are excluded?

David Gryska

So we'll answer the later part of your question first, Eric. In our guidance, our revenue guidance in our SG&A and our R&D does not include Abraxis BioScience. That is just Celgene standalone. And although, we did estimate that assuming a transaction closes, Bob said the next two to three months would be $0.05 dilution. So again, to be clear that the R&D and SG&A is Celgene standalone, the total revenue, the Celgene standalone, it's pretty difficult for us to get the granularity before we close on those expenses for Abraxis but we've given you at least what the dilution would be in terms of the whole year, in terms of updating our guidance on EPS. Is there any more questions on that?

Robert Hugin

And on the REVLIMID growth trajectory, certainly, the U.S. benefited from both an increasing number of new patients, which is very encouraging for the long term because the quarter was also positively impacted by increased duration. So as you have a very strong ramping new patients and you have increasing duration that, that bodes well for the future. So we always have to work very hard to ensure we have the best strategy and results in the U.S., but the trends are very positive there. In Europe, the underlying trends were very strong also on a comparative basis and market-to-market. There were some countries where growth was a little bit slower than it has been, where there've been pressure on budgets, not specifically price cuts but just authorities, hospital, leaders saying, "Listen, where can we cut cost, just to produce some fiscal restraint. That's our bigger issue that the companies need the come to grips with the fiscal challenges they have. We're going to have to make sure that the value proposition of Celgene is very, very clearly delineated, that's one of the great success of the REVLIMID, that we have such a great value proposition and why continues to grow in all markets, and we saw in some market accelerating growth. The U.K., Canada were both very strong in the quarter. So I think we're going to continue to see some markets where we're going to be budgetary pressures on those where the duration and increasing market shares will offset that. So overall we feel very good about what's happening in Europe and the growth there will continue to be very strong over the next few years.


Our next question is from Mark Schoenebaum of ISI Group.

Alain Sethi - Center for Financial Research & Analysis, Inc.

Maybe a little bit of a bigger picture question for Bob, if I may. So you've done the ABI, IDL and the Gloucester deal and the Pharmion deal, all M&A and all oncology. I was just wondering what the company is currently thinking regarding business development/M&A outside of oncology?

Robert Hugin

We are clearly very excited about the potential over immune-inflammatory franchise. With apremilast in the Phase III programs, the J&K program, the acceleration of PDA-001 and multiple indications and aggressively going forward in chrone, so we think it's a great franchise for us. But right now, our focus has to be to closing the Abraxis transaction, ensuring that we execute a very, very positive integration that we maximize the opportunities that Abraxis brings to us, both in terms of fully reaching the potential for ABRAXANE, both in its approved indication and insuring that we get label expansion to the full potential of what's available to us and we also think the nab technology portfolio has a number of other candidates in there that we think will stock up well and we'll look to develop those also. And we'll look for other compounds to use the nab technology to develop. So we're going to focus on the synergies up it, but also the growth opportunities of Abraxis. So I think for the near term, we're going to continue to execute what we have on our plate. But I do think the potential of the immune-inflammatory franchise is such a great one and the trajectories are very positive one. And once we have the Abraxis transaction closed, then no need to do a deal analysis, but we'd look at things, but certainly that's not a thing that's going to happen in the near term here.


Our next question is from Rachel McMinn of BFA (sic) [BofA] Merrill Lynch.

Rachel McMinn - BofA Merrill Lynch

Just one in Europe, you talked about your filing strategy. Actually met with the EMEA recently to discuss the OM size data and your filing. And then the second question is just on the Healthcare Reform. The have an update for you or 2011 given guidance earlier in the year, and just wanted to see if there we're any changes to your thinking on that front.

Robert Hugin

First on the healthcare front. We were just maintaining the guidance that we previously given of the $80 million to $90 million potential revenue impact in 2011. I do think as the fall aproa process, we will have more clarity on that and if that guidance should be lower in terms of having affect next year, we'll update you. But right now we do think the guidance is still on the information we have in terms of U.S. revenue impact on U.S. Healthcare Reform, we wouldn't change that Dennis. That the information of the leaders could do that. And in Europe, and the want to go on the specifics of it but we were a very active dialogue with multiple officials in different countries to that will be involved in shepherding the REVLIMID newly diagnosed application for the European process. So that's an ongoing and very active dialogue and we're on track for submitting that fighting by the end of the year.


Our next question is from Brian Abrahams of Oppenheimer.

Brian Abrahams - Oppenheimer & Co. Inc.

When we saw that 15 updated EHA, it looked like REVLIMID was continuing to perform well. Look at the PFS benefits were a bit more pronounced than the younger patients who were in the trial. So I'm just wondering how you perceive this potentially impacting the positioning of the are in D+ our regimen. And whether you expect there to any kind of age recommendations on the potential front line label?

Robert Hugin

It's A little premature to speculate on what exactly will come out of the label and the discussions with the regulatory agencies. Certainly, melphalan, prednisone is not a high-growth regimen generally in the myeloma population. So I think our own strategy of doing MMO-20, which is our big, largest Phase III trial in the myeloma market place, which really examines REVLIMID and dexamethasone versus the melphalan-based lidomide regimen, is really designed to say, "Listen, if we are able to get the broadest label possible and all the data presented from all the clinical trial, that we were hopefully that physicians will have the full course of options to say, which specific patient would benefit best from REVLIMID dexamethasone, which patient would benefit most from melphalan prednisone and REVLIMID or other theraphies. So I think we're getting a good range of data from multiple clinical trials, Phase III trial. Certainly the REVLIMID once have all the positive, positive results and we're optimistic that in the next year or two as we get the NO 20 data, we'll have even more information to give physician more guidance as to what is best for newly diagnosed myeloma patients. I think we're very encouraged by what MM-015 had an impact already in the marketplace. We're optimistic the impact that will have in the regulatory ability to expand the label. But MPR is not the and will not be as melphalan-based regimen will not be for every single patient.


And our final question comes from Thomas Wei of Jefferies & Company.

Thomas Wei - Jefferies & Company, Inc.

One, just to clarify the commentary on Japan. It sounds like we should expect that maybe longer-term penetration could be as robust as some of your other territories that maybe the timeframe to achieve that more extended relative to the experience with REVLIMID in the U.S. and Europe? And then also just wanted to get an update on pomalidomide, the next relative data on the post-REVLIMID velcade myeloma setting and the potential for you to file in a more accelerated fashion for that indication?

Robert Hugin

Yes. First, on Japan. I think you represented it very accurately. We are very, very optimistic about the potential of REVLIMID in myeloma in Japan and for all the reasons that we've discussed. And we're hopeful that you will keep your estimates as low as possible in the near term for us. But seriously, we think that the success -- it's important to do it properly with a strong education emphasis and ensure that people have a good positive experience because the potential for Japan is such and such an important market to us over the next few years. They want to do it right and do it with the right trajectory. But we're very optimistic about what potential is there. And I think since our last call or certainly through the last quarterly conference call, the very important Phase II pomalidomide trial is very rapidly finished accruing. And we'll hopefully look forward to that data as soon as it's available and there's a potential in the next three or four quarters, we'll see that data and that we'll initiate the Phase III trial in pomalidomide by the end of the year. So I have to tell you, when we think about priorities here as we think about the rest of this year and 2011, the acceleration of pomalidomide and making that available to the last refractory myeloma population and the myelofibrosis patient population is a critical corporate objective because it remains in that last refractory population a serious unmet medical need, it's an indication that we feel so strongly about the need to serve myeloma patients, so we're very encouraged by what we're seeing the results. As soon as we get the Phase II results, we'll share them and see how they can be used and we'll accelerate the Phase III trial and we're accruing the pivotal trial on myelofibrosis. So that really is hard to imagine in a higher priority for us than acceleration of pomalidomide development. We want to thank everybody for joining us this morning and getting updated on the Celgene story and participating with the questions. We very much look forward to updating you through press releases as of the Abraxis transaction, the completion of that and look forward to updating you on our strategies and progress at our conference call for the end of the third quarter in late October. Thank you very much.


Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Good day.

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