Millennium Pharmaceuticals Q1 2007 Earnings Call Transcript

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Millennium Pharmaceuticals, Inc. (MLNM)

Q1 2007 Earnings Call

April 26, 2007 8:00 am ET

Executives

Kyle Kuvalanka - Senior Director, IR

Deborah Dunsire - President & CEO

Christophe Bianchi - EVP

Marsha Fanucci - SVP & CFO

Nancy Simonian - CMO

Analysts

Phil Nadeau - Cowen and Co.

May-Kin Ho - Goldman Sachs

Rachel McMinn - Piper Jaffray

Joe Elto - J.P. Morgan

Jim Reddoch - Friedman, Billings, Ramsey Group

Yaron Werber - Citigroup

Michael - CIBC World Markets

Matt Jacobsen - BDR Research

Tom McGahren - Merrill Lynch

Howard Liang - Leerink Swann & Co.

Presentation

Operator

Good day everyone and welcome to the Millennium Pharmaceutical's First Quarter Financial Results Conference Call. As a reminder, today's call is being recorded.

At this time I'd like to turn the call over to Mr. Kyle Kuvalanka, Senior Director Of Investor Relations. Please go ahead, sir.

Kyle Kuvalanka

Good morning, everyone and welcome to Millennium's first quarter 2007 financial and operational performance review. Today we are using a new format. In addition the webcast conference call, corresponding slides are available on the investor's page of the Millennium website. These slides will be archived for 30 days.

Our agenda for the meeting today will be as follows. Dr. Deborah Dunsire, Millennium President and Chief Executive Officer, will provide an overview of the business. Dr. Christophe Bianchi, Executive Vice President of Commercial will update us on VELCADE sales performance. Dr. Nancy Simonian, Chief Medical Officer, will provide a highlight overview of key advancements in the R&D organization. Marsha Fanucci, Chief Financial Officer and Senior Vice President of Corporate Strategy, will give an overview of the company financials of the quarter and then wrap up with the company's milestones for the remainder of the year. We will then have a Q&A session.

Before we begin though, let me remind you that we will be making forward-looking statements when we discuss our growth science products and prospects, our point of references, how we think or believe the future will look based on information as we know it today. There are risks to our business that could cause actual results to differ materially from these statements. You can review a list and description of these risks in the reports we file with the SEC.

During this presentation we will also be presenting information on our products. The information is presented for the benefit of the investment community only and is not intended to be promotional. During the presentation we will also be talking about non-GAAP financial measures including non-GAAP profitability, which for the sake of simplicity we may refer to as profitability. Management uses these measures because we feel that they are a fair balance of how ongoing expenses relate to revenues. For more information on this topic, please refer to our earnings release as well as our other filings with the SEC and our website.

And with that out of the way I am now going to turn the call over to Deborah Dunsire.

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Deborah Dunsire

Thanks, Kyle. Well I'm proud to say that we've kicked off the year with an excellent first quarter, executing successfully on all key fronts. On the commercial front, we saw VELCADE US net sales grow 10% to $58.6 million driven by the successful execution of our expanded sales and marketing efforts, which we started in 2006.

On the R&D front we've returned MLN0002 to clinical trials, keeping us on track to initiate the clinical program in 2008. And we've advanced a new molecule from discovery into development. This is a molecule, which acts upstream in the protein homeostasis pathway from the proteosome, and you'll be hearing much more about that from Nancy Simonian.

On the financial front, we delivered our fifth quarter of non-GAAP profitability while reducing our GAAP net loss. The financial result is particularly impressive because we achieved this while continuing to be able to invest in VELCADE, advance our pipeline and invest in the discovery organization so that we can fuel sustainable growth.

The successes this quarter are just really a milestone in the evolution of building Millennium. I know most of you are aware that we have taken steps over the past year or 18 months to position the company for success and to align us with our important vision of building an innovation driven company continuously delivering medicines which can fundamentally change the lives of patients with cancer and inflammatory diseases. To get there our state of strategy is to continue to grow VELCADE, which we've done this quarter and that's currently the key growth driver of the business.

We see this as a product with a well over a billion-dollar opportunity worldwide and with our partner, Johnson & Johnson and of course with also Ortho Biotech in the US, we're well on our way to achieving this. VELCADE is the market leader in the previously treated multiple myeloma market and we recently achieved in December the approval in mantle cell lymphoma, the first foray into the lymphoma market. So VELCADE shows potential to continue growing in these markets as well as in other areas including the front line myeloma setting, other subsets of NHL and of course other cancers.

We're also focused on advancing the pipeline where we have ten molecules in development in addition to VELCADE. These are all novel molecules and reflect the innovation of the discovery engine. We're going to continue that innovation in discovery working on novel targets in chemistry and focusing on using biomarkers to help us appropriately select compounds.

Lastly, Millennium has been a company that has had successful partnerships in the past to complement its internal growth and we're going to continue that into the future. We remain focused on bringing in strategically appropriate assays in the area of oncology. So we have a lot to be proud of and I'm going to turn the call over to the team to provide you with more detail.

We'll start off with Christophe Bianchi who will take you through where we are with VELCADE.

Christophe Bianchi

Thank you, Deborah and good morning everyone. I'd like to start by reciting our vision for VELCADE, which you can see on our first slide. We see VELCADE used early, repeatedly as single agents or in combination in all eligible patient types in all lines of treatment in multiple myeloma.

VELCADE presents the quality of the foundation of treatment. It has unsurpassed single agent survival, a predictable safety profile with generally no life threatening side effects and no need for synergy (ph) control dosing. This means that the results obtained in our clinical trials are replicated in actual clinical practice.

VELCADE can be used safely in a broad range of patients increasing all this and renal impairment and its cost effectiveness is actually very critical to be in combination treatment on that foundation. We have the right plan in place to maximize the potential of VELCADE. We are already the market leader in the relapsed multiple myeloma market and we have studies in front line and re-treatment to demonstrate the utility of VELCADE throughout the treatment paradigm. This being said, I am very proud to announce VELCADE sales growth of 10% this year, first quarter this year versus first quarter last year, and a 6% increase quarter over quarter.

Building on our market leading position in the relapsed multiple myeloma market, we saw growth this quarter coming from an increase in the length of treatment, which increased significantly for all patients and which for which following patients is now at over six cycles. We have also seen an increase in use in non-Hodgkin's lymphoma both in mantle cell where we were approved in December last year, but also in follicular, even though we do not promote in this indication.

We also want you to see unsolicited use in the front line multiple myeloma setting and in just in the past few weeks we saw several additional states reimbursing for VELCADE in front line. The total of states now covering VELCADE in front line is now 25 out of 50 United States and covering more than 70% of the eligible patients.

A key driver to the increase in demand was the strengthening of our sales and marketing efforts by the Millennium team including the addition of a new head of sales and a new head of VELCADE marketing. Both individuals come to us with significant oncology experience.

As you can see on the chart pictured on this slide, we show a steady increase in sales following the launch of the co-promotion with Ortho Biotech, which has actually kicked off to a really great start. This is a particularly impressive performance compared to 2006. Our marketing research shows that we're getting into more physician's offices with more frequency and physicians are recording a message around efficacy, enhance of treatment and retreatment.

This is the early sign of our collaboration as well but they really lead us to believe that we continue to see an impact throughout the year 2007.

Going forward we believe that our use will continue to increase. Physicians and KOLs tell us that they view VELCADE as the foundation of therapy based on its single agent efficacy, predictive safety profile, ability to be used in a broad range of patients including the patients with renal impairment.

This is particularly impressive given the cost effectiveness of this treatment allowing the addition of treatment for combination treatment. Retreatment is really another growth area for VELCADE. The data presented at ASH last year has had a positive impact on physicians. Currently only about 15% of VELCADE patients are retreated with VELCADE and physicians feel that they will increase, they will see an increase in this number in the near term.

Length of treatment is another key growth driver. We're seeing an improvement in this area over the past year to six cycles in responding patients. Physicians say they will increase the number of cycles they give to patients driving to eight cycles in the label.

Lastly but very importantly we need to talk about combination. VELCADE was initially as you know developed as a single agent to show its efficacy on its own. Trials that are ongoing showing that combination builds on the single agent strength and today we have shown that VELCADE effectively and safely combines with multiple agents.

One key combination is VELCADE plus DOXIL and J&J has been given a PDUFA date of May 25, 2007.

Let's review the data from the Phase III trial of VELCADE plus DOXIL completed by Ortho Biotech. Building on the unsurpassed single agent survival, we are seeing that the combination increased the complete response rate and we also see when compared to the APEX historical data, we see a 50% increase in TTP. We know the TTP on the VELCADE plus DOXIL combination, which is very, very long at 9.3 months.

Based on the Phase II data of this combination, we may actually see a spectacular increase in survival. In the Phase II trial of VELCADE plus DOXIL by Bob Orlowski, the overall median survival was 38 months, a number never seen before in the relapsed setting and potentially in the front line setting, so strong combinations are built on the strongest foundation and that strong foundation is VELCADE.

So today we concentrated on the relapsed multiple myeloma setting but it is only the bigger name for this important drug. We were recently approved in relapsed mantle cell lymphoma and we are seeing continued success in this market based on strong single agent data.

In front line multiple myeloma we have three Phase III trials ongoing. As I mentioned we are already experiencing unsolicited use in this setting and favor the reimbursement through local cooperation decisions.

We are pushing forward with our trial in other areas including follicular NHL with the goal of optimizing our overall growth opportunity of this amazing grant. And I will let Nancy tell you more about our particular plan for VELCADE.

Nancy Simonian

Thank you, Christophe. Good morning everyone. Millennium has a rich pipeline with ten molecules in oncology and inflammation, seven that originate from our own discovery organization in the last three years, which really illustrates our productive discovery engine. We are particularly proud of this pipeline and its innovative set of targets and the progress that we are making at all fronts.

And today I'm really going to focus on three molecules, VELCADE, MLN0002, our gut targeting antibody and our new development candidate, 4924, a novel inhibitor of a target in approaching homeostasis pathways.

So first starting out with VELCADE in front line multiple myeloma. As you know we have three Phase III studies that are ongoing in the front line setting, which is our top priority for VELCADE. As you know in Phase II trials we have seen very high complete remission rates with VELCADE in combination with multiple agents, which really sets VELCADE up for being the foundation of therapy in the front line setting.

Patient accrual is completed in the VISTA and IFM studies and we are expecting that interim analyses will be conducted in the second half of the year. And as we have said should the data be strong there will be an opportunity for us to file a supplemental NDA.

On the non-small cell lung cancer side, I want to update you on the three-arm Phase II trial of ALIMPTA versus VELCADE versus the combination or the POINT II trial. Data from this trial has confirmed the single agent activity of VELCADE but the data with the combination does not warrant us moving forward into registration trials.

In our indolent non-Hodgkin's lymphoma program, global approval continues in the Phase III trial and we continue to have a broad development program through investigator initiated studies co-op and company sponsored trials with over 300 trials ongoing.

These are both in the hematologic and solid tumors and in combination with both existing therapies as well as novel therapies. And the goal of this broad program is to find the optimal combination in patient subsets to provide greater benefit of VELCADE to cancer patients.

So next, we have a very strong presence in two major medical meetings in June, ASCO and IMW. So first to ASCO. Highlights of the data to be presented include combination data with VELCADE in relapsed multiple myeloma, both with established and with novel therapies, as well as data on subcutaneous administration of VELCADE, an approach that we are actively evaluating to optimize administration options for patients and for physicians.

There will also be data on mantle cell lymphoma and Diffuse large B-cell lymphoma data of VELCADE in combination with standard front line chemo regimens. And I think you'll be seeing more and more data over time with VELCADE/chemo combinations in lymphoma.

And lastly, data will be presented on other cancers including Amyloidosis and Waldenstroms. VELCADE is also well represented at the IMW meeting. There data will be presented on the VELCADE/DOXIL/DEX as well as the VELCADE/REV/DEX combination studies in both the relapsed and the front line trials, settings.

There will also be data on the front line combinations of VMP and VAD and these combination trials with older and newer therapies represents a movement of the field to deliver transplant like results with drug therapy in multiple myeloma with VELCADE as the foundation for that.

There will also be data on the benefit of VELCADE in the common renally impaired myeloma patient population as well as the benefit of VELCADE on bone health. So we are expecting a great presence at ASCO and IMW this year and look forward to updating you on the data after these meetings.

Next, on to MLN0002, which is our novel antibody to ?4?7. It has a unique mechanism that selectively targets migration of inflammatory cells to the gut, which makes it ideal for selectively treating inflammatory diseases of the gut such as ulcerative colitis and Crohn's disease.

MLN0002 is being developed as an alternative to anti-TNF therapies and to other therapies using IBD and we believe the real advantage of MLN002 is that it can provide benefit without the systemic side effects of currently available therapies.

And as you know we have already demonstrated doubling of clinical remission in a Phase II trial in ulcerative colitis.

Following the scale-up of our material from our new cell line, I'm very pleased to announce that our clinical program has resumed and patients are currently in the screening phase. The initial studies will focus on the PK/PD and safety of a new processed material and will serve as the basis for dose selection in our Phase III trials planned for 2008.

And lastly we announced earlier this month that we have moved an exciting new molecule forward into development, an inhibitor of the Nedd 8 activating enzyme or NAE, which is a target upstream of the proteosome. This target regulates a portion of the ubiquitin pathway and controls the regulation and survival of cancer cells.

The progression of this molecule underscores our leadership in the protein homeostasis arena. And I want to share with you some of the data that validates this as an important target in cancer and why we're so excited about the molecule.

First of all we know that NAE is elevated in primary human cancers such as colon, lung and ovarian but is low or absent in normal tissue. Secondly, when we genetically silence NAE, it leads to cancer cell death in an in vitro system.

And finally we have seen reproducible anti-tumor activity in several solid and liquid tumors xenograft models. We will have presentations of this preclinical work at ASCO and EORTC this year and currently IND enabling work is ongoing and Phase I studies are being planned for 2008.

And I want to share with you the data from one of our xerographic experiments, a model of large cell lymphoma, a tumor type where VELCADE has some clinical activity. And what you can see is not only that 4924 is superior to both control and VELCADE but it actually causes tumor regression, a very significant finding for a new cancer target.

So clearly we have kicked off 2007 with great momentum in the R&D organization. The pipeline is advancing with VELCADE in front line myeloma and non-Hodgkin's lymphoma and the resumption of the MLN0002 clinical program.

And we continue to demonstrate our leadership in innovative research as is evidenced by our NAE inhibitor, our second-generation inhibitor of the ubiquitin proteosome pathway.

And now I'll turn the call over to Marsha.

Marsha Fanucci

Thanks a lot, Nancy. I'd like to summarize now the financial performance for the first quarter of the year and as Deborah noted earlier, very importantly we achieved non-GAAP profitability for the fifth consecutive quarter. We're very proud of that accomplishment as you might guess.

On a non-GAAP basis our net income rose significantly from $1 million in 2006 to $12.7 million in 2007 and this rise is driven by the 10% increase that we saw in US net sales of VELCADE, mentioning that the inventory did remain in our desired levels of one to two weeks.

We also saw a very strong 19% increase in royalties driven by the strong performance of VELCADE outside of the US, as driven by our partner, Ortho Biotech.

And we did see a $10.9 million increase in net investment income. This was driven by about $6 million in one-time gain but in addition it was driven by our higher cash balances in Q1 of 2007.

On the expense side, we saw a 9% reduction in our non-GAAP R&D expenses that were a result of our past restructuring initiative. Offsetting these improvements we saw a planned increase in our non-GAAP SG&A expenses as we increased our sales and marketing efforts around VELCADE as Christophe has described to you earlier.

Our strategic alliance revenue was lower in the first quarter of 2007. This is primarily because of the milestones that were achieved in Q1 2006 and as we noted earlier in the year we do not anticipate significant milestones in 2007.

We also did modify our supply agreement with Schering-Plough and that resulted in a change in the strategic alliance revenue although it did not affect our operating income. Overall on a per share basis our non-GAAP income increased from break-even in 2006 Q1 to $0.04 per share in 2007.

If we turn to the GAAP results, we also saw a substantial improvement in GAAP performance this quarter. It was certainly driven by the factors that I just outlined and in addition to that we did see a $5.1 million decrease in stock-based compensation.

Our restructuring related forfeitures are accounted for in the period of vesting and our annual merit grants occur in February and March and so that's why you saw this increase, or decrease in the quarter.

Going forward, we would expect the charges for stock-based compensation to fall somewhere in between the levels that you saw in Q1 06 and Q1 07. So if you look at the GAAP loss per share, we did see a material improvement from the $0.07 loss in 2006 to a $0.02 loss in 2007.

If we move to the balance sheet, we ended the first quarter 2007 with over $819 million in cash and equivalence. We had $250 million in outstanding principle amount of convertible debt and we did retire nearly $100 million in debt this quarter that was older debt that is now behind us.

I'd also like to turn and review with you the guidance that we provided in January as we are confirming this guidance on the call today. And so let me first turn your attention to VELCADE sales.

We're anticipating a range of between $240 million and $260 million, which would represent growth rates of between 9% and 18% for VELCADE. Royalties are expected at the $140 million to $150 million level and expenses are anticipated to be roughly flat with last year at around $425 million for R&D and SG&A expenses.

These results--these changes result in a non-GAAP net income of between $10 million and $20 million and a GAAP net loss of between $60 million and $90 million. And we do anticipate ending the year with greater than $800 million in cash prior to any transactions that we may enter.

So let me close with just a couple of reminders about upcoming milestones. First we are obviously very excited about upcoming PDUFA date on May 25 for VELCADE/DOXIL in relapsed and refractory multiple myeloma. And as Nancy mentioned, June is going to be a very busy month for us with our strong presence at both ASCO and IMW.

In Q2 we will start a Phase I trial with 8237, which is our second generation Aurora A kinase inhibitor and later in the year we're going to update you on the clinical plans for 3897 as we complete our Phase II proof of concept trial in rheumatoid arthritis with the CCR1 antagonist, which is an oral molecule.

We had an outstanding start in 2007. The company is executing well on all fronts as Deborah mentioned, commercial, clinical and financial. We are extremely pleased with the momentum that has been built and we look forward to updating you on our progress next quarter.

With that, I'll turn it back over to Deborah for closing comments and questions.

Deborah Dunsire

I think we'll open the floor to questions now and bring it back to a close after we've taken your questions.

Questions-and-Answer Session

Operator

Thank you (Operator Instructions). Our first question will come from Phil Nadeau with Cowen and Company.

Phil Nadeau - Cowen and Co.

Good morning. Congratulations on the solid quarter and thanks for taking my questions.

Deborah Dunsire

Thank you.

Phil Nadeau - Cowen and Co.

My first question is for Marsha. Marsha, could you remind us what the price increases have been on VELCADE over the last 12 months?

Kyle Kuvalanka

Phil, we're going to have Christophe start out with that and then Marsha will wrap up.

Phil Nadeau - Cowen and Co.

Okay, thanks.

Christophe Bianchi

Good morning. The price increase we took for VELCADE in January this year was 2.5% and in July last year we took also a 2.5% price increase on VELCADE.

Phil Nadeau - Cowen and Co.

Okay. Perfect, thanks. And then my second question, Christophe, is also for you and that's the data presentations at ASCO. The slides made it seem like we were going to get survival data from the Phase III trial for VELCADE plus DOXIL at the meeting and I just wanted to confirm that that is in fact the case.

Kyle Kuvalanka

Phil, we're going to have Nancy answer that question.

Phil Nadeau - Cowen and Co.

Thanks.

Nancy Simonian

So as you know at ASH survival data was presented and I think we will see updated survival data at ASCO this year.

Phil Nadeau - Cowen and Co.

Okay, perfect. And last question is on indolent NHL. I know you said that the enrollment was going along as planned. Could you give us some idea of timelines there, when we might see data?

Kyle Kuvalanka

And once again we'll have Nancy answer that.

Nancy Simonian

Yes, well we have not really been specific but you know it's a large global trial with 600, 700 patients so it's--but it's moving along and we have a large reach in terms of the enrollment territory, so other than that we really have not been specific.

Phil Nadeau - Cowen and Co.

Okay, thank you.

Operator

We'll take our next question from May-Kin Ho with Goldman Sachs.

May-Kin Ho - Goldman Sachs

Hi, can you tell us a little bit about the market share that you have now in the various lines of therapy for multiple myeloma on VELCADE?

Kyle Kuvalanka

Good morning, May-Kin. We're going to have Christophe answer that question.

Christophe Bianchi

Yes, May-Kin, we have not updated our market share. We are right now looking at the best way to really analyze those market shares and we'll update you later on. But you know based on what you have seen, we have VELCADE at the market leading edge and in the relapsed multiple myeloma setting, clearly the leader in third line and we are very happy with it.

May-Kin Ho - Goldman Sachs

And what do you think the impact would be on the recent ECOG study on low dose DEX that was announced by ECOG?

Christophe Bianchi

Well, we don't have that much information about that trial. We don't know if it's good news or bad news in the sense that the low dose DEX seems to be performing better than the high dose DEX plus thalidomide but you don't do high dose DEX plus thalidomide may have actually some serious issues.

We don't know that exactly so what I can tell you is that we said we can give VELCADE with high dose DEXAMETHASONE if need be and that you have got an agent that can really deliver efficacy in practices as has been seen in clinical trials.

May-Kin Ho - Goldman Sachs

So let's assume that there was no issue with the high dose but low dose is actually better, then what do you think the impact would be?

Christophe Bianchi

I'd rather not comment on another company's product.

May-Kin Ho - Goldman Sachs

Okay, thank you.

Christophe Bianchi

Thank you.

Operator

We'll next go to Rachel McMinn with Piper Jaffray.

Rachel McMinn - Piper Jaffray

Thanks very much. I just wanted to ask about VELCADE ex-US. What's driving that increase? Is it still from additional country launches or is it a combination of launches and increased penetration?

Kyle Kuvalanka

Rachel, we're going to have Marsha answer that question.

Marsha Fanucci

Rachel, it's a combination of both. There are still additional country launches occurring but there is also growth in same country markets so I guess it's really a combination on both sides.

Rachel McMinn - Piper Jaffray

And can you detail at all which markets in Europe are your strongest markets?

Marsha Fanucci

You know we are not commenting on the Ortho Biotech performance and so I would just refer you to them for those questions because we won't go down that path.

Rachel McMinn - Piper Jaffray

And then on the pipeline, MLN1202, you didn't mention that. At least I remember the last update we were supposed to hear something in the second quarter on the multiple sclerosis trial. I was just wondering if we should read into the lack of really discussion on the call here.

Kyle Kuvalanka

Rachel, Nancy's going to take that.

Nancy Simonian

Rachel, we said that we would have data in the second, the first half of this, and it's going to be in the second quarter and we will plan to give top-level results in the second quarter, which we still haven't completed yet.

Rachel McMinn - Piper Jaffray

Okay, thanks very much.

Operator

Thank you and we'll take our next question from Geoff Meacham with J.P. Morgan.

Joe Elto - J.P. Morgan

Hi guys and congratulations on the quarter. This is Joe Elto actually pinch hitting for Geoff Meacham today. I had a couple of questions. The first one is given the first quarter profitability, I just wanted to know what was the rationale for not raising the full year guidance for EPS and secondly, should we anticipate any losses throughout the year?

Kyle Kuvalanka

Joe, we're going to have Marsha answer those questions.

Marsha Fanucci

As we've mentioned in the past, our results do vary from quarter to quarter because our expenses tend to fluctuate based on medical meetings, timing of clinical trial starts and as we've pointed out in the past, just because of timing of certain events here, we do tend to have a fairly robust Q4 from an expense standpoint. So I think that you should expect those changes throughout the year.

Joe Elto - J.P. Morgan

Okay.

Marsha Fanucci

Oh yes, and Deborah was just reminding me as well that I did want to comment that as I mentioned earlier that in the investment income area, we did have approximately $6 million in gains that we would not anticipate recurring. But please keep that in mind as well.

Joe Elto - J.P. Morgan

Okay, thanks. One last question, how much of the VELCADE sales from the quarter do you guys attribute strictly to co-promote activity from Ortho Biotech?

Kyle Kuvalanka

We're going to have Christophe answer that question.

Christophe Bianchi

Well you know it's a--number one it's a good question. We are looking at this on a daily basis. I want to acknowledge the joint effort of the two teams, the Ortho Biotech team and the Millennium team, but you know we have also put out a program in place late last year, throughout 2006 actually, to really defer off sales for VELCADE so there is two components. There is the increase size of our own sales force which we announced last year, which we put in place in early 2006, which is paying off, plus the co-promote.

We have got some really in teasing out which one is responsible for what but what we know is that the joint effort is really leading some really good growth as you can see on the chart, which I think was what right.

Joe Elto - J.P. Morgan

Okay, thank you very much.

Christophe Bianchi

Thank you.

Operator

We'll go next to Jim Reddoch with FBR.

Jim Reddoch - Friedman, Billings, Ramsey Group

Good morning. Two quick questions on, I guess relating to Ortho. One is can you just remind us if there were any payments to Ortho made in the first quarter and what lines they would have been in? And secondly, I guess I'm just a little curious how if you back out the 2.5% price increase that was taken in January, that the 6% sequential growth becomes something more like 3.5% when you did have Ortho promoting the drug and a new indication with mantle cell. It just seems like you would have seen a little greater quarter over quarter growth rather than just 3%. Thanks.

Kyle Kuvalanka

Jim, we're going to have Marsha first talk about the co-promotion expense and then we'll have Christophe talk about the quarter over quarter growth.

Marsha Fanucci

The co-promotion agreement shows up in our SG&A line and it is reflected in the quarter in that line item. And there are no other payments in Q1 that are related to the co-promotion agreement.

Kyle Kuvalanka

Okay, so we're going to have Christophe start off the question on the Q over Q growth and then Deborah is going to add.

Christophe Bianchi

And on the Q over Q growth actually the Q over Q growth is 6.4% so if you take out the 2.5% price increase you have close to 4% Q over Q growth, number one and two, the J&J/Ortho Biotech co-promotion only started mid to late quarter so we didn't get the full impact of that. And you know 4% quarter over quarter growth isn't been replace with. Again, we launched as well in non-Hodgkin's lymphoma, mantle cell and we are seeing some good growth there as well.

Deborah Dunsire

I think one of the things that we've said consistently is that it does take time with an expanded sales effort to get the full effect and we do not believe that we're really seeing the full effect of the co-promote at this time. I think it may be the early beginning, but as Christophe pointed out, over 2006 we've really been building our sales and marketing efforts within Millennium and that's paying off. And of course as you point out, Jim, the mantle cell approval did kick-in in December. We trained our sales force in kind of later January and it is getting out there now.

Jim Reddoch - Friedman, Billings, Ramsey Group

And a couple, I guess back to Marsha on the reimbursement for the co-promote. Aren't there two components to this and another component only kicks in after a certain threshold or increase over agreed upon threshold is achieved?

Marsha Fanucci

Yes, that's correct. The two components were that we do reimburse them for a portion of their fixed costs and that's what's showing up right now in the SG&A line. And then secondly we have an agreed upon baseline which was our view of what we would achieve on our own with the product in 2007 and there is a mission fee that is paid if we achieve sales above that threshold, but we still retain the majority of the sales even above that threshold.

Jim Reddoch - Friedman, Billings, Ramsey Group

And I guess if you look at these two components at the end of this year, which of those do you think will be the largest payment to J&J, the fixed or the commission based?

Deborah Dunsire

We can't predict the future, Jim, but I can tell you what I'd like. I'd be very happy for the second component to be the biggest of all.

Jim Reddoch - Friedman, Billings, Ramsey Group

Okay. All right, thanks.

Operator

We'll next go to Yaron Werber with Citigroup.

Yaron Werber - Citigroup

Hi, good morning. Thank you for taking my question. I had a quick question on can you give us a little bit of a sense as to what did you do in sales in myeloma versus NHL versus MCL?

Kyle Kuvalanka

Good question, Yaron. We're going to have Christophe start out with that one.

Christophe Bianchi

The bulk of all sales are really coming from multiple myeloma. Mantle cell lymphoma is a small indication, as we have indicated before, so really the best of all sales are coming from mantle cell, for multiple myeloma. We see some good reports of our sales in mantle cell but the data is relatively erratic I would say given that patients come in fairly infrequently at the physicians office so the reliability of our data in mantle cell is not the greatest.

And we also see some anecdotal reports of sales in follicular lymphoma although we do not promote for that indication.

Yaron Werber - Citigroup

Is a 10% number in mantle cell, in non-Hodgkin's a reasonable estimate or might that be a little too high, if you can comment on that?

Christophe Bianchi

Well, I'd rather not comment on that.

Yaron Werber - Citigroup

Okay.

Christophe Bianchi

But you know we are also at the very early stage of our launch in mantle cell lymphoma and we are building our business also around lymphoma with some of the clinical trials that we spoke about so really right now we are in a growth stage on this in the non-Hodgkin's lymphoma business.

Yaron Werber - Citigroup

Okay, but it seems like from the press release, should we assume that most of the growth quarter over quarter came from the myeloma indication or is it coming from lymphoma?

Christophe Bianchi

It came from both. It came from both. It came from multiple myeloma and it also comes from non-Hodgkin's lymphoma too.

Yaron Werber - Citigroup

And then maybe a final question from me, can you share with us, what are your next plans then for VELCADE in non-small cell lung cancer?

Kyle Kuvalanka

Yaron, we're going to have Nancy answer that question.

Nancy Simonian

Hi Yaron. So as we discussed, we continue to see single agent activity but not sufficient activity to move forward and then the combination studies that we've done have also not warranted us moving forward. But as I said, we continue with a very broad program with over 300 trials ongoing in both hem and solid tumors, some of those which include lung cancer trials, looking at particular other combinations, novel combinations of VELCADE as well as looking at some particular patient subsets that may allow us to see, to optimize the benefit. So right now we aren't pursuing any further company sponsored lung cancer trials.

Yaron Werber - Citigroup

Okay. Thank you very much.

Operator

Thank and we'll next go to Bret Holley with CIBC World Markets.

Michael - CIBC World Markets

Hi, this is actually Michael for Bret. I was just wondering if you could comment on I guess the difference between the transplant and non-transplant settings in the front line multiple myeloma setting and whether you feel that VISTA would be sufficient since it's a single trial in the non-transplant setting?

Kyle Kuvalanka

We're going to have Nancy answer that question.

Nancy Simonian

Hi, let me just--when you say if it would be sufficient, just let me try and understand your question.

Michael - CIBC World Markets

For approval.

Nancy Simonian

Oh yes. I think clearly a pivotal trial like VISTA in the non-transplant setting would be sufficient to get a front line label, if that's the question. And as you know we also have the IFM study, which is ongoing in the transplant setting but it's not as if you need both the transplant and the non-transplant studies to get a label in the front line.

Deborah Dunsire

And I think also we did see--this is Deborah--we saw data from that IFM trial at ASH where Dr. Harris presented the cooperative group analysis and that showed important advances for VELCADE in that setting, particularly in reduction in second transplants and I don't know whether you want to add --

Nancy Simonian

Yeah, no, I think as Deborah said in our preliminary analysis on the primary endpoint, which was the CR rate, it was over double of the VELCADE/DEX versus…

Christophe Bianchi

VAD.

Nancy Simonian

Yeah, thank you. But I think the most important thing in some ways in the transplant setting is what happened post transplant and what's the depth of the complete remission post transplant.

And I think for the first time with a drug combination given induction, we've actually seen a benefit on the higher CR rate and fewer patients going into second transplants after the first transplant, so it's a pretty important finding and obviously we need to do the full analysis of the IFM group, which is doing the trial.

Michael - CIBC World Markets

Okay and I guess I was also just wondering how those two markets sort of broke out from your view.

Christophe Bianchi

The two markets broke out as you know, the transplant market is about 25% of the front line market and the non-transplant is about 75%. One thing, which is really important is that obviously you do transplant to maximize the benefit for the patients and with VELCADE in front line within the VAD data coming from Spain last year, showing some very, very impressive results with VMP used front line without giving a transplant you could achieve transplant-like results.

So I think the jury's still out as to how the market will shape up in the future, which we know is that with the VELCADE IFM data we've got a strong player for, as a foundation treatment for the induction to transplant and with VELCADE in the non-transplant patients we have also great results.

So I think either way VELCADE is going to be a key player in the multiple myeloma be it as pre-transplant or be it in patients who do not receive transplants.

Michael - CIBC World Markets

Great. Thank you.

Operator

We'll next go to Matthew Jacobsen with BDR Research.

Matt Jacobsen - BDR Research

Hi, thanks for taking my questions. A couple things. First I was wondering whether there were any changes in wholesaler levels for the previous quarter and also I was wondering if you could just tell me maybe broadly what your thoughts are, the impact that IMIDs may have in the ex-US marketplace and how you're factoring that into your expectations for your royalty line. Thanks.

Kyle Kuvalanka

We'll have Marsha take those questions.

Marsha Fanucci

The inventory remains in that range of one to two weeks and when you look at Q4 to Q1 it's really flat, very little change between the two quarters. I really cannot comment on the inventory levels outside of the US.

Matt Jacobsen - BDR Research

No, no. I was asking about the IMIDs.

Marsha Fanucci

The IMIDs.

Matt Jacobsen - BDR Research

The effect that the IMIDs may have on the US. THALOMID and REVLIMID.

Kyle Kuvalanka

We're going to have Christophe take that portion of the question.

Matt Jacobsen - BDR Research

Thanks.

Christophe Bianchi

Well you know I'd rather not comment too much as to what you know IMID is going to do in Europe with the launch of the IMID but suffice it to say that VELCADE has a very strong position in Europe as you may have seen. We have got a drug, which is really solid in the US and also very solid in Europe.

Matt Jacobsen - BDR Research

Okay. Thanks.

Operator

We'll next go to Tom McGahren with Merrill Lynch.

Tom McGahren - Merrill Lynch

Thanks a lot. First question is you mentioned that you would have some data on subcu administration of VELCADE. Maybe you could talk about what kind of trial you were running, what kind of data we could expect.

Secondly, a financial question, just on the improved gross margin and lastly, what do you think the next best potential cancer indication for VELCADE now that lung is done?

Kyle Kuvalanka

Sure, so we'll have Nancy take the two questions on VELCADE clinical, the subcu and then the next indication and then Marsha will talk about the gross margins.

Nancy Simonian

Yes, so Tom on the subcu, so this is a study that was done by an investigator, a Professor Harriseu (ph)in France but it really came off data that we had that we knew that we could give VELCADE subcutaneously and get good bioavailability of it in both from, in a good PK and PD profile.

So I think we are, and without giving the data because it's going to be presented, I think we're actively exploring the data there and determining whether it makes sense to move forward with a broader program with really the idea that if you can give physicians and patients options beyond IV, it would be a potential real benefit and clearly the data have to support it but I think after ASCO we can talk more about the data.

Kyle Kuvalanka

And then the next indication.

Nancy Simonian

And so the next indication for VELCADE, so clearly our top priorities are in myeloma front line as well as in the broader follicular NHL market, which includes follicular lymphoma.

There is some interesting data that's emerging in Diffuse large B-cell lymphoma so that's another area that I think we're keeping a close eye on and there's also interesting data in other hematologic malignancies, some of the T-cell lymphomas and Amyloidosis and Waldenstroms, which we've already talked about that.

Then I think beyond that when you look at other solid tumors, it has been in the process of evaluating all the data that exists with VELCADE in solid tumors and in various combinations both with existing and novel agents and hopefully at some point in time later this year we can tell you a little bit more about where we're going to pursue additional developments.

Kyle Kuvalanka

Great. And we'll turn the next question over to Marsha on the gross margins.

Marsha Fanucci

Right. So Tom while we would love to take all the credit for the improvement in the gross margin, it is a little bit of artificiality and as we changed our supply agreement with Schering-Plough in the middle of last year, and we also do participate in the supply chain for VELCADE ex-US.

And so I think if you look at the COGs over the last three quarters and think about those as kind of a pattern or a trend across the three quarters that you'll get a little bit better idea of where the COGs would be going forward, because it's those other influences on the COGs line.

Operator

Thank you and with that our last question comes from Howard Liang with Leerink Swann.

Howard Liang - Leerink Swann & Co.

Thanks very much. You have a slide, I think the point is to indicate that there's greater intra-quarter growth in first quarter this year versus last year but I don't think there was a scale on that chart. Can you give a sense of what was the difference in the growth, in the intra-quarter growth, for example, how much higher was March 07 versus March 06?

Kyle Kuvalanka

Howard, we're going to have Christophe take that.

Christophe Bianchi

The quarter-to-quarter gross was 10% as we have indicated earlier, but we do not provide the details in terms of month-to-month growth. I'm sorry.

Howard Liang - Leerink Swann & Co.

I thought you had a chart.

Christophe Bianchi

We do, we do.

Howard Liang - Leerink Swann & Co.

Okay.

Christophe Bianchi

And actually it shows that February and March were really strong when compared to February and March last year but we decline to comment as to the actual magnitude of that difference.

Howard Liang - Leerink Swann & Co.

Okay. And if I could ask another question regarding the co-promotion. Knowing what you paid to J&J, can you give us a feel as to whether you feel whether the co-promotion was profitable for you in the first quarter?

Kyle Kuvalanka

We'll turn that over to Marsha.

Marsha Fanucci

Well I think there are a couple of components to that. As Christophe has mentioned earlier, right now it's certainly very challenging to deconvolute the source of the sales but we clearly see robust performance in the product and I think that we would all say that we're extremely pleased with the way the co-promote is going and as we also mentioned, we expect to see an increasing impact throughout the course of the year.

So from a satisfaction level, I can comment qualitatively that everyone is quite happy with the performance. From a profitability standpoint, we really cannot respond right now.

Christophe Bianchi

And I totally agree with this and as we have indicated before, the co-promote value and also a big value on an ongoing basis. We have been very pleased with the way this co-promotion has been rolled out by the two partners, the collaboration, the team, at the team level, at the senior level but also at the field execution level has been really great and we are really I think about what this co-promote can deliver for VELCADE going forward.

Howard Liang - Leerink Swann & Co.

Thank you.

Deborah Dunsire

Just to reinforce, Howard, the co-promote actually only kicked off in the back end of the quarter, not right from January 1. So I don't think you could necessarily (inaudible) but I don't think you could necessarily expect that it would achieve everything it can in a few weeks.

Howard Liang - Leerink Swann & Co.

Thank you very much.

Operator

And now I'd like to turn the call back over to Ms. Deborah Dunsire for any additional or closing remarks.

Deborah Dunsire

We'd like to thank you all for joining us today. I know it's early for some of you on the West Coast. We always appreciate that you get up and join us. It's been a great quarter. We've had a lot of fun getting a lot of things done and it's great to see VELCADE delivering a 10% growth versus the first quarter of 2006 and the co-promote executing well.

Our R&D organization continuing to deliver both in the development organization and the discovery organization and with that we've been able to deliver a solid financial performance so I think on all fronts we've had a great quarter and we look forward to updating you in the future.

Thanks again for being here.

Operator

And that concludes today's conference call. We thank you for your participation and you may disconnect at any time.

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