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Celgene Corporation (NASDAQ:CELG)

Q2 2014 Earnings Conference Call

July 24, 2014 9:00 am ET

Executives

Robert Hugin – Chairman, Chief Executive Officer

Jacqualyn Fouse – Executive Vice President, Chief Financial Officer

Mark Alles – Global Head, Hematology and Oncology

Scott Smith – Global Head, Inflammation and Immunology

Patrick Flanigan – Vice President, Investor Relations

Analysts

Josh Schimmer – Piper Jaffray

Geoffrey Porges – Sanford Bernstein

Terence Flynn – Goldman Sachs

Ian Somaiya – Nomura

Robyn Karnauskas – Deutsche Bank

Yaron Werber – Citi

Geoff Meacham – JP Morgan

Ravi Mehrotra – Credit Suisse

Mark Schoenbaum – ISI Group

Brian Abrahams – Wells Fargo Securities

Matt Roden – UBS

Michael Yee- RBC Capital Markets

Mara Goldstein – Cantor Fitzgerald

Thomas Wei – Jefferies

Howard Liang – Leerink Swann

Operator

Good morning and welcome to the Celgene Second 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, Investor Relations at Celgene. Please go ahead.

Patrick Flanigan

Thanks, Nicole, and welcome everyone to our second 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; Jacquie 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, a 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.

Robert Hugin

Thanks Patrick, and thank you everyone for joining us this morning. I appreciate the opportunity to update you on the excellent results of the quarter and the significant progress achieved advancing strategic corporate initiatives. Operational excellence is the foundation of our business model. Outstanding results produce the resources that allow us to invest in the discovery and development of tomorrow’s transformational therapies, and our teams across the globe are delivering. Our businesses across functions and geographies have outstanding momentum. The strong revenue and earnings growth reported this morning reflect the excellent operating performance of our teams. Increased Revlimid duration of therapy and accelerating global launches of pomalidomide and Abraxane in pancreatic cancer fueled substantial volume and revenue growth. This strong performance supports raising our full-year financial guidance. Jacquie and Mark will discuss the results and our outlook in greater depth in a few minutes.

Capturing the full value of our franchises is the highest order of corporate priority. We’re making exceptional progress in building for the future. During the quarter, we strengthened our hematology product portfolio with important new clinical data in MDS, AML, and mantle cell lymphoma. The future of our hematology franchise was further enhanced through meaningful progress on strategic collaborations, including ACE-011 and ACE-536 in beta thalassemia, and exciting data in targeted relapse refractory AML with AG-221. We’re aggressively moving these programs forward with our partners, Acceleron and Agios.

During the first half of the year, our oncology programs were advanced by the initiation of Phase III studies testing Abraxane as an adjutant treatment in patients with surgically resected pancreatic cancer and as maintenance therapy in patients with squamous non-small cell lung cancer. In the second half of the year, collaborations are positioned to evaluate Abraxane, Revlimid, CC-486 and other pipeline assets in combination regimens with emerging immuno-oncology therapies. Mark will outline some of the key studies that are accelerating our impact in the hematology oncology field. Over the next few quarters, we expect significant increased visibility on our next generation of registration track studies.

Building a market-leading inflammation and immunology franchise is also a key corporate initiative. Our U.S. team launched Otezla for psoriatic arthritis in April and are making outstanding progress in building the foundation of a first-class launch. Scott will detail many of the metrics that give us the confidence that our team is fully capitalizing on the opportunity of building a new market for this innovative oral compound. We look forward to launching the psoriasis indication later this quarter following FDA action. We could not be more excited about the progress and potential of Otezla.

Expanding and accelerating the development of our pipeline is essential to sustaining long-term growth. We are making outstanding progress in building and advancing one of the highest potential pipelines in the industry. During the quarter, we expanded our late-stage pipeline with the acquisition of GED-301, a potentially transformational product for the treatment of Crohn’s disease. Scott will outline the significant second half milestones in this promising program.

We also accelerated our internal and mid-stage research programs. Among the four novel development candidates named last year, we expect to advance at least two to IND by year-end, including our novel anti-CD47 antibody from Inhibrx targeting innate immunity. Our CC-122 inhib program is advancing in novel combination trials in CLL and diffuse large B-cell lymphoma, showing activity in settings of high unmet medical need. We’re also initiating clinical programs with our next-generation JNK inhibitor in fibrotic disease, and in scleroderma with our INI inhib, CC-220. Our research teams have identified novel biologic targets providing new insights to advance our existing and emerging programs in protein homeostasis.

Dynamic companies proactively evolve to best capitalize on market opportunities and to maximize the potential of their assets. During the quarter, we announced organizational changes designed to position us for maximum success in the years ahead. These changes provide Mark and Jacquie, outstanding leaders, the opportunity to have an even greater impact on our organization. In Mark’s new role as President and Chief Operating Officer, he will work with our franchise leaders to drive operational excellence across our functions and franchises. Jacquie was promoted to President, Hematology/Oncology to leverage her strong leadership, outstanding business expertise, and strategic perspective.

We also significantly enhanced our leadership team with the addition of Peter Kellogg. Peter is now on board and is in fact in the room with us today and will become our Chief Financial Officer on August 1. Peter brings a wealth of industry knowledge and expertise to our leadership team. Welcome, Peter. The energy generated by these leadership changes is already positively impacting the organization.

This morning, we announced another important leadership addition with Dr. Rob Hershberg joining Tom Daniels’ team to lead our immuno-oncology research and early development initiatives and to establish our immuno-oncology center of excellence in Seattle, Washington. Dr. Hershberg joins us from one of our collaboration partners, VentiRx, where he served as CEO. We welcome Rob to the Celgene team.

Midway through the year, we have achieved a number of important objectives. Our exceptional operation momentum has us well positioned to deliver on key milestones in the second half of the year. It’s a very exciting time at Celgene.

Let me now turn the call over to Jacquie.

Jacqualyn Fouse

Thank you, Bob. Good morning everyone. Thanks for joining us on our second quarter call. We were extremely pleased with our second quarter performance and the momentum we have in the business across all of our major drivers as we move into the second half of the year. The underlying trends we built coming out of Q1 drove our Q2 results, and we feel great about the start we see already for Q3. Our teams are delivering strong execution today while strategically we also continue to add to our investments in the future. You saw examples of this in Q2 with our acquisition of GED-301 and our opt-in to the Agios AG-221 program.

Our total net product sales growth reached 18% and accelerated in Q2 for the year-over-year comparison versus the prior two years. We are very close to reaching the $2 billion per quarter level for our global product sales, and I’ll look forward to celebrating that milestone with you and our team. Of the 18% product sales growth, 14 percentage points, or about 80% was volume driven. Price in the quarter contributed 3 percentage points. We expect the full-year global net impact of price across our portfolio to be close to neutral.

Our P&L performance remains robust and adjusted earnings per share grew 18%, slightly faster than total revenue growth of 17%. Our team produced earnings growth that exceeded revenue growth even while we invested in our inflammation and immunology franchise and important launches across the hematology oncology business, and while we absorbed the impact of generic azacitidine in the U.S. Adjusted earnings per share was $0.02 lower in the quarter than it otherwise would have been as a result of our $2.5 billion May bond offering and expensing the premium we paid on the additional equity stake we bought in Acceleron. This 18% growth in adjusted earnings per share came entirely from operating income growth. The net impact of all financial drivers together was neutral.

Revlimid’s sequential growth in the U.S. in Q2 was impressive at 12%. The demand trends we saw at the end of Q1 produced the strong quarterly result. Growth and demand trends outside the U.S. were also very solid with about 2% sequential growth in Europe off of a very strong Q1 for that region, and the rest of the world is in good shape, though we saw some impact from distributor buying patterns in places like Latin America.

Branded Vidaza’s solid growth continues outside the U.S. at 6% sequentially and 12% year-over-year. The U.S. continues to be impacted by the entry of generic azacitidine that began at the beginning of Q4 last year. Abraxane’s momentum is strong, fueled by the ongoing rollout of the pancreatic indication in the U.S. as well as the launch of that indication in Europe. The product grew globally 17% sequentially and 39% year-over-year. The product’s performance in both lung and breast is also quite solid and contributing nicely to overall sales. Pomalyst/Imnovid’s growth trajectory has been and remains outstanding. The product delivered 19% sequential and 143% year-over-year growth globally. The same positive drivers we saw with the U.S. launch are now playing out across Europe and contributing to an excellent launch there.

As Scott will discuss in a moment, the commercial metrics we are seeing around Otezla’s launch are very positive and will drive strong growth in the second half of the year. Q2 revenues of $5 million reflect the impact of the sample product in titration packs and additional non-revenue generating product from bridging packs provided to patients while they waited for script authorizations to come through. We are highly confident in our forecast for Otezla sales for the second half of this year and beyond.

Our P&L dynamic is excellent. Our revenue growth and attention to operational excellence drove our adjusted operating profit margin to 50.3% for the quarter and 50.4% year-to-date. All key P&L line items are within our range of expectations. SG&A expense year-to-date reflects the ongoing impact of investments in our INI franchise as well as launches within the hematology oncology global franchise. This number should trend downward as a percentage of revenue over the second half of the year. R&D expense year-to-date reflects the mix of a large portfolio of evolving clinical trials, some leverage of fixed costs, and the impact of our business development activities, including milestones that can be unpredictable quarter to quarter and year to year.

Our cash from operations generation remains strong and growing in line with our earnings growth. We continued our share repurchase program in Q2, albeit at a slower rate than Q1 as we try to be opportunistic on the timing of our purchases within our clear ongoing strategy for repurchases being our preferred way of returning funds to shareholders. We further supported our capital structure management strategy with a $2.5 billion bond offering during Q2.

Our return on invested capital performance and trends are robust. We are focused on generating improved ROIC over time while investing appropriately for the long-term health of the business. The way we have chosen to show ROIC on this chart is conservative as the earnings base reflects U.S. GAAP earnings, and we show you both gross ROIC including cash balances, which are now just over $6 billion, and net ROIC where the invested capital base excludes cash and investments. As a reminder, the 2014 ROIC calculation is done on a trailing 12-month basis in this slide.

Completing our Q2 financial picture, I am pleased to update our guidance by raising product revenues to over $7.5 billion for the full year, up from a range of $7.3 billion to $7.4 billion. We are also raising total revenues to approximately $7.6 billion from $7.5 billion. We are raising the lower end of the Revlimid sales guidance and tightening the number to about $4.95 billion from a previous range of $4.9 billion to $5 billion. The revenue increase drives an increase in our adjusted earnings per share guidance to a new and tighter range of $3.60 to $3.65, post the stock split. This EPS guidance assumes a fully diluted weighted average share count for the year of 835 million. The other specifics of our guidance remain the same.

To summarize my last quarterly earnings call as Celgene’s CFO, I’m extremely happy with and proud of the performance and results that our teams around the world and across all functions have delivered in the past and this quarter, and what I expect they will deliver in the future. We are strong across all of our major metrics and are investing in the future in a way that is positioning us with a unique profile to generate strong top and bottom line growth for a very long time into the future. The best is yet to come.

Thank you, and I will now turn the call over to Mark.

Mark Alles

Thanks Jacquie. Good morning everyone. As you heard already from Bob and Jacquie, our global commercial group produced outstanding quarterly sales results and our clinical and regulatory teams made significant progress on a number of high-value development programs. Let me briefly share what we have achieved and where we are headed.

In the second quarter, hematology and oncology product sales growth was impressive. Sales were up 18% year-on-year and 8% quarter-on-quarter to $1.840 billion. Driven by increased treatment duration and sustained leadership of the global multiple myeloma market, Revlimid continued to demonstrate very positive demand growth. Pomalyst/Imnovid is rapidly becoming global standard of care for patients with relapsed and refractory myeloma who have received two prior lines of therapy, and Abraxane’s second quarter results benefited from greater U.S. demand in pancreatic cancer and lung cancer, and the rapid and significant uptake for metastatic pancreatic cancer in those European markets in which local reimbursement has been achieved.

During the second quarter, a total of more than 200 abstracts, posters and presentations featuring new and clinically meaningful data were presented at AASCO, EHA, and the ESMO 16th World Congress on gastrointestinal cancer. This concentration of clinical information provided additional evidence supporting our cornerstone therapies – Revlimid, Pomalyst/Imnovid, and Vidaza in hematological malignancies, and Abraxane in pancreatic, breast and lung cancers. Also during the quarter, we advanced key programs that could lead to one of our next new therapies in hematology.

We are excited about the data from the ongoing Phase I study of AG-221, a small molecule oral inhibitor of the mutant form of IDH-2 discovered by our partner, Agios Pharmaceuticals, that was presented at EHA. These results summarized the activity and safety of AG-221 in 35 patients homogenously defined with the IDH-2 mutation positive relapsed and refractory AML. Treatment with AG-221 demonstrated a very high objective response rate with a very manageable safety profile. Given these early but promising Phase I data, we exercised our option to an exclusive worldwide license to AG-221 in June. This is now a high priority program and we are rapidly advancing plans to conduct global registration trials.

Investigators at EHA also presented important and encouraging data from two Phase II trials of sotatercept and ACE-536 in patients with transfusion-dependent and non-transfusion dependent beta thalassemia. In conjunction with our partner, Acceleron, we are on track to select one of these agents to enter a pivotal Phase III study in beta thalassemia by the end of this year.

I think we are just now beginning to realize the full clinical and commercial potential of Revlimid. In the second quarter, our global commercial teams generated record quarterly sales of $1.214 billion, growth of 15% year-on-year and 6% quarter-on-quarter, and we are preparing for the future. We are making significant progress advancing our global newly diagnosed multiple myeloma strategy. Our marketing application is under active review in Europe and in the U.S. the PDUFA date is February 22, 2015.

We now have the final positive results of two important Revlimid randomized studies in MDS and mantle cell lymphoma. Let me briefly review the top line results with you. As you know, MDS 005 is a randomized Phase III study testing Revlimid in patients with low risk red blood cell transfusion dependent non-deletion 5q MDS. This placebo-controlled study met its primary endpoint – Revlimid demonstrated statistically significant improvement in red blood cell transfusion independence. Treatment with Revlimid was also generally well tolerated. These data have the potential to establish the value proposition for Revlimid in all classifications of transfusion dependent lower risk MDS.

We are preparing the review the MDS 005 study results with global regulatory authorities. The MDS 005 results have the potential to further strengthen our leadership position in MDS and AML. As you know, Revlimid and Vidaza are already established global standards of care for well identified subsets of patients with MDS and AML.

We are now seeing the encouraging but still emerging profile of AG-221 in AML. We intend to use the results of Vidaza Phase III AML 001 study to pursue regulatory approval in AML for Vidaza outside of the United States, and we are advancing two Phase III placebo-controlled studies evaluating CC-486 oral azacitidine in low risk MDS and as maintenance therapy in AML. We believe that this important disease franchise is very well positioned for significant future growth.

Beyond myeloma and MDS, we are working diligently to validate the potential for Revlimid to become a standard of care in lymphoma. We are pleased that patient enrollment is complete in the Remarc study of Revlimid maintenance therapy in newly diagnosed diffuse large B-cell lymphoma. By the end of this year, we expect to complete enrollment in the Phase III relevant study testing Revlimid plus Rituximab in first-line follicular lymphoma.

Other important studies of Revlimid in combination with Rituximab, particularly a Phase III registration study in patients with newly diagnosed activated B-cell type diffuse large B-cell lymphoma will be initiated over the next several months. At the same time, we are preparing to engage with regulatory authorities to review the results of MCL-002. You will recall that MCL-002 is a large randomized Phase II study testing Revlimid in a broad population of patients with relapse and refractory mantle cell lymphoma. Relative to an active control arm consisting of investigator’s choice of therapy, treatment with Revlimid demonstrated a statistically significant improvement in the primary endpoint of progression-free survival, and the safety data were consistent with the known profile of Revlimid in this population.

The global Pomalyst/Imnovid launch continues to exceed our expectations. Second quarter sales were $161 million, representing year-on-year growth of 143% and quarter-on-quarter growth of 19%. In the United States, sales were up 17% quarter-on-quarter driven by increasing duration gains and third-line market share trending above 30%. In Q2, international sales grew 21% driven almost exclusively by Europe. The Imnovid launch in Europe is now supported by early access in Germany and the United Kingdom and positive reimbursement decisions and market access in key countries, including France and Spain. We expect sales to accelerate further as other major markets gain reimbursement during the second half of 2014 and in 2015.

Turning to Abraxane, year-on-year sales increased 39% to $215 million. In the United States, the ongoing launch of Abraxane plus gemcitabine for metastatic pancreatic cancer and steady growth in non-small cell lung cancer combined to grow quarter-on-quarter sales 13%. Market share in metastatic pancreatic cancer is approaching 40% and we continue to expect peak share to reach approximately 55%. Led by Europe, quarter-on-quarter international sales of Abraxane grew by 28%. We expect to receive additional reimbursement decision in key markets, including Spain and Italy, throughout the second half of this year and in 2015. We continue to receive global marketing approvals. The latest approval was in Canada just last week.

For more than 15 years, we have been focused on deeply understanding and modulating the immune system. This expertise and the scientific advances we have made present Celgene with unique opportunities to develop new immuno-oncology clinical development strategies. For example, Revlimid is currently being studied for the treatment of various hematological malignancies in combination with the anti-CS1 antibody elotuzumab, the anti-CD20 antibody rituximab, anti-CD38 antibodies, and anti-PD1 antibodies. Each of these combinations represents the potential to significantly improve disease outcomes and to achieve blockbuster commercial status.

Our internal and alliance-based research and development programs are advancing a number of innovative agents targeting high unmet medical needs. Some of our top priorities include the development of the anti-DLL4 humanized monoclonal antibody, demcizumab, in multiple solid tumors with our partner OncoMed, CC-122 and other next generation small molecule immuno-modulatory agents, our oral macrophage checkpoint inhibitor anti-CD47, AG-221 for AML, our CAR T program in selected malignancies with our partners Bluebird Bio and Baylor College of Medicine, and there are many others. We think each of these early-stage products has the potential to disrupt existing treatment paradigms. At the same time, we are rapidly advancing multiple complementary and potentially synergistic development strategies with our in-line and pipeline agents in combination with the various T-cell checkpoint inhibitors.

Our second quarter results and the significant operating momentum generated by a number of high-value growth drivers make us extremely confident in our outlook for the rest of 2014. The success of our ongoing global commercial launches, the multiple catalysts for Revlimid growth, and the promise of our innovative pipeline make us equally confident in our longer term outlook.

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 everybody on the call. Q2 was a transformational quarter for Celgene I&I, highlighted by a series of major milestones, including the encouraging commercial launch of Otezla for the treatment of psoriatic arthritis in the United States, significant advancements in moving Otezla forward in a number of important indications, including psoriasis and atopic dermatitis, Behcet’s disease, ulcerative colitis and possibly AS, as well as the acquisition of potentially transformational (indiscernible) for the treatment of Crohn’s disease, GED-301.

First, I’d like to talk about the Otezla launch. Critical to any launch is the ability for patients to access medication when prescribed. To date, our formulary coverage is better than expected with 80% of patients being able to start Otezla without having to fail a biologic. Additionally, a number of plans are allowing access to Otezla without requirement to fail methotrexate or other DMARDs during this early launch period. We are pleased with the reception Otezla has received this far within the payor community, and we will work to continuously improve our access footprint over the course of this year.

We are very encouraged by the launch trajectory of Otezla over the first 15 weeks. There are already over 4,000 patients on Otezla and the IMS data shows the strongest initial prescription performance of any recent single indication launch in this therapeutic space. Additionally, sales are accelerating and we expect revenues in July to meet or exceed total revenues from Q2.

Initial sales force execution has been excellent. Over 8,000 unique physicians have received Otezla presentations, and to date over 1,000 physicians have prescribed Otezla with the majority of those prescribers generating multiple prescriptions. Otezla brand recognition has jumped to 96% amongst dermatologists in just the first few months.

Looking specifically to the PSA market, based on syndicated market research of high prescribers completed in June, Otezla tied Humira for the number one branded product for new treatment starts in PSA, ahead of all other brands after only three months. I believe this shows the potential of Otezla to transform the PSA treatment paradigm. When we look at product switches within this category, Otezla was the number one product switched to when patients are discounting current therapy. Being the number one in both new patient initiations and patient switches bodes well for future growth.

While we’re pleased with the initial uptake transfer of Otezla in PSA, we are also working diligently to prepare for the anticipated launch of Otezla in psoriasis. The PDUFA date is September 23, but we will have the dermatology sales force hired, trained and operational by August 1. We believe there is a tremendous opportunity for an oral product with the profile we see for Otezla in this large important and underserved market.

We will have lots of impactful data being presented at medical meetings in the second half of 2014. These data include nine abstracts and two oral presentations of the Esteem psoriasis pivotal data focusing mainly on the 52-week data at EADV in October. EADV is the largest European dermatology meeting. We have submitted 19 abstracts to ACR, the American College of Rheumatology meeting in November. These abstracts again focus on the longer term data, including a 104-week update of the Palace 1 trial. We’re very excited about the potential presentation of this two-year data as we continue to see improvements in efficacy beyond the strong observed data seen previously in week 52, with no new safety findings during this period.

It has also been confirmed the GED-301 Phase II data will have an oral presentation at the next major GI meeting, UEGW in Vienna on October 21. Additionally, we anticipate publication of the Phase II data in a leading medical journal by the end of the year.

Q2 was a transformational quarter full of significant milestones for Celgene I&I , and there will continue to be important events and milestones throughout the remainder of 2014. The early launch metrics for Otezla were strong with a solid base of access and demand being built. We are moving forward to expand the Otezla opportunity on many fronts, including the anticipated approvals in psoriasis in the U.S. and PSA and psoriasis in the EU in coming months, and we are looking to expand our footprint to other geographies in 2015 and beyond. We are also actively investigating Otezla in four other new indications.

At the same time, we are expanding the overall footprint for the I&I franchise with the acquisition of GED-301 and the advancement of important molecules from the internal pipeline focused on areas of high unmet medical need. These certainly are exciting times for Celgene I&I.

I’d like to turn the call back over to Bob.

Robert Hugin

Thank you, Scott. As I hope you can tell, we’re extremely energized by the momentum generated in the first half of the year and the prospects for the remainder of the year and beyond. We have significant milestones supporting key corporate priorities over the coming months. We’re committed to capitalizing on the progress achieved to date and capturing the full potential of our extensive product portfolio and pipeline.

Thank you everyone for joining this morning, and Operator, we’ll now open the call to questions.

Question and Answer Session

Operator

[Operator instructions]

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

Josh Schimmer – Piper Jaffray

Thanks for taking my questions. Just curious – you’ve given us guidance through 2017, but beyond 2017 how do we think about which of these products, which of these indications that are from the currently approved offering or those in the pipeline are going to be the key drivers of growth towards the end of the decade?

Jacqualyn Fouse

Hi Josh, it’s Jacquie. Thanks for the question. Generally, and I think you’ve heard us talk about this a little bit before, when we think about most of the contribution that could come from Revlimid’s future growth on the non-Hodgkins lymphoma indications or others beyond multiple myeloma particularly, all of that growth would be coming beyond 2017. So as we have a little bit more visibility over time to—timelines to how those trials are going, we’ve had a track record in the past of giving you updates on the long-term guidance and when we see inflection points in the business, so that’s one area. Obviously the Crohn’s asset that is now in the I&I portfolio is a product that has significant revenue potential, and that would come into the mix after 2017 as well. Those are only two.

Mark spoke in a fair amount of detail about all of the things going on in the combined AML MDS platform indications there, and that is a franchise within the hematology franchise that has significant growth potential to go from the roughly billion dollar base that it has today, growing nicely over the next few years; and then you get beyond 2017 and that one is even stronger as well. So those are just a few things that I would highlight, and there’s a lot of other things in the pipeline that would come in as well.

So again, I would say that as we have more visibility to those things, we will try to build those into a model that we could talk about where it would be clear for investors in terms of how to evaluate the risk-reward profile of those things in the model at their appropriate inflection points.

Robert Hugin

I think just to add to that, I do think over the next few quarters there will be increasing visibility to the late-stage pipeline in terms of registration timelines and availability to patient timelines, and that clarity over the next couple of quarters will give you and us the ability to really articulate more clearly what is the incredible opportunity for us that we see, say, in 2020, et cetera.

Operator

Thank you. Our next question comes from the line of Geoffrey Porges of Sanford Bernstein. Your line is now open.

Geoffrey Porges – Sanford Bernstein

Thanks very much and appreciate you taking the question. Jacquie, just a quick question on AG-221 and GED-301. Could you clarify for us what payments were made during the quarter for those, or if not during the quarter, what future payments are due to be made, and how they will be accounted for in your P&L (indiscernible) and also in your ROIC calculation, because they seem to be pretty swing factors. And then could you also just give us a little bit of an update on the Revlimid duration trends in the U.S. and Europe? Thank you.

Jacqualyn Fouse

Hi Geoff – thanks for the question. So just with respect to the impact on the quarter from those two things, for AG-221 there is nothing specifically associated with the opt-in on the program. Now that the product comes into Celgene’s hands, the development costs will start to shift to us as well. As always, they’re built into the projections. This will happen with essentially all of our partnered projects as we take them on over time, and that is the case already, for example, for Acceleron and some others we have cost sharing as well.

For the GED-301 asset, we made the upfront payment of $710 million – that was a cash payment. The accounting for that is purchase accounting, so acquisition accounting that you’ll see highlighted in the 10-Q filing where we will have amounts going into the in-process research and development that then will be in the balance sheet, and then some of the contingent liabilities associated with the future milestones as well, so you’ll see all of those highlighted in the Q.

So with respect to the ROIC calculation, we like to show it on a U.S. GAAP basis because that’s the most conservative way of showing it, and then those of you who want to think about different things in other ways and make adjustments if you like, that’s okay. So everything would be included in the earnings numbers that are assumed in that calculation.

Mark Alles

On duration—Geoff, hi. It’s Mark. Just a quick comment. Recall that we typically talk about the intent to treat to progression, and how we measure physicians’ intent historically, that’s been right about half of the market in U.S. and Europe that prescribers said, we will treat to progression in myeloma, MDS, et cetera. What we’ve seen in the last six months is a very sharp increase in the proportion of physicians who say they want to and are treating to progression, which is a very nice change after a pretty stable period. So we see that flowing through with accelerating duration now. As you know, we don’t comment specifically on what duration months are, but we have seen some acceleration recently. I think that’s going to continue in large part because when we get to ASH and we get into the first half of next year, as you know, there are multiple Phase III readouts with combinations therapy from triplets with carfilzomib rev/dex, especially elotuzumab rev/dex, and I think these will be additional sets of data supporting the treat to progression paradigm and then a flow-through to duration.

Geoffrey Porges – Sanford Bernstein

Right. Thanks very much, Mark and Jacquie.

Operator

Thank you. Our next question comes from the line of Terence Flynn of Goldman Sachs. Your line is now open.

Terence Flynn – Goldman Sachs

Hi, thanks for taking the questions. Maybe two pipeline ones from me. First on—I noticed on Slide 23, you highlighted a number of PD1 combos that you were planning on running. Just wondering who you’re planning to partner with on those, and then on your CD38 program for multiple myeloma, I was wondering if it’s possible for you to narrow the lead, maybe, in any way that competitors have over you guys here. Thank you.

Mark Alles

Thanks for the question. On the PD1 side, I appreciate the question. We’re very, very collaborative across the landscape. A lot of interest is coming from the other companies with respect to different combinations, different subsets of patients, and the collaborations are extremely broad and, I think, compelling, so more to come on that. But a very open, strong collaboration across the landscape.

With respect to CD38 in the myeloma space, the answer is yes – there are so many subsets, as you well know, of multiple myeloma that are being defined and redefined, so the view we have is that as we advance our CD38 antibody, more 202, we should be able to find an appropriate category and subset of patients such that our ability to run research in multiple myeloma would close gaps, and mostly it would be in a subset of patients to be defined.

Operator

Thank you. Our next question comes from the line of Ian Somaiya of Nomura. Your line is now open.

Ian Somaiya – Nomura

Sure. Just a question maybe on 2015. You’ve highlighted many catalysts, upcoming catalysts as they relate to Revlimid, and I was just hoping to get your thoughts on how we should think about finally getting European approval for Revlimid front line; and then beyond that, the potential impact of the non-5q minus MDS data and the diffusion large B-cell lymphoma data.

Jacqualyn Fouse

Hi Ian, thanks for the questions. So you’ve seen now the PDUFA date in the U.S. for the newly diagnosed filing, and things are moving along as we would have expected in Europe what that process, so we’ve got those included in our model for 2015 essentially in the U.S., assuming a launch that basically for all practical purposes would start toward the end of Q1 or beginning of Q2, then in Europe, we’ve assumed a Q2 approval, and then obviously the normal process of going for the reimbursement country by country. So it will, as with all things in Europe, be a staggered situation there, so the contribution to growth really starts to kick in even more in 2016 and ’17, though we expect quite positive momentum for Revlimid because of all of that in 2015, but that’s just how we’ve modeled it.

In terms of the non-del 5q, that’s what you’d hear us express some excitement about. The potential there is that would open Revlimid up more broadly in that indication, and that and the other things that we see going on, we think give us reason to believe that MDS AML together will grow significantly faster in the future than what we had built into the base case scenario.

So with that, I’ll let Mark—

Mark Alles

I agree with Jacquie. Maybe, Ian, just to add a little bit of color, I think the expansion of Revlimid, assuming we get positive regulatory review of 05 and MCL-002, is incremental several hundred million dollars. Now that said, we’re evaluating the data, we’re going through right now regulatory strategies, and I think the more important near-term view is this confidence that Revlimid lenalidomide is not niched, for example, in the del-5q subset. And in fact, when we can talk about what the MCL-002 data represents, recall these are active controls so we set up a market basket of drugs for the investigators to choose from in the study, and we’re quite, quite confident that the single-agent profile of Revlimid in lymphoma will get a boost because people will realize it was superior to some very well established salvage drugs in the treatment of lymphoma.

So more to come, but there’s sort of an early, mid and later stage view of how this would play out for our lymphoma franchise and then our MDS franchise, so stay tuned.

Ian Somaiya – Nomura

Mark, I was really hoping you’d comment on maybe the Remarc study and how we should think about the impact of that study for—

Mark Alles

Well this is your second question, so I guess I will comment anyway. Ian, it’s event-driven, so what I think about when we have positive data – and of course, we intend for these results to be presented later this year at ASH; we’ll see, but that’s our intent. I think studies that are ongoing that are still accruing, and we mentioned relevance for example, this profile does help investigators realize there’s a lot of value, and the studies should in fact accrue faster. We should see some other effects of the positive profile.

So I think all these things are considerations, but remember on interim for any of our ongoing Phase III trials with Revlimid, they are event-driven. There is an interim analysis built into the stats plan, but unless or if we get those events, we don’t know.

Robert Hugin

But I do think it’s very important to recognize that until we have the data, we have to be conservative and cautious about estimating what we think the impact is going to be. On the other hand, should we get positive data in Remarc or relevance, it is very, very different from the incremental data we have in MDS and other things, which are very important to us and give us great growth prospects. But this would really provide a transformation boost to Revlimid in the coming years if we were to get positive data—

Mark Alles

Absolutely, and that peak is either early depending on the results, earlier versus as Jacquie talked about on the previous question, our base case which has most of that improved outlook beyond ’17.

Ian Somaiya – Nomura

Okay, thank you 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, thanks for taking my question – and Jacquie, is this your last CFO call? If so, I’m getting kind of sentimental.

I just wanted to ask about actually Otezla. So I know it’s really early days of launch. You said that 80% of current plans have no set that it’s through biologics, and how far along are you in the formulary coverage conversations so we can put it into context, and have you had any discussions about stuff that is in place for you ahead of biologics, and do you still think that that’s a 2015 event?

Jacqualyn Fouse

Robyn, I’ll pass it over to Scott. I’m sitting here with tears in my eyes because it’s my last—

Robert Hugin

No, no. It may be her last call as CFO, but it won’t be her last call, so she’ll be accountable right here.

Scott Smith

So I would say a proportion of discussions we’ve had, probably 60% of the total plans but representing more like 70 or 80% of the lives out there. As you can see from the footprint, a lot of those discussions have been very positive. We’re pleased with the access footprint we have. We are getting plans right now that are adjudicating patients even without failing methotrexate and other DMARDs, so it’s a very nice position for us to be in. Preferred positions over biologics and things like that are something for the longer term. We’re interested in making sure we don’t have a disadvantaged position when we come to market initially and the patients have what we would call relatively open access to access our drug.

Generally you see that. I think it’s very positive when you see that 80% don’t require a step through biologic, because it does emphasize that pre-biologic positioning and the fact that there’s an opportunity even in that space.

Robert Hugin

I think just as a company, our strategy, philosophy and principles working with insurance companies that we do encourage access and to give the choice to physicians and patients as much as possible to make the best choice for that patient, and so we do encourage that kind of transparency and openness, and that’s something that I think is very important for all of us in the industry to ensure that we encourage all partners in the industry, to ensure that we provide that kind of open access and let physicians and patients dictate what’s best for the patient.

Robyn Karnauskas – Deutsche Bank

Okay, great. Thank you.

Operator

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

Yaron Werber – Citi

Great, thanks so much. So Scott, I’ve got to—actually I’m sorry, for Mark. I have a question about MDS-005. Is the data in line with the Phase II and the impact you think on ACE-536, about how you develop ACE 536? And sort of related, Bob—it’s really not related, but an M&A question. I’m just trying to get a sense – I mean, you bought GED-5701, exciting compound but obviously it’s got some risk to it. You have plenty of cash, and strategically you have a lot of early stuff. I’m just trying to get a sense of your appetite for late-stage acquisitions. Thanks.

Mark Alles

Yaron, it’s Mark. Thanks for the question. So recall that we’re talking about a segmentation of MDS when we think about our assets, so of course Revlimid approved for deletion 5q transfusion dependent patients, highly well identified patient population, but it’s only about 6% of the overall treatable low risk MDS population, maybe 10% if you think about the high end of the model. That said, the vast majority of patients we’re talking about cycle through transfusions and/or epo as a way to deal with their bone marrow failure and chronic anemia. So we think that this is a complementary approach where either ACE-11, ACE-536 to be determined would drop into all classifications of transfusion dependent MDS, and that’s for the future.

So I think there’s a complementarity, but there’s certainly segmentation that would have to be thought of. For us, it’s pretty clear – the unmet medical need of transfusion dependent and then epo-resistant or refractory patients is our target market for our portfolio.

Robert Hugin

And just to go, Yaron, to the question on M&A, certainly it’s been an active and exciting time in the industry as people reposition their strategies. I think we feel, first of all, very comfortable with our strategy for the long-term, where we’ve been, where we are and where we’re headed. Certainly the 301 acquisition is, in our mind, a very late-stage asset, and we’re going to do everything we can to accelerate, to answering the questions, to prove that this is the kind of asset that is going to transform the treatment of Crohn’s. So we look at that as a very important part of addition to the late stage assets, and I do think over the coming quarters there will clearly be much more increased visibility on what the next phase—group of Phase III registration track studies, so there’s clarity into the growth trajectory of the company.

That being said, our business model has always been designed as one to have tremendous leverage capabilities, both from a cash flow point of view, an operational leverage point of view, a financial leverage point of view. So adding late-stage assets or approved assets does give leverage to the model, but we don’t see a need to change our strategy in any way, shape or form. We’re very comfortable with where we are. We think we have an incredibly exciting, promising pipeline.

If something opportunistic were to come along, we would certainly be assertive and aggressive and go for it; but that’s not something we’re out there thinking we need to do, so really no change at all. We’ll keep a close eye on what’s happening and we feel very good about the future and where we are today. We want that strategic, financial and operating flexibility so that if something does come along, we’ll be ready to go. But again, no change to our strategy as we see the future.

Operator

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

Geoff Meacham – JP Morgan

Morning guys. Congrats on the quarter, and thanks for the questions. I’ve got a couple I&I questions for Scott. Now that you’ve closed the 301 deal, just want to get your sense of the size and scope of the Phase III and there were any mitigating factors to start. And then on Otezla, maybe a little bit bigger picture – you know, you guys have had some good long-term data in PSA. I just wanted to get a sense from you as to what you think that tipping point is for adoption in PSA, whether it’s things like long-term data or doc experience or reimbursement, et cetera. Thanks.

Scott Smith

So just on the first question, GED-301, the first thing we need to do – and everything I would say here is caveated by the fact that we need to have regulatory discussions to talk about the development program and get agreement and alignment on that. I think it is sort of a perfect molecule for looking at alternative approaches as opposed to the standard dutch and maintenance, but all that stuff needs to be worked through and discussed with regulatory authorities, which are happening in the second half of this year.

Relative to Otezla, I think adoption is not—I don’t think there’s one single thing. For me, what’s really important for adoption is, one, you get the right kind of access footprint, and as the data that you have supports the use early and whether there’s significant market opportunity. So the access footprint is critical. Obviously you need to drive new demand and get new patients on there. There needs to be good persistency of those patients. I think certainly the long-term data has brought a very nice aura to the asset, because when you take a look at either one year – and I don’t want to get into the specifics of the week 104 two-year data for Palace 1 – but again, for me it’s very striking, the significant advancement in terms of what that efficacy looks like from week 52 to week 104 with no new safety filings during that period. So the profile that’s emerging is one that can be used long-term without increased risk of some of the things that you see with other therapies in this space, and we’re looking to get that data out.

But there’s no one factor that drives adoption. I think initially it’s a good footprint, making sure you’ve got a good core group of prescribers who are prescribing multiples, and then making sure patients are staying on longer term. All of the data we’ve generated and other things help support this fundamental proposition.

Geoff Meacham – JP Morgan

When is there more clarity on the Palace 1—

Scott Smith

Palace 1, the 104-week, two-year data will be available at ACR. We’ve submitted it to ACR. Hopefully it will be accepted and presented there, but that abstract has been presented.

Geoff Meacham – JP Morgan

Okay, thanks.

Operator

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

Ravi Mehrotra – Credit Suisse

Thanks for taking my question. No new deals announced today. Has George G. been on holiday? And more seriously, another question on 301. Notwithstanding your comments just made about you’re still in the design phase, could you just give us any color on the possible dosing duration within that trial and remind us of the science that could explain what looks like a very prolonged duration of action on very short treatment protocols seen in previous studies. Thank you.

Scott Smith

Yes, so the things that you hit on, I think are really what needs to be considered – how do you take the molecule and what’s the appropriate duration? Certainly in Phase III, you would test a couple of different dosing regimens in terms of that maintenance. What we see arising out of this when we take a look at the data, when we take a look at the possible avenues for development is just what a tremendous market opportunity it is to have a product in our hands which not only is showing really significant induction but also the potential to have really long duration remissions. So how you work out the dosing schedules and things like that is—we need to, again, design some alternative designs, talk to regulatory authorities, but there really is a tremendous opportunity for a product which has good duration of remissions here.

You don’t see it – 50% of patients on TNS lose their remission over the course of the year, even with continued therapy, so I think we have a really nice opportunity on this duration gain to really change the length of time patients can be treated and change the treatment paradigm for Crohn’s disease.

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

Hey guys, thanks for taking the question. I actually had some Biogen and Merck questions if Peter is still there. Just kidding.

Can I ask about another question on Crohn’s? So I think most folks, based on the money you guys spent, expect the data to be pretty good that you’re presenting in October. And maybe Scott, maybe just address how you guys got comfortable that what we’re going to be looking at in the Phase II isn’t false positives? There have been some false positives in Crohn’s in phase II.

And then second quick question is maybe for Mark, perhaps. Can you clarify what your expectation is at this point for the European front-line Revlimid label? Do you expect an indication for the transplant-eligible patients as well as the non-eligible, or just one of the above? Thanks a lot.

Scott Smith

So first of all, just to talk about Crohn’s and GED-301 and the data that we’ve seen, as I said on the last call, we saw really striking efficacy not only in terms of what you see from clinical response but also what you see in terms of patient remissions. I don’t want to get into the specifics of the data, but the placebo rates were low in this trial and there was an appropriate dose response, and we did very significant diligence on all 166 patients who were in the study and looked at the data in very different ways, and we think it is very, very compelling and provides a tremendous opportunity for an asset to take into Phase III. Obviously given what we paid, the competitive nature of it, a lot of other companies did too; but I think once you see the data, and again it’s going to be UEGW, which is the next major GI meeting October 21, when you see the full data and the dose response and the durability response and some of those things, I think you will understand exactly why we have—we think what we do.

We’ve also looked at all the data with the patient and case report forms as appropriate, looked at data from every patient in the study and really think it is strong, robust data, so we’re very excited. We’re very excited about the opportunity to get that data out so we don’t have to talk so much in code about what’s in that data, because it is very striking and compelling and (indiscernible) to talk about.

Mark Alles

Mark, thanks for the questions – Mark here. On the ongoing discussions in Europe about our newly diagnosed label for Revlimid, we are in fact continuing to push for the broadest possible label for myeloma. That said, you’ll recall that our base case has been that we would be approved around the world for elderly transplant ineligible patients, but that label then would include continuous treatment. And because of the way that the market is evolving, we think that upwards of 70% of the newly diagnosed multiple myeloma market, even with somewhat of a limited label, would be candidates for Revlimid dexamethasone as a consequence of our regulatory approvals, not just in Europe but around the world.

So we’re at the front end of the process. We continue and will continue to support the broadest possible label at the end, but our base case has been elderly, non-transplant eligible patients as a label.

Jacqualyn Fouse

Yeah, that’s exactly how we built the financial model and then the—we don’t have anything in there for the stem cell transplant population until at least 18 to 24 months later. So when you think about the model 2015 to 2017, that’s how those layer in there.

Mark Schoenbaum – ISI Group

Thanks for taking the questions. Sorry for the poor joke.

Robert Hugin

Well, it is going to be an exciting time here with George and Peter. Jacquie is going to be able to keep everybody moving.

Mark Schoenbaum – ISI Group

Fantastic. Thank you.

Operator

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

Brian Abrahams – Wells Fargo Securities

Hey guys, thanks for taking my questions. I was wondering if you could talk more specifically about the strategy underlying the new immuno-oncology center. I’m curious, what are some of the areas of most interest initially, and do you foresee building out a portfolio with early R&D efforts, end licensing or partnering, external assets, or is it more along the lines of expanding out accommodation studies to ensure that existing Celgene products are paired with other folks’ cancer immunotherapies?

Robert Hugin

I think you’ve outlined it, and the sense is really all of the above. I think as a company that has been focused on immunology from its beginnings as a pharmaceutical company, the impact of the core products that we have is in this space and we’ve been very intent on it. We have programs internal in different geographies and in different groups and we have external programs that are coordinated with our internal programs, and so I think because of the magnitude and potential impact of what we have today and the ability to even further leverage it, we think it’s great that we can bring a guy on like Rob to really help us coordinate and have a center of excellence consistent with how we’re building our research philosophy of centers of excellence.

So I think we feel very good about what we’ve built. We now want to make sure its most effectively executed and coordinated and leveraged as we go forward, so we feel very good about where we are but the field is continuing to merge. It will be next generation technologies that we’re very focused on to ensure that we’re positioned today but also for the long term impact of the field. So this is still in the early innings. We feel good where we are and we intend to even be a more significant player over time.

Brian Abrahams – Wells Fargo Securities

Thanks.

Operator

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

Matt Roden – UBS

Great, thanks for taking my question as well, and Peter, welcome back to biotech. I admire your willingness to take on the tough comps of following Jacquie as CFO.

On Otezla, Scott, just trying to reconcile the sales, reported sales versus the volumes implied from the script. So we’ve seen a really nice script trend here, as you’ve pointed out. I guess the titration packs are not included in those scripts, but it also sounds like you guys are giving away a little bit more free drug from those who are converting over to commercial coverage. So can you just walk us through the math of how we get there – is it just increased gross and net here, and should that improve as you get a bigger base of patients?

And then lastly, just related, is there anything you can say on early persistency trends, discontinuation rate on Otezla, and maybe conversion rate from the titration packs to the scripts? Thanks.

Jacqualyn Fouse

Hi Matt. Thanks for the compliments. Peter’s getting a little nervous now, but he’ll be fine. So I just wanted to jump in real quickly and then I’ll pass it to Scott. So just to make sure that everybody is clear on this, the titration packs are like samples – non-revenue generating, as you know. That’s two weeks’ worth of drug, and then we had been prepared from the beginning in order to support the patient’s stay on therapy to have these bridging packs available, which are also non-revenue generating, so that if there was time waiting to get the authorization, the patients would stay on product. I think that’s what we saw over the course of the early stages of the launch, and I think Scott will talk a little bit about the trends that we expect in that because it would be sort of natural for that to taper down over time as you grow your patient base.

Scott Smith

Thanks for the question, Matt. Like you, I’m very encouraged by the Rx trends which are very strong, good growth week to week. I think what you see affecting is, as Jacquie has talked about, is titration. The average time to adjudication in the first two months after launch was 22 days, which is normal in a highly managed category with a new product, so patients with a titration and then a bridge pack to help them get to commercial supply. The good news there is that from the latest data that I have seen, over 95% of patients had that adjudicated positively, so there’s really good access. It just takes a little time, and titration and adjudication just push it off a little bit. I would again go back to my comment that we see in July revenues which we expect to meet or exceed all of what we saw in the first quarter.

So you do get a little bit when you’re giving out free titrations and samples to help with that. You do get a little bit of dampening in the initial weeks, but that goes away as you go forward. We can already see a significant acceleration in revenues, in line with what we’re generating in terms of prescriptions, so it’s a very positive picture.

Matt Roden – UBS

Thanks. And the persistency?

Scott Smith

Oh persistency – it’s too early for me to give actual persistency numbers. The numbers of patients who have discontinued therapy is very low – less than 1% of patients that I can see have discontinued. But it’s too early to really tell because you have a lot of patients very new. What we’re hearing anecdotally is very similar to what we’ve seen in the clinical programs – there was 3,000 patients in the Palace clinical program in total. What we’re seeing is relatively low, very low rates of discontinuation – 1%, 2%, that kind of thing like we saw in the clinical program, so too early to get a really good number on it. Usually we like to get out six to eight weeks—or six to eight months to really get a good view on persistency, but so far it seems in line with what we’ve seen in the clinical program, which was low discontinuations.

Matt Roden – UBS

Great, thank you.

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

Great, thanks. Two real quick ones. One is on the CLL market – lots of products being approved yesterday, including one yesterday. Maybe as you’ve seen this play out over the last year, remind us how you think you’re going to fit in or play here as competition heats up. Secondly, a dividend has been mentioned but really not something that seems to be near term. Is there something that you’d like to see play out? How important is that at the board level for you, and do you need to see stuff play out – for example, litigation and all that kind of stuff – to really get visibility on that before that happens? Thanks.

Jacqualyn Fouse

Hi Michael. Let me just jump in on the dividend question. So it does come up from time to time, and what we’ve said in the past is it’s not something that we see for the near term, but it’s something that we’re going to keep on the radar screen and just think about. One of the key things that would drive our decision on that, though, would be the diversification in the revenue stream that we would like to see take place over a period of time and be meaningful diversification, because as much as we love Revlimid and the growth in Revlimid, and we expect for it to be very good for a long, long period of time, we would also love to have some other products in there that are growing at very fast rates too, and you’ve seen some of the projections that we’ve given where we expect Revlimid to come down from kind of two-thirds or so percent of the total revenue pie to closer to 50%, and hopefully over time even maybe go a little bit below that, but for the right reasons so everything is growing. So it’s not something we forget about, but it’s a ways out.

Mark Alles

Mike, thanks for the question about the CLL. On CLL, recall that we are continuing to accrue and manage our CLL 002 continuum trial, and you’re right – there are so many good things happening for patients right now with respect to novel therapy for the treatment of upfront CLL. What is not different is our strategy is that maintenance therapy remains the real potential to extend the benefit of some of the very powerful drugs that have been approved, so we’re continuing to believe that we have an advantaged position with Revlimid if and when CLL 002 would read out as a positive way to maintain the benefit of prior treatment.

In addition, you may remember we talked about CLL—CC-122, one of our next generation small molecule drugs. I think that this comes along at just the right time because what will happen over time is that large groups of relapsed patients off of drugs like ibrutinib, et cetera, will need different treatments to salvage their resistant disease. So we think that the market shifts, obviously, but then there will be newly defined, homogenously defined patients based on failure of prior therapy, and we’re excited about coming in with our next generation molecules.

Jacqualyn Fouse

There are four of you remaining in the queue, and we’re going to try to get to you. So Operator, please keep going.

Operator

Thank you. Mara Goldstein of Cantor Fitzgerald, your line is now open.

Mara Goldstein – Cantor Fitzgerald

Thank you very much for taking the question. Just quickly then, I guess on Otezla, maybe you can just share with us if there are any plans to expand out the pharmacy distribution once the psoriasis indication is granted, and assuming that occurs in September as expected. And then secondarily on Abraxane, can you just remind us of the markets that are still outstanding for reimbursement?

Scott Smith

So on the Otezla question, at first when launching into a specialty area in a highly managed category, you want to keep your distribution very tight so that you can help with reimbursement and get the kind of managed care footprint and acceptance that we have. As we get into and get through those adjudications, get into the launch of psoriasis, probably not right after the launch but sometime next year, and we’ll take a look at expanding that network once it’s clear from a reimbursement perspective patients are accessing the product in a reasonable way with no time delays and things, I think there’s an opportunity with this product to expand beyond the specialty networks, and that would be an initiative for us in next year.

Mara Goldstein – Cantor Fitzgerald

Okay, thank you on that.

Mark Alles

The reimbursement for Abraxane in pancreatic cancer is going well, as we’ve described. High priority markets for us include Spain and Italy, again as we’ve already described, but markets like Australia and Canada are still in the mix also. So we have several remaining high value markets to secure reimbursement access over the next six months to a year, and I think that continues to bode well for our opportunity to really create a blockbuster in pancreatic cancer.

Mara Goldstein – Cantor Fitzgerald

Okay, thank you.

Operator

Thank you. Our next question comes from the line of Thomas Wei of Jefferies. Your line is now open.

Thomas Wei – Jefferies

Thanks. I had a question on the longer term model that you’ve constructed and how we should think about broad populations versus targeting sub-groups in diffuse large B-cell lymphoma and then triplet therapy in myeloma. So Remarc, I don’t think it’s designed to look at that question of GCB versus non-GCB, but when you think about Remarc, do you think about it being used in a particular sub-type; and then for triplet and myeloma, some of the commentary that you made earlier on the call, it sounds like you think the benefit is going to be specific to calling out specific sub-populations, maybe like poor cytogenetics, or do you think of it as being broadly applicable across the myeloma population?

Jacqualyn Fouse

Hi Thomas, thanks for the question. So generally just with respect to the financial model, as you may imagine, we tend to be probably on the conservative side with our assumptions around how we start with certain patient groups and then move forward over time, so I’m going to let Mark jump in a little bit more in just a minute. Specifically to the question around the triplet regimens, we have not yet built into the model specific forecasts for what the benefits could be to Revlimid’s position in some of the different patient segments associated with—or on duration, for that matter, associated with the emergence of positive results for these triplet regimens. We’ve talked about that on multiple occasions as potential upside to the model and certainly not downside to the model depending on how those things go – it would either be neutral or upside. So we’ll see how those play out and give more color on those over time.

With respect to maybe the other sort of aspect of your question, I’ll let Mark jump in.

Mark Alles

Thanks for the question. So with respect to Remarc specifically, we’re testing Revlimid maintenance in a front-line diffuse large B-cell lymphoma population that is at high risk of relapse based on an index of scoring. That’s not the same thing, as you know, as activated B-cell—as part of the non-germinal cell subtype. So what we’re doing now is participating in the lymphoma market as it has been defined, and we think Revlimid maintenance therapy in this higher risk group of newly diagnosed diffuse large B-cell lymphoma is a great place for the product to be.

Over time, the combination with rituximab we think will really enhance the value proposition of Revlimid and Rituxan, for that matter, in a number of subsets as we described today, the activated B-cell type as a brand-new subtype. It’s very important that we create the kind of homogeneity with molecular markers and companion diagnostics going forward to really optimize that. So we’re participating in the market as it is and we’re shaping the market for future value.

Jacqualyn Fouse

Thank you. Operator, we’ve got one last question, I believe.

Operator

Yes. Our last question comes from the line of Howard Liang of Leerink. Your line is now open.

Howard Liang – Leerink Swann

Thanks very much. How much off-label use is there for Revlimid in lower risk MDS, and if that’s a simple answer, can I also ask a question about your immuno-oncology – when do you expect these preclinical assets, such as CD47 CAR T to move into the clinic?

Robert Hugin

Thanks for the question. Today there is very little – very, very little – use of Revlimid in the non-deletion 5q, or as you described, off-label market. So it’s very clear, the role of the product is very well defined on label for deletion 5q non-transfusion dependent disease.

With respect to CD47 and CAR T, we believe that as we enter 2015 we can accelerate the clinical development of both of these programs. So this year is still a little bit more getting organized, understanding the profile, INDs, et cetera, and then 2015 would be, I would hope, a year we could accelerate both assets in the clinic.

Jacqualyn Fouse

And with that, thank you very much everybody for being on the call with us today, and we will see you soon.

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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