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Genzyme Corporation (GENZ)

Q2 2007 Earnings Call

July 25, 2007 11:00 am ET

Executives

Sally Curley - VP, Investor Relations

Henri Termeer - Chairman & CEO

Michael Wyzga - CFO

Duke Collier - EVP

Mark Enyedy - President, Oncology

Mara Aspinall - President, Genetics

David Meeker - President, LSD Therapeutics

Ann Merrifield - President, Genzyme Biosurgery

Mark Bamforth - SVP, Corporate Operations & Pharmaceuticals

John Butler - President, Genzyme Renal

P.K. Tenderness - Genzyme Corporation

Analysts

Mark Schoenebaum - Bear Stearns

Yaron Werber - Smith Barney Citigroup

Ian Somaiya - Thomas Weisel Partners

Chris Raymond - Robert W. Baird & Co.

Meg Malloy - Goldman Sachs

Phil Nadeau - Cowen & Company

Geoff Meachum - J.P. Morgan

Geraldine O'Keeffe - Fortis Bank

Eric Ende - Merrill Lynch

Shiv Kapoor - Montgomery & Co.

Sally Kochnover - Jefferies

Jim Birchenough - Lehman Brothers

Sean Wu - Rodman & Renshaw

Aaron Reames - A.G. Edwards & Sons

Steve Slaughter - UBS

Presentation

Operator

Welcome and thank you for standing by. At this time all participants are in a listen-only mode until the question-and-answer session of the conference. Welcome to the Genzyme Corporation's Second Quarter Financial Results Conference Call. This call is being recorded. If anyone has any objections, you may disconnect at this time.

I will now turn the call over to Ms. Sally Curley, Vice President of Investor Relations. You may begin.

Sally Curley

Thank you. And welcome to Genzyme's second quarter 2007 earnings conference call. I would like to remind everyone that the earnings release in this call are available on the investors page of our website at genzyme.com.

Today we will discuss our business outlook on the call. Forward-looking statements about our projected future financial results and all other statements made on this call that are not historical facts are subject to a number of risks and uncertainties.

Our actual results may differ materially, so please refer to our 2007 form 10-Q on file with the SEC for more information. The forward-looking statements include expectations regarding our future financial performance, including 2007 earnings and beyond, EPS and revenue guidance, product sales, expected drivers of future growth, financial trends, and developments in our clinical pipeline.

If during this call we use any non-GAAP financial measure, you will find on our website at genzyme.com a reconciliation to the most directly comparable GAAP financial measure. I would also like to remind everyone that our third quarter conference call will take place on October 24th at 11:00 a.m. eastern time.

Thank you. And I would now like to turn the call over to Genzyme's Chairman and CEO, Mr. Henri Termeer.

Henri Termeer

Thank you, Sally. And thank you everybody for participating, and it is a great pleasure indeed to talk to you about our second quarter. This was an extremely robust quarter, as you have seen, and we will go through some detail, and in addition we will talk about our expectations over the next five years, through 2011.

I have with me Michael Wyzga, of course, he will go through the financial details and also the business unit presidents. Each will make very brief comments before we go to Q&A. And I will start off with a few general comments on the overall guidance.

We did extremely well this quarter. We did very well in the first quarter, as well. In this quarter, we were $140 million, or 18% up from same quarter last year, or $20 million up from the expectations, the street expectations, in terms of the quarter. We were $50 million up from the first quarter.

And this combined with what has become a tradition in Genzyme, pretty tight expense control. SG&A expenses grew only 9%, from $220 million to $240 million during the quarter, and gave us of course tremendous leverage.

And we were tentative, I have to say in hindsight, early in the year, as we looked at this year and looked forward and giving you all guidance about our expectations. And we wanted to see this leverage development in a more real life sense and it has now done so in two quarters, and we increased the guidance for 2007 in April, and today, we've changed the guidance for 2007 again.

And we now expect earnings to exceed 20%, non-GAAP earnings growth to exceed 20% during this year, to $335 million to $340 million from the latest guidance that we gave in April of $320 million to $330 million.

And what has always been extremely important to me is that that what we achieve is sustainable. It is not interesting for the short term to have peaks, and maybe that was part of our very careful projections that we made early in the year.

We now see a tremendous robust picture developing and we are experiencing that picture and it is very broad based. It is really based on how we are structured, how we are organized, how we are built, both in terms of our manufacturing capabilities and global distribution of products and the diversity of products and what these products actually mean.

In the press release, there are some details, many we will talk about at this call, about each of these businesses, have new growth drivers appearing during this coming period. They all go through the same infrastructure and the leverage therefore we would expect to continue.

Over the last five years, we grew earnings on a compounded rate of 27%, despite the acquisitions that we did during the year, during that period, such as ILEX in bone care and most recently Anamet. We earned our way through the dilutive impact, short-term dilutive impact of these transactions. And we now can see each of these, ILEX in the case of Campath and Clolar, bone care in the case of Hectorol, anamed in the case of Mozobil, have become very important assets for our future.

For the next five years we are projecting and this is not something we have done in a formal way, as I will do today, through 2011. We are projecting earnings growth, non-GAAP earnings growth of 20% each year over the period.

And that is based on the confidence that we have in the products and the mix of products that we have and the market that is left and the market development opportunities that these products have and the new products that are developed Synvisc-One, Myozyme -- Myozyme is off on a fantastic start, as you can see, it's $47 million in the second quarter -- and we see in terms of products already in the market and the growth that is left for them.

We also expect during this period that Mozobil will become a commercial product. So we are extremely bullish and quite confident and reaching out in a more direct way in terms of our expectations than we have done to date. So we are expecting now a growth rate, a compound growth rate of 20% through 2011, based on what you now can see.

So, with those comments, let me hand it over to Michael to go through the financial details for the quarter and then we will go to each of the business units. Mike?

Michael Wyzga

Thank you very much, Henri. And good morning, everyone. As Henri mentioned in his opening statements, the second quarter was yet another spectacular quarter. We continued to drive our top line revenue growth, using the existing infrastructure that we have.

So the result is that we're getting significant operating expense leverage. This quarter, for example, our revenue increased by 18% on a year-to-year basis and that was achieved with an operating expense increase of only about 10%.

We got real and sustainable expense leverage occurring on an SG&A line, and I will talk more about that when I get to that portion. It is a combination of this revenue growth and the continued leverage that drove both our bottom line as well as our strong positive cash flow.

Let me walk through the cross walk. As you can see in the earnings per share cross walk during this quarter on a pre-tax basis, our expenses associated with stock options were about $72 million. As you recall, our annual stock option grant is in May, so there was a charge for the expensing of this new option pool in conjunction with the previously issued options.

The second quarter option expense was less than last year, despite in increase employee population. Now this is due to a shift from all options last year to a combination of options and restricted shares this year.

Amortization expenses stayed relatively flat in the second quarter of about $50 million. The cross walk also reflects a milestone payment of about $25 million associated with the Ceregene contract which was signed in the second quarter.

Non-GAAP income, net income was $348 million, or $0.88 per diluted share. That's on the basis of 271 million shares outstanding. On a year-on-year basis, that represents a 30% growth rate in our earnings per share. So, again very strong first half to 2007. Let me review some of the key business factors during the quarter.

Now as Henri mentioned, while our top line revenue increased in all of our major areas, the $140 million quarter-to-quarter revenue increase is driven predominantly in three major areas. Those are the LSDs in the Renagel area and the genetics testing area.

Within the LSD area, Myozyme continues to exceed all of our expectations with revenue of $47 million and that is due to continued market penetration. From Q2 of last year, commercial patients treated with Myozyme increased by over 400 patients. We're now currently treating more than 700 patients worldwide. Cerezyme, over the part 13 years, continues to make a real contribution to our both top line and bottom line growth.

On a year-to-year basis, Cerezyme increased by almost $30 million to $283 million for the quarter. Now, due to the global nature of this product, the revenue is favorably impacted by foreign exchange to about $8 million. But the real driver here continues to be patient accruals.

From Q2 of last year, the patient population being treated with Cerezyme increased by approximately 400 patients. We're currently treating about 5,000 patients worldwide with Cerezyme. Rounding out the LSD area, Fabrazyme increased to $104 million or 17%, again reflecting new patient accruals particularly outside of the United States. Currently treatment on Fabrazyme is about 2,000 patients worldwide.

Renagel increased by 14% by strong end-user demand as well as increased average selling price. Our genetics testing area increased by a nice 21% to about $74 million. That is largely due to increased volume in the reproductive testing area, as well as some impact of improved pricing. All of the other major business areas, including Synvisc, Oncology, Transplant, Sepra and Thyrogen, increased on a quarter-by-quarter basis as well as a year-to-year basis. Since are you going to ask anyway, of the $140 million year-to-year increase, about $18 million of this increase was foreign exchange rate, so a relatively small amount. On a non-GAAP gross margin basis, our gross margin came in at 77% of revenue.

Our gross margin reflects the increased capacity utilization of our manufacturing facilities. Some of this leverage is a little bit offset by the product mix as new product revenues continue to ramp up.

As we mentioned in our Q1 call, last year, about this time, Waterford facility was not yet validated and not up to speed, so the underutilized expenses were part of the expense base of our P&L. This year Waterford is filling both Thymo as well as Cerezyme and in Q3, this quarter, will start filling out Myozyme.

Our facility in Belgium is completing validation runs form Campath and will begin the engineering runs for Myozyme production later this year. Within our operating expense, our non-GAAP R&D expenses were $154 million, and stayed relatively flat at 17% of revenue. And although the product mix has shifted, at 17% is relatively consonant over the past couple years.

The increased spending this quarter was focused on the late stage development portfolio, which included Tolevamer, Renvela, Synvisc-One, Myozyme and Mozobil. Now as I mentioned in my opening comments, we achieved a great deal of leverage on our SG&A line. Our non-GAAP SG&A expenses were about $240 million for the quarter, coming in about 26% of revenue.

For a number of years, we've invested in our worldwide sales and marketing infrastructure. And we are really starting to see the benefits of this infrastructure investment, both on the top line, as well as on the bottom line, with regard to expense leverage.

And this is a reoccurring entry. We have seen this sustainable for the last three or four years. By way of example, for the last three years, our SG&A expenses have decreased as a percentage of our revenue from 29% in Q2 of 2005 to 28% in Q2 of '06 to 26% this quarter.

That's a nice leverage. Our non-GAAP tax rate came in at about 31%, which is a little bit lower than our forecast despite the increased profit before tax. Much like the manufacturing capacity, we very actively manage our -- the impact of tax to our bottom line.

We've seen some decreases in the drug credits as well as some of the other fixed benefits. These have been offset by the favorable foreign rate differential. These rates are specifically tied; these foreign rates are specifically tied to our investment in overseas manufacturing facilities, particularly in Ireland.

Our capital expenditures for the quarter came in at $93 million. Our cash generation continues to be very robust. Cash from operations, net of one-time events is approximately $290 million in the quarter. We ended with about $1.5 billion in cash on our books.

Now that gives us quite a bit of flexibility with regard to future investment, as well as our stock repurchase program. With regard to the stock repurchase program, in the first two weeks, between the approval of the board of directors of the stock repurchase program in the blackout period prior to earnings, we repurchased about a million shares of Genzyme stock.

Just as a reminder it is our intention to repurchase about 20 million shares of about $1.5 billion of stock over the next three years. Now, based on a strong earnings growth in the first half of the year, as Henri mentioned, we're increasing our non-GAAP earnings per share guidance from $3.20 to $3.30 to the new guidance of $3.35 to $3.40.

More importantly, it is our goal to achieve a 20% compound average growth rate of our share growth -- on our share income over the next five years. Now as you may recall, a few years ago, we started talking about a 20% compound earnings growth rate. On a non-GAAP basis, we've exceeded that 20% earnings growth each and every year since we first discussed it back in 2002.

In fact, as Henri mentioned, our compound average growth rate over the past four years since 2002 has been about 27%, again on a non-GAAP basis. This gives us a great deal of confidence in the sustainability of the 20% goal going forward.

Now before turning it back over to Henry I would like to remind you all that you can find the line item detail around revenue and expense, including any reconciliation on our regulation G attached to our press release or on our website. Now with that let me stop and turn it back over to Henri.

Henri Termeer

Thank you, Mike. I now will ask each of the business units managers to make a very brief, very brief comment, and so that we can go to Q&A. Let me start around the table. Duke Collier will comment on the Bioenvision transaction.

Duke Collier

So just to remind everyone, the process that we began with respect to the acquisition of Bioenvision had, as its first chapter, a tender offer. That tender offer period has come to a close. Now the process moves into a merger situation.

We expect to see a proxy from -- a proxy statement from Bioenvision in the relatively near future and then the process will play out over the next period. We are quite content to continue with our participation in that process, quite content with the $5.60 price that has been offered and that we will continue to offer through this merger period. So there may be questions about this during the Q&A, but I think that is all that needs to be said now.

Henri Termeer

Okay. Thanks, Duke. And we go next to Mara to talk about a very fantastic quarter that you achieved in genetic diagnostics.

Mara Aspinall

Thank you. We are very pleased to have another strong quarter, both versus last year and versus last quarter. We introduced several new important product offerings in our reproductive arena as well as oncology.

And we saw growth in all of the areas, in reproductive as well as oncology and clinical trial testing and services. More broadly, what we have seen is an acknowledgement of the increasingly important role that physicians see for diagnosis and for the use of diagnostics to get to a personalized medicine solution.

Henri Termeer

So to remind you again, the diagnostics genetics business was up 21% year-to-year. David Meeker will make a comment on LSDs.

David Meeker

Thank you, Henri. So the LSDs, as Mike and Henri highlighted had, a very strong quarter. Cerezyme continues to grow, adding 100 patients in the quarter and this I think highlights the incremental value of having other companies in the space at the current time, creating additional awareness, so we are benefiting from that.

The small molecule program continues. We have currently dosed 23 patients, have all received at least one dose. The six patients reported at analyst day had very strong results. The two patients with cardiac side effects, one has been fully investigated, in that we have documented now that they had baseline abnormalities in their heart rhythm, if you will, and the second investigation is ongoing.

Fabrazyme, again strong, two factors I'd like to highlight. One is that we increasingly understand the importance of treating early and will be initiating a trial in younger patients to look at this issue. 33% of the patients who are 20 or less have fibrosis on their biopsies at the data from our Phase III trial that we've revisited.

With regard to the AMC trial that has been followed by this group for a while, that data was recently published. This was the trial that compared the 0.2 milligrams of Fabrazyme and .2 milligrams of Replagal. The conclusions quoting from that article is that no difference in Lepontic (ph) mass or other disease parameters after 12 or 24 months was noted with either drug at the .2-milligram dose. Again, highlighting the concerns I think with treating at a lower dose. The second major point from that article was the presence of antibodies did result in an increase in urinary GL3 suggesting that antibodies are compromising factor.

Myozyme again is highlighted, tremendous growth, we launched in Japan in the quarter, 30 patients are currently on treatment, and the growth has exceeded our expectation. Here in the U.S., as we have indicated, we are working through approval of the 2000 leader material, and as a result of a request by the FDA for additional information, we now expect that to be resolved in the first half of 2008, and we have intensified our M tab program which is the program which will allow patients to access material, the 2000 leader material in the interim.

And finally Elaprase, we are making great progress in Japan and expect to have approval by the end of the year. We launch shortly thereafter and we are bullish about the possibilities for Elaprase in the Asia Pacific region.

Henri Termeer

Thank you David. Ann Merrifield on biosurgery.

Ann Merrifield

Thanks, Henry. It was a good quarter for biosurgery all around. Most importantly, the filing of Synvisc-One for approval of single injection dose for both the U.S. and Europe. This innovation we think will allow us to substantially increase the utilization of our products in the OA treatment algorithm and we look forward to those approvals in both geographies later this year.

We're disappointed that the Hylastin trial did not meet its primary end point. The very silver lining to those results was the fact that all three arms of the trial, both the single and double injection dose of Hylastin showed significant pain relief, clinically and statistically significant pain relief.

And those results we believe will support our application for a seating mark for that product, and having this product availability in ex-U.S. geographies I think gives us some interesting positioning options that will allow us to further develop the ex-U.S. markets for our pipeline overall.

Synvisc revenue, while only up modestly year-over-year as a result of the pricing action we took end of last year, at the same time we are seeing unit growth and stabilizing market share. So we are reaping the benefit, if you will, of that investment in the franchise. And we look forward to using that strength as we launch our innovation moving forward.

Lastly very excited about the Sepra term results. Our expanded U.S. marketing investment in sales is paying off and we expect that to continue to the rest of the year. So a good quarter overall.

Henri Termeer

Mark Enyedy on Oncology.

Mark Enyedy

Thanks, Henri. The oncology business continues to perform well, both financially and operationally, for the fifth consecutive quarter. Our revenue is up over 25%, in comparison to the prior year. And that's driven principally by product volume.

We also make -- continue to make significant progress across the portfolio with Campath. We have a PDUFA date set for September on the first line CLL indication, and we also expect to enroll our first patients in the Phase III MS studies before the end of the quarter. With Clolar, enrollment in our pivotal studies is now ahead of schedule and we also expect to initiate our MDS program during the second half.

And with regard to our early development portfolio, again very much on track, we expect to complete enrollment during the second half, in the dose escalation study for TGF beta and also to file an IND for the oral formulation of pasido. So we're very pleased to see strong momentum across the entire business.

Henri Termeer

John, on Renal.

John Butler

Thanks, Henri. The Renal business continues to perform well. As Mike mentioned, Renagel sales grew more than 14% versus last year with almost the same growth rate in the U.S. and international markets. The U.S. trends are particularly strong, with $79.5 million in sales, about 55% of our revenue. Now, this includes bulk sales and royalties from Japan, which are booked in the U.S.

The strength is really being driven by the clinical and economic story. The Renagel in new dialysis patients’ outcomes paper particularly is allowing us to take our prescription growth from Faslo while lanthrum remains about 8% of the market. We're looking forward to following up this strong data with a publication of the D-COR trial. D-COR has been accepted for publication in a major nephrology journal and expect it to be in the hands of the sales force in the fall.

Based on this strong clinical and economic value that Renagel's bringing to the market, we did decide to take a 15% price increase in the second quarter. We saw almost no benefit from this in Q2. And as with previous price increases, this benefit will be gained gradually based on our payer contract requirements.

On the development side, in Q2 we announced positive results for Renvela and CKD patients not yet on dialysis and the powder formulation dose three times per day. So we continue to prepare for the launch of Renvela for dialysis patients early next year and to file for the CKD indication and powder formulation shortly after receiving registration.

Henri Termeer

Okay. Thank you, John. And Joe is on the phone, I believe. Joe, could you make a comment on Thymo and maybe a comment on Mozobil just very briefly?

Unidentified Company Representative

Yes, thank you, Henri. The transplant business continues to grow solid year-over-year. We've seen growth within the international space as well as within the U.S. And we've also seen growth within our clinical markets, so BMT continues to grow for us, most significantly in the U.S. where we almost doubled our presence of the antibody share of market within BMT conditioning and that's a major area for us, as we continue to look to grow Thymo and to launch Mozobil.

Also for Thymo we have some other growth drivers for the future. Our Trim's data and kidney transplant is due out in Q3. The curtailed liver study, the last patient out will be the end of this year.

We're starting to screen patients for our type one diabetes study of Thymo, which is being run through the immune tolerance network in the NIH. And we are going to start up an MDF study of Myelodysplastic syndrome in Q4 this year. So again, some strong growth drivers for Thymo in the future.

And for Mozobil, as you overheard earlier this month, we had excellent results on our Phase III Mozobil trial in non-Hodgkins lymphoma for mobilizing stem cells for bone marrow transplant. We were looking for a 20% different in the arms of the GCSF placebo and GCSF Mozobil. We saw a 40% difference, which was highly significant.

So some very good results for the first study for Mozobil. Looking forward to the multimyeloma data in the next few weeks and then we're filing in the first have of next year with approvals we plan to have soon after in the U.S. and E.U. Thank you.

Henri Termeer

Thank you very much, Joe. Operator, now we can turn to Q&A.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Mark Schoenebaum of Bear Stearns.

Mark Schoenebaum - Bear Stearns

Thanks for taking my question. Great quarter. Maybe I will just use my question for David. Can you talk about the adult Myozyme trial? Can you explain -- there has been a lot of confusion about this?

Can you explain exactly what the timeline is for that trial, what protocol amendments, if any, have been made, and whether or not that trial -- what if that trial comes out negative, what would happen? How would the FDA respond in your opinion?

David Meeker

Sounds like three questions.

Mark Schoenebaum - Bear Stearns

Sorry about that.

David Meeker

So with regard to the time line, the first -- the last patient will be out in the third quarter that database will be locked in November, and we will process it and look to release results in the first half of 2008. So that is the time line. The confusion may have arisen around the design.

It was an adaptive design, which simply meant that the data and safety monitoring board have the ability to look at that data and determine whether -- what would the optimal duration of that trial. In other words they have the ability to elect to continue for a full 18 months, which they did, so that is where we are right now, so the trial will end in this fall. With regard to possibility of -- if that trial were negative.

This drug works. I think we have enormous confidence that this works, both in the pivotal trial that was done in the infantile population, which is the most severe, and the anecdotal reports, which are growing around the world. So I think there is little doubt, certainly in our minds, and I would say in the community, both physicians and patients, that this is benefiting adult patients.

So if for whatever reason this trial were not successful, I think it would be more of an inch of clinical trial design. And we go back to the FDA and work that through. We would be able -- we would have the ability to follow these patients long term going forward.

So there are a number of different avenues where we could manage through a result, which may be the result of clinical trial design, but we remain very optimistic that the trial design will be positive.

Mark Schoenebaum - Bear Stearns

Thanks a lot.

Henri Termeer

At this time, David, you can comment that the majority of the patients that are going on treatment, the several hundred on treatment are actually late onset.

David Meeker

Exactly. So there are 60% of the patients are adult patients at the current time, and less than 10% are infantile, under one year of age.

Henri Termeer

Next question?

Operator

Yaron Werber of Smith Barney Citigroup. You may ask your question.

Yaron Werber - Smith Barney Citigroup

Hi, good morning. Thanks for taking my question. I have a question for Mike. Can you just help us understand a little bit, you have shown terrific leverage on the SG&A side. And how do you -- and how should we think about SG&A as a percentage of total revenues? It has gone down as you mentioned by about over 200 basis points, even within the last year. How much lower can that go over time?

Michael Wyzga

Well, we're not going to give specific advice I don't think on individual line items, but I think it is fair to say that as the LSDs in particular continue to ramp up you are getting a good deal of leverage on -- and again, particularly in the sales and marketing area. I will also comment that part of that 26% included a fairly large increase of I believe 30 people, Ian, in the Sepra area.

Sally Curley

20.

Michael Wyzga

20 some odd people in the Sepra area. So we did continue our investment that and that will be leveraged as we go forward as well. Again, I can't give specific numbers on that, but it is a fair comment that we will be leveraging that.

Henri Termeer

It is actually quite understandable. In the case of LSDs, we introduced Myozyme last year and that obviously took an investment. To date that sales force is starting to become a factor against real revenues. Last year we increased our department here in the Synvisc sales effort, both here and abroad, as we took over the responsibilities from Wyeth and others to get Synvisc introduced.

These products are now getting leveraged. Clolar is also a recent program that we introduced and these programs are now starting to get leverage. In the case of bone care, we took over Hectorol, a significant sales force, and that starts to occur. And in the case of the very nice growth in genetics, it is a based on the sales force that has been in place for some time.

In the case of Mozobil, it already goes through an existing sales organization, may add some marketing people and maybe some sales people across the board in different geographies, but there's material leverage in all of these programs, so -- and of course the G&A piece itself has a similar kind of feel to it.

This infrastructure won't change dramatically, as we add these new programs that are with the same points of sale, and so how you project that certainly I have an objective in the way we run this company to continue to leverage the SG&A component of the P&L. Not to start it, because we want to invest in the development of some of these markets in a significant way, but we have been investing in these markets for a long time, and we are -- we ought to be able to see the kind of leverage that we have been seeing over the last 12 months.

And in a significant way, we are basing our 20% non-GAAP earnings growth on the fact that we can earn -- we can achieve our sales goals on a global basis, while keeping a good check on the SG&A component. Next question?

Operator

Ian Somaiya of Thomas Weisel Partners. You may ask your question.

Ian Somaiya - Thomas Weisel Partners

Thank you. And congratulations on great quarter. I had a question related to your long-term earnings guidance. I was looking at the consensus estimates, and they call for roughly 15% growth through 2010. Let's assume that number is also valid for growth through 2011. Just curious, you know, what other areas we should be focusing on that could support that 5% differential between our assumptions and yours. Are there particular pipeline drugs that you have greater confidence in? What the contribution could be potentially from the share buyback over the next two years. Any comments on that?

Henri Termeer

Yes, I would say that you really have to look for debt differential of only a few percent on the top line and on the leverage, on the SG&A line. The investments required to achieve the kind of growth that we see possible on the top line is probably less than what -- on average, our consensus projections. And this is not something where we have given much visibility to. It is something, as I said, we were conservative about ourselves. And we are now feeling much greater confidence, and that's why we are so forceful in indicating the kind of earnings projections, non-GAAP earnings projections that we have. So that's where I would look for the differential. Clearly, that's where it was the second quarter as well. Next question?

Operator

Chris Raymond of Robert W. Baird & Company, you may ask your question.

Chris Raymond - Robert W. Baird & Co.

Hi, thanks. Maybe a question for John Butler. Sort of wanted to step back on the sort of the renal franchise. With the context of the Renvela sort of setback you saw earlier this quarter with the once daily formulation, how important was that once daily formulation? And can you maybe talk a little bit about where you go from here with the three times a day dose, if there is some flexibility there that you might see commercially, at least to give the Renvela franchise a potential leg up, especially if the Ellipsa product for example ends up having the profile people think it has. Thanks.

John Butler

Sure, Chris. So we were disappointed in not meeting the primary end point on the once a day trial. Though we certainly haven't given up on that opportunity. I mean the phosphorous control that you saw in patient's dose once a day was -- we got people on average that cytokine range (ph).

It is a matter of understanding how to move forward with that program. That is still something we would like to -- we would like to give that option to physicians, because we think that could be a significant driver and certainly drive patient compliance and better outcomes.

We think that the powder formulation, even three times a day, can expand the patients who can use the product. It is one more option for them. But it is important just to step back and look at what the largest part of the growth that was being driven by Renvela is access to a much bigger market. The dialysis market in the U.S. is about 350,000 patients. The CKD market, patients not on dialysis, being seen by the same customers we're calling on, nephrologists, is over a million patients, so having that indication is the biggest driver that Renvela will bring us.

So the once a day dosing, certainly driving compliance is important, we're still working on that, but really, but really it is driving that CKD non-dialysis market opportunity. It is hard to comment on the Ellipsa Amgen product profile since we've seen really no data from it, but we can see how Renagel's developers established in the market, we look at the benefits this product brings, beyond phosphorous control, particularly for CKD population, like lowering LDL, total cholesterol, CRP, et cetera.

Those will be more and more important parts of our message as we move forward and with the comfort that physicians have with the safety of the product, we think that there is a significant amount of growth when you put all of those factors together even without a once a day dose in our label.

Chris Raymond - Robert W. Baird & Co.

Thank you.

Operator

Meg Malloy, Goldman Sachs, you may ask your question.

Meg Malloy - Goldman Sachs

Great, thanks very much. And I'm hoping you might let me have two quick ones. One is could you elaborate on the database that you have with Renvela in the pre-dialysis setting? I know you have indicated top line results net spec. And then separately, could you clarify the additional FDA requirements or questions regarding Myozyme scale-up? Thanks.

Henri Termeer

Sure. John?

John Butler

The CKD patients not on dialysis data will be presented at ASN. We submitted it there. And I think we probably won't go into further detail until we -- until it is presented in that forum.

Henri Termeer

And David, a comment on the FDA process.

David Meeker

Yes, so the FDA process is, as we've highlighted in the press release and like, this is a standard process, there is a dialogue that goes back and forth, in terms of writing additional data. We are not going to leave specific information as to the data that they've requested, but it is data that we have. We are analyzing that data and we will be able to submit it within the next couple of months to move this process along.

Meg Malloy - Goldman Sachs

Thank you.

Henri Termeer

Next question?

Operator

Phil Nadeau, Cowen and Company. You may ask your question.

Phil Nadeau - Cowen & Company

Good morning. Congratulations on a good quarter. My question is for David. David, could you discuss Hunter syndrome in Japan, how many patients have it, what type of pricing do you think you will be able to get and how will reimbursement work?

Henri Termeer

On Eleprase?

Phil Nadeau - Cowen & Company

On Eleprase, yes.

Henri Termeer

All right. The pricing, I should just say, I'll take this that those discussions have not yet started with the authorities in Japan. So if you give us a little time to work that out, then we can comment on it. David?

David Meeker

So as I highlighted earlier, so the registration process is moving very quickly. That is the good news. And they are highly motivated, I think, to approve this product for a patient population in need. As I said, we're bullish. At this point, I think we have in the order of in excess of 200 patients in the Asia Pacific region, well over 100 of those patients are in Japan.

We would expect -- there is currently 15 patients on treatment today, through a couple of different trial efforts that are facilitating the registration process. So again, as with any of these rare diseases, we are going to learn a lot more as we go into launch, but those numbers frame a -- what we think is a very meaningful opportunity for us and as Henri said the pricing will play out in a way that I think will be quite comfortable with.

Phil Nadeau - Cowen & Company

Okay. In the past, I know you've launched other products in Japan, has pricing been approximately on par with U.S. and Europe?

David Meeker

Everybody product that is in negotiation in all of these countries, it is a dynamic process. We have never gotten a lower price in Japan than we've had elsewhere in the world so I would leave it at that.

Phil Nadeau - Cowen & Company

Okay. And the 100 patients in Asia, outside of Japan, how do you access them? Do you have to go through independent approval processes in the other nations, or is there typically some sort of mutual recognition where once --

David Meeker

No we submit in each one of these countries, so you work it through one at a time. The other significant driver is Taiwan and Taiwan has a very significant number of patients. It is currently approved in Taiwan and we have a small number of paying patients in Taiwan today.

Phil Nadeau - Cowen & Company

Okay. Thank you.

Operator

Geoff Meachum of J.P. Morgan. You may ask your question.

Geoff Meachum - J.P. Morgan

Thanks for taking the question. A question of Myozyme. Can you -- you mentioned the initial uptake in Japan has been good. Can you help us characterize that market a little bit better? Is the distribution similar to other regions in terms of late onset versus early? And then a second part of the question is, what currently is the utilization that you're producing Myozyme at? And can we run into a situation where you are beyond capacity as you wait for the decision in the first half of next year?

David Meeker

So going to the Japan side of the equation first, we launch in Japan in June, so these numbers are very early on in the launch. You know, that population is predominantly adults. With your question, is the profile likely to can similar to what it is around the world, yes. What's the upside potential there, there are additional patients, we have a pipeline there, of 20-plus patients today.

What the long-term potential in Japan is, again, remains to be seen, but we are very pleased with our start. With regard to the supply issues, we have implemented the M tap program, which is the program that allows patients to access the 2000-liter under a protocol structure here in the United States, to deal with the fact that there will be a potential shortage of 160-liter material in the U.S.

So yes, at our current rate, we will not be able to supply the U.S. population with 160-liter material only. But with the 2,000-liter option, patients will have the ability to get drugs. It's just a little more laborious to work through the logistics of that program.

Henri Termeer

So let me further the inventory and the manufacturing position around Myozyme. The two-liter manufacturing process, the large scale manufacturing process, has been approved in 28 countries around the world. In fact in every country other than the United States, so there are no difficulties to meet supply there. In addition, we are continuously developing further manufacturing capabilities to keep up with future demand.

In the U.S., as David says, we will have a temporary moment where we will put patients through special program on the 2,000 material, on one commercial basis, but that will be reached through the early part of next year, as we get approval from the FDA. So patients will all go on treatment. The fastest growth, as is all of our LSDs, is outside of this country, which is very obvious because there are many more patients outside the United States than in the United States.

So the kind of growth that you saw in the second quarter that we reported is very materially driven for three quarters, driven by outside U.S. sales. But that is a similar kind of profile that we have in other businesses.

Geoff Meachum - J.P. Morgan

Thank you.

Henri Termeer

The other thing that you may look at, because the scale-up process with the FDA we would expect at the first half, early part of next year, to be resolved. A similar time, we expect to have resolved the clinical trial, the late onset clinical trial, so you will, in that period, get a bit of a step function around Myozyme, as these clinical trial patients go on treatment and as the patients that are on temporary basis on compassionate use, if you like, 2,000-liter material, transition to commercial material.

David Meeker

A last thing. We have reconfirmed guidance despite the situation in the U.S. so far.

Geoff Meachum - J.P. Morgan

Okay. Thanks.

Operator

Geraldine O'Keeffe of Fortis. You may ask your question.

Geraldine O'Keeffe - Fortis Bank

Good morning. And congratulations on the quarter. A quick follow-up on the last question of Myozyme. With this 2000=liter facility in place, what kind of a capacity will that give you, particularly with this late onset patient, this ramping up so quickly? Is there any danger that you could still run out of it in the next few years?

Henri Termeer

We are not expecting to run out of capacity. We have a lot of experience with these things, and we are -- because we could have a massive miscalculation of the number of patients that go on treatment, how fast. But we are expecting very continuous rapid growth around Myozyme and currently we are not expecting to run out of capacity, because we will be able to keep up with it.

But it is hard work, I can assure you, that it is not something that automatically happens, and as all of you know, the amount of product needed per patient per year is significantly larger than for the other DOT's. But this is one of the great things that, having developed the capabilities in manufacturing over so many years, that we're able to keep up with this.

It is actually quite impressive that we're able to scale and keep up with the significant volume that is required, to make product available to all patients that should come across right now. So we don't expect to run out. And we don't expect to have to constrain the sales at any time, even after the approval by the United States of the 2000-liters. Next question?

Operator

Eric Ende of Merrill Lynch. You may ask your question.

Eric Ende - Merrill Lynch

Thanks. Just digging a little deeper on your 20% growth projection, you had mentioned it was going to come from top line as well as leverage. With respect to the top line, what portion of that would you expect to come from existing drugs versus additional pipeline products, and then from the operating leverage side, you had already mentioned that there would be a bunch of SG&A leverage.

Can there also be some R&D leverage, meaning that the percent from revenues will actually come down a bit? And then just very quickly on the options comment that you made, you said there was a charge of some type, and therefore is it safe to assume that the run rate that have you right now in the second quarter is not a good run rate going forward?

Henri Termeer

Let me answer a few this, and then Michael can take some of the other parts of your question. And almost all of the projection that underlies this 20% non-GAAP earnings per share growth rate are coming from products that we currently have, but include products like Renvela and Synvisc-One and Hylastan as well. Mozobil, we would expect to be approved in this period of time, but it will just be in the very early stage of the introduction.

It will start to make a material contribution, we think it is an extraordinarily exciting program, but only in the latter part of this period. We would expect it to become launched in 2009, early part of 2009, depending on the regulatory process and it will then increasingly make a contribution in 2010 and 2011. So we are basing our calculations on the products that are currently in the markets and the products that -- where we have expanded indications that we would expect to be approved in this period. Mike, on the option question?

Michael Wyzga

Sure. Last year, we had a charge of approximately $82 million for the stock options. This year, it is about $72 million. The second quarter tends to be the highest quarter, simply because our option pool is handed out by the board of directors in May, so what you actually have is the new option pool hitting as well as the -- in conjunction with the old option pool, so you have to expense both of those.

The differentiation between the two years, i.e. the 82 going to the 72 that we shifted from 100% just options to a combination of options plus restricted stock, despite again, our growing employee population. So that is the difference between the numbers, but Q2 tends to be the highest of all of the quarters, simply because you're expensing both the new pool as well as the old pool.

Eric Ende - Merrill Lynch

Thanks.

Henri Termeer

Next question?

Operator

Shiv Kapoor, Montgomery and Company. You may ask your question.

Shiv Kapoor - Montgomery & Co.

Thanks. I believe you're expecting, FDA action on Campath in the first line setting of DCLL, I wanted to ask you what kind of usage growth have you seen in Campath in this setting, in the data at ASH, both in the U.S. and Europe? And what price increases have you taken on Campath in the past few years?

Henri Termeer

Mark, can you comment on that?

Mark Bamforth

Yes, since the ASH data were presented, and just to remind everyone, these were data from a randomized Phase III study compared Campath head-to-head against Chlorambucil, showing Campath was superior across a range of end points to include progression free survival, complete response, overall response and times to overall therapy.

And since those data, we have seen a doubling of the share in the first line, but that was off of a very small base. And so our hope will be that we can continue that trend when we can promote the product directly, in that line of therapy, and I'm sorry, the second question was?

Shiv Kapoor - Montgomery & Co.

Price increases on Campath?

Mark Bamforth

So there have been two price increases taken over the last 18 months, so one in each of the last two years.

Shiv Kapoor

Can you give us --

Mark Bamforth

They were each -- in each case, they were below 3%.

Shiv Kapoor - Montgomery & Co.

Okay. Thanks a lot.

Henri Termeer

Next question?

Operator

Adam Walsh of Jefferies. You may ask your question.

Sally Kochnover - Jefferies

Hi, it is actually Sally Kochnover. Thanks for taking my question. Can you comment on the time lines for Campath and MS?

Henri Termeer

Yes, we can. Mark?

Mark Bamforth

So our expectation is to initiate the two Phase III studies this quarter, with the first patient in, and there are two studies here, one in treatment naive patients, and the second in treatment experienced patients Those will be two year studies, that is to say, each patient will be followed over a two two-year period of time, and we would expect to complete enrollment in those studies, by the end of next year. There will be a two-year follow-up period. So we would expect to file in the 2010, 2011 time frame and getting approval shortly thereafter.

Sally Kochnover - Jefferies

Are we still going to see three-year data from the Phase II trial in the second half?

Mark Bamforth

Yes, thank you for that question. So we will be presenting those data at ECTRIMS. Doctor -- Professor Alistair Compston will be receiving the Charcot award, which is given biannually, in recognition of his work in Campath in multiple sclerosis, and the three-year data will be the centerpiece of that lecture.

Sally Kochnover - Jefferies

Thank you.

Henri Termeer

Next question?

Operator

Jim Birchenough of Lehman Brothers. You may ask your question.

Jim Birchenough - Lehman Brothers

Yes, hi. Just wanted to ask a question on sustainability of Cerezyme trends from the second quarter onwards. Where are you seeing the growth? In what countries? And what is the incremental opportunity in those countries beyond what you have right now? And just a related question, I'm just trying to understand your guidance which seems to suggest flattening of EPS from second quarter levels in the back half of the year.

And just wondering, given your bullish guidance for continued growth and the 15% price increase we saw on the renal side, just wondering if there are one-time items we should be considering in the second half. But the main part of the question is just understanding where the incremental opportunity from Cerezyme comes from.

Henri Termeer

Okay. We, I should note, we did increase our guidance for the year, to 3.35 to 3.40 which is in excess of 20% growth rate from longer earnings from last year, so we feel this is a very good year. And there is no message whatsoever for the second half in that guidance. The message is, it is a damn good year and we expect it to be sustained going forward.

In terms of Cerezyme, we have been in this field for Gaucher patients since 1991. So we are now 16 years into this, and the patient accruals over those years have been consistent and they come from throughout the world. We are addressing patients in I believe now in excess of 90 countries. And it is onesies and twosies on a per country basis. It is not just that we are discovering suddenly a lot of patients in a particular location, because we have been and are everywhere.

It is awareness, it is the nature of awareness that is playing here. And it is not something you can force. It is something that develops over time. It is something that has surprised us as well over the years. We've been -- since the last many, many years that I have been on these calls, we are talking to you and saying that this is clearly maturing.

As a percentage growth rate, clearly, it is not at the same stage as where Myozyme is today, but the nature of awareness is that patients are coming forward, even still in the United States. As in slow but a steady rate over a long period of time, if you have a very large geographic reach, and that is really what is the case here, and that's what is so very powerful. We have now the same experience with Fabrazyme. We would expect around Myozyme to have a similar experience. These programs provide very long-term growth, as patients are being found and being put on therapy.

And it is really the presence in all of those locations and the ability to create awareness and ultimately hopefully through diagnostic mechanisms, the ability to find these patients very early on, maybe at birth, that will allow us to -- that it drives this business. In terms of newborn screening, which I alluded to there, we are making progress in that regard. We have a number of beta sites. In fact in one, in the case of Myozyme, a Pompe disease in one place in Taiwan, I think we are at least 50% of all births or 100% now -- 50% of all births are being screened for Pompe disease, and we are finding babies with this disease.

And it is tremendous, because then we can avoid the kind of complications, deathly complications that this disease can create, and we have put these patients on treatment very quickly. So this is a very different business. And many people have wondered about its longevity and will this continue, including ourselves, we have learned about this over the years a great deal, and we would expect that in the case of Gaucher disease, we will continue to see new patient identification as we go forward. And when that stops, it is very difficult at this time to predict.

So Henri, to the extent that we keep underestimating the ability of Cerezyme to continue to grow, do you have good data on what the true incidence rate is globally? Because it seems like new patients coming on globally is driving this and it would seem that you should have some good data on what that incidence is for newly diagnosed Gaucher's patients. We don't have -- the good data comes through many, many, many years of doing newborn screening. That will give you the input data. But I'm a layman. Let me ask David to make a comment.

David Meeker

I think in this area, we're all layman to a certain extent. The predicted prevalence I think would be much larger than the number of patients that are currently on treatment. Now in that number -- not all of the patients with a mutation will necessarily need treatment, so of course you can't line them up exactly, but I think the way we approach this disease and what Henri just highlighted is, the number of potential patients in need of treatment is, we believe, much larger than the number of patients that is being treated today. Our ability to access that pool is a function of our global infrastructure.

And the only piece I would emphasize on, again, on top of what Henri said, is that we treat patients in many places where they can't afford that treatment today or the government is not willing to pay today. But we are very patient. We are in there. And a big part of this model is we look to create a sustainable health care system, which means that government at some point needs to begin to take responsibility for those patients.

And that model has repeated itself over and over and over again, where they start, they fund a center -- they then fund a small number of patients and increasingly move to independence. So we're growing this two ways, we're finding patients and we're also helping the systems move to independence where they can assume full responsibility.

Jim Birchenough - Lehman Brothers

Thanks for taking the question.

Henri Termeer

Next question?

Operator

Sean Wu of Rodman & Renshaw, you may ask your question.

Sean Wu - Rodman & Renshaw

Congratulations on a great quarter. I have a question about Renvela. I know you have high hopes for the pre-dialysis indication. I'm just kind of wondering from what I can recall, you only have 40 or 50 patient data. Will this be sufficient for you to move the product from dialysis into pre-dialysis setting?

Henri Termeer

John, can you make a comment?

John Butler

Yes, we certainly discussed our development program with the FDA before we put it forward, so it is our expectation that it will be sufficient.

Sean Wu - Rodman & Renshaw

And another one is because I it, how many of the patients in pre-dialysis requires this? Because most of the patients have to wait, can be treated in other ways, merely with a some combination of some other readily available option?

John Butler

Well, remember that speaking about phosphate control, dialysis patients can be treated with calcium carbonate as well, but there are consequences to doing that and that is the communication point that is most important. Now I mentioned, in the U.S. there's 350,000 dialysis patients and over a million pre-dialysis patients. Not all of those patients have an elevated phosphorous level.

That phosphorous does rise later as their kidney failure progresses. So the first population is that marked hyperphosphatemia that we seek to address. But as I also mentioned the longer term strategy is to leverage the other benefits sevelamer Renvela brings, like the LDL lowering, the binding of uremic toxins, et cetera, do more development around those other benefits that sevelamer brings, and convince physicians that they should be starting this therapy earlier in the disease process, when a patient is diagnosed, and not necessarily when you see a marked hyperphosphatemia.

And we think, in that way, over the long period, you can address that much larger patient population, not just those with a marked hyperphosphatemia. Also that's what allows us to compete most effectively because that product profile is not the product profile of any of the competitors we think are coming down the line.

Sean Wu - Rodman & Renshaw

Finally, I have a pricing question. For you to address this much larger indication, do you have to price differently? Or do you think you can keep your premium pricing in this indication as well?

Henri Termeer

From a pricing point of view, we will maintain the current pricing around -- of Renagel will carry it through Renvela.

Sean Wu - Rodman & Renshaw

Thank you very much.

Henri Termeer

Next question?

Operator

Aaron Reames of A.G. Edwards. You may ask your question.

Aaron Reames - A.G. Edwards & Sons

Thanks and congratulations on the quarter. I just had a quick follow-up question on Myozyme. I know there was around 20 or so patients in Japan that were involved in the compassionate use program, and accessing Myozyme that way. Did all of those patients convert over to paying customers in June? Or is that something we should expect to see in the third quarter?

Henri Termeer

David?

David Meeker

Yes, so, yes, the majority of those patients have all converted and there will be -- there is an additional pipeline, which will come in play in the third quarter.

Aaron Reames - A.G. Edwards & Sons, Inc

Okay. And just a question on Mozobil, with having Phase III data from multiple myeloma available in weeks, I was wondering why we shouldn't expect a filing at the end of the year, and if you could just walk us through what has to take place to prepare for the filing, so that can be submitted in I guess in early 2008 timeframe?

Henri Termeer

No, I don't have anybody of the regular group here, but the P.K. Tenderness here who is in charge of our (inaudible) group, very much involved in making sure that all of the data of both the NHL trial and the myeloma trial come together into the filing, and P.K., any comment in terms of the timing?

P.K. Tenderness

Henri, the only comment I will make, because there are about 22 Phase II studies involved, those studies are being analyzed as we speak, and all of the data is required by the FDA to be submitted in a special format, and that process is going on, and we will be hoping to submit as soon as we can, early next year.

Aaron Reames - A.G. Edwards & Sons, Inc

Okay. Thank you for taking the questions.

Henri Termeer

Next question?

Operator

Ian Somaiya of Thomas Weisel Partners. You may ask your question.

Ian Somaiya - Thomas Weisel Partners

Sure, just a question on Mozobil. Can you just help us characterize the market opportunity there in NHL and multiple myeloma separately?

Henri Termeer

Yes, what we meant to do is to actually have a special moment once the multiple myeloma trial is done to really focus a call on Mozobil, but we can make some brief comments right now. It is tough sometimes to talk about these things when are you literally just about to get the data. But Joe, do you have a comment on Mozobil?

Unidentified Corporate Representative

Yes, I can comment. And I think the market opportunity we're looking for is for front line mobilization, as we saw in the NHL study, the Mozobil GCSF pharm was superior to the GCSF placebo arm and highly significant.

So I think it really shows that this should be a front line drug and I think we have the data now to support that. We get similar results out of the multiple myeloma study I think you will be looking at and we expect to be using this as a front line treatment in mobilization for multiple myeloma as well in all patients.

So you can look at it that way. And then we also look to expand into other transplants as we grow our clinical knowledge of the product and look to other transplants. So when we look at it, for me and the market, the entire BMT stem cell mobilization market is available to us.

Henri Termeer

And Joe, do you want to make a comment, just very briefly, but because we -- we will come back to all of you to talk more about the whole commercialization approach around Mozobil, which is extremely exciting and something we would really love to talk about.

But just make a few comments about the value creation of Mozobil, as it displays itself in NHL, in terms of plasma phoresis and what does it mean in a pure value sense for the patients to have this available to them?

Unidentified Corporate Representative

Well I think there are a few ways to look at it and the first one being just that initial mobilization aphoresis sessions. As we saw in the study, we actually decreased the number of days that the patients needed NA phoresis, so that is of high value to the transplant centers when they're trying to go through a lot of different -- getting through a lot of aphoresis chairs and keeping those open for patients to come in.

So as patients can come in and mobilize reliably to get the number of cells that they need, that is of high value to the institution and NA phoresis center. And also is to the patient as well. It is not a simple and easy procedure to go through.

Having GCSF for a week and then getting Mozobil and going in for aphoresis. So the more you can cut down on those aphoresis sessions for the patients, the better that is for them. So there is definitely value there.

Also looking at the number of patients that were able to go on to transplant, if you look at the non-hodgkins data, we had reached that minimum level 47% of the patients on the GCSF placebo and 87% on the Mozobil GCSF arm.

So that's a large different of patients that are able to go on to transplant and collect the amount of cells that they need to have that procedure available to them. So for a lot of thee these patients, transplant is a terrific option. It gives them a great response rate and a good quality of life. And if you can't reach the number of cells, you can't go through the transplant.

So that is of high value to the patient, high value to the institution as well, because you have -- transplantation, it is a good area for institutions. So if they can treat, get their patients to transplant, that is good for the institution as well. So a lot of value creation within NHL and also I believe coming out of multiple myeloma.

Henri Termeer

Thank you very much, Joe. Next question?

Operator

Mark Schoenebaum of Bear Stearns. You may ask your question.

Mark Schoenebaum - Bear Stearns

Great. Thanks for taking the follow-up. I appreciate it. Just a clarification from Jeff's question much earlier in the call, I just want to make sure I understand the Myozyme manufacturing issue. I'm sorry to come back to that, but can you just answer -- can you just make sure I understand this, are new patients that are added to the drug in the U.S. right now, are they paying patients?

And if they are, at what point in time do you expect those patients to become nonpaying patients because they will be essentially be getting drug from a nonapproved facility?

Henri Termeer

David, do you want to make a comment?

David Meeker

Let me just explain the program where we are at the current time. So new patients to be eligible for the M tab program need a certain level of severity, in other words these we're prioritizing patients at this time who have either a need for a wheelchair assistance or some level of respiratory assistance.

So that is how new patients come in. If you're a new patient, you're not in that group, as of today, are you in a pool that is waiting. With regard to our current population of patients, we are asking those who are able and willing to shift from the 160-liter material to this M tab 2,000-liter material.

Henri Termeer

So we essentially are selling out all of the 160 material that we have on a commercial basis, and that we are stretching out, using both the 2000-liter material and the other mechanism in terms of the clinical criteria, as much as possible, the supply, so that as many patients can benefit that really need the drug in the short term.

And that's what I referred to earlier. We will no doubt, when this situation is controlled in the first half of next year, when the FDA has made the decision to approve the large scale as 28 other countries have already done, you will see a bit of a step function as these patients convert to commercial drug.

Mark Schoenebaum - Bear Stearns

Can you give us any idea of what percentage by the end of the year of U.S. patients are going to be on free drug?

Henri Termeer

It is tough to say. We can't say. It will be as many as we identified that have the clinical need. We will not in any way not treat patients, and if it is many that will be the step function will be that much greater when we get to approval.

Mark Schoenebaum - Bear Stearns

Okay. Thanks.

Operator

Matthew Kanaski of UBS, you may ask your question.

Steve Slaughter - UBS

Hi, this is Steve slaughter filling in. Just wondering if you could give us the diagnostic product sales for the quarter. And secondly, curious as to any changes that might be in the works in terms of the well call relationship.

It is our understanding that they may -- Sankyo may get an indication for type two diabetes with well call and I'm wondering if there is any impact on the economics of your relationship there if they expand that level?

Henri Termeer

Those are good questions -- I at the moment don't quite have the number in my head. Do you, Mike? $30 million?

Michael Wyzga

It is $29.5 million.

Henri Termeer

$29.5 million, Steve. That is a 10.5% increase up from last year that. That is the diagnostic products, not diagnostic services that Mara Aspinall commented on. And in terms of well call, you are pointing to something that is clearly very interesting to us, and we are not focused on it.

It depends on the approval, and of course, we will have a royalty benefit when -- as the product grows, but Sankyo is quite bullish on the possibility to introduce well call in a larger patient population with the added label, the label indication for diabetes. The economics in terms of what we will get will not change from a percentage point of view. But their sales could very significantly grow as a result of that added label indication. So stay tuned on that.

I would say at this point it is very interesting. It is an important part of the other category. It is very stable. Sankyo's done a very good job of positioning well call in this country, and we are following that very, very tightly. Now, of course, many of you may have wondered, what about the rest of the world? And we are working on introducing Cholestagel, we will call it, not well call, in Europe through our own organization later this year.

Again, it is too early to talk about many projections there. We are positioning at this moment not against statins, we are positioning it in an area of the market where statins are not helpful to patients. It is almost an orphan area of the market if you look at the very broad-based cholesterol lowering market.

But we think it is interesting, and we will comment again to you once we start to have these new structures taking place. We expect probably in the third quarter earnings call in October that we will be ready to talk about this in more specific terms. We have small organizations being created in most markets at this time. We have in fact off-label sales, or well call sales, if you like, imported sales currently in Europe for these very special indications.

So we are hopeful again that that will be an important product for us, over time. It is early, early days and -- we haven't talked about it, is that we would like to talk about things when they are a little bit more en route. But great question, Steve, and stay tuned on this cholesterol front.

Steve Slaughter - UBS

Thank you.

Operator

Jim Birchenough of Lehman Brothers. You may ask your question.

Jim Birchenough - Lehman Brothers

Just a quick follow-up question on Mozobil and timelines. Is there any gating factor in terms of FDA requiring longer-term outcomes data beyond the 100 days we've seen already? And if so, when would we see longer-term outcomes data from the trials?

Henri Termeer

P.K., can you make a comment?

P.K. Tenderness

Yes. We will have a six-month data end of this year, on the Phase III trials.

Jim Birchenough - Lehman Brothers

And is that one of the gating factors for your filing?

P.K. Tenderness

No, with the FDA, we have a special protocol approval that is based on the 100-days data, follow-up data from the two Phase III trials.

Jim Birchenough - Lehman Brothers

And at the six-month point are you looking at success of transplants?

P.K. Tenderness

Yes, we are looking at safety as well as success of transplants, yes.

Jim Birchenough - Lehman Brothers

Thank you.

Operator

Yaron Werber of Smith Barney Citigroup. You may ask your question.

Yaron Werber - Smith Barney Citigroup

I have a follow-up question on Synvisc. Can you give us a little bit of an update on what you're seeing in the market right now in terms of the competitive landscape and is your market share stabilized? Where are you in the process? And on Synvisc-One, you presented a little bit of data at ULAR and it does seem admittedly as you compare cross studies, that the efficacy is not quite as robust as typical Synvisc and the indications for placebo, you met your end point but it wasn't all that impressive. So could you comment on that and how you see the market ultimately shaping up?

Ann Merrifield

Certainly. In the U.S. competitive frame, there are five of us on the market. Synvisc, we estimate our share to be stabilizing around 40% of all treatments organ and supplies have about 20% each. Nuflexa and Orthofix split the balance. So we have a clear leadership position and trending upwards and moving upward slightly in the last few months.

So we feel comfortable in a competitive market with the pricing actions taken, with the clinical data we've made available and the pipeline ahead of us that we will stabilize and continue to turn that trend around as we go forward. In terms of the efficacy data the original data on Synvisc classic, as we're calling the three-injection product, are many years old and these data are recent. The protocols of the various trials are different. There are no head-to-head comparisons, so it is very difficult to make an efficacy comparison between the two products.

The pain trials as you will learn, or I am learning, as you talk to folks who do many of them are very difficult, and this treatment effect is as significant as what has been seen on Celebrex and some of the other pain-relieving modalities in the OA franchise, OA arena, so we feel comfortable that the treatment effect is significant and it is hard to make a comparison.

Henri Termeer

And next question? Operator, I would leave it to two more questions, because we are a little bit over time.

Operator

At this time, we have no further questions.

Henri Termeer

I didn't mean to cut anybody off. But if there are other questions, don't hesitate, and I know you won't. Thank you all very much for your participation today. I think they were good questions, questions that really dealt with the kind of growth that we told you at the beginning of this call that we now are expecting, not only this year, but through 2011, based on the kinds of programs that all of us increasingly are becoming familiar with. So thank you very much for being here today. And we will stay in touch as we move forward.

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