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Celgene Corporation (CELG)

Q4 2006 Earnings Call

February 1, 2007 9:00 am ET

Executives

Dave Gryska - CFO

Bob Hugin - President and COO

Sol Barer - Chairman and CEO

Analysts

Geoff Meacham - JP Morgan

Ian Somaiya - Thomas Weisel Partners.

Sapna Srivastava - Morgan Stanley

Yaron Werber - Citigroup

Sumesh Sood - FBR.

Rachel McMinn - Piper Jaffrey

Howard Liang - Leerink Swann

Matt Osborne - Lazard

May-Kin Ho - Goldman Sachs

Presentation

Operator

Good morning, my name is Glyn, and I will be your conference operator today. At this time, I would like to welcome everyone to the Celgene Quarterly Conference Call. At this time, all lines are in a listen-only mode. After the speakers' remarks there will be a question-and-answer-session. (Operator Instructions).

At this time, I would like to turn the conference over to Dave Gryska. Please go ahead.

Dave Gryska

Good morning everyone. I am Dave Gryska, Celgene's Chief Financial Officer, and welcome to Celgene's fourth quarter and full year 2006 conference call, and thank you for joining us today. With me today on today's call are Celgene's Chairman and Chief Executive Officer, Sol Barer and President and Chief Operating Officer, Bob Hugin.

The press release reporting our financial and operating results was issued earlier this morning and is also available on our corporate website. I will begin the conference call with a review of the fourth quarter and year-end results and financial objectives for 2007. Bob will then walk you through our operational results and Sol will give you an overview of our strategic accomplishments and outlook for 2007.

Before we begin, we want to remind you that certain statements made during this conference call may be forward-looking and are made pursuant to the Safe Harbor provisions of the Securities Litigation Reform Act of 1995. Certain forward-looking statements, which involve known and unknown risks, delays, uncertainties and other factors not under our control may cause actual results, performance and achievements to be materially different from the results, performance or other expectations implied by these forward-looking statements.

These factors include the results of current or pending clinical trials, our products failure to demonstrate efficacy or an acceptable safety profile, actions by the FDA, the financial condition of suppliers, including their solvency and ability to supply product and other factors detailed in our other filings with the Securities and Exchange Commission or referred to in the press release issued this morning.

Now, I will take you through the financial results. Our full year and fourth quarter financial results were very strong underscored by record revenue and operating profits. Total net revenue for the full year reached a record $899 million, an increase of 67% over the same period in 2005. REVLIMID net product sales for the full year came in better than expected reaching $321 million representing the most successful hematology, oncology product launch ever. THALOMID net product sales for the full year also outpaced expectations achieving $433 million compared to $388 million in 2005. Full year revenues from FOCALIN and the Ritalin family of drugs of totaled almost $75 million, an increase of more than 41% year-over-year and ALKERAN net product sales increased to more than $15 million exceeding ALKERAN net sales over the same period in 2005.

Our adjusted net income for the full year was exceptional at approximately $210 million or adjusted earnings per diluted share of $0.53. We believe these results illustrate an appropriate balance of well controlled expenditures to ensure the best probability of success as we build our Ritalin franchise here in the United States and prepare for 2007 product launches while at the same time remaining focused on a strong bottom line performance.

Adjusted selling, general and administrative expenses totaled $268 million. Expenses report critical launch activates in the US and equally as important to support pre-launch activities such as global market research, the development of extensive marketing and educational programs and intensive training of commercial personnel throughout Europe, Canada and Australia. Additionally, Celgene remains fully committed to patient assistance and patient access programs worldwide. We have substantially increased contributions and enhanced programs in 2007 to support foundations committed to assisting underinsured cancer patients with prescription co-payments and like expenses.

The company's overall financial flexibility is stronger than ever at year-end with cash and marketable securities of approximately $2 billion. REVLIMID and THALOMID net product sales were the primary drivers contributing to the strong performance in the fourth quarter. Importantly, REVLIMID net product sales of nearly $124 million for the first time equip THALOMID net product sales of $110 million. Moreover, $15.4 million of ALKERAN net product sales and $19.6 million from FOCALIN and the Ritalin family of drugs also contributed to these excellent fourth quarter results.

Total revenue for the revenue quarter achieved a record $275 million, an increase of roughly 84% compared to revenues in the fourth quarter of 2005. Based on REVLIMID's validation of our IMiDs pipeline and to further accelerate the progress of our key global regulatory programs, we increased R&D expenditures in the IMiDs regulatory program across a broad base of hematological cancers. As a result, Celgene incurred adjusted R&D expenses of approximately $246 million for the full year of 2006 representing an increase of 29% compared to the same period last year. Going forward, we remain fully committed to investing in our long-term growth by advancing and maximizing the clinical and commercial potential of our promising pipeline of compounds.

For the fourth quarter, we reported adjusted net income of $74 million or $0.18 per share, and as stated earlier, $0.53 adjusted earnings per share for the year. This represents our fourth year of ever increasing profitability.

Turning to our 2007 financial objectives, we are targeting an increase in total worldwide revenue of nearly 45% to the $1.3 billion range and we expect to double our adjusted earnings per share to the $1 range.

Now, I’ll turn the call over to Bob for his review of our 2006 operating results.

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Bob Hugin

Thanks, Dave. The results for 2006 were exceptional. 2006 was an extraordinary year for Celgene with many significant commercial, financial, clinical, and regulatory objectives achieved. These accomplishments position us extremely well to capitalize on the numerous potentially transformational milestones in the coming year. Let me now provide you my perspective on our results.

I’ll begin with a review of our commercial operation. The continued strong growth in product sales achieved in the fourth quarter accurately reflects the outstanding efforts of our commercial organization, and the value and potential of our products. With sales of $124 million, REVLIMID revenue grew by more than 20% quarter-over-quarter. And when the effects of third quarter initial stocking inventory are excluded, the growth quarter-over-quarter is an even more impressive, 35% to 40%. While at the same time, THALOMID posted its highest quarterly revenue ever at $110 million.

Ongoing myeloma launch activities, continued MDS educational efforts, and numerous significant clinical data publications and presentations contributed to this outstanding performance. Myeloma and MDS prescriptions totaled approximately 95% of all REVLIMID dispenses in the fourth quarter consistent with the percentage of the previous quarters. Continued market share gains in myeloma contribute to the increasing percentage of myeloma usage. Myeloma accounted for about two-thirds of prescriptions in the fourth quarter. Though it is still too early to draw reliable conclusions regarding ultimate average patient based on therapy, encouraging signals emerge during the quarter in both myeloma and MDS.

A number of events and developments during 2006 positioned REVLIMID for strong growth in 2007. Data on REVLIMID was reported in 41 publications including important clinical data in myeloma, MDS, CLL, NHL, amyloidosis, and myelofibrosis.

Additionally in the fourth quarter, less than six months following launch, REVLIMID was added to the national comprehensive cancer network guidelines in both previously treated and newly diagnosed multiple myeloma. During the quarter our patient support programs were expanded to include the patient support coordinator program designed to provide patients, physicians, and caregivers individualized and expert assistance in navigating reimbursement channels. This new program is an addition to the already existing complement of patient support programs in place. Commitment to the patient is the center piece of our corporate strategy. This commitment combined with our products and programs led to impressive overall rankings of our sales force in a recent independent third-party market survey from Hematologist/Oncologist, especially in terms of the quality of service provided.

In 2007, we will continue to enhance all of our programs including our industry-leading free goods program and contributions to independent non-profit third-party foundation assisting patients in need of support for deductible and insurance copayments. These programs are designed to ensure that REVLIMID and THALOMID are accessible to all appropriate patients. In fact, we have already made substantial contributions this quarter to these foundations to ensure that resources are available for MDS and myeloma patients facing the requirement of the new Plan Year under Medicare Part D. We are committed to building the market leading hematology-oncology franchise in the world. I believe one of the key reasons our commercial group is so successful is our overriding belief that REVLIMID will make a dramatic difference in the lives of ten of thousands of myeloma and MDS patients worldwide.

Clinical data is and should always be the most important consideration for physicians as they establish treatment protocol for their cancer patients. We are committed to exploring the full clinical potential of REVLIMID in a range of hematological and other indications and we'll continue to make the data available as it is generated.

2006 was a year of significant achievement for our clinical program. The many presentations at the American Society of Hematology meeting in December, reflects the promise of our products. ASH 2006 was a major event for Celgene and for REVLIMID and THALOMID. Underline the REVLIMID data, there were three key themes. One was the high response rate in a number of hematological malignancies, second was the durability of these responses, and third was the fact that the response from many patients often improved over time. There were presentations and numerous indications, including two presentations on REVLIMID data in newly diagnosed multiple myeloma patients; one from our Mayo Clinic trial, which showed greater than 90% overall response rate with greater than 50% complete or near complete response rate. Most impressively in over two years, an overall survival rate of 90% was demonstrated for these patients receiving REVLIMID plus dexamethasone and approximately 80% of patients were maintained on their initial REVLIMID dexamethasone regimen over that period.

There was also an important presentation of the data from the large ECOG newly diagnosed multiple myeloma trial that is examining the safety and efficacy of REVLIMID plus high-dose dexamethasone, which by the way is the regimen in our current myeloma label versus REVLIMID and low-dose dexamethasone. It was reported to that that the difference in adverse events was very striking in the treatment arm containing low-dose dexamethasone. Though the mortality rate of both treatment arms was considered low, the rate was significantly different than the peer ones. It appears that the mortality rate in the REVLIMID plus low-dose dex arm of the study was the lowest ever reported in any newly diagnosed multiple myeloma trial in history. The efficacy data from this trial is scheduled to be presented at the upcoming American Society of Clinical Oncology meeting later this year.

There was also a data presented during ASH conference on non-5q low and intermediate one MDS population where after two years of follow-up in over 200 patients it was shown that REVLIMID had a 26% complete transfusion independent response rate and a 43% overall response rate with complete karyotypic resolution in some responders who had cytogenetic abnormalities on study entry.

Some of the most exciting data was in chronic lymphocytic leukemia and non-Hodgkin's lymphoma. Data was presented from a trial and heavily pretreated relapse refractory CLL patients with REVLIMID use as a monotherapy. The response rate was greater than 50% and even more significantly at the time of the data cut, 11% of the patients appeared to have complete molecular responses. Meaning that single-agent therapy with REVLIMID in heavily pretreated patients had made the disease undetectable in these patients.

A second trial presented at this year's ASH conducted at M.D. Anderson confirmed the activity of the REVLIMID in this population of heavily pretreated CLL patients. CLL investigators were especially impressed with REVLIMID's response rate and tolerability in high-risk CLL patients. In non-Hodgkin's Lymphoma REVLIMID was also used as monotherapy for heavily pretreated patients who were relapsed or refractory, with a 41% response rate reported. Notably, response appeared to be independent of histology including autologous stem cell transplant failures in the single-agent study and overtime the intensity of the response improve.

A major objective of our REVLIMID clinical and regulatory strategy is to expand on this data in MDS myeloma, CLL and NHL and the other important data presented at ASH in a wide range of hematological malignancies to produce peer-reviewed publications, additional regulatory approvals and label expansions.

Numerous trials are underway in newly diagnose multiple myeloma and in all stages and all types of MDS, including low, intermediate and high-risk disease and acute myelogenous leukemia. REVLIMID clinical development is expanding with more than 75 clinical studies ongoing or to be initiated shortly. We are working vigorously to advance our regulatory program including double-blind randomized placebo-controlled trials in both CLL and NHL. In CLL, we are initiating important Phase II trials including a trail in the treatment of patients with relapse refractory disease that started several months ago. This study is a double-blind controlled trial comparing two REVLIMID dosing regimens in over 300 patients.

It is certainly possible that if compelling data are obtained, this study could potentially be the basis of an accelerated filing. Based on significant and extensive discussions with leaders in CLL treatment, we expect to submit our Phase III protocols for FDA comment via special protocol assessment mechanism comparing REVLIMID versus placebo to determine whether treatment with REVLIMID can delay progression of CLL patients in patients who have stabilized or responded to a standard Fludarabine-based treatment for relapsed CLL this month.

We are investigating REVLIMID as monotherapy in untreated symptomatic patients as well as in untreated elderly patients who are not candidates for Fludarabine. Also, we are investigating REVLIMID in various combinations such as Rituxan or Fludarabine in both untreated and relapse refectory CLL patients. We are finding some new studies that may support compendia listing, our overall objective is of course regulatory approval in this indication, assuming that the data from our clinical program confirms and extends the exciting observations to-date.

A similar approach is being applied to the development of REVLIMID in NHL. We're currently preparing protocols for major controlled trails in relapsed progressive NHL following standard induction therapy. REVLIMID is currently under evaluation or will be shortly in a number of NHL trials, including a randomized controlled trial with Rituxan in follicular NHL, which has been activated by the CALGB. We are evaluating data beginning to emerge from our Phase I/II study of REVLIMID in combination with Rituxan in previously treated refractory mantle cell lymphoma. We are also developing several other NHL trials, including REVLIMID plus Rituxan in relapsed refectory follicular NHL and REVLIMID plus dexamethasone in relapsed refectory aggressive NHL. In addition, we'll initiate trials in Hodgkin's lymphoma and T-cell lymphoma in 2007. Larger Phase II trials potentially can serve as bases for sNDA if the results are compelling. Although, we will also be conducting major Phase III trials as we’ve noted. We are also exploring REVLIMID’s activity in other hematological malignancies, as well as in solid tumors, including prostate and thyroid cancers.

These clinical programs are designed to provide data that if positive, will allow us to seek regulatory approvals worldwide. Obtaining international REVLIMID regulatory approvals beginning in Europe is a key component of our long-term growth strategy. We have two REVLIMID applications in late stage review in Europe that are based on the same clinical trials that led to REVLIMID’s US approvals. Our multiple myeloma applications comprised of two large randomized placebo control trials studying REVLIMID and dexamethasone versus dexamethasone alone in 700 previously treated myeloma patients.

Our MDS application is based on the single open label 148-patient trial that supported US approval in December 2005. Since our last call, we amended our myeloma application that is in late stage review with the updated survival data from our pivotal trial. The compilation of these data and submission to the EMEA was completed in December. We also amended our MDS application by providing updated data from the MDS-003 trial. The original data reviewed by the FDA and in the original European application, had a mid 2004 data cutoff. Two-year follow-up data was published in the New England Journal of Medicine in October. The published data was impressive. The two-year follow-up reported that the medium duration transfusion of independence among responders had still not been reached after 100 weeks versus the 44 weeks reported in the original package. Some patients have remained transfusion independent for four years. Sustained results and important parameters were also presented in the publication. These data have been submitted to the EMEA to support the MDS application.

While we have not changed our outlook regarding our applications, we must remain cognizant as the outcomes of regulatory reviews can be uncertain, especially for an application supported by one open label and control trial as is the case with our MDS application. In addition to the progress on the clinical package reviews, we have advanced our discussions with the member countries to ensure that any special distribution requirements will be in place to support commercial distribution at the time approval. We are optimistic that the strengthened data packages will assist us in reimbursement discussion following approval. Concurrent with the review of European and Swiss applications and consistent with our objectives of seeking worldwide approval, we completed the REVLIMID, myeloma submission in Australia in the fourth quarter, and expect to complete our first submission in Canada this quarter and in Japan in 2008.

As a research-driven organization, our goal is to leverage what we learned from our compound and clinical settings to discover and develop new compound with a potential to make even more dramatic and transformational advances for patients in a wide range of unmet medical needs in Oncology, Hematology, and Inflammatory Diseases.

Though we've appropriately spend the majority of our time discussing REVLIMID, it is only one compound in an exciting class of compounds, the IMiDs. We have two additional IMiDs in the clinic, 4047 and 11006. 2007 should be an exciting year for 4047. We have initiated a trial in myelofibrosis, are expanding our solid tumor studies and intend to initiate additional hematological studies this year. Based on ischemic profile, 11006 is moving forward in an MDS trial this year. Our oral anti-TNF-alpha program will become higher profile in 2007 with data from our international Phase II controlled trial with 10004 in moderate-to-severe psoriasis expected in the second or third quarter. We have already initiated a psoriatic arthritis trial with 10004 and will be initiating multiple other inflammatory disease trial this year. Our second oral-TNF-alpha inhibitor, 11050, will complete Phase I testing later this year.

During 2006, we also made excellent progress in advancing our intercellular signaling product candidates and our stem cell program. These efforts in 2006 position us for at least one new IMiD in 2007 and with the potential of beginning human clinical trials with our newly discovered proprietary placenta stem cells in the next 12 to 18 months.

We do look forward to the opportunity to spend more time with viewing our earlier pipeline and drug discovery program at a later date. Any discussions of the achievements of 2006 with the promise of 2007 would be incomplete without a review of our progress building Celgene's international presence. An important component of the Celgene corporate strategy is the global leveraging of our products beginning with REVLIMID. Superior long-term performance will be enhanced by maximizing our products worldwide.

We are building world-class teams in Europe, Australia, Canada and Japan. Though we are seeking Pan-European in regulatory approval for REVLIMID, we are finalizing marketing, distribution, pricing, and reimbursement plans for each country within the European Union. Like our launch plans in the US, we have detailed plans by function, by country. Our teams have produced plans that are through and consistent yet tailored to each individual market. We're optimistic that our strategies will ensure broad support for REVLIMID based on its value to patients and to the healthcare system following approval. All in all, 2006 was a remarkable year which positions us for an exciting and promising 2007.

Let me now turn the call over to Sol.

Sol Barer

Thanks Bob. As you've heard, 2006 was an unprecedented year for us. We believe that our accomplishments clearly demonstrate our ability to achieve our corporate mission of establishing Celgene as a global leader in hematology, oncology and immunology. In 2006, we successfully executed our corporate strategy across all business functions, including clinical research, regulatory, commercial, financial and international.

Our key highlights included three major product launches, two REVLIMID and one THALOMID within seven months. And despite the challenging reimbursement environment created by the introduction of Medicare Part D, REVLIMID set the US launch record for the most revenue of any Hem/Onc therapeutic drug. Indeed, 2006 was the year of REVLIMID for Celgene as we achieved regulatory approval in multiple myeloma and executed two launches. REVLIMID commercial potential and rolling clinical potential was highlighted by the expanding volume of data from clinical study reported in peer reviewed publications and at major medical meetings. We advance our clinical strategy with the design and implementation of important studies to support our regulatory programs in chronic lymphocytic leukemia and non-Hodgkin's lymphoma representing substantial market expansion opportunities.

2006 was also the year of global Celgene, as we significantly expanded our international presence and structure. We established operations in more than 25 countries including in Europe, Japan, Canada and Australia with an exceptional management team fully focused on maximizing the global launch of REVLIMID.

2006 was also the year of Celgene pipeline, as we advanced not only REVLIMID in multiple hematological and solid tumor studies, but importantly next generation compound in our IMiDs compound franchises, as well as our oral TNF-alpha compounds and indeed, our entire discovery program.

We initiated our strategy of determining the lead indication for our new unique class of oral TNF-alpha inhibitors with a controlled Phase II clinical trial in psoriasis and the design of a dozen other trials in the other inflammatory indications to be initiated in 2007. And we advanced our other proprietary classes of compound, including the discovery of a new class of immunologically active compounds that has the potential to treat a number of unmet medical diseases. You'll be hearing more about this later in 2007 as we continue to advance our intellectual property and select candidates for preclinical development.

Our regulatory progress was exceptional in 2006, as we achieved a number of important milestones including two U.S. product approvals and significant progress on REVLIMID submissions worldwide as detailed.

In 2006, we acquired an active pharmaceutical ingredient facility to vertically integrate our manufacturing capability as a part of our strategy of insuring and controlling the supply of this important drug globally.

In 2006, we also continued to form the basis of a new therapeutic franchise in the stem cell area by executing on our objectives at Celgene Cellular Therapeutics underscored by the issuance of an important patent critical to establishing our placental stem cell franchise with several dozen patent applications pending in the U.S. alone, including those claiming of our recently discovered placental stem cell.

2006 was the year highlighting Celgene financially as demonstrated by our record financial results and the recognition of our accomplishment by inclusion into the S&P 500. One of the greatest accomplishments and challenges for any company is the success in cultivating a unique culture, developing its people and attracting the best in the business, particularly in an extremely competitive environment. In 2006, we did exactly that. We were very fortunate to attract few new members to our senior management team, a new Chief Financial Officer and a new President of Research. Individuals with world class capabilities that will help take Celgene up to the next level.

Our therapies are helping physicians deliver a highest quality healthcare resulting in improved patient outcome that in turn lessens the burden on our healthcare system and frees up valuable healthcare resources. There is much discussion regarding the cost of drugs and changing the commercial paradigm. I'd like to address these important issues from Celgene's perspective.

First and foremost, at Celgene, we believe that a commitment to achieving medical progress must go hand in hand with a corresponding commitment to ensuring that all patients who can benefit from our discoveries do indeed have the opportunity to benefit. This is a basic foundation of our company. We have been a leader in providing access to cancer drugs to patients while at the same time bringing new breakthrough therapies to patients by investing heavily in research to provide yet newer therapeutic paradigm. It is the commercialization of such fruits of our significant investment in research that provides the engine to enable us to do this with ever increasing patient benefit. Let me provide you some facts about the company.

From 2001 to 2005 on average Celgene provided more than 15% of total prescriptions of THALOMID at no cost, compared to an industry standard of 3.5%. In 2006, we Celgene treatment by supplying REVLIMID and THALOMID at no cost to eligible patients, and providing assistance to help patients identify insurance coverage and broadened our commitment to patients by creating an industry-leading patient support solutions program designed to provide patients with resources to help them access their information about Co-Pay Assistance program.

Celgene’s qualification for free drug to patients has been and will continue to be one of the most generous in the industry. As Bob indicated, we made substantial donation to independent non-profit 501(c)(3) co-pay foundations. We are also the industry leaders according to the Co-pay foundations that help myeloma and MDS patients.

Additionally and for the first time in the US history, a company provided free drug via and Expanded Access program even after approval. We did so by continuing to offer REVLIMID to patients with multiple myeloma free of charge through an Expanded Access program even after the FDA approval of this drug for MDS. We also support many patient activists who supervise greater patient access for the clinical benefits of REVLIMID results. From 2001 to 2006, we invested on average 40% of our revenue into research and development for developing drugs for unmet medical needs in serious and debilitating diseases to be compared to the industry average of 15%. During this period of time, more than 35 diseases have been studied with Celgene products. Of these, nearly one-third represented orphan drug indications with unmet medical needs.

Our commitment to providing new therapies to seriously ill patients and ensuring their ability to access such remains of the cornerstone of our strategy and operating principle. We have achieved and will continue to do so, but there are many challenges. Many are consequence of success, including maintaining our scientific momentum, continuing to significantly assist patients in accessing Celgene therapy. Entering international markets for the first time, a generic challenge to THALOMID and perhaps most importantly maintaining our unique culture and employee quality as we continue our rapid growth.

So in summary, our financial performance in 2006 was the strongest in our history with total revenue rising 67% and EPS increasing 165%. Our accomplishments include executing the most successful Hem/Onc launch in US history building our global infrastructure, substantial progress in drugs development for our proprietary compound to regulatory approvals literally pushing back scientific frontiers continuing to set the standards of distribution systems, recruiting the best all the while helping patients at this new therapy.

And in 2007, we look forward to additional clinical data and important indications the initiation of regulatory trials for 4047, the selection of the lead indication for our oral TNF-alpha inhibitors, important clinical data at major conferences including for newly diagnosed multiple myeloma, progress in regulatory trials for REVLIMID to CLL and NHL and potentially other diseases, REVLIMID approval in Europe and of course substantial increases in revenue and EPS. It will be an exciting and transforming year. I thank the entire global Celgene team for all of these extraordinary accomplishments and to many milestones achieved and we will look forward to announcing our first quarter financial and operational results on April 26.

Operator, now please open the call to questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). We will take our first question from Geoff Meacham with JP Morgan.

Geoff Meacham - JP Morgan

Hi, guys congrats on a good quarter. Two questions, one for the EAP, is it fair to say that by the beginning of this month, all patients have been rolled off to commercial patient? And then, if you could just review the split of scripts, rep scripts MDS myeloma, CLL in 4Q versus mid-year?

Bob Hugin

Geoff, repeat the second question, it didn’t come?

Geoff Meacham - JP Morgan

Just the split of scripts for REVLIMID among myeloma in the CLL 4Q, and then compare that to mid-year just to see some trends three?

Bob Hugin

Sure. First on the EAP, the large bowls of patients were rolled over in the third quarter. So, we had -- our estimate at that time was I think somewhere between, 60% to 65% of the patients were rolled over in the third quarter and whatever was rolled over would have been in the fourth quarter. So, we don't really believe that there is -- if there is anything and you are talking about a hand full of anything going into this year. So, it's basically been concluded. We obviously -- there might be one or two patients somewhere, but it's not meaningful whatsoever. And then -- but again, it really was big in the third quarter with the rest in the fourth quarter.

And then the question, in the fourth quarter we saw a very similar percentage of total of myeloma and MDS about 95% of the prescriptions and other being dispersed among CLL and a range of other indications on the 5%. Again, primarily myeloma, and MDS, and about the two-thirds -- 65 whatever and around 30 on the MDS, we are earlier in the year. In the third quarter, we were in the 60 to 35 kind of range. So, myeloma has grown, but it hasn't been distorted anymore dramatically than that.

Geoff Meacham - JP Morgan

Just a quick follow-up to that.

Bob Hugin

Sure.

Geoff Meacham - JP Morgan

How should we think about -- I know you guys haven't given specific operating expense guidance, but how should we think about that for this year and using the fourth quarter as sort of a run rate?

Bob Hugin

I think there are lots of factors as to how things will play out. Clearly, ASCO is important for us in terms of the presentation of newly diagnosed myeloma. How physicians move fourth line, physicians who are using the drug in myeloma fourth line moving to third line, to second line etcetera are all key considerations. And I think that -- if a time comes that we feel comfortable that we know exactly how the timing of that's going work, we'll give more guidance. But I think right now, we feel comfortable that the proper thing to do is to keep product sales move -- revenues aggregated together and that's where the 1.3 number comes in. I think after the European approval, knock on wood, that we'll give a little better -- get a better sense of the timing for the pricing and reimbursement in individual countries. So, we'll know what impact that could have on '07. But I think until we get better information we are going to leave it in the way we have it.

Dave Gryska

And just to add to that, the amount of significant in number of publications, presentations at ASCO, the next ASH as well that are coming out in both myeloma and in MDS that also could affect the growth and the distribution etcetera. So, as Bob said, it's totally difficult at this point to say with any certainty in terms of what it's going to be like or to just totally rely on the past trends. Next?

Operator

We'll go next to Ian Somaiya with Thomas Weisel Partners.

Ian Somaiya - Thomas Weisel Partners.

Thanks and congratulations on a great quarter. I had couple of questions, just one follow-up to the question on guidance, were there any one-time events in the fourth quarter that impacted the SG&A, R&D or tax rate?

Bob Hugin

I think Ian, in the fourth quarter the only thing that you'll see in SG&A and I talked about it a little bit -- we all talked about it in January earlier was that, in SG&A there is really three categories. There is the US SG&A, which is in 2006, was clearly the launch of MDS and myeloma that were important. The European growth accelerated throughout the course of the year, as we are building getting closer to approval and making sure that we have everything in place, both from an organizational point view with the [DOCEs] required in each country to support pricing and reimbursement applications.

And then the third component of SG&A, clearly, is the contributions to non-profit foundations to support co-payment assistance and that would have accelerated in the fourth quarter over the previous quarter. And generally in the first quarter of the year it will probably be the largest for that, because you have the rollover as the new plan year for Medicare Part D starts you have the people that had a donut hole in the previous year and then they will a new donut hole assuming they are still on drug in January of the next year. So, those are the three factors in SG&A, and Dave will give you a quick update on that.

Dave Gryska

Ian, on the tax rate, last year being '05 we used an actual cash tax rate and in '06 we went through a more of a pro forma tax rate because our actual tax rate would have been negligible. So, that's the reason you see about a 29% overall effective tax rate for '06 and you can expect the high 20s type of tax rate on a go-forward basis in '07 until we adjust to a normalized GAAP rate in '08.

Operator

And we'll take our next question from Sapna Srivastava with Morgan Stanley

Sapna Srivastava - Morgan Stanley

Hi, thank you. A couple of quick questions. One, can you give some color on your $1.3 billion revenue guidance as to how much of Europe -- if you can break that down for us, how much of Europe revenues included in that? And secondly, if you can just walk us through the timeline for the data for the CLL-001 trial, when can we expect to see data and potentially what filling timelines?

Dave Gryska

Sapna, on the guidance, I think, that it’s until we know the timing of European approval finally, and the time it will take in each country to get the pricing and reimbursement, it’s difficult to give a -- to give specific guidance on Europe. In 2006, it was for the year, between the 5% and 10% in the high-single digits as a percentage of the REVLIMID number, I think, that will probably decline until regulatory approval because as REVLIMID will, obviously, be growing faster -- fast in the US. So, I think it's still not a material. It's important to us. It's attractive important revenue, but not until approval we will see any kind of significant growth in European revenue. And even there, it's going to be country by country until we get the pricing and reimbursement authorized.

Sol Barer

Okay. And there was another question on CLL. In terms of CLL, we took a major study, we probably won’t start seeing data until next -- until 2008. However, I would expect data to be coming out certainly at ASH in a variety of other CLL studies that are up and running or about to start. There were several of those. So, I would expect a continuing stream of data regarding CLL. We are obviously excited about it. But from that study, it will probably not be until 2008.

Dave Gryska

It is 300 patients, it's improving, it's moving along. It started towards the end of the third quarter and so we are moving forward by getting it fully accrued and then getting a follow up on the data.

Operator

And we will go next to Yaron Werber with Citigroup.

Yaron Werber - Citigroup

Yeah. Hi. Good morning. I have two questions. Number one, can you give us a little bit of a sense in the fourth quarter? Did you feel you had any impact on REVLIMID sales from the double doughnut situation?

Dave Gryska

I think it is difficult to say there is no doubt that you have -- there was in December, as we have seen in early years, a seasonal impact whether it is patients not wanting to start therapy during the holidays or was it the fact that people didn’t -- people were conscious of the doughnut hole if they didn’t have other oral therapies under Medicare Part D until late in the year. So there was a seasonal impact to it. I -- we haven’t gone and specifically been able to get to something where we're confident to say it wasn’t seasonal, it was related to -- if a double doughnut all have been July, it wouldn’t been the same impact or not so. There is certainly a minor seasonal impact whether that’s doughnut hole or seasonal it's not hard for us to tell -- it's hard for us to tell. And the second question?

Yaron Werber - Citigroup

The second question just has to do with timing in Europe for REVLIMID. When you are expecting to hear from the CHMP? Is it still in the March to April timeframe for both applications?

Bob Hugin

That’s -- we haven’t changed our guidance. It's around the end of the first quarter, we expect here the outcome. So there hasn’t been any change to that. And if we get anything that’s definitively positive or definitively not positive, we will let everybody know, but that’s the timeline that we are working towards. Thanks.

Operator

And we will go next to Jim Reddoch with FBR.

Sumesh Sood - FBR.

Hi. Thank you for taking the question. This is Sumesh for Jim. Just one quick question, is the build out of the European sales and marketing force complete? And are you prepared to launch in both myeloma and MDS in the near term if you have that opportunity?

Dave Gryska

Yes. The build out is not complete in the sense that it's not just one build out in Europe. Clearly, you have a European marketing organization, you have European logistical organization. And we have in each country specific functions that are required to be in that location. And depending on the specific regulations and profits within those countries, some will come online more quickly after approval than others. So therefore in countries like Germany and France, we are beginning to hire the sales people, more of a commercial focus. In other countries, where the period in time it takes us longer to get pricing and reimbursement approvals, there we are going to be more cautious in hiring the field force later in the process closer to the actual pricing and reimbursement decisions being made. But we are in very good shape. We have been able to hire the kinds of people we want, the numbers of people that we want, but it's -- we want to be able to do it in appropriate timing and sizing, and so that we do it again country-by-country. So, we feel very good about it. And the training that we have done because we have been able to launch both myeloma and MDS in the US, we have all the templates for education and promotion so that we are really ready to go forward in both indications should we be fortunate to get approval and receive appropriate pricing and reimbursement in each individual country, but we will be ready.

Operator

And we'll take our next question from Rachel McMinn with Piper Jaffrey.

Rachel McMinn - Piper Jaffrey

Thanks very much. Just wanted to ask a question related to REVLIMID and frontline myeloma. Do you plan to file in the U.S. and in Europe on the basis of the ECOG response rate data or will we need to see additional long-term follow-up before you plan on filing?

Bob Hugin

Again, it's a good question. It's very important for us that newly diagnosed myeloma, we think REVLIMID as a potential there. The data that we've seen both at ASH and other meeting has been just very promising, and for newly diagnosed myeloma patients, it is major priority for us. We are committed to doing the key trials and are initiating those key trials including, the melphalan, prednisone, REVLIMID in Europe and doing other newly diagnosed trials in the U.S. and Europe. Clearly, if there were to be more accelerated routes to getting labels in both the United States and in Europe, we will seek that out. But I don't think it will be appropriate for us to give guidance at that and the probability of achieving some type of accelerated newly diagnosed labels. Although, we will explore depending on the quality, and profoundness, and the compelling nature of the data when efficacy data comes out, and we will work with the regulatory authorities to see what is appropriate. But we will do everything we can to accelerate it. We are going to do multiple -- we are doing multiple newly diagnosed trials that are targeted to the market conventions in Europe, the market conventions in the U.S. and will ultimately be a major corporate objective to achieve regulatory approval in newly diagnosed myeloma around the world.

Operator

And we'll go next to Howard Liang with Leerink Swann.

Howard Liang - Leerink Swann

Thanks. Just a clarification on the ex-U.S. sales. I think you mentioned the high single-digitals of full year sales came from ex-U.S. If I do the math, is it roughly $10 million to $15 million in the fourth quarter?

Bob Hugin

That's not -- that's in the ballpark certainly.

Howard Liang - Leerink Swann

Okay. Then on the CLL, NHL and frontline like myeloma, the all favored indications, can you talk about the experience from the reimbursement perspective? Are you getting reimbursement -- are the patients getting reimbursement for these indications?

Bob Hugin

Again, 95% of the prescriptions again are for myeloma and MDS. But we are receiving -- the drug is being prescribed in a wide range of indications including CLL and NHL. And with most of these programs, whether it be myeloma or MDS, prior authorization is required. And I think we try to make clear we have an organization that works very hard through the medical affairs people and other groups in the company to ensure that all payers and any agencies that are responsible have all the clinical data, so that when a patient and a physician prescribes the drug for indication that may not be under a formulary or prior authorizations required which is in case for many drugs, even upon label, that the organizations that make the decision of whether to reimburse or not have the information to make a good judgment to support the physician's decision that this is the best therapy for that patient.

So, the simple answer is, yes, it appears that people are getting reimbursement. But again, the payer universe is a wide and diverse group of payers, and each one has their own policies, and each case can in fact be different. But we do work hard to ensure that every payer has all the information, so they make the appropriate decision to support the physician and the patient in getting the right therapy for their patients.

Operator

And we'll go next to Matt Osborne with Lazard.

Matt Osborne - Lazard

Hi, guys. Thanks for taking the question. Can you walk us through your assumptions for THALOMID and REVLIMID in terms of potential price increases for this year? Do you still anticipate kind of a measured review throughout the year or have we kind of peaked in terms of where we think pricing would go?

Dave Gryska

I think we have never really outlined our policy. If you look at the case on an ongoing basis, we look at the value. We look at the data that's out there. We look at how the drug is used to ensure that it is value-based and market-based. We did basically put it an inflation price increase on REVLIMID earlier in this year with catching the 5s and 10s, moving a little bit closer in price to the 15s and 20s. But the concept was inflation-based. And with THALOMID, we continue to look at the pricing. We look at the value proposition. We look at it versus other products. And we'll examine that on a regular basis. But we don't have any specific plans as to what the pricing strategies are going to be in the future. We have time for one last question.

Operator

And let's take our last question from May-Kin Ho with Goldman Sachs.

May-Kin Ho - Goldman Sachs

Thank you for taking the question. It concerns inventory, the wholesalers, can you (inaudible) you mentioned that the quarter-to-quarter increase is actually higher if you include inventory, can you discuss that?

Dave Gryska

Yes, sure. Just to make sure one understands that little different strategy for THAL and for REV, but for REV is what I was clearly referring to. Within the third quarter, let me backtrack, when MDS was approved at the end of '05 in December, we launched in January of ‘06, only the 5 milligram and 10 milligram capsules were approved because of the dose in the label for MDS. In the end of June, and the launch in July, for myeloma indication for REVLIMID, that’s when the 15 milligram and 25 milligram capsules were approved. And, so we did not have 15 milligram and 25 milligram capsules for July. So that was new inventory that was put on the specialty pharmacy companies to ensure they have the supply to fill prescriptions. Our estimate at that time at the end of the third quarter when we reported those results, our estimate was that about $5 million to $10 million of the revenue in the third quarter was probably attributed to that revenue -- that inventory loading, that initial loading that has really now played out. But it was just the 15 milligrams and 25 milligrams.

With FAL, we have a different distribution strategy, we are at retail pharmacies around the country and then last year, we did change our distribution strategy a little bit in allowing people in pharmacies to buy individual sleeves so they wouldn’t have to buy larger supplies of drug than they need. So, we’ve seen in general on a specialty pharmacy side, you don’t see a high inventory hold because it’s FedExed to them in bottles and within a day, and it’s a not a need to have that on a large inventory because it’s a concentrated supply system. And on the retail pharmacy side, we really put in what we think are very customer friendly policies to ensure that they can only have to order again overnight shipping exactly what they needed to meet patient demand.

Well, thank you very much. We really look forward to updating you again in Sol said on April 26, and welcome Dave to the team that joins on the conference calls here and look forward to seeing you all soon. Thank you very much.

Operator

Thank you everyone. That does conclude today's conference. You may now disconnect.

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