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Celgene Corporation (NASDAQ:CELG)

Q1 2007 Earnings Call

May 3, 2007 9:00 am ET

Executives:

Dave Gryska - CFO

Bob Hugin - President and COO

Sol Barer - Chairman and CEO

Analysts:

Geoff Meacham - JP Morgan

James Reddoch – Friedman, Billings, Ramsey

Howard Liang - Leerink Swann

Yaron Werber – Citigroup

Tom McGahren – Merrill Lynch

Ian Somaiya - Thomas Weisel Partners

Maged Shenouda – UBS

May-Kin Ho - Goldman Sachs

Presentation

Operator

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 speaker’s remarks there will be a question and answer session. If you should need any assistance during this call, please press Star Zero and someone will help you. I’d now like to turn the conference over to Mr. Dave Gryska. You may begin.

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Dave Gryska

Good morning everyone. I am Dave Gryska, Celgene's Chief Financial Officer, and welcome to Celgene's first quarter 2007 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 first quarter 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 our first quarter results and financial objectives for the rest of the year. Then Bob will walk you through our commercial and clinical regulatory international achievements during the quarter and Sol will give you an overview of our strategic accomplishments to date and outlook for 2007.

Before we begin, I would like to remind you that certain statements made during this conference call may be forward-looking or 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 of our products’ failure to demonstrate efficacy or an acceptable safety profile, actions by the FDA, the financial condition of suppliers including their solvency and abilities to supply product, and other factors detailed in our other filings with the Securities Exchange Commission or referred to in the press release issued this morning.

Now I’d like to take you through the financial results. Our fist quarter financial results were exceptional and underscored by the record revenue in operating profits. Total net revenue for the quarter ending March 31 2007 reached $293 million, an increase of 61% over the same period in 2006 and Revlimid net product sales increased by an impressive 351% year over year to $146 million for the quarter.

Thalomid net product sales reached $106 million compared to $107 million for the same period in 2006. And revenue from the Focalin and Retilin family of drugs totaled almost $20 million, a slight increase for the same period last year. Alkeran net product sales generated nearly $16 million compared to approximately $18 million over the same period last year.

For the first quarter we reported adjusted net income of approximately $86 million or $0.20 per share representing an increase of 122% over the same period last year. Importantly, during the quarter our gross margins expanded significantly more than 10% year over year and close to 5% sequentially over the prior quarter. Furthermore Celgene reported more than $2.1 billlion in cash and marketable securities as of March 31 2007, an increase of $133 million over the sequential quarter ended December 31st 2006 reflecting an extremely strong cash flow from operations.

Our R&D expenditures remain focused on fully capitalizing on the potential of Revlimid in a range of indications and accelerating innovations in our pipeline and other programs globally. During the quarter we incurred adjusted R&D expenses of $77 million to support these important clinical and regulatory objectives. Also, adjusted sales, general, and administrative expenses increased to $98 million during the first quarter driven primarily by significantly higher marketing and sales expenses related to the product launch activities in Europe increased restricted contributions to non-profit co-paid foundations and continued expansion of Celgene international in more than 35 countries, including Europe, Japan, Australia, and Canada.

As we continue to expand our international operations and as we finalize steps to bring on-line our state of the art manufacturing facilities for Revlimid in Switzerland and as we increase spending and preparation for our launch to all member states to across the European Union, we believe that our first quarter results reflect the appropriate balance of well controlled global expenditures that ensure the best probability of commercial success and acceleration of development of our pipeline while remaining focused on strong bottom line performance. Needless to say we believe that 2007 is off to a great start for Celgene.

We delivered record operating and financial results, we continued our deliberate pace of global expansion, we advanced our key global regulatory programs, and we’ll give even more patient access to Revlimid and (inaudible) substantially larger than the US. We are optimizing our regulatory strategies around label expansion based on unprecedented clinical data and we are prepared for a successful launch of Revlimid in the European community.

Though significant uncertainty to regulatory timelines and launch trajectories in Europe make it difficult to project specific product revenue, we are reaffirming our 2007 guidance targeting increase in total worldwide revenue of nearly 45% to a $1.3 billion range and doubling our adjusted earnings per share to the $1 range.

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

Bob Hugin

Thanks Dave. The results of the first quarter were very positive with continued momentum across all areas of our company. The significant progress in our commercial, clinical research, and regulatory programs achieved this quarter, position us well for accomplishing our key 2007 corporate objectives.

Let me add my perspective on these results starting with our commercial achievements.

The 61% rise year over year in total revenue was driven by the 68% increase in product sales, with Revlimid the primary growth driver. Simultaneously with producing strong sales growth during the quarter our franchises were significantly strengthened during the quarter as well. I will outline some of these key events in a moment.

Revlimid sales of $146 million reflect an 18% quarter over quarter growth rate despite an end of quarter drawdown in specialty pharmacy inventories of more than $6 million. Prescriptions increased by approximately 24% quarter over quarter with multiple myeloma accounting for most of the increase. During the quarter Revlimid’s market share in myeloma rose in all lines of therapy. Third party market research indicates that physicians have been steadily moving Revlimid to earlier lines of therapy based on their clinical experiences. It’s our strategy and consistent with our label to have all previously myeloma patients treated as soon as appropriate with Revlimid.

Consistent with this evolution we’re beginning to realize a significant increase in the duration of treatment. Though the data set is not large enough to draw definitive conclusions, there was a greater than 50% increase in the number of patients receiving six or more dispenses in the first quarter as compared to the fourth quarter. Though Revlimid was clearly the growth driver for the quarter, Thalomid maintained a strong position in the multiple myeloma market, contributing $106 million towards top line. We do expect some further decline in the use of Thalomid as Revlimid experience expands.

As Dave mentioned, based on the results of this past quarter and the strong start in April, we are reaffirming our revenue and earnings per share targets for the year.

I’ll now review several of the key developments during the quarter. On April 4th, the National Cancer Institute, part of the National Institute of Health announced that preliminary results from a large randomized clinical trial for patients with newly diagnosed multiple myeloma conducted by the Cooperative Oncology Group has shown that use of low dose of Betamethasone in combination with Revlimid is associated with improved survivial when compared to a treatment regiment of a higher standard dose of Betamethasone and Revlimid.

The data monitoring committee overseeing the trial recommended that the survival results from a recent survey be made public because of early differences between being seen in overall survival rates. Researchers found that patients in the study who received low doses of Betamethasone and Revlimid had a one year survival of 96% compared to 86% for patients treated with the standard dose of Betamethasone and Revlimid. In addition as reported, there were fewer side effects associated with low dose Betamethasone and Revlimid. More detailed results from this trial will be presented at the American Society of Clinical Oncology annual meeting in Chicago in early June.

As we’ve often discussed, oncology is a date driven market. We are eagerly anticipating this presentation and others at ASCO at the bi-annual international myeloma workshop in Greece later in June that will review the revolving paradigms for the treatment of newly diagnosed myeloma and relapsed refractory disease. We’re looking forward to the impact of these presentations.

Additional data evaluating the clinical potential of Celgene products that we expect to be presented at this year’s ASCO are as follows: updated results from Phase II studies of Revlimid monotherapy and relapsed refractory aggressive, indolent non-Hodgkins lymphoma, and new data from a Phase I-II study of Revlimid in combination with Rutuxan in relapsed refractory mantle cell lymphoma. Importantly, we believe this trial may represent the first clinical study to report the potential impact that Revlimid has on antibody defendant cellular cytotoxicity, ADCC, an important area of research for Celgene.

It shows new data from a Pharmaco-kinetic study of Revlimid in multiple myeloma patients with various degrees of renal function and new data from a Phase I-II trial of Revlimid plus growth factor in treating hormone refractory prostate cancer. New data from a Phase I-II study of (inaudible) in combination with DTIC and metastatic malignant melanoma, patients previously untreated with systemic chemotherapy, and other presentations. We believe that these important data presentations to be reported at ASCO, as well as data presentations at other international medical meetings through 2007, will play an important role as we build our product franchises worldwide.

The late March announcement at the CHAMP had recommended the approval of Revlimid and Dex in the European Union for the treatment of previously treated multiple myeloma patients which will allow us to accelerate our international expansion, a key component of our long term growth strategy. We continue to prepare for the potential launch of Revlimid in nearly 30 countries in Europe and are advancing our regulatory strategies in Japan, Canada, Australia, and other international markets.

Formal EMEA European approval for marketing authorization is generally received 2-3 months following the positive CHAMP opinion. We’re finalizing marketing distribution, pricing, and reimbursement plans for each country within the European Union. Timing of launches varies in each country depending on individual requirements and practice. Following approval, we will update you on the timing of specific country launches over the coming quarters.

Our MDS deletion 5-2 application remains under active late-stage review in Europe. We do expect further clarity on the outcome of this review later this quarter. Though optimistic, we remain cognizant that the outcome of regulatory reviews can be uncertain, especially for applications supported by one open label on control trial as is the case with our MDS application.

During the quarter, we further demonstrated our commitment to patient access to our therapies with a national rollout of our Patient Support Coordinator program. This program, now nationwide, is designed to provide patients, physicians, and caregivers, individualized and expert assistance in navigating the many channels that impact access to our products. This new program significantly adds the Celgene’s already strong compliment of patient support programs.

Though Medicare Part D is working as made a difference in the lives of American senior citizens, it can be difficult for many seniors to manage the annual administrative startup and the high co-payments of the program. Recognizing these challenges, we have enhanced our industry-leading free goods program and our contributions to independent non-profit third party foundations, assisting patients in need of support for deductible and insurance co-payments. These programs are designed to insure that treatments for MDS and multiple myeloma are accessible to all appropriate patients.

In the first quarter of 2007, we made substantial contributions to these foundations so that patients facing the requirements of the new plan year under Medicare Part D have access to these important therapies. We’re very pleased with the progress achieved to date in advancing the Revlimid franchise, and are committed to exploring the full clinical potential of Revlimid in a range of hematological and other cancer indications.

A major objective of our clinical and regulatory strategy is to expand our current data in MDS, myeloma, CLL, NHL, and other hematological malignancies through extensive clinical trials. As this data is generated, the information will be presented at major medical meetings, published in peer review publications, and utilized to support regulatory applications. Numerous trials are underway in newly diagnosed 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 trials ongoing or to be initiated this year.

We’re working vigorously to advance our regulatory programs, including double-blind randomized placebo control trials in both chronic lymphasitic leukemia and non-Hodgkins lymphoma. In CLL, we are accruing important Phase II trials including a trial in the treatment with relapsed refractory disease that started last fall. This study is a double blind control trial comparing two Revlimid dosing regiments 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 with leaders in the CLL treatment, we submitted our Phase III program for FDA comment via the special protocol assessment mechanism in the first quarter. This program compares Revlimid versus placebo to determine whether treatment with Revlimid can delay progression of CLL in patients who stabilize or responded to a standard Fudarabine based regiment for relapsed CLL.

We’re also investigating Revlimid as monotherapy, untreated symptomatic patients, as well as in untreated elderly patients who are not candidates for Fudarabine. In addition, we’re investigating Revlimid in various combinations, such as with Rutaxan or Fudarabine in both untreated and relapsed refractory CLL patients. While findings from these studies may support (inaudible), our overall objective is of course regulatory approval in this indication, assuming that the data from our clinical study program confirms and extends the exciting observations to date.

A similar approach is being applied to the development of Revlimid in NHL. We’re initiating major control trials in relapsed aggressive NHL following standard induction therapy. Revlimid is currently under evaluation or will be shortly in a number of NHL trials, including a randomized control trial with Rutuxan in follicular NHL which has been activated by the Cal-GB. We’re evaluating data beginning to emerge from our Phase I-II study in combination with Rutaxan and previously treated refractory mantle cell lymphoma which is nearly completion.

We’re also developing several other NHL trials, including Revlimid plus Rutuxan in relapsed refractory follicular NHL and Revlimid plus Dexamethasone in relapsed refractory aggressive NHL. In addition, we will initiate trials in Hodgkins lymphoma and T-cell lymphoma in 2007. Larger Phase II trials potentially can service the basis for NDA’s if the results are compelling, although we will also be conducting major Phase III trials.

We’re 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. Though we appropriately spend the majority of our time discussing Revlimid, it is only one compound in an exciting class of compounds. We have two additional (inaudible) in the clinic, 40-47 and 11,006. Clinical trials evaluating 40-47 as an oral therapy in hematological malignancies and cancers are underway or soon to be initiated across multiple blood cancers such myelofibrosis, hemoglobinopathies, and multiple myeloma. Including evaluating 40-47 as a therapy for Revlimid failures, we’re also initiating solid tumor trials.

Based on its unique profile, 11,006 is moving forward in an MDS trial this year following its successful completion of healthy volunteer testing. Our oral TNF-alpha program will become higher profile in 2007 with data from our international Phase II control trial with 10,004 in moderate to severe psoriasis expected later this quarter. We have already initiated a psoriatic arthritis trial with 10,000-4, and we’ll be initiating multiple other inflammatory disease trials this year. Our second oral TNF-alpha inhibitor 11,050 should complete Phase I testing later this year.

During the quarter we also made excellent progress in advancing our inter-cellular signaling product candidates and our stem cell programs, including the filing of our first IND for our composite (inaudible) stem cell products.

Overall, we have seen an impressive start to the year building an excellent platform for accelerating growth this year and next. Thank you and let me turn the call over to Sol.

Sol Barer

Thanks Bob and good morning everyone. Our goal is to grow the world leading global hematology oncology company with a major presence in inflammatory diseases. This was an historic quarter for Celgene towards achieving that mission.

During the quarter we delivered record operating and financial results. We continued our international expansion into more than 35 countries. We advanced our key global regulatory programs that may offer a greater number of patients the world over access to the clinical benefits of Revlimid. The National Cancer Institute and ECOG reported unprecedented preliminary clinical findings from a major Revlimid newly diagnosed Multiple Myeloma Phase III study.

We completed our state of the art Revlimid drug products manufacturing facilities for Revlimid in Switzerland and we've prepared for the European launch of Revlimid for all member states of the European Union.

We made significant progress towards the rapid and broad advancement of Revlimid in the United States and internationally. As Dave stated, our total revenue increased 61% to $293 million and importantly, net product sales for Revlimid increased 351% to $146 million, continuing the momentum of the most successful Multiple Myeloma product in history.

Importantly we've realized the seminal milestone for Celgene towards our strategy of becoming a true global company for our hematology oncology franchise for Revlimid, and most importantly the European patients with its THMP recommendation for approval of Revlimid in the European Union, making it available to patients in over 25 countries.

We are currently finalizing plans for the launch of Revlimid as we achieve EMEA approval, reimbursement in each country, and approved distribution systems. We have recruited some of the best and brightest in Europe to bring Revlimid to patients in the European Union. Revlimid is also progressing in other countries, including Australia, Canada, Switzerland, and Japan, and we will initiate regulatory programs within the next year in over a dozen countries.

Our strategic objects of demonstrating Revlimid as a potential paradigm shift in the treatment of patients with Myeloma was advanced with the release of top line results with the independent National Cancer Institute sponsored ECOG trial of Rev and low dose Betamethasone suggesting an unprecedented one year survival for newly diagnosed Myeloma patients.

Stay tuned for more detailed discussion and data at the upcoming ASCA meeting and additional data at the international Myeloma workshop and of course at the American Society of Hematology meeting at the end of the year.

An important part of our strategies to advance Revlimid broadly in hematology indications and towards that, as Bob described, we advanced our trials in CLL, NHL, and other diseases including potential accelerated and special protocol assessment regulatory programs. These potential indications could serve as the next major step beyond myeloma and MDS and very significantly increase the patient population served by Revlimid.

Additionally Revlimid will continue to be aggressively investigated in a variety of other malignancies toward its potential establishment as a broad based hematological agent.

But I think Revlimid's true value goes far beyond these results. It is more than the establishment of Celgene as the current dominant company in myeloma and Revlimid's potential as a paradigm shift for patients. Revlimid's major impact is in the validation of our (inaudible), a class of agents we feel has major potential in a number of serious and debilitating diseases.

This class of compounds includes CC4047 which is being advanced in hematological malignancies and solid tumors, CC1106, being evaluated in patients with MDS, and a number of other candidates including CC10015, CC13097, and CC15965.

Strategically our goal is to offer patients a true transformation in therapeutic outcomes and we're just at the beginning. We also progressed in our strategy towards the establishment of an anti-inflammatory franchise with the advancement of our proprietary oral TNF-alpha class of compounds.

Specifically we are completing the trial with our lead compound, CC10004, in patients with moderate cirrhosis towards understanding the clinical characteristics of this compound.

Initiating our cirrhotic arthritis trial and preparing to initiate a number of anti-inflammatory trials to begin later this year, this strategy was further advanced with a new oral TNF-alpha compound, CC11050, that was shown to be safe and well tolerated in healthy human volunteers.

We also advanced a new proprietary class of small molecule immunological agents and pathway modifiers where we have selected our first preclinical candidate.

We recognize our responsibility to patients as a leading hematology company. Not only with the continued and aggressive development of major therapeutic options but also with a continued goods program, our significant contributions to patient co-pay foundations, and the establishment of our patients support coordinator division as Bob has indicated.

Financially we achieved record profitability with adjusted earnings per share of $0.20 while advancing all our programs and strategic objectives including building our international operations, significant investment in research and in clinical programs, and contributions to the patient foundations.

It should be clear we are dedicated as a company to being a preeminent force in global medicine for patients with serious and debilitating diseases.

We are focused on this with a single minded passion. We have the science, we have the resources, we have the compounds, and most importantly we feel we have the excellent people at Celgene and are progressing toward this important goal in all functional areas around the world.

Finally we look forward to announcing our second quarter financial and operational results on Thursday July 26.

Operator now please open the call to questions.

Question-and-Answer Session

Operator

Thank you. If you would like to ask a question at this time please press Star One on your touch tone phone. If you're using a speaker phone please make sure your mute function is turned off to allow your signal to reach our equipment. Once again Star One if you do have a question. We'll pause for just a moment to assemble our queue.

We'll go first to Geoff Meacham with JP Morgan.

Geoff Meacham - JP Morgan

Hi guys, thanks for taking my question. A couple questions on Revlimid. Logistically does one have to renew enrollment in RevAssist on an annual basis and then were there any issues that you guys had in securing reimbursement as you began this year?

Bob Hugin

Yeah, let me answer that one first. The only reenrollment that a patient has would be if they're Medicare Part D. RevAssist, once a patient's enrolled in it they have to enroll separately in steps in RevAssist, but RevAssist is a one-time enrollment where a patient, if they're on Medicare Part D in December, would have to make sure they're re enrolled properly in Medicare Part D again in January. So that's how that works.

Geoff Meacham - JP Morgan

OK and then can you give us a sense for name patients sales in Europe and then I think in the past you guys have broken out scripts among the Myeloma MDS and then offlabel CLL NHL indication.

Bob Hugin

Sure. I think the way is very European international versus US. It's similar to what we saw in 2006, what we expect in 2007. Prior to approval we'd expect around a 10% mix between international and 90% domestic prior to approval and depending on which countries come online first and get pricing and reimbursement. We'll hopefully see a change in that mix with a higher percentage of international.

The mix in prescriptions in the quarter was around 70% myeloma in the low 20's on in and the remainder was others led by lymphoma’s milofibrosis prostate cancer. A little bit higher, one or two percent higher in others than it was in the last six months of last year.

Operator

And we’ll go next to Jim Reddoch with FBR

James Reddoch – Friedman, Billings, Ramsey

Yes, thanks for taking the question. My question has to do with expenses since it looks like there was a pick up in expenses and you mentioned that you do have payments to these groups that help with patients co pays. Can you tell us how much that did account for dollar wise? I assume that comes out of SG&A and secondly, is that more of a one cue phenomenon to sort of help people with the doughnut hole this year? Lastly on SG&A, the press release says you expect increases in 2Q and 3Q, is that an annual comment or do you mean that 2Q increases sequentially over 1Q and 3Q increases sequentially over 2Q? Thanks.

Sol Barer

Yeah, related to the co-payments and they are under the SG&A as part of an SG&A expense. The first quarter we did make substantial significant contributions to those foundations and you would expect the first quarter to be the highest because its when patients if they were existing patients would have to go back through the donor hole again in January if they have been on the drug sometime or any other drugs in the previous year and they have gone through the dart hole, they need to re-go to get through the dart hole for the new plan here in 2007.

So I am not going to say the specific number but is under SG&A, it was a significant contribution to multiple range of these co-payment foundations. It should be worded, these are unrestricted donations to MDS and myeloma foundations designed to help people with co-payments, and again have that disease.

So again, I would think those donations would be less in the other quarters, but as the drug increases and more patients have issues in terms of not having, they are above two times the poverty level, you are going to get government assistance and up to 5-6-7 times the poverty level, they may qualify for co pay assistance from these independent third party nonprofit foundations designed to support MDS and myeloma patients.

The second part of the question Dave’s going to take.

Dave Gryska

We expect the SG&A expenses to go up in the second and third quarters as we optimize our launch activities in Europe. We are not going to give specific ideas what those numbers are but we are still very comfortable that we are going to hit a dollar a share on the just a basis for the year.

James Reddoch – Friedman, Billings, Ramsey

OK, thanks.

Operator

And we will take our next question from Howard Liang with Leerink Swann.

Howard Liang - Leerink Swann

Thanks very much. I just have a couple of questions regarding the pipeline for Revlimid. Can you talk about what’s the status of the CRPTG trial in lymphoma and also what’s the status relevant in Japan?

Bob Hugin

First of all that trial has started accruing patients so we will have more details as we get the approval further along but that trial is open and is accruing. What was the second part of the question Howard?

Howard Liang - Leerink Swann

Relevant in Japan, what is the status?

Bob Hugin

I think we made good progress, getting our team up and running there. We have gotten the approval through the ministry to begin the trials that are required to get the bridging studies so that as those trials are finalized, we will be able to set the timelines. We are hopeful that we will be able to accelerate the timing of getting Revlimid approved in Japan. But the actual accrues for those trials now that in the first quarter or so we got the okay to begin them, we expect this summer to actually enrolling patients in those first Japanese trials, in both MDS and myeloma.

Howard Liang - Leerink Swann

Then just a news flow that’s walked by this year should we assume that’s ash and what should we expect to see at international workshop in Greece?

Bob Hugin

At this point, that’s really up to Schwab in terms of any announcements they would make. It is usually public information regarding the fact that that trial accrued has been halted and that Schwab is looking at the interim data. So it’s really up to them in terms of what to release, when and so on. My expectation is if the data is truly compelling and if the interim data is compelling and the data monitor committee does feel it should either halt the trial or somehow modify the trial, then that would be announced as soon as possible and potentially have sessions that ash and maybe even as Deans’ Nash international workshop. We really don’t know that, that’s really up to them at the present time.

Operator

We’ll go next to Yaron Werber with Citigroup.

Yaron Werber – Citigroup

Good morning. Dave or Bob, can you discuss a little bit what happened with COGS this quarter. I mean the COGS was reduced dramatically relative to what we have seen in recent years. What is going on there specifically and is that sustainable going forward? And then I have a follow up as well.

Dave Gryska

Sure Yaron, I mean basically it’s just production efficiency. We are getting better, you know we are bringing our production online and I would expect that we are going to be within about a 1-2% range of where we are this quarter plus we have a different mix right now more revenue than value and with Revlamid that has a higher margin. So you’ve got two things going one is the mix of products, the other one is production efficiencies.

Yaron Werber – Citigroup

Just to follow on, what physically did you say this quarter was the first time we have seen a down quarter of a quarter, was there any inventory changes there? Did you notice that there was a reduction of just slightly over 6 million if I recall correctly on Revlamid in the specialty pharmaceutical pharmacies? What did you see in terms of that?

Dave Gryska

On the Revlimid, when you have a much narrow distribution channel with specialty pharmacies, you have a much more concentrated and I think aggressive control of inventory balances so at the end of the quarter we did see managing inventories down at the specialty pharmacies so when you look at the dispenses versus the inventory and the sales to those pharmacies, it was about a $6 million reduction in the quarter for the specialty pharmacies.

With that it was a different situation where it is a retail based distribution channel so you don’t see a concentrated and therefore not the same kind of management of inventories at the end of a quarter by the larger organizations. I think over time, there is a perception that Revlimid is an accurate perception, we certainly hope moving earlier in treatment which is where that has been the market leader and is still doing very well in newly diagnosed in the front line. So I think you’ll see inventory reductions in that and we certainly saw a higher gross to net issues of people looking to reduce inventory through return and other mechanisms so we had a little bit of impact on it and some of it was the impact of rev penetrating and we are talking pretty small numbers here in the 1, 2 or 3 million dollar range.

Operator

And we will go next to Tom McGahren with Merrill Lynch.

Tom McGahren – Merrill Lynch

Hi, thanks. On Revlimid, do you think as a company at some point will make the Revlmid sale data available on a weekly or a monthly basis? You know we can get trickles of it through various services but do you think there will be a movement on that?

Bob Hugin

We are certainly looking at it Tom, it really is an issue of if it does add value looking at what the international component, how accurate is the international information and so if it is something that adds transparenting to it and doesn’t give a competitive disadvantage to the commercial organization. We are definitely going to look at it, we will continue to look at and once you start, we are going to continue it. So we will continue to look at it, we will get a sense of how accurate the international information is and does it give investors and analysts a good perception to help be accurate, more accurate than their estimates and if they can be more accurate and it is effective, then we definitely are considering it.

Tom McGahren – Merrill Lynch

OK, thanks. One final follow up on the gross margin. Just going forward, do you think the gross margin will be consistent through the year?

Dave Gryska

To answer your question we are going to be probably with about a 2% band in terms of the gross margin from where we are right now. So I think we'll be again within that range you saw in the first quarter. And it could be, as we go forward, within a two degree bandwidth, or two percentage points of that.

Operator

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

Ian Somaiya - Thomas Weisel Partners

Thanks. I just have two questions. First of all, a sort of two-part question: What's the longest follow-up in the Revlimid 5 DS trial at this point? And also the (inaudible) trial. And then I have a related question.

Bob Hugin

I'm sorry, in terms of longest follow up for a patient?

Ian Somaiya - Thomas Weisel Partners

A patient, yes.

Bob Hugin

We've had patients on, from 5Q patients, for five years. Again, it's kind of tough to make conclusions based on anecdotal single-patient things.

Ian Somaiya - Thomas Weisel Partners

But on average, what's the average follow-up in that trial round?

Bob Hugin

The average follow-up is about three years.

Ian Somaiya - Thomas Weisel Partners

Three years? And what about the other trial, the ECOG study?

Bob Hugin

We've had patients on that trial for about three years, as well, so the data that we can speak most of assuredly of that has been released by ECOG, is one-year data. But I don't know if the (inaudible) are going to be shown by ECOG, and by Vincent at ASCO, but it extends beyond that.

Operator

And we'll go next to Maged Shenouda with UBS.

Maged Shenouda – UBS

Sure, good morning. Can you speak to the trends for Revlimid use for (inaudible), and how you expect the NCI ECOG low dose trial to modify existing trends?

Bob Hugin

Sure. When we get data, the indication is myeloma. So when we talk about market shares, we're talking about independent third-party market research firms that do that for us, and we follow it quite closely. And when you get that kind of data sampling, we think you have to be very careful with it. Because the longer they look at the data, and the more consistent the studies are, the more confidence you have that you're seeing the right trends, etc. So we really do like to look at 12-month rolling data to get confidence about what we're seeing.

But we look at three months, six months, 12 months, look at data continuously. And the trend in the quarter continues to be very positive against all lines, and we saw a significant increase in usage in first line and second line, as physicians were moving up in the therapy. I forget the increase, but we had a significant increase in both first and second with Revlimid. Clearly that remains strong there, but we're starting to see some shifting there.

Obviously our promotional activities are focused on second line, to get patients moved up as quickly as possible. And then, what happens with ECOG when you show very significant survival advantage for a therapy over existing therapies, and I think the most we've seen really is in the 80s. We saw 86 obviously, on this study for Revlimid at standard or high dose.

And so when you see that kind of difference, I think getting that kind of information out through medical education and presentations at these major medical meetings may have an impact. But it's going to have to be something that the data will have to drive. It's not something that we've been promoting.

Maged Shenouda – UBS

OK, great, thank you. And then, just a quick follow up on another program. You know, there are a lot of moving pieces to your CLO and NHL programs. Can you give us some time lines around getting definitive data, and just a ban on when you'd expect to file for either of these indications?

Bob Hugin

We try out on a two-prong strategy. We want to do very rigorous, phase-three, randomized placebo-control trial as the base case on which we operate. And we are in the discussions with the FDA. I mentioned that we did submit the FDA in the first quarter. We're hopeful to get that trial moving as quickly as possible.

And then, I think as we see the rates of accrual, we can give people a better sense of the time line for it. Now last fall, we did begin accruing the international, large 300+ trial that if those results are compelling, we would give a sense of what the probability is, if there is a chance that that could accelerate the time line.

Our key goal this year is to accelerate the accrual first of that large phase two. I think when we can tell you when that accrual was finished, or when we anticipate the accrual, then we say, “Listen, here's the timing we expect the data”. And then we can – you, and us, and everybody can make a decision when they see the data of, is it compelling and does it have a chance to be considered.

So, I think later in this year we'll give you a good sense as to when accrual has finished or when it will finish, and we can set those time lines. But I can tell you there is no higher priority in the clinical group here than to get those CLO trials accrued, new trials started, and the same thing with NHL. Getting this FDA and the phases twos accrued and rolling are the highest priorities.

Sol Barer

And just to reemphasize that there are several pieces to this, as you correctly pointed out. One is from an approval perspective, the special protocol assessment, discussions obviously, and initiation of that trial. Two is the potential, and I underline “potential”, accelerated approval mechanism where we have initiated a trial and (inaudible) with Revlimid at a couple of doses, and we're going to take a look at that. That would be very compelling then, obviously.

The third thing is, there are a number of trials ongoing: Revlimid mono-therapy, Revlimid in combination, Revlimid in combination with antibodies, which is interesting in CLL as well, and the fourth piece is really the data flow that will be coming out on CLL, which, in general I'm excited about that indication, especially given the data that was presented where we're actually seeing a reasonable number of complete molecular remissions, which is really exciting. And we'll see how those things go out.

So the information flow, the data flow, accelerating the (inaudible) for this year. So, time lines are awfully difficult, but it is one of our highest priorities in developing Revlimid as a major biological drug, after myeloma, both the previously treated, newly diagnosed, NBS and then chronic leukemia.

Dave Gryska

Operator, we're going to have time for just one more call.

Operator

We'll go to May-Kin Ho with Goldman Sachs.

May-Kin Ho - Goldman Sachs

Hi, two questions. One, you mentioned that the market share in all lines of therapy for (inaudible) increased. Can you give a little more bit color on that, number one, in terms of the percentages? Number two, what should we think about in terms of normal inventory in Revlimid?

Dave Gryska

On the first question about market share, we have to be a little bit careful because what we look at is rolling twelve-month share, which should understate the market share. Because the drug was launched in July of '06, and we look at twelve-month data, and so, we're now, having started out in the 3-4% total share, we've now more than quadrupled that to in the mid-teens type of level overall. So you have to be a little bit careful with that, because again, it's twelve months kind of data.

What was the second part, May-Kin?

May-Kin Ho - Goldman Sachs

What should be considered the normal inventory for Revlimid, how many days?

Dave Gryska

It's a question that's a difficult one for us to answer because, I would think over time, when you have a controlled distribution and a concentrated distribution that goes primarily through specialty pharmacies, and not through the general pharmacy network in the country, people will be able to control inventories and manage the balance sheets at the end of the quarter quite effectively, because we ship overnight to them. So having more than a week's inventory isn't really necessary.

Right now we're probably in a week and a half, to a week and three quarters, type of inventory in those systems, down a half a week from the beginning of the quarter. So that's the magnitude that's out there. I wouldn't be surprised to see it decline slightly.

May-Kin Ho - Goldman Sachs

Helpful, thank you.

Dave Gryska

Thank you very much for your participation. Appreciate it, and we look forward to speaking to you at the end of July on our next quarterly conference call.

Operator

Thank you everyone. That does conclude today’s conference, you may now disconnect.

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