Celgene's CEO Discusses Q4 2010 Results - Earnings Call Transcript

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


Good morning, ladies and gentlemen, and welcome to Celgene's 2010 Fourth Quarter and Full Year Conference Call. [Operator Instructions] I would now like to introduce your host for today's conference, Tim Smith, Director of Investor Relations.

Tim Smith

Good morning, everyone. I would like to welcome you to Celgene's Fourth Quarter 2010 Conference Call. The press release reporting our fourth quarter 2010 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 in the room today are Dr. Jean-Pierre Bizzari, Senior Vice President, Clinical Development, Oncology; Mark Alles, our President of the Americas; Jackie Fouse, our Chief Financial Officer; and Bob Hugin, our Chief Executive Officer.

Before we start, we want to remind you that our discussions during this conference call will include forward-looking statements. Our actual results, performance or achievements could be materially different from those projected by these forward-looking statements. The factors that could cause actual results, performance or achievements to differ from our forward-looking statements are discussed in our filings with the Securities and Exchange Commission, such as our Form 10-K, 10-Q and 8-K reports. Given these risks and uncertainties, you are cautioned not to place undue reliance on our forward-looking statements.

Also, our discussions during this conference call will include certain non-GAAP financial measures. Non-GAAP financial measures provide investors and management with supplemental measures of operating performance and trends that facilitate 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 Financial Officer, Jackie Fouse.

Jacqualyn Fouse

Thank you, Tim. Good morning, everyone. Thank you for joining us on our call this morning. I'll start today with some highlights of our 2010 results for what was a record quarter, as well as a record full year for Celgene. We produced outstanding results with strong growth in both the top and bottom lines, while continuing to invest in R&D and our global infrastructure. Our metrics are excellent on all levels and we have a robust product pipeline that supports a strong sustainable growth trajectory well into the future. Bob will update you on some of our key R&D projects in a moment.

Starting with the top line, non-GAAP total revenue for the fourth quarter was $1.05 billion, a 38% increase over the fourth quarter of 2009. This marks the first time we have surpassed the $1 billion revenue mark on a quarterly basis. Non-GAAP total revenue for the full year 2010 increased 34% year-over-year to $3.6 billion. The strong growth was driven by volume growth in our key products, REVLIMID, VIDAZA, as well as 11 weeks of ABRAXANE sales following the October 15 closing of the Abraxis acquisition. Volume growth continues to be fueled by multiple factors, including share and duration gains, as well as geographic expansion.

Driven by that revenue growth, non-GAAP net income for the fourth quarter rose to $348 million, an increase of 20% over the fourth quarter of 2009. This translates to non-GAAP diluted earnings per share of $0.73, up 18% versus the fourth quarter of 2009. For the full year, non-GAAP diluted EPS was $2.80, an increase of 35% versus 2009. As you can see from these results, we are leveraging our operating model to produce strong EPS growth at the same time as we invest in a robust R&D pipeline, build out our global commercial organization and complete the full integration of Abraxis.

Putting these Q4 and full year 2010 results in the perspective with our quarterly revenues for the past three years, we can see the excellent momentum Celgene generated throughout 2010, even as we grew from our record revenue base in 2009.

Turning to some key individual product results. Fourth quarter REVLIMID net product sales were $708 million, an increase of 42% over the fourth quarter of 2009. On an annual basis, REVLIMID sales increased 45% to $2.47 billion. This growth was driven by share and duration gains in multiple countries, as well as overall continued geographic expansion, as we enter new markets. REVLIMID's sequential quarter growth was 10%.

VIDAZA net product sales for the quarter were $140 million, an increase of 20% from the year-ago quarter, and global VIDAZA annual growth was 38%.

ABRAXANE sales for the quarter, as from the October 15 closing date of the acquisition, were $71 million. We are excited about the ongoing launch of our oncology franchise and the opportunity for ABRAXANE in patients with metastatic breast cancer. Bob will discuss this opportunity further during his remarks.

Moving to the geographic breakdown of REVLIMID. Fourth quarter sales in the U.S. were $402 million, an increase of 7% on a sequential quarter basis and a 38% increase when compared to the fourth quarter of 2009. International sales were $306 million, an increase of 15% on a sequential quarter basis and a 49% increase when compared to the fourth quarter of 2009. The international expansion of REVLIMID continues to progress well, and the launch of the product in Japan is on track.

I would now like to briefly cover some of the key line items within our P&L. Our non-GAAP product gross profit margin for 2010 was 92.9%, an improvement of 90 basis points over 2009. REVLIMID continues to contribute positively to our sales mix, and the Q4 and full year 2010 gross margins include the impact of ABRAXANE in our sales mix as of the acquisition date. I will talk about our expectation for gross margins in 2011 in just a moment when I cover our guidance.

With respect to expenses, non-GAAP R&D expense during the fourth quarter was $298 million, an increase of 28% over the third quarter. Full year 2010 non-GAAP R&D expense was $918 million, up 32% versus 2009, as we strategically invest in developing new products that will enhance our long-term growth profile.

For SG&A, non-GAAP expenses were $252 million for the fourth quarter, a sequential increase of about 24% from the third quarter, and compared to 2009, SG&A grew 24% for the full year. The growth in SG&A during 2010 was driven by investments made in our global commercialization infrastructure, as well as costs associated with the ongoing integration of Abraxis. We expect to leverage this spend in future years, and I will speak a bit more about this when I cover the 2011 guidance.

On income tax, our non-GAAP effective tax rate for 2010 was 19%, a 230 basis point reduction versus 2009. This was an exceptional quarter with record revenue, earnings and cash generation, and we ended the year with cash and marketable securities of $2.6 billion. This considers the cash used to complete the Abraxis acquisition and the funds received from our debut debt offering. Our operations generated approximately $1.4 billion in cash during 2010.

Before we turn to our 2011 full year outlook, I would like to remind you of the impact the U.S. healthcare reform legislation had on our revenues for 2010 and the expected impact for 2011. The 2010 impact of $36 million was in line with forecast we gave you during last year. Our expectation for the combined impact of the various aspects of this legislation on 2011 revenues is $80 million to $90 million, and this is built into our guidance. The change in the Coverage Gap Discount or donut hole is the most significant change for 2011, and we will monitor its consequences very closely. You'll note on the webcast slide that we've listed all of the various aspects of the legislation just to make it clear what's included in our guidance.

With respect to that guidance, we gave you a high-level look at our 2011 full year outlook at the JPMorgan conference a couple of weeks ago. To reiterate the high-level aspects, global REVLIMID net product sales are anticipated to be in a range of $3 billion to $3.1 billion. Non-GAAP total revenue is expected to be in a range of $4.4 billion to $4.5 billion, and non-GAAP diluted earnings per share are expected to be in a range of $3.30 to $3.35. This non-GAAP EPS guidance includes the impact of Abraxis results on the P&L and reflects the increase in share count from the acquisition. Underlying this guidance is the assumption of a continuation of strong investment in R&D, and you can see that we have modeled 31% growth in R&D spend in our 2011 P&L.

In addition, we believe that we will start to see good leverage from our past SG&A investments and that we will be able to manage growth in that spends to significantly less than revenue growth. With respect to cost of goods sold, the favorable impact of REVLIMID on our sales mix will continue, but this will mostly be offset by the full year impact of ABRAXANE in the mix, and we would guide you to assume about a 93% gross margin for 2011. Finally, we expect a modest improvement of 50 basis points in our global effective tax rate.

Putting 2011 into the context of the recent history of Celgene, we clearly see the company's commitment to invest in R&D to ensure our future growth trajectory, while we drive operating leverage in other spending categories. We will always invest appropriately in our global infrastructure, but we now have the size and scale to start to leverage our P&L to produce strong bottom line growth driven by strong top line growth but not at the expense of future growth.

To conclude my remarks for today, let me reiterate that the global expansion of all of our franchises continue to progress extremely well, and it drives our strong financial performance. Excellent operating efficiency and leverage allow us to produce industry-leading top and bottom line growth, while we reinvest some of that leverage in R&D. We are well positioned to deliver strong results in 2011 and beyond. Furthermore, we are doing all of this from the position of a very strong balance sheet and cash generation that give us great financial flexibility.

Thank you, and now I'll turn the call over to Bob.

Robert Hugin

Thank you, Jackie. 2010 was an exceptionally successful year for Celgene. We achieved or exceeded major corporate objectives across all areas of the company. The results achieved in 2010 are all the more impressive as they were accomplished, while simultaneously advancing key strategic initiatives that position us for sustained long-term growth.

Our continued international expansion significantly contributed to our 2010 revenue growth. Today, we have operations in 40 countries, and our products have sold over 70. With Japan entering its first full year of launch and the prospects for Russian reimbursement later this year, global expansion should be an important revenue driver in 2011 as well. Our world-class commercial organizations have produced superb results, supported by extensive early and late stage clinical data and an expanding portfolio. The substantial gains in market share and duration for our products are the direct result of a decade's commitment to clinical trial and research to identify the optimal patient impact of our therapies.

In 2010, the progress achieved by our regulatory and clinical teams is another significant growth driver. In the fourth quarter, we finalized three important regulatory filings, highlighted by our REVLIMID newly diagnosed myeloma and post stem cell maintenance application in Europe. Many pivotal trials in our hematology, oncology and immune-inflammatory franchises advanced significantly during the quarter. MM-020, our 1,600 patient Rev/Dex Newly Diagnosed Myeloma trial completed accrual. Enrollment accelerated in our solid tumor Phase III trials. In our immune-inflammatory franchise, all of our pivotal Apremilast trials in both psoriasis and psoriatic arthritis are underway. And our proprietary cellular therapy PDA-001 has active trials now enrolling patients in Crohn’s Disease, multiple sclerosis and rheumatoid arthritis. And our IND for the treatment of stroke with this therapy was approved just last week. We are moving rapidly forward. Though Apremilast and PDA-001 are not on many investors' radar screen, it is worth watching for clinical data from these programs later this year.

Let me now turn to our recent operating results. As you can see on the slide, REVLIMID continues its excellent growth trajectory with accelerating growth in the fourth quarter. In the United States, REVLIMID now has an approximate 45% share of the overall myeloma market. REVLIMID also had a strong market position in Europe with a 46% line two share in the four major European countries where REVLIMID is reimbursed. Line three share in the five major European markets is approximately 45%.

Duration of therapy continues to improve across all markets. We believe this is a direct result of successful physician and patient experiences and the compelling data supporting continuous REVLIMID therapy presented at major medical meetings throughout 2010.

Growth was well balanced across regions. Geographic expansion remains a key driver for the brand and Celgene more broadly. We're very pleased with the early performance in Japan where science points to REVLIMID being one of the most successful oncology products launched in this market. Emerging markets in Asia-Pacific and Latin America are making meaningful contributions to our revenue. We're optimistic about the prospects for federal reimbursement in Russia in 2011. And we'll continue to seek regulatory approvals and reimbursements across a number of smaller markets in 2011. Despite the challenging macroeconomic environment, REVLIMID had an exceptional year.

VIDAZA strengthened its global leadership position in the myelodysplastic syndromes marketplace in 2010. VIDAZA continues to have a leading market share in intermediate two and high-risk MDS segments in all developed markets. With VIDAZA losing regulatory exclusivity in the United States in the middle of this year, it's important to note that international sales grew by over 50% in 2010. Market share duration continue to strengthen in our major European markets. Our marketing campaigns, focused on disease education, the need for active therapy and optimizing dosing and duration, are leading to broad market adoption and strong growth. I should also note that based on the very positive data presented at ASH in December, we're accelerating the clinical development of our new oral formulation of azacitidine.

Acquiring ISTODAX in early 2010 provided us with a strategic entry in the lymphoma market. The United States commercial launch of ISTODAX in relapsed and refractory cutaneous T-cell lymphoma is progressing on track. Late last year, we filed with the FDA for approval in relapsed and refractory peripheral T-cell lymphoma, an area of high unmet patient need and an attractive commercial opportunity. We're optimistic of achieving U.S. approval later this year, and at the same time, our teams are advancing our global filing strategy for ISTODAX. We plan to submit our PTCL application in Europe in this quarter.

Our investments to strengthen our leading hematology franchise are paying off. We now have more than 15 pivotal trials studying our growth in virtually every hematological malignancy. We submitted two regulatory filings in the fourth quarter, REVLIMID for newly diagnosed myeloma and maintenance in Europe and ISTODAX for PTCL in the United States. We expect to file for REVLIMID and MDS del 5q in Europe later this quarter. In MDS del 5q, investigators at ASH presented data from our pivotal trial MDS-004, demonstrating that REVLIMID changes the course of the disease. In patients that responded to therapy, REVLIMID reduced the risk of death by 56% and reduced the transformation to AML by 35%. In addition to submitting this data for regulatory approval, we're executing clinical strategies for REVLIMID and VIDAZA across the spectrum of MDS as both single agents, as well as in combination.

And we remain optimistic about REVLIMID's potential in lymphoma and CLL. We expect to complete enrollment in our relapsed and refractory mantle cell studies within the next year. This indication has the potential to provide REVLIMID's first entry into the lymphoma market. And we're actively enrolling six pivotal studies in lymphoma and CLL with REVLIMID and intend to initiate additional studies further exploring the combination of REVLIMID and Rituximab in lymphomas and leukemias.

Achieving global regulatory approval for REVLIMID in newly diagnosed multiple myeloma and maintenance therapy post transplant for patients is one of the most important objectives for our hematology franchise. This past week, we received notification that our EU submission was accepted for review. In addition to working with the health authorities during the anticipated 12 to 14-month review process, we intend to file the newly diagnosed myeloma and maintenance marketing application with the FDA later this year.

Our regulatory dossier consists of three large randomized Phase III placebo-controlled studies, MM-015, IFM-0502 and CALGB 100104. Also outlined on the slide is an additional Phase III study, MM-020, which compares continuous REVLIMID and low-dose dexamethasone versus 18 months of REVLIMID and dexamethasone therapy versus 18 months of melphalan and polidomide therapy . As I mentioned earlier, this study completed enrollment at of the end of 2010, and we expect MM-020 to be the centerpiece of future regulatory filings designed to establish REV low-dose dexamethasone as a standard regimen for all newly diagnosed myeloma patients.

The favorable side effect profiling unprecedented activity demonstrated by REVLIMID in both the treatment and maintenance of patients with newly diagnosed multiple myeloma was highlighted in multiple oral presentations at this past year's American Society of Hematology meeting. Across the three large Phase III studies, the difference in progression free survival, the primary endpoint of these studies was consistent and remarkable. The risk of developing disease progression was decreased by 50% to 60%. The magnitude of these results is rarely seen in cancer studies where PFS differences are often measured in weeks as opposed to months or perhaps even years. At ASH, there was also a data presented that showed an imbalance between the two arms in each study with respect to the number of reported second primary malignancies. I'll take a few minutes to update you on the substantial progress that we've made analyzing this observation.

While a higher number of second primary malignancies were observed in the REVLIMID treatment arms of these controlled studies, a consistent reporting bias existed due to significantly shorter duration of follow-up in the control arms. As is typical in cancer research, after patients progressed, they are usually followed only for survival and not for other medical conditions, including the second primary malignancies. To understand the implications of this difference in follow-up, we analyzed standardized incidence ratios, which take time into consideration. To do this, we reviewed data from our myeloma regulatory trials, MM-009 and MM-010, which are our relapsed/refractory studies and MM-015 and MM-020, our newly diagnosed myeloma trials, and compared this to the U.S. SEER Cancer Registry, the premier source for cancer statistics in the United States. We found a very low incident rate of second primary malignancies in the REVLIMID arms of these studies. There was no significant increased risk of AML/MDS and no significant increased risk of solid tumors. The number of reported observations of B-cell malignancies at this time is so low that comparisons to registry data are not meaningful. We've reviewed these analyses with independent investigators to ensure that our methods and conclusions were supported.

In addition, we analyzed our pharmacovigilance database and found that the incidents of second primary malignancies among the more than 170,000 patients who have been exposed to REVLIMID is less than 1/2 of 1%. In partnership with global investigators, we're amending existing and future study protocol to ensure that follow-up across study treatment arms is consistent, thereby lessening reporting bias. In addition, amendments will further identify subgroups of patients who may derive greater benefit from continuous REVLIMID therapy and patient risk factors for progression of disease or second primary malignancies.

Now with the meeting duration of treatment of greater than two years, the IFM is considering amending the 0502 protocol to discontinue REVLIMID maintenance therapy to the approximately 70 patients still on study. This amendment would enable Celgene and the IFM to fully explore all potential variables associated with the small number of second primary malignancies reported in the IFM-0502 trial. We're also working with the IFM to investigate the benefit of retreatment in those patients who stopped maintenance therapy and then progressed. All other REVLIMID studies are continuing as planned.

We expect additional updated efficacy and safety analysis of these studies to be presented in peer-reviewed publications and at upcoming major medical meetings throughout the year. And we remain confident in the timelines for global approval in newly diagnosed myeloma and maintenance.

Despite the incredible advances that REVLIMID and other novel agents have brought to the treatment of myeloma, patients with relapsed/refractory disease remain in need of the new innovative therapies. Novel agents have profoundly impacted survival, thereby increasing the prevalence of patients with relapsed/refractory disease. Pomalidomide is uniquely positioned to provide benefits to these patients and to be an important contributor to our mid- and long-term growth. At ASH, investigators presented Phase II data that showed impressive single agent response rates in heavily pretreated patients. Given the positive data, our experience with our Phase II trial and the urgent patient need, we expect that our Phase III trial will improve very rapidly. In addition, we are focused on rapidly accruing our Phase III trial in myelofibrosis that began enrolling patients late last year. We are committed to making Pomalidomide available to patients as soon as possible.

REVLIMID and VIDAZA success in myeloma and MDS have established Celgene as a leader in hematology. We have leveraged these brands to build a global franchise that now includes four products across four major diseases. We continue to make significant investments to further strengthen this core franchise. New products, such as Pomalidomide and new indications across a spectrum of diseases, will bolster this franchise and has the potential to deliver over $6 billion in revenue by 2015. One of our key strategic initiatives is to develop and build new therapeutic franchise areas consistent with our mission and business model. And we've made significant progress in 2010 in building our solid tumor franchise. ABRAXANE is the core of our oncology franchise today, and we'll talk further about this brand in a moment.

Our Phase III 1,000 patient prostate cancer trial evaluating the combination of REVLIMID with docetaxel is very rapidly accruing and is expected to complete enrollment in the third quarter of this year. We're also studying REVLIMID in a number of other proof of concept trials across different solid tumor indications. In addition, our proprietary mTOR Kinase Inhibitor is in early clinical trials, and we're evaluating development strategies as we receive data from this ongoing trial.

Finally, we're supplementing our internal efforts with a number of collaborations, such as our partnership with GlobeImmune, as well as early research collaborations with Array and Agios. The Abraxis acquisition was an important strategic transaction that enabled us to establish a presence in solid tumor oncology. The integration of the companies is going well and nearly completed. In the United States, we have optimized our commercial organization and are launching Celgene Oncology. We expect to leverage this new capability to maximize the potential of ABRAXANE across multiple tumor types. Our focused positioning and marketing strategies should enable us to accelerate growth in metastatic breast cancer during 2011 even as our commercial team manages for the short-term challenge of the launch of generic docetaxel.

In Europe, we've reassessed the business case in breast cancer and have decided to invest in a targeted commercial fuel force to realize this opportunity. We'll launch ABRAXANE on a country-by-country basis throughout the second half of 2011 and into 2012.

In lung cancer, we updated you on the interim analysis of the JPMorgan conference a couple of weeks ago, but to reiterate, we intend to file in the United States on the basis of response rate in the second half of this year. While a final subgroup of data will be presented at ASCO later this year, we assume that we will not have PFS claim in the labels. This is consistent with original expectations and enables us to address a significant patient population in the United States.

In the clinical setting, we continue to explore a number of solid tumor opportunities. In pancreatic cancer where the combination of ABRAXANE and gemcitabine has shown encouraging survival data in the Phase II trial, we've enrolled almost 500 patients in the 800 patients Phase III study and expect to complete enrollment towards the end of 2011.

In addition, the Phase III study evaluating single agent ABRAXANE and metastatic melanoma is more than 2/3 enrolled. This is an evolving marketplace, and we're also evaluating the potential of the treatment with Avastin, carboplatin and ABRAXANE in this disease. We believe that with the revised strategy and renewed effort, ABRAXANE has growth potential in the metastatic breast cancer market. Layering in opportunities in lung cancer, pancreatic cancer and other tumor types where ABRAXANE has demonstrated activity, we believe that the global commercial potential is greater than $1 billion in 2015. Through our integration efforts, we have learned more about the brand and these diseases and now have increased confidence that ABRAXANE will play an important role in the treatment of a number of solid tumors.

2011 will be an important year for our inflammation and immunology franchise. As you can see from the slide, Celgene I&I expands multiple therapeutic modalities, products and mechanisms. We have multiple slow molecule programs and a biologics candidate in ACE-011 and cellular therapies from our labs in Warren, New Jersey. As I mentioned earlier, we are studying our cellular therapy PDA-001 in a number of indications. And by the end of the year, we expect to have proof of concept studies initiated in at least six different indications. I'm particularly excited about the continued maturation of our I&I pipeline. A number of studies will be completed and analyzed in the next 12 to 18 months with the potential to transform Celgene.

Apremilast, our novel oral immunomodulator is currently being studied in the host of inflammatory conditions. The lead indications are severe psoriasis and psoriatic arthritis, and we’re enrolling more than 3,500 patients across six pivotal studies to support potential filings in these indications. If the Phase II data is confirmed, we believe that Apremilast will provide patients with a highly active oral well-tolerated therapy that will effectively compete in a multibillion-dollar market. We're executing on a broad development program that includes rheumatoid arthritis and other serious inflammatory conditions.

As we come to an end of the prepared remarks, I'd like to leave you with a few concluding thoughts. 2010 was an exceptional year for Celgene, as we've created momentum across all segments of our business. The prospects for 2011 are bright. Our financial guidance reflects industry-leading top and bottom line growth while conducting more than 25 pivotal studies. We're expanding our franchise and increasing our investment in high potential research and development programs to sustain long-term growth.

I'd like to thank our global team of dedicated professionals who strive on a daily basis to make a meaningful difference in the lives of patients in need around the world. With these efforts, we will improve the lives of patients, and through these efforts, we will increase value to our shareholders.

Thank you, and we'll now open the call to questions. Thank you.

Question-and-Answer Session


[Operator Instructions] And our first question comes from Jim Birchenough with Barclays Capital.

Jim Birchenough - Barclays Capital

Just a question on duration of therapy. I know you're not giving out specific numbers, but can you tell us if the one-month extension in duration per quarter that we're seeing previously is still being seen? Have you seen any impact of the secondary malignancy data in a vast terms of adoption? And then have you had to share any of the secondary malignancy data with FDA or DMA? Have they requested that data?

Robert Hugin

There a number of questions there. Let me start with the last one. First, any data that we were to share publicly or be presented at medical meetings, our strategy and we're hopefully effective on this in all cases, is to always share all data with regulatory agencies before it's publicly disclosed. So that's the way it's operated here, and all of this is -- anything with any of the issues is very consistent with that strategy and is a clear priority for the company. So that's all continually being done on an ongoing basis. Related to duration, I think as over time, you're going to see duration depending on how big the pool of new patients is versus the existing pool. You're going to see changes in the slope of duration. But I can tell you across all markets, duration has continued to extend. And related to the question about what's the momentum in the business, who knows what tomorrow brings? But I can tell you that we finished the year strong in all markets, and the progress that we've made in the first few weeks of January is very encouraging about the results for 2011 overall. But it's obviously early in the quarter to make a more general comment than that.


Our next question comes from Ian Somaiya with Piper Jaffray.

Ian Somaiya - Piper Jaffray Companies

Just a question on ABRAXANE. I think you've stuck to your guidance of expectation of a $1 billion of sales by 2015. It would help us, but can you just give us a breakdown of where you see the sales coming from? What is the contribution from lung cancer, just given the acute focus on the recent data?

Robert Hugin

No, I think we're very encouraged by ABRAXANE. Obviously, we closed the deal on October 15, and we're learning a lot. We're working hard. It's been integrated into our clinical regulatory commercial organizations. A couple of things have happened. First of all, we really refocused, and Mark's here and he may add some additional comments, that we're refocusing the brand in metastatic breast cancer and I think that as we get through some of the short-term challenges, we're encouraged about the opportunity to expand that opportunity. Additionally in Europe, we're more optimistic than we were at the initiation of the deal as we've understood clearly what the reimbursement issues are, what the data is and what the label is, et cetera. So I think that we're going to see metastatic breast cancer overall be a more significant driver of revenue growth over time than we originally thought. The non-small cell lung cancer is very much consistent with the growth that we thought that would provide to ABRAXANE over time once we get the approval, and I think that's very important to us. Now as you can imagine, there’s ranges on all the metastatic breast cancer opportunities in Europe and around the rest of the world and in the U.S. and in what lung cancer's going to do, and just those two indications gets us to a level of revenue that I think makes this Abraxis deal not just a very attractive strategic deal but one which makes sense financially. And if we see any benefit from pancreatic, ovarian, bladder or additional data in other breast cancer population and better in non-small cell lung cancer than we thought, we're going to even do better than what those indications would project.


Our next question comes from Geoff Meacham with JPMorgan.

Geoffrey Meacham - JP Morgan Chase & Co

Questions on OUS REVLIMID. You guys have had some nice growth in the second half of last year despite the pricing environment. Can you speak to the OUS growth in the second half? EU versus Japan? What do you see in the pricing environment in Europe particularly in 2011? And what can you talk about this generally assumed in your guidance?

Robert Hugin

Yes, I think we're really encouraged about 2010 that the growth was for across geographies. The U.S. was strong. Clearly, we're earlier in the launch in Europe, so we saw good market share gains and good duration gains, and we're also benefiting from the geographic expansion. Certainly, 2011, we'll hopefully continue those trends is our expectation, and also the international expansion of Japan's first full year. I don't think, Geoff, there's really anything different going on today in terms of pricing, that we've got tough budgetary conditions in countries, we've got issues about duration, how we manage that. And our strategy of being proactive and being engaged in discussion so we have the right value proposition is just as important today as it was, and it's no less important, it's no more important for us to continue to strengthening that value dossier. So as we look forward, I think over time, the growth is going to be increasingly outside of the United States. But in the near term, the prospects are good in all the markets.


Our next question comes from Yaron Werber with Citi.

Yaron Werber - Citigroup Inc

I also have a just a little bit of a question on ABRAXANE. Can you just help us understand a little bit. When do we expect sort of the inflection in the commercial opportunity in your hands despite taking hold? I mean we're still probably dealing with a little bit of headwinds because the generic tax is here right, where the doctors are still making money using a generic. So is it more in the second half where we can start expecting an inflection? And then, if you can also help us understand a little bit historically. They really have not taken much price actions in the last three years, they originally took a big price increase, which really fumbled the ball. But they really haven't done anything since. Do you have any room there as well?

Robert Hugin

Mark, when you want to go head.

Mark Alles

It’s Mark, how are you? So specific to your question about inflection point. I think it is safe and fair to say that if we start to look for a regrowth in metastatic breast cancer in the second half of '11 versus a historical trend, I think that would be fair. And we certainly expect that to be the case. I think on the pricing front, as you well know, injectable chemotherapy, because of the ASP catch-up in terms of reimbursement and timing, it really has active as a bit of a damper on pricing across injectable chemotherapy in the U.S. So I think you would see pricing in the future without making any firm commitment that would be very similar to what's been happening across the market for these drugs.


Our next question comes from Geoff Porges with Bernstein.

Geoffrey Porges - Bernstein Research

Well I'll just raise a slightly different question, which is on M&A. While you guys have delivered spectacular growth, the stock is largely being flat over the last four years. And you just stopped at this sort of multiple compression and then whenever the stock seems to get ahead of above water, there's an acquisition, and then it sinks down again. So where do you stand on deals? You've just taken on ABRAXANE. Do you feel comfortable here? Is there going to be a window where you're going to let cash flow and earnings build for a while? I think that's probably an important question.

Robert Hugin

No, I appreciate the question. It's a complex issue. I think that our base situation is our job is to do the maximum in terms of operating excellence to produce the best results possible, and then grow for the long term. I do think where our portfolio is today in hematology and oncology, we feel very good about it. Obviously, immuno-inflammatory one is one we believe we're going to see great promise, and from the potential of apremilast and other programs there and also our cellular therapy. But I don't think that we're in the marketplace looking for some type of large transformational deal. I think there are potential tactical things we can do to add on other products that will be the leverage and would have a positive impact on the bottom line and top line for us. So I think we do need to be sensitive to ensure that we've got a balance between growing the company and investing our money wisely and being very supportive and attentive to shareholder value. So I don't think you'll see anything dramatic in the near term. And I think unless we see a great data in another area, and we're at a total different level as where the company is, then we might look at those things. But right now, there's really just tactical things we might consider.


Our next question comes from Hermes Renobassan [ph], with Goldman Sachs.

Unidentified Analyst

I think a couple of clarifications on the secondary malignancy issue. The first one was why and by only IFM is being sensitive to discontinue the maintenance on? Secondly, just when you said about comparing the rates of secondary malignancy to the CO[ph] database, have you included all the trials? How does it look when you look at the MCR-based trials?

Robert Hugin

Obviously, analysis is ongoing and I’ll let anybody else who's been working with have any comment. I think what we're seeing is generally low incidence at all. In fact, generally, in all cases, below the expected level that you would see in populations of this type. And we've got to go to make sure we understand every little subset of patients that could have either some impact of a prior therapy and everything else. So we're committed to really fully exploring this. This is something that’s going to go on for a long time. It's a normal course of drug development as you learn more about the drug. We're in the very fortunate position that this drug is being used by patients for a long, long time. So there's an opportunity to really identify different subsets of patients. So this is something we feel very good about the research, and the efforts analysis we've done so far. And we'll continue to do this for a long time.

Mark Alles

I think the only thing I would add is that as we stated, all of these studies have matured and are maturing. And so they offer opportunities for us. Bob pointed out subset analyses across a number of parameters. One being looking for any mechanistic reason or other epidemiologic reasons or, for example, in the case of the IFM study or other studies, one of the questions is reactivation of EBV opportunity for those patients who have had long induction courses and/or other [indiscernible] that might not have been understood. So there are a number of places to look for in more mature studies, subsets of even greater benefit and other subset analysis. So we think a very normal part of what's happening.


Our next question comes from Mark Schoenebaum with ISI Group.

Mark Schoenebaum - ISI Group Inc.

Just on healthcare reform, can you talk a little bit about how you estimated the impact of the donut hole? Is it safe to assume the difference between the 2010 estimated impact or actual impact on the 2011 estimated impact on revenue is due to the donut hole? And did that impact would be skewed towards first quarter REVLIMID numbers? And I just didn't understand this is just as a clarification. I just didn't understand what you said about amendments to the IFM trial. If possible, could you just go over that again?

Jacqualyn Fouse

Mark, it's Jackie. Let me just start with the healthcare reform impact. So the answer to your question, the short answer is yes. Most of the difference from 2010 to 2011 is driven by the change in the coverage GAAP or the donut hole. We would expect to have a greater impact of that in the first quarter and first half of the year. One of the challenges with this is the lack of history that we have on this. So it's going to be something that we're monitoring very carefully. We have a model that we used to make some assumptions around that impact, including the number of people enrolled in programs and various things, some demographics. And at this point, without a lot of history, it still is an educated guess. We feel pretty good about it. We saw that we were able to do a decent job of estimating the 2010 impact. And with this Coverage GAP being the biggest change to 2011, we feel good about our estimate, but we do need to get some history behind on this one to have a better idea of it. And we'll give you an update on that as we go through next year.

Robert Hugin

And then related to the second question about the IFM study. With now about 70 patients remaining in the study and with all the patients on the study on therapy for greater than two years, the IFM, we believe in discussions with us is considering stopping the maintenance phase, understanding all the subset analyses that can be done now with this mature database and will also look at retreatment of these patients on progression. The question that we're very much interested in to understand is as someone benefits from long treatment when they do progress, will REVLIMID be active again in that segment? So we don't know the final answer, but we do expect that the maintenance part of the trial will be concluded. And there will be significant analysis to understand all the different parameters of the results of the trial and then look for other information we can get from the trial.


Our next question comes from Jason Kantor with RBC Capital Markets.

Jason Kantor - RBC Capital Markets, LLC

I wanted to understand on REVLIMID a little bit more about the opportunity for global expansion. You mentioned emerging markets are becoming a big contributor. First, can you just give an update on where you are in terms of your Japan launch? And then also, how big is the non-US, non-EU opportunity kind of at the peak sales level? What percentage of sales do you think will come from non-US, non-EU?

Robert Hugin

I do think that when you look at longer-term, over the next five, six, seven years, our expectation is that we will -- our first objective is to get to 50-50, and that's the U.S. performance has been so strong, and we're couple of years ahead of the international markets. But specifically to Japan, everything is on track with how we'd hoped it would go, that there is increasing experience with the drug, and that leads to the increased number of patients in each practice. And so I think Japan is on track to have a meaningful contribution to our results in 2011. And internationally, overall, obviously, a lot of it will depend on regulatory actions as we expand the label and the speed at which we expand the label in different markets. And I think in one area where I'm also optimistic is because of the Abraxis acquisition, having an established presence in China, we're going to be more effective in bringing REVLIMID and VIDAZA into China more quickly than we would've done this from a completely standing start at Celgene alone. So our goal is first to get to 50-50, but clearly, our view over time is that it should be at least 1.5x the U.S. number what we can produce globally for our major products that have the kind of broad approval in all markets.


Our next question is from Matt Roden with UBS.

Matthew Roden - UBS Investment Bank

Question is on RBD. The checks that we've done had suggested that RBD utilization in the front line is one of the drivers of frontline penetration here in the U.S. So I was wondering if could give us some color on what the feedback you've gotten from the field, whether or not you've seen penetration into the high-risk for cytogenetics group and in combination with Velcade? And then related to that, in Europe, once you do get approval of front-line REVLIMID in Europe, is there anything structurally different that would prevent utilization of RBD in Europe?

Mark Alles

So this is Mark Alles. Matt, to your question on RBD. This is very, very powerful, and what has been surprising in the market, a safe and fully reimbursed regimen. So as an induction regimen in the U.S., it is gaining a lot of traction across risk groups. You mentioned high risk in particular, and that was one of the early reasons the market started to adopt the regimen. So I think RBD as a regimen. It's here to stay. It will continue to grow. The question will really be; does it somehow become the standard induction versus, for example, high-risk standard? I think the other component of that is the ongoing study that you're aware of, which is the RBD collaboration between the IFM and the Dana-Farber group, which would take RBD outside of induction, continue to treat patients and then compare that treatment to to high-dose therapy with a thalidomide stem cell transplant and then maintain those patients. So I think there's a lot of data that we still need to see before we can call RBD the new standard, and I certainly think in Europe, without a label, without reimbursement for the regimen, the regimen would be limited in terms of long-term value. I hope that answered your question.


Our next question comes from Brian Abrahams with Wells Fargo.

Brian Abrahams - Wells Fargo Securities, LLC

Another question kind of along the lines of the European label. Can you help us understand the language that you're hoping to receive to the extended label for REVLIMID in Europe, in particular for the frontline setting? I'm just wondering with the post-induction maintenance indication, there might be any potential commercial barriers for REVLIMID in newly diagnosed patients versus using some of the other agents that might have the more traditional frontline labels?

Robert Hugin

I think it's an important question. Before we do any regulatory filing and strategy, it's all bedded with our reimbursement experts, our leaders in every single country. And so any kind of expansion of the label is only done after there's been a rigorous review about the reimbursement and the payer relationships that we've established after that label expansion. So I can assure you that the label we're seeking, first, is always going to be inconsistent with the regulatory strategies. That the label is going to reflect the data that's in the application and then ultimately that comes out of the negotiation of how the review goes. So in the label, we'd expect the results of MM-015, IFM-0502, and that will be the course of the review we'll see. But from a reimbursement point of view, we're very positive about if we're successful in getting this label that we would achieve broad reimbursement across Europe for those indications.


Our next question comes from Chris Raymond with Robert Baird.

Christopher Raymond - Robert W. Baird & Co. Incorporated

Bob, I was kind of struck by one of your comments on ABRAXANE. Specifically, you're more optimistic in the metastatic breast cancer setting. Can you maybe talk about it, is the source of this optimism, is it changes that you guys have made to the marketing mix? And maybe can you get a little bit more descriptive if that's what it is? What exactly are doing, or is it perhaps the news with respect to Avastin that's driving that? Maybe the second part of questions is can you tell us to be roughly how much of your cash is held offshore?

Robert Hugin

So Jackie do you want to do the offshore part?

Jacqualyn Fouse

Right now, we're at roughly 50-50.

Robert Hugin

So on ABRAXANE, I think you described it well. I think the market dynamics are interestingly changing, including the debate about Avastin role data treatment of metastatic breast cancer. So we know, for example, that peers are still paying for the use of Avastin in metastatic patients, so that's good for patients as this gets sorted out. But we also look at subsets of patients in the marketing mix, the strategy that we have and have worked with thought leaders in the U.S. and to a certain extent in Europe to understand where they actually see the most benefit for ABRAXANE as a single agent and potentially in combination, and we're encouraged by that positioning and marketing mix leading to this re-growth that we think we will see towards the second half of this year.


Our next question comes from Bret Holley with Oppenheimer.

Bret Holley - Oppenheimer & Co. Inc.

I'm wondering about your plans for first line multi-myeloma approval for REVLIMID in Japan. I don't think you said anything about that in the past.

Robert Hugin

Well, it’s certainly a very, very important market for us. So we will look at filing both the MM-015 and then eventually MM-020. Clearly, the REV/dex product or combination is one that is highly attuned to the Japanese market with oral regimen with very manageable side effects. So that regimen is ideally suited. We're going to examine what the potential is for Mathalam based regimen in Japan or not, so we're in the process of reviewing data, and as that becomes clearer, we'll update you as exactly what the Japanese strategy will be.


And our final question comes from the Maged Shenouda with Stifel Nicolaus.

Maged Shenouda - Stifel, Nicolaus & Co., Inc.

Can you just update us on your current views about a potential accelerated approval filing for Pomalidomide in the U.S.?

Robert Hugin

Yes, pomalidomide, I hope it comes across both that we believe the data is the best data in this patient population. It was a patient population in very serious need of additional therapy and that we will do everything we can to accelerate the approval of pomalidomide in any market that we can seek accelerated approval. But I think from a public point of view, our strategy is Phase III is the right way that we should be talking about it. And if there are any potential opportunities to do that in a shorter more expeditious framework, I can assure you we are working on them. But from a public point of view, Phase III is the route we're going, and we'll accelerate that as quickly as we can.


At this time, at like to turn it over to our speakers for any closing remarks.

Jacqualyn Fouse

Thank you for joining us on the call this morning. We appreciate it, and we'll see you at the next call. Thanks.

Robert Hugin

Thanks very much.


Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may all disconnect. Everyone, have a great day.

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