Celgene (CELG) Mark J. Alles on Q2 2016 Results - Earnings Call Transcript

| About: Celgene Corporation (CELG)

Celgene Corp. (NASDAQ:CELG)

Q2 2016 Earnings Call

July 28, 2016 9:00 am ET

Executives

Patrick E. Flanigan III - Corporate Vice President, Investor Relations

Mark J. Alles - Chief Executive Officer & Director

Peter N. Kellogg - Executive Vice President and Chief Financial Officer

Michael Pehl - President, Global Hematology and Oncology

Scott A. Smith - President, Global Inflammation and Immunology

Jacqualyn A. Fouse - President, Chief Operating Officer & Director

Analysts

Cory W. Kasimov - JPMorgan Securities LLC

Geoffrey Meacham - Barclays Capital, Inc.

Michael Yee - RBC Capital Markets LLC

Eric Schmidt - Cowen & Co. LLC

Brian Abrahams - Jefferies LLC

Matthew K. Harrison - Morgan Stanley & Co. LLC

Robyn Karnauskas - Citigroup Global Markets, Inc. (Broker)

Mark J. Schoenebaum - Evercore Group LLC

Katherine Breedis - Stifel, Nicolaus & Co., Inc.

Joshua E. Schimmer - Piper Jaffray & Co. (Broker)

John Newman - Canaccord Genuity, Inc.

Operator

Good morning, and welcome to the Celgene second quarter 2016 earnings conference call. I would like to remind you this call is being recorded. I would now like to turn the conference over to Patrick Flanigan, Corporate Vice President of Investor Relations at Celgene.

Patrick E. Flanigan III - Corporate Vice President, Investor Relations

Thanks, Kat, and welcome, everyone, to our second quarter earnings conference call. The press release reporting our financial results, in addition to the presentation for today's webcast, can be accessed by going to the Investor Relations section of the corporate website at www.celgene.com.

Joining me in the room today with prepared remarks are Mark Alles, our Chief Executive Officer; Peter Kellogg, our Chief Financial Officer; Jackie Fouse, our Chief Operating Officer; Michael Pehl, President of our Hematology & Oncology franchise; and Scott Smith, President and Global Head of our Inflammation & Immunology franchise.

As a reminder, during today's call we will be making forward-looking regarding our financial outlook, in addition to regulatory and product development plans. The statements are subject to risks and uncertainties that may cause actual results to differ from those forecasted. A description of these risks can be found in our most recent 10-Q, on file with the SEC. These statements speak only as of today's date, and we undertake no duty to update or revise them. Reconciliation of the adjusted financial measures to the most comparable GAAP measures are available as part of the earnings release.

I would now like to turn the call over to Mark.

Mark J. Alles - Chief Executive Officer & Director

Thank you, Patrick. Good morning, and thank you, everyone, for joining us. I'd like to begin by welcoming Michael Pehl to our call in his role as President of our global Hematology & Oncology franchise. Michael brings over 25 years of industry experience to his leadership position and joined Celgene in 2006 as the first General Manager of our German affiliate. Michael has made significant contributions to our company in roles of increasing responsibility, including Head of our Hematology business in Europe and Head of our global Hematology & Oncology marketing group. Welcome, Michael.

We appreciate the opportunity to review our second quarter operating performance and the progress we have made advancing major corporate objectives with you. Guided by our strategic imperatives, our global teams are driving outstanding results and achieving key financial, regulatory, clinical, and commercial milestones that Peter, Michael, Scott, and Jackie will discuss with you today.

Against virtually every metric, our second quarter was outstanding. This momentum, combined with the leverage our business model continues to generate, improves our full-year outlook such that today we are raising our 2016 adjusted EPS guidance to a range of $5.70 to $5.75, from our earlier target of $5.60 to $5.70 and are guiding to the high end of our current net product sales range of $10.75 billion to $11 billion. Peter will provide much more detail about our second quarter financial performance and improving outlook in a few minutes.

Our management team is committed to delivering exceptional results each quarter while we continue to invest in and advance opportunities expected to maximize the potential of our commercial franchises and build strong and diverse platforms for long-term value creation. We believe this balance was well-represented in the quarter. For example, at ASCO and at EHA, new clinical data were presented that cemented REVLIMID's position as a standard of care for myeloma patients. In just the past year, five novel agents have generated significantly better clinical outcomes in multiple myeloma when combined with REVLIMID. These new data and real-world patient outcomes are adding to the momentum of our global myeloma franchise.

As you will hear from Scott, our investments in the commercialization of OTEZLA continue to drive it to leadership positions in the U.S. psoriasis and psoriatic arthritis markets. And its global expansion is accelerating as we complete launch preparations in major European markets and Japan.

Recognizing the inherent challenges associated with clinical development, we continue to advance high-potential pipeline programs to diversify our opportunities. Earlier this week, we announced that based on the interim overall survival analysis of the REMARC study testing REVLIMID as maintenance therapy for patients with diffuse large B-cell lymphoma, we currently do not plan to seek approval for this indication. However, given the optionality and diversity of our late-stage programs, we remain confident in our mid- and long-term growth potential and profile. One of these programs is GED-0301, where later this quarter we expect to have the CD-001 12-week endoscopic data. Scott will discuss our progress developing GED-0301 and our I&I pipeline later during our call.

Through our internal research capabilities, and with our exceptional partners, we have created and continue to add new platforms expected to improve our opportunities for longer-term growth. Since the beginning of the year, we have filed four investigational new drug applications for Celgene-developed products, entered into a number of important collaborations, and advanced key clinical programs with our partners. Last week, we announced a new collaboration with Jounce Therapeutics, adding to our differentiated opportunities to identify and develop novel immuno-oncology therapies. Our work with Jounce is expected to meaningfully add to the progress we are making with our immuno-oncology partners Juno, bluebird bio, Lycera, and AstraZeneca. And our expanded relationship with Agios will investigate potential new therapies based on immune cell metabolic pathways that are expected have applications for the treatment of cancers as well as inflammatory disorders.

These examples highlight just some of the progress we are making with our efforts to discover and advance tomorrow's transformational therapies and create a better future for patients in need. We look forward to updating you on the progress of our research and key late-stage programs throughout the second half of the year. Despite continued global economic and political uncertainties, our business momentum has never been stronger. We continue to invest in late-stage clinical trials to optimize the value proposition of our existing portfolio, advance our mid- and late-stage pipeline, and add promising alliances to our internal research efforts.

These are very exciting times at Celgene. Thank you very much, and please help me welcome Peter to our call.

Peter N. Kellogg - Executive Vice President and Chief Financial Officer

Thank you, Mark, and good morning, everyone.

In Q2, we continued to build on the momentum from the first quarter and execute across our portfolio. Our strong top line growth is driven by volume, with exceptional performance from our core products. Our bottom line is driven by careful P&L management, while we continue to invest in our innovative R&D portfolio. Our performance this year has led us to raise our adjusted diluted EPS range, as Mark said, to $5.70 to $5.75, to guide net product sales to approximately $11 billion, and REVLIMID sales to approximately $6.8 billion for 2016.

Turning to our second quarter top line results, we continue to see impressive, industry-leading growth. Our year-over-year growth for net product sales was 22%. Now, Michael and Scott will discuss the underlying demand for this performance later in the call. The driver of our top line growth continues to be volume. Volume accounted for 16 of the total 21.8 percentage points. Our bottom line growth continues to be strong, and adjusted earnings per share grew to $1.44 per share. Our year-over-year 17% growth was achieved despite higher R&D expenses related to our numerous late-stage programs, our acquisitions of Receptos and Quanticel that closed in the second half of 2015, and the decision to opt in on several collaboration programs over the past year.

Turning to our P&L, we continue to have exceptional performance. The adjusted operating margin improved 330 basis points year over year to 54.6% for the quarter. Quarter over quarter, we saw a 60 basis point improvement. We continue to see excellent leverage in SG&A, which from a margin perspective offsets our R&D investment. Operating income drove $0.35 per share of the $0.21 per share bottom line growth. Financial levers had a total negative $0.14 impact, which includes the additional interest expense from last year's bond offering.

We ended the quarter with approximately $6.4 billion in cash and marketable securities. For the first half of 2016, we purchased nearly $1.8 billion of our outstanding shares. And in June, an additional $3 billion for share repurchases was authorized, leaving us with a total authorization level of approximately $5.1 billion.

Based on our exceptional first half performance and strong momentum, we are updating our 2016 guidance for REVLIMID net product sales, total net product sales, adjusted operating margin, and adjusted diluted EPS. Now, our prior guidance for POMALYST, ABRAXANE and OTEZLA net product sales will remain unchanged. As mentioned earlier, we are guiding to full-year REVLIMID net product sales of $6.8 billion, from the prior guidance of $6.7 billion, and this is due to the strong uptake seen year to date. Our continued management of the SG&A line allows us to raise our adjusted operating margin guidance for the year by 50 basis points to approximately 54%. We now expect our adjusted diluted EPS to be in the range of $5.70 to $5.75. We are also updating our diluted share count from 811 million to 806 million due to our first half share repurchases.

Our first half performance has been superb, and we anticipate continued great commercial momentum. Looking ahead, we are also excited for the next phase of drivers to extend our future growth.

Thank you. And now I'd like to turn the call over to my colleague, Michael.

Michael Pehl - President, Global Hematology and Oncology

Thank you, Peter, and good morning, everyone.

Before we start, let me take the opportunity to thank our hematology and oncology teams across the globe for their great work in delivering a truly outstanding second quarter. We have made significant progress in further maximizing the opportunity of our existing assets and in advancing our development programs and pipelines across assets and diseases.

Our Q2 financial results are extremely strong, with 16% year-over-year revenue growth and 9% sequential growth. The REVLIMID NDMM launch is highly successful across all geographies. We expanded reimbursement across key markets and saw positive uptake in duration trends in the markets where we have reimbursement.

POMALYST/IMNOVID continues to grow globally, with strong market share and duration results.

ABRAXANE had a positive quarter around the globe, despite the uptake of novel agents in breast and lung cancer. We are maintaining our U.S. leadership position in pancreatic cancer, and our pancreatic market share is growing in reimbursed markets outside of the U.S.

There was a very positive flow of data supporting our key in-line brands. Impressive clinical results of REVLIMID in NDMM maintenance, in combination with daratumumab in relapsed/refractory myeloma, as well as ABRAXANE combination data with checkpoint inhibitors, have been presented at the ASCO and EHA meetings in June.

Our pipeline is advancing substantially, including our AG-221 and luspatercept pivotal studies. We are very pleased with the progress of our I-O programs. We have opened additional trials of the FUSION program for the (12:42) and hematologic malignancies and made progress with our CAR-T partnerships with Juno and bluebird bio. Finally, our next-generation CELMoDs are moving forward in the clinic.

REVLIMID delivered outstanding results in Q2, with 18% year over year and 8% sequential revenue growth. All key performance metrics are strong globally, and the majority of the growth is coming from volume. The U.S. NDMM launch continues to produce significant share and duration gains. U.S. year-over-year growth in TRxes for the quarter was 16%, and NRx growth was 17%. We have made steady progress with reimbursement in Europe and expect to have reimbursement in additional markets, such as Italy, by the end of 2016. NDMM share continues to grow in reimbursed markets in Europe, as well as in Japan, and is in line with our expectations.

As we discussed during our Q1 earnings call, the momentum for REVLIMID in multiple myeloma is extremely strong, supported by multiple drivers such as the ongoing NDMM launch, the growing evidence for continuous treatment, and multiple triplet readouts and approvals in the U.S. and in Europe. Additional momentum in myeloma beyond 2016 will be generated through our ongoing and planned SCT maintenance submissions in Europe and the U.S., as well as the recent publication of Rd plus daratumumab data in relapsed/refractory myeloma, with an estimated progression-free survival of well over 14 months.

As we look forward for REVLIMID beyond myeloma, lymphoma will be a major growth driver by 2020 and beyond. As Mark mentioned, earlier this week we provided an update on the REMARC trial evaluating REVLIMID as maintenance therapy in patients with diffuse large B-cell lymphoma, responding to first-line R-CHOP therapy. We are working closely with our partner LYSA to analyze the data and look forward to presenting the results at a major hematology conference later this year.

The REMARC study is part of a broad REVLIMID program focused on multiple NHL histologies and patient segments. While REMARC evaluated a unique clinical strategy of using REVLIMID as maintenance monotherapy in diffuse large B-cell lymphoma, the other four Phase III studies are testing the combination of REVLIMID with rituximab, or rituximab-based combination therapies, in follicular lymphoma and first-line diffuse large B-cell lymphoma patients with the ABC subtype.

We feel that the evidence created through multiple Phase II studies in those settings is very robust, supporting strong value propositions, unique mechanisms of action, and a good likelihood of success for the RELEVANCE, ROBUST, and AUGMENT trials. Results from the RELEVANCE and AUGMENT trials are expected next year. Our 2020 REVLIMID financial target includes between $1.0 billion to $1.5 billion in sales for lymphoma. We designed this range to be independent of the success of any one of the five Phase III trials.

POMALYST/IMNOVID delivered a strong 35% year-over-year and 16% quarter-over-quarter net sales growth. We have leading market shares in the U.S., launch markets in Europe and Japan continue to see share gains, while duration is increasing globally. Despite the growing number of relapsed/refractory myeloma treatment options, we see a stable third-line share and an increasing second-line share for POMALYST, which is driven by earlier usage directly after REVLIMID and in combination with traditional and new agents, further enhancing value proposition and clinical benefits.

We recently received FDA approval for a POMALYST label update in patients with renal impairment, which will allow us to better educate on the usage of POMALYST in this patient population. We have received a positive CHMP opinion for a similar label update for IMNOVID in Europe. Our development programs for POMALYST/IMNOVID in multiple combinations continue to advance. This includes our Phase III MM-007 trial in combination with bortezomib in second or later treatment lines, as well as ongoing Phase I/II combination studies with daratumumab and durvalumab.

ABRAXANE had a solid performance in the second quarter, with 2% year-over-year net sales growth and 11% sequential growth. In the U.S., ABRAXANE maintained its leadership share position in metastatic pancreatic cancer and continued to stabilize in breast and lung cancer, despite competition from other agents. ABRAXANE net sales outside the U.S. grew 2% year over year, excluding the impact of foreign exchange and despite some slight headwinds from price and distributor buying patterns. It's important to note that many recently reimbursed markets have not yet reached peak shares in pancreatic cancer.

I'd also like to remind you of the long-term opportunities for ABRAXANE. Data for ABRAXANE in combination with Tecentriq in triple-negative breast cancer were presented at ASCO, adding to the highly encouraging clinical evidence for I-O ABRAXANE combinations reported a couple of months ago for non-small cell lung cancer. I-O ABRAXANE Phase III trials in non-small cell lung cancer and triple negative breast cancer are set to read out in 2017 and 2018, respectively.

In addition to the development programs that I have described for our in-line brands, I am very pleased with the progress we are making in advancing our broad and deep earlier and later-stage pipeline. Let me focus on a couple of key programs and assets. The enrollment of the Phase II expansion study of AG-221 in relapsed/refractory AML is completed, and the Phase III study in relapsed/refractory AML is on track. Our luspatercept collaboration with Acceleron is rapidly moving forward, and our expected Phase III trials in patients with lower-risk MDS and beta-thalassemia continue to enroll well.

I'm particularly excited about the progress we've made with our I-O pipeline. The durvalumab FUSION program is now enrolling six trials in multiple hematological malignancies in combination with many Celgene assets, including POMALYST in relapsed/refractory myeloma, REVLIMID in newly diagnosed myeloma, daratumumab in relapsed/refractory myeloma, multiple assets in NHL or CLL, with Vidaza in high-risk MDS and AML, and with CC-486 in high-risk MDS.

In April, we opted into the CD19 CAR-T program with Juno and made good progress with our respective development programs for Europe. In the first quarter of this year, we opted into a bluebird BCMA program. This program continues to advance and, in conjunction with durvalumab and our next generation CELMoD, will be an important cornerstone on our way to the cure for multiple myeloma.

Finally, I'd like to highlight the progress we've made in substantially advancing our understanding of protein homeostasis over the past few years, which has put us in a position to investigate multiple new and potentially more effective next-generation CELMoDs in targeted, higher-risk patient segments. We have our CC-122 program enrolling into multiple proof-of-concept studies in several indications, both as monotherapy and in combination with new agents. And we have other candidates coming that we will tell you more about as we make progress.

To summarize, we had a great second quarter for the Hematology & Oncology franchise on all fronts. As Peter mentioned, our strong momentum has given us the confidence to raise our REVLIMID revenue guidance to approximately $6.8 billion. The strength of the entire portfolio makes us believe that we will hit the high end of our revenue range for 2016. Our clinical programs are advancing nicely. The RELEVANCE and AUGMENT follicular lymphoma trials will read out in 2017. The POMALYST/IMNOVID MM-007 pivotal study will provide results in 2018. And we have ABRAXANE opportunities in adjuvant pancreatic cancer and with I-O combinations that will be reading out in 2017 and 2018. Finally, our earlier pipeline is moving forward substantially, especially in I-O and protein homeostasis. We have a lot of confidence in accelerating momentum in our near-term and long-term opportunities and are on track to deliver on the 2020 target for our franchise.

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

Scott A. Smith - President, Global Inflammation and Immunology

Thanks, Michael. Good morning. Q2 was a strong quarter for Celgene I&I. In Q2, we saw revenue growth accelerate throughout the quarter in both the U.S. and the EU. Leading indicators of demand remained strong in the U.S. and throughout Europe.

In Q2 we received the top line results for our atopic dermatitis Phase II proof of concept study and are evaluating next steps. We also advanced the development pipeline by taking important steps forward in the GED-0301 and ozanimod programs, as well as with other early- to mid-stage clinical programs.

Global OTEZLA net sales for Q2 2016 were $242 million. This represents a 170% year-on-year increase and a 24% quarter-on-quarter increase. The majority of revenues continue to be derived from the U.S., but we are seeing strong metrics in the launch countries in Europe. We are pleased with the emerging access footprint for OTEZLA globally. We have now achieved favorable reimbursement decisions in 14 countries in Europe and expect to conclude discussions in most of the remaining countries in Q3. This progress in Europe, together with an expected approval in Japan by the end of this year, should represent a significant source of revenue growth for OTEZLA in 2017 and beyond.

Now looking specifically at the U.S., physician campaigns and a refreshed consumer campaign are driving increases in brand awareness, patient requests, and trialings. Persistence on OTEZLA continues to lengthen as equivalent to biologic therapy at one year. OTEZLA also continues to lead all other branded therapies in new-to-brand share.

The PsA and psoriasis markets have grown significantly over the past few years, driven in part by new launches of products with novel, non-TNF MOAs. If we look specifically at these more recent launches, we can clearly see from the graph that OTEZLA has not only been a leader in growing the market but has also captured a strong and growing TRx leadership position.

We are aggressively advancing the ozanimod development program. As discussed previously, the MS pivotal trials are fully enrolled, and the ulcerative colitis pivotal Phase III trial, TRUE NORTH, is enrolling patients worldwide. During Q2, we saw significant data readouts for ozanimod, including presentation of the Phase II TOUCHSTONE histologic data at the DDW meeting in May, and, importantly, the publication of the full TOUCHSTONE Phase II data in the New England Journal of Medicine.

In Q2 we also completed enrollment of CD-001, the endoscopic trial for GED-0301. We expect to get initial top line data for the 12-week portion of this study in Q3. We intend to make these data available in the second half of 2016 at a major medical meeting. As a reminder, the objective of the 12-week portion of this study is to evaluate clinical response, clinical remission, and endoscopic improvements at an early time point. This trial targeted to enroll a patient population with advanced or serious disease confirmed by both CDAI and endoscopy at baseline. This is a multi-national site study with approximately 80% of patients in the world coming from North America.

The large Phase III pivotal trial CD-002 continues to enroll, and we have over 150 sites around the world now active. Additionally, the Phase II proof-of-concept trial of GED-0301 in UC is now fully enrolled.

Q2 was a quarter of tremendous progress for Celgene I&I. The execution of the OTEZLA launch has put it in a position to be a blockbuster contributor to the Celgene portfolio this year and beyond. We also moved all major development programs ahead through important milestones. These programs will be major contributors in driving strong growth through 2020 and beyond. We are very excited and optimistic about the future of OTEZLA and the rest of the I&I portfolio as we move into the second half of 2016.

Thank you very much for your attention, I'd now like to turn the call over to Jackie.

Jacqualyn A. Fouse - President, Chief Operating Officer & Director

Thank you, Scott. As you've heard, our teams around the world delivered excellent performance during – in the second quarter. We're well-positioned to finish the year strong and move into 2017 with great momentum. This is the case for our commercial, operational, and financial performance, as well as our clinical regulatory and research performance.

Looking at the 2016 milestones we laid out at the beginning of this year, we see that we are outperforming on our financial targets, as reflected in our updated guidance today. Our commercial and operational positions have never been better and set us up extremely well to deliver on our ambitious growth objectives from now to 2020.

Our franchise teams are driving strong positive commercial trends across our key products and major geographies, and our global operational teams are delivering exceptional performance and helping to drive our operating profit growth. REVLIMID, POMALYST/IMNOVID, and ABRAXANE have already attained blockbuster drugs status, and OTEZLA is on its way to hitting the $1 billion annual revenue milestone this year, thus becoming the fourth blockbuster in our portfolio.

All four of these drugs have bright future growth prospects and unique profiles in their therapeutic areas. The growth potential across our existing product portfolio from ongoing geographic expansion remains ahead of us and is only one of the factors driving our growth as it contributes alongside enhanced value propositions and ongoing label expansions for our marketed products, as well as new product approvals to fuel our expected 18% revenue constant annual growth rate from 2016 to 2020.

Our regulatory teams are delivering on key submissions globally, and some new approvals have already been achieved. Our clinical teams are advancing our pipeline projects with milestones hit across a succession of trial initiations, enrollment achievements, and data readouts.

Our research and early development teams are producing new drug candidates for IND submissions and making progress on the early-stage trials that allow us to advance compounds into a later stage development. Building on the success achieved to date, we enter an exciting multi-year period when we will see numerous Phase III trial readouts.

By year-end, we expect new data and major medical meetings for some of our 2016 trial readouts. Looking ahead to 2017, we anticipate readouts for Hematology/Oncology for REVLIMID in follicular lymphoma and for ABRAXANE and both non-small cell lung cancer and adjuvant pancreatic cancer, as Michael mentioned.

Turning to I&I, we expect to see Behçet's data for OTEZLA and two trials for ozanimod in multiple sclerosis. And there's more in 2018, when for Hematology/Oncology, we will have data for ABRAXANE in triple negative breast cancer and POMALYST in second-line multiple myeloma. For I&I 2018 will bring three trial readouts in the IBD space, two in Crohn's for GED-0301 and one for ozanimod in ulcerative colitis. These are all major trials and potential major catalysts. This portfolio of trials gives us several high-quality shots on goal for products and indications that can significantly contribute to future our revenue growth and diversification.

To conclude, I would also point out that in addition to what is shown on this slide, we have even more information flow during the remainder of this year. As Scott mentioned, we expect to share 12-week data from the GED-0301 endoscopy trial in the second half of the year. As we deliver on our milestones, we will see a number of Phase II trial readouts from now to the end of the year. We also look forward to important data presentations at medical meetings, including UEGW in October, ASH in December, and San Antonio Breast in December. And we will kick off a new R&D deep-dive series with an investor/analyst event in September. Our first topic will be protein homeostasis and where we think the science can take our new product development programs in that area.

Our teams have put us in a fabulous place so far this year, and we have even more to come before year-end and great things ahead in 2017, 2018, and beyond. With that, I thank you for listening, and I now open the call to questions.

Question-and-Answer Session

Operator

Thank you. Our first question today comes from the line of Cory Kasimov with JPMorgan. Your line is open.

Cory W. Kasimov - JPMorgan Securities LLC

Hey, good morning, guys. Thank you for taking the question. Congratulations on the progress. So I'm curious as to what kind of impact the Darzalex launch is having on your multiple myeloma franchise, especially pom. And, given the combination data that's being generated in the other studies that are ongoing, do you see the momentum building for that product as more of an opportunity or a threat for your IMiD franchise? Thanks.

Michael Pehl - President, Global Hematology and Oncology

Yeah, thanks, Cory. This is Michael. Thanks for the question. So, with what we've been showing you, I think it's very clear that we have a very good momentum for pomalidomide across the globe, and it's coming from a couple of factors, starting with the fact that there is a need for a product that is oral and effective and well-tolerated in the later-line patient population. That is the first point, which I think leads to some prescriber preference for using such an oral, very effective drug in that patient population as compared to an IV drug. But I think that's only part of the story. What we are seeing with pomalidomide is that it's moving up. It's moving up in third line, it's moving up even in second line, directly after REVLIMID, and we start to see a lot of combinatorial use, which has a very positive effect on the clinical benefit that we see on the outcomes of patients, but most importantly also on treatment duration.

So we actually don't see the situation that is building with CD38 and pomalidomide as competitive; we actually see it as complementary. The two drugs go extremely well together, and what we're seeing at this moment of time is a lot of combinatorial use.

Cory W. Kasimov - JPMorgan Securities LLC

Thank you.

Operator

Thank you. Our next question comes from the line of Geoff Meacham with Barclays. Your line is open.

Geoffrey Meacham - Barclays Capital, Inc.

Morning, guys. Thanks for taking the question, and congrats on the quarter. Wanted to ask you guys about the REV and other lymphoma indications, specifically how you guys think about cost-benefit for the REV-Rituxan combos. Since Rituxan's highly effective and reasonably priced, what does that do, if anything, to the hurdle you'll need to see for the REV combos going forward? Thanks.

Michael Pehl - President, Global Hematology and Oncology

So, yeah, thanks for the question. This is Michael. So I think you're referring to the combinatorial studies that we're doing in diffuse large B-cell lymphoma and follicular lymphoma in combination with rituximab. The studies are actually set up in a way that they are with comparing with the current standard of care. So in case of induction of diffuse large B-cell lymphoma, that's R-CHOP, which has been standard of care for induction for quite a while. And the study has been really set up in order to provide a huge improvement of outcome. What's also probably important to note that in this study in diffuse large B-cell lymphoma there's a limited treatment duration, so we are expecting a very marked outcomes improvement while at the same time there's a limited duration of treatment.

The situation in follicular lymphoma is building from the observation and the fact that the standard of care at this moment of time is mostly chemotherapy, with or without rituximab, or rituximab alone. We have an elderly, frail patient population in follicular lymphoma that is absolutely not tolerating chemotherapy well, whether it's (33:54) based or whether it's CHOP-based, or R-CHOP based. So there's a true need for improvement of treatment of this patient population. Again, we feel the studies, which are randomized studies, have been set up in a way that they're representing a true improvement of standard of care and the outcomes of these patients. That should translate in a very positive reimbursement situation for us.

Geoffrey Meacham - Barclays Capital, Inc.

Got you. Thank you.

Operator

Thank you. Our next question comes from the line of Michael Yee with RBC Capital Markets. Your line is open.

Michael Yee - RBC Capital Markets LLC

Hey, thanks for the question. Question for Mark or Scott on the GED-0301. You mentioned it a couple times as a key growth driver and as a catalyst. Just wanted to understand your current thinking on the endoscopy data, specifically how you think about the relationship versus CDAI, what specifically you're looking for in that study to increase or decrease our confidence on that program, and how confident are you on that data? Thanks so much.

Scott A. Smith - President, Global Inflammation and Immunology

Thank you for the question, Michael. So the study is ongoing. I do not – we haven't seen data. The 63 patients are not through the 12-week portion of the data. What we're querying and what we're looking at are three basic things there: clinical response, clinical remission, and then endoscopic improvements during that 12-week timeframe.

The study's also looking at a slightly different patient population than was looked at in the IGON-2 study. It is a relatively severe population, and there's confirmation of baseline of disease, both by CDAI and by endoscopy at baseline. So that's sort of a difference, or a hurdle, that other studies have not necessarily engaged in. But what it does is it ensures the disease state of the patient at the time of dosing; then we're looking at 12 weeks. So it's an exciting study for us. It's very data heavy. We should learn a lot about GED from that particular study. And we look forward to getting the results out in the second half of this year.

Operator

Thank you. Our next question comes from the line of Eric Schmidt with Cowen & Company. Your line is open.

Eric Schmidt - Cowen & Co. LLC

Thanks. Peter, could you just discuss what's going on with the share count? I know you raised the guidance for the share count last quarter; now you lowered it, and it looks like your guidance for the rest of the year assumes share count goes back up. So I was a little confused there. And then, Scott, just a quick one on atopic dermatitis, OTEZLA. It looked like the slides had a check next to that Phase II study? Does that mean the trial that you have in-house data on is actually positive? Thanks.

Peter N. Kellogg - Executive Vice President and Chief Financial Officer

Hi, Eric. Good morning. So you're right, basically we did have a strong share repurchase effort in the first quarter, and then also we followed on a bit in the second quarter. And so our updated share count for this year really just reflects the full-year calculation of share count on that basis. So clearly the entire biopharma sector, particularly biotech, was down in the first quarter, which we all talked about at that time. And we saw our stock price down in the $90s, and so we took advantage of that and used our capacity to get some shares, and has, for the short term, reduced our share count.

When we go out to 2020, which is I think what you're referring to, we've also provided obviously a basis for that guidance that we gave, and that was a share count of 830 million. And basically what we were trying to do is kind of level-set for everybody, look, on this basis, this is what the P&L should look like on an earnings-per-share basis. So obviously it's a long time between now and 2020, so I think there's also things coming.

And the last thing is just in 2027, remember – in 2017, rather, there is some accounting changes which I could get into off-line, which do have some impact on share count. So all those factors come into play, but in general I think for 2016 we're just trying to help investors think about what they should see as we come in towards year-end on a share count basis.

Scott A. Smith - President, Global Inflammation and Immunology

Thanks for the question. Relative to atopic dermatitis, yes, we just got that data in. It's a relatively small proof-of-concept study – again, somewhat data-heavy, lots of different things that we're looking at in that study. The study did enroll a very significant cohort from Japan, where it is a very significant disease. And so we've got that data. We're working through it, and we're working on next steps. We're going to make the fullness of that data available to everybody, but right now our focus is understanding the data and working on our next steps.

Operator

Thank you. Our next question comes from the line of Brian Abrahams with Jefferies. Your line is open.

Brian Abrahams - Jefferies LLC

Hey, guys. Thanks very much for taking my questions, and congratulations on the strong quarter. A question on REMARC. I realize you're still probably diving into all the details there, but I'm wondering if you had any initial take as to why you might've seen benefits on PFS without concurrent overall survival benefits. Was it just an issue of the magnitude of PFS not being clinically meaningful enough; are there other potential mechanistic explanations? And as you look at the data, how does it potentially increase or decrease your level of confidence in the other lymphoma studies, recognizing of course that they're testing slightly different indications? Thanks.

Michael Pehl - President, Global Hematology and Oncology

Yeah. Hi, Brian. This is Michael. Thanks for the question. So as you rightfully said, we are really in the midst, together with our partner LYSA, to analyze the data, and we're going to make sure that we're going to have to submit those data to major medical congress at the end of the year. So answering the question of the why is definitely following the analysis, and I hope we will provide a very robust update by the end of the year on those data.

The other part of your question was about the correlation of this data with the rest our lymphoma program. And I was trying to highlight in my transcript is the fact that there's very different patient segments and very different combinatorial strategies in our program. So the REMARC study was really done in an elderly first-time use, large B-cell, high-risk population after R-CHOP, and that was a maintenance therapy. That's very different from the rest of our program. You may recall that the ROBUST study is an induction study in an ABC subtype, and then we have two other important pivotal studies in follicular lymphoma – again, totally different biology and threat (40:33) combination, so I think it's definitely wrong to draw any conclusions from REMARC when we are looking at our other studies.

Operator

Thank you. Our next question comes from the line of Matthew Harrison with Morgan Stanley. Your line is open.

Matthew K. Harrison - Morgan Stanley & Co. LLC

Great. Thanks for taking the question. Scott, could I just ask you to help us a little bit on the primary endpoint for the GED study? I know it's sort of a composite that includes endoscopy (41:07) but also has some other components. Can you just walk us through how we should think about those components and how we should think about any of those scorings relative to what you might see in TNFs or other agents? Thanks.

Scott A. Smith - President, Global Inflammation and Immunology

Thanks for the question, Matthew. I assume you're talking about CD-001, the endoscopic study. The endpoint there would be change from baseline in endoscopic scope (41:31) score, which is the primary endpoint there. There are a number of exploratory endpoints that would come and that we would look at as well. There's been a lot of discussion in the environment over the last 24, 18 months relative to what should you expect in Crohn's disease relative to endoscopy.

And sort of the way that this has evolved is at the early time points, whether that's week 10, week 12, people are basically looking for a 25% change in baseline in your SES-CD scores. By the time you get out to week 24, people are looking at 50% improvements in the SES-CD scores. And then it's – when you get out to around a year, 52 weeks and beyond, the people will really look at what we call endoscopic remission or mucosal healing. That's when you expect to see that being significant.

So it's following sort of a time sequence. You expect to see, in an effective drug, strong signs of a response early on, and then you expect to see from an endoscopic perspective the mucosal of the GI tract getting better and better over time leading to different (42:43). But basically, 25%, 50%, and then mucosal at 52 [weeks] is the way that the environment is evolving right now.

Matthew K. Harrison - Morgan Stanley & Co. LLC

Great. Thanks very much.

Operator

Thank you. Our next question comes from the line of Robyn Karnauskas with Citi. Your line is open.

Robyn Karnauskas - Citigroup Global Markets, Inc. (Broker)

Hi, guys. Thanks for taking my questions. So this is a follow-up question on endoscopy for Scott. So is there any scenario where when you get this data set, that you would think stopping the Phase III trial, or amending the Phase III trial? And just to understand a little bit more about what you're saying about really seeing significant mucosal healing by 52 weeks, like, what have we seen with other drugs at 12 weeks on SES-CD? What kind of healing do we have by then? And how would you describe it? Is it a trend? Have you seen situations where there's none, but you get more at 52 weeks? Just trying to understand really how much – what information is there out there about the timelines for mucosal healing by 12 weeks versus the 52 you just mentioned? Thank you.

Scott A. Smith - President, Global Inflammation and Immunology

Thank you very much, Robyn. I can't thoughtfully respond to the first part of the question, because the study's not completed and I haven't seen the data. It is not unusual for large studies to have protocol amendments and some minor changes to statistical plans and things during the course of the execution of the study. I've never personally been involved in a study that had no amendments at all from start to finish. So some minor amendments can happen for a lot of different reasons. Specific to this case, I haven't seen – the study's not complete. I haven't seen the data. So I can't thoughtfully comment on whether there's anything there which would lead us to change. But at this point, we don't believe that there's anything that we see that would lead to major changes in the program.

Relative to what to expect, this is where it's a little bit different to take a look at comparables in the external world. Very few other companies use SES-CD as the main endpoint to look at endoscopic healing. There's been an evolution in time of what endpoint you should use. Some of the older studies had different endpoints.

And the other thing that I think is very, very important when you look at the data from GED or any new entity in Crohn's disease from this point forward, is we're starting to do baseline endoscopy so that we can confirm that there actually is mucosal involvement at baseline. The prior studies didn't do that, and some of the patients didn't have any lesions when they went into the study, maybe didn't have Crohn's disease. And that was one of the development challenges in Crohn's disease. The way to get around that is confirm active disease at baseline.

So this is a little bit different study. It's more rigorous from that perspective, making sure that there's a mucosal involvement and mucosal damage and then taking a look at, with the SES-CD, an endpoint which is different than endpoints that have been used in the past. So it's a pretty stringent study that's going to give us a really good idea of what's going on in terms of not only signs and symptoms in this population, but really importantly what's going on from an endoscopic perspective.

Operator

Thank you. Our next question comes from the line of Mark Schoenebaum with Evercore ISI. Your line is open.

Mark J. Schoenebaum - Evercore Group LLC

You guys are never supposed to call on Robyn before me. She worked for me.

Peter N. Kellogg - Executive Vice President and Chief Financial Officer

Hey, Mark, your line is open.

Mark J. Schoenebaum - Evercore Group LLC

Yes. No, I know. I was just kidding around. I'm sorry about that, guys. Can you hear me now?

Peter N. Kellogg - Executive Vice President and Chief Financial Officer

We can hear you now.

Mark J. Schoenebaum - Evercore Group LLC

Okay. Please never call on Robyn before me. It's just weird because she worked with me. And, by the way, I just want to say congrats to Scott on the success of OTEZLA. A lot of skeptics out there, including me. It's annualizing at $1 billion.

But I would like to go back to Robyn's point. I mean, when we get this data from the endoscopy trial, if we do work on this, will we be able to correlate the magnitude of mucosal healing with a clinical outcome? Is that even possible here? Because that's what people are going to try to do. They're going to look at it and say is the magnitude of mucosal healing great enough that we could reproduce the Phase II data that were so wonderful.

And then John (47:18) has a question, John Miller. John (47:19) you're on mute, too. We have a mute problem.

Scott A. Smith - President, Global Inflammation and Immunology

So can I answer the initial question? So you will see in CD-001 both a clinical response from a CDAI perspective and clinical remission, so you can compare that to what you saw on a slightly different patient population in the IGON-2 study. The relative correlation between what you see in the mucosal (47:49) signs and symptoms, and real healing has been an area of major debate, particularly in Crohn's disease. Much clearer in UC. In Crohn's disease, it's been an area of major debate. There was a couple of recent review articles looking at all the data that are out there and that sort of provide a good picture, but the only correlation that's sort of arisen, that I'm aware of that you can see is if you get control from a signs and symptoms perspective early and you start to see some improvements in the mucosa, it generally leads to a positive effect when you get out to week 52.

And so that's basically what we're looking for in new Crohn's treatment: signs and symptoms, significant remissions, and signs that it's actually starting to work at the early time points, You're seeing endoscopic response or endoscopic improvement, and those things together yield a high – or a probability of a patient being in long-term remission and getting true endoscopic healing at those longer time points.

Unknown Speaker

Great. Thanks, guys. This is John Miller (48:55). I got to ask about the new regulations and especially with regard to up-fronts and licensing payments and the way that you structure these deals. I understand you've said you don't expect much of a difference, but can you really continue to exclude those from your non-GAAP metrics under the new regulations?

Peter N. Kellogg - Executive Vice President and Chief Financial Officer

Yeah, hi, John. (49:17)

Mark J. Schoenebaum - Evercore Group LLC

Jackie, you like how I make my associate ask that?

Jacqualyn A. Fouse - President, Chief Operating Officer & Director

Yes.

Peter N. Kellogg - Executive Vice President and Chief Financial Officer

Yeah. So thanks for the question; this is Peter. So I think we believe that our treatment of strategic collaboration transactions, where the portion of an upfront is related to the acquisition of rights, is excluded from non-GAAP, is appropriate. The acquisition of rights is unique to the formation of the collaboration; it's very strategic, and it's not part of our ongoing operations. Of course subsequently, after that collaboration is formed, all other ongoing operating costs of the collaboration, whether they be development costs, they be milestones, they be royalties, co-commercialization – all the ongoing operational activities that we do together with our collaborator are included in our non-GAAP presentation.

So I think that's way we've always thought about it. It's very hard to forecast strategic transactions. It's something where I don't think many companies talk about what M&A deals they're going to do next year or what collaboration activity they're going to do. And there are many, many reasons that we could talk about in terms of how to think about this and how it makes sense. But in the interest of time now, since we're almost on the hour, I won't drag you through all of that at this point.

But in the interest of time, our approach has been consistent for many years. It's not uncommon across the industry. Many companies have the same approach. And, importantly, we're fully transparent on all the factors we have in our GAAP-to-non-GAAP presentation, always have been. And so anybody who wants to particularly look at it slightly differently certainly is able to do that, and that's fine. So at this point really we feel we're right on track with where we've been. Now, I will mention...

Mark J. Schoenebaum - Evercore Group LLC

Peter, have you talked to the SEC yet?

Peter N. Kellogg - Executive Vice President and Chief Financial Officer

I'm sorry?

Mark J. Schoenebaum - Evercore Group LLC

Have you had a conversation with the SEC?

Peter N. Kellogg - Executive Vice President and Chief Financial Officer

Well, obviously we're always talking to all the government agencies, the SEC and everybody else. So some of those ongoing dialogues occur over lots of different topics. Basically if something comes out of that that would be actionable, we'll communicate that, but at this point really there's not much to talk about.

Patrick E. Flanigan III - Corporate Vice President, Investor Relations

Hey, Mark, we've got 12 other analysts who are trying to ask a question. So I'm going to ask that you go back into the queue.

Mark J. Schoenebaum - Evercore Group LLC

Yeah, I'm sorry about that.

Patrick E. Flanigan III - Corporate Vice President, Investor Relations

And, Kat, I think we're ready for the next caller.

Operator

Thank you. Our next question comes from the line of Katherine Breedis with Stifel.

Katherine Breedis - Stifel, Nicolaus & Co., Inc.

Hi, thank you very much for taking the call. Hello?

Patrick E. Flanigan III - Corporate Vice President, Investor Relations

You're live. Yep. Go ahead and ask your question, Katherine.

Katherine Breedis - Stifel, Nicolaus & Co., Inc.

Great, thank you. Hi. Thanks very much for taking my question. As a follow up on the GED-0301 Phase II endoscopy study, are you planning to present other biomarker data of mucosal healing, such as fecal calprotectin and fecal lactoferrin? I think that'll help provide additional color on the benefit of the therapeutic form of mucosal healing.

Scott A. Smith - President, Global Inflammation and Immunology

Yes, we are collecting those biomarkers, and it should be part of either the oral presentation or a publication at some point in time. But we are collecting them.

Katherine Breedis - Stifel, Nicolaus & Co., Inc.

Great, thank you very much.

Operator

Thank you. Our next question comes from the line of Josh Schimmer with Piper Jaffray. Your line is open.

Joshua E. Schimmer - Piper Jaffray & Co. (Broker)

Thanks for taking the question. With so many Phase III data readouts between now and 2018, maybe you can help characterize which ones you think are higher probability of success, which you think carry a high or higher risk, and where would you put 301 in that spectrum? Thanks.

Jacqualyn A. Fouse - President, Chief Operating Officer & Director

Josh, hi, it's Jackie. I'm going to jump in and speak on behalf of both franchises, but if the franchise heads want to come along after me that's great, too.

We're not going to sit here and outline successes or probabilities of success of these trials. I think the point is when you look at the portfolio of trials that we have for both franchises and combined, what you see are a significant number of Phase III trials and a significant number of Phase II trials coming along behind those, where you can find proof-of-concept data in a number of settings that support the therapies being studied. This is going to evolve over time, but we've got some programs that by the very nature of where they've moved to in Phase III over the course of time have become de-risked. And we're very excited about the totality of the portfolio, the indications being studied, the products that are in there, and the potential that they hold to come in and give us significant diversification and significant support to our revenue growth and upside potential over time.

So what's extremely exciting is you're going to have this endoscopy data relatively soon. And then there's, as we mentioned, a lot of information flow from now to the end of the year. And we will start in the second half of the year to see momentum going into 2017. And you're going to see these follicular trials read out beginning in the first half of 2017. And Michael did an extremely thorough job of outlining why we think that we will see success with those treatment regimens and what the differences are versus the REMARC trial. So we feel great about it and are looking forward to having some of these things start to read out.

Joshua E. Schimmer - Piper Jaffray & Co. (Broker)

Thank you.

Operator

Thank you. Our next question comes from the line of John Newman with Canaccord. Your line is open.

John Newman - Canaccord Genuity, Inc.

Hi, guys. Good morning. Thanks a lot for taking my question. I will not ask about 0301 since you've had a lot of those. My question is on ozanimod. In terms of the work you're doing in multiple sclerosis, when you brought in the asset, you did make some comments regarding commercialization. I'm just wondering if you are still considering the possibility of marketing that product on your own in MS or if it's more likely that you would consider a partnership. Thank you.

Scott A. Smith - President, Global Inflammation and Immunology

Thank you, John. Where we are right now, we would always – similar to what we did with OTEZLA, we would always take a look and have some discussions and see what's in the environment. There's been a lot of interest in ozanimod in MS, and a lot of companies and others have reached out to us. The way that I would look at this is that you would like to see the fullness of the program and the Phase III data before finalizing any decision on how you're going to commercialize and any of the commercial aspects, including pricing and partnering and our other things.

So we're going to get that data, and we should have a good view on that in first half of next year. But we feel confident if we make the decision to go ahead and go it alone, we feel very confident that we can do that very successfully. We're doing that right now currently with OTEZLA. It's a very – relatively tight specialty group of physicians. It fits what we do at Celgene. So if we looked at the data and made an organizational decision to move forward alone, we feel very confident that we would be able to do that. We would also look to talk to partners as well, if that made sense in terms of the overall value of the asset and the reach to patients worldwide.

Patrick E. Flanigan III - Corporate Vice President, Investor Relations

Great. Thanks, Scott. So we're approaching the hour, and I know there are other calls this morning. So why don't we take one question and then we'll wrap up here. Thank you.

Operator

Thank you. Our last question for today will come from the line of Chris Raymond from Raymond James. Your line is open.

Patrick E. Flanigan III - Corporate Vice President, Investor Relations

Hey, Chris? Your line is open. All right, Kat. Why don't we go to the next caller?

Operator

All right. Thank you. Our next question comes from the line of Yatin Suneja with SunTrust. Your line is open.

Patrick E. Flanigan III - Corporate Vice President, Investor Relations

All right, it seems like we may be having some technical difficulties on our end. Why don't we just go ahead and wrap it up?

Jacqualyn A. Fouse - President, Chief Operating Officer & Director

So, yeah, thanks, everybody, for being on the call with us today. Just a couple of things before we close.

I think what you're seeing is simply outstanding execution across the franchises that is the culmination of a lot of years of strategic thinking behind everything that we're doing as well. So lots of exciting data to come for I&I. We've got multiple new products going to read out soon, multiple new indications.

For Hem/Onc, just one thing that I wanted to close with, with respect to the myeloma franchise, is we're in quite a unique position both with respect to our existing assets, as well as those that are coming through the pipeline that you'll hear more about over the course of the remainder of the year as we have our deep dive event and some other things over time. But we're the only company with multiple products in multiple myeloma that are positioned very uniquely across the spectrum between relapsed, refractory, and newly diagnosed, with backbone therapies for REVLIMID and POMALYST/IMNOVID that are combining with everything. And I think that's something to keep in mind. We see a lot of potential, very positive momentum, based on the data that we've seen so far, both in the relapsed/refractory setting for combos, as well as the newly diagnosed setting for combos, irrespective of which novel agent is coming along.

So everything's looking great. Thank you very much. Thanks again to our teams for a great second quarter, and we will talk to you soon.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone have a great day.

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