Millennium Pharmaceuticals Q2 2007 Earnings Call Transcript

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Millennium Pharmaceuticals (MLNM)

Q2 2007 Earnings Call

July 26, 2007 8:00 am ET

Executives

Deborah Dunsire - President & CEO

Raju Kucherlapati, Ph.D. - Chairman

Marsha Fanucci - SVP & CFO

Laurie Bartlett Keating - SVP

Mark Levin

Analysts

David Witzke – Bank of America Securities

Matt Duffy – BDR Research Group LLC

Bret Holley – CIBC World Markets

Jim Reddoch – Friedman Billings Ramsey

May-Kin Ho, Ph.D. – Goldman Sachs

Charles Duncan – JMP Securities

Geoffrey Meacham – J.P. Morgan

Howard Liang – Leerink Swann

Craig Parker – Lehman Brothers

Thomas McGahren – Merrill Lynch

Sapna Srivastava – Morgan Stanley

Christopher J. Raymond – Robert W. Baird & Co., Inc.

Phil Nadeau – SG Cowen Securities, Inc.

Yaron Werber – Smith Barney Citigroup

Joe Slavinsky – Thomas Weisel Partners

Rachel McMinn – U.S. Bancorp Piper Jaffray

Presentation

Operator

Good day, everyone and welcome to today’s Millennium Pharmaceuticals Financial Results conference call. Today’s call is being recorded. For opening remarks and the introductions, I would like to turn the call over to Mr. Kyle Kuvalanka. Please, go ahead, sir.

Kyle Kuvalanka

Good morning, everyone. And welcome to Millennium’s Second Quarter 2007 Financial and Operational Performance Review. In addition to the Web cast conference call, corresponding slides are available on the Investors Page of the Millennium Web site. These slides will be archived on the Web site for 30 days.

Our agenda for the morning is as follows. Dr. Deborah Dunsire, Millennium President and Chief Executive Office will provide an overview of the business for the quarter. Dr. Christophe Bianchi, Executive Vice President of Commercial will update us on VELCADE’s strong sales performance for the second quarter of the year. Dr. Nancy Simonian, Chief Medical Officer will highlight key advancements in R&D. And Marsha Fanucci, Chief Financial Officer and Senior Vice President of Corporate Strategy will give an overview of the Company financials and end with the milestones for the remainder of the year. We will then have our Q&A sessions.

Before we begin, though, I do want to remind you that we will be making forward-looking statements when we discuss our growth, science, products and prospects. Our point of reference is how we think we believe the future will look based on information we have today. No one can predict the future and there are risks that could cause the company’s actual results to differ materially.

You can review a list and description of these risks in the reports we file with the SEC. During this presentation we’ll also be presenting information on our product. The information is presented for the benefit of the investment community only. It is not intended to be promotional and should not be used for making medical or prescribing decisions.

I also want to remind you that we will be discussing non-GAAP financial measures, including non-GAAP profitability, which we may refer to as profitability. We use non-GAAP measures because we believe they are a more balanced evaluation of our operations and a more relevant prediction of how our ongoing expenses relate to our revenues. Much more information about our use of these measures is on our earnings release and on the Company Web site.

And with that out of the way, I will turn the call over to Deborah.

Deborah Dunsire, M.D.

Thanks, Kyle. This is a very exciting quarter for Millennium. We saw significant momentum in the business as we successfully executed against our promotional development and operational goals.

Starting off with VELCADE we saw strong sales growth to $62.6 million driven by the successful implementation of our new marketing and sales initiatives. Very importantly we continue to show outstanding financial performance, achieving a significant increase in our non-GAAP net income to $16 million and a greater than 35% decrease in our GAAP net loss.

We ended the quarter with $840 million in cash. This performance has led us to raise our financial guidance for the year, and you’ll hear more about that from Marsha later. We’ve pushed forward our clinical initiatives for VELCADE to support future growth and expansion and we saw new data at ASCO, IMW and EHAW on VELCADE in the front-line in relapsed multiple myeloma settings and also in the new frontier of non-Hodgkin’s lymphoma. We made very significant progress driving forward our clinical trials for VELCADE as well as advancing several of our pipeline molecules and you’ll hear the details of that from Nancy.

Our success has really been driven by the strategic initiatives we’ve taken over the last couple of years. As you will recall, these changes were to really increase the focus of our business onto the key growth drivers. Currently we very significantly strengthened the commercial orientation of this company, increasing the investment behind VELCADE and bringing in significant experienced oncology leadership to drive the brand.

We’ve also significantly lowered the overall R&D expenditures of the Company bringing expenses in line with revenues while we’ve enhanced the proportion of spending going towards the pipeline as it matures.

We have continued our commitment to being an innovation driven company, but focus that innovation in oncology in our discovery research. We focus the Company on goal execution and executing with fiscal discipline in order to meet the long-term financial objectives for the company.

So, the future continues to look bright for Millennium. We’ve got some near-term important growth catalysts coming up and you’re going to hear more about those from the team today. Significantly for VELCADE we’ve got some key milestones approaching.

In the front-line setting planned interim analysis for the VISTA Phase III trial will occur in the third quarter of this year. Should the data from that be positive we’ll move aggressively to file a Supplemental NEA and we’ll also look to present data at ASH, but I do caveat that it is an interim analysis.

(Inaudible) non-Hodgkin’s lymphoma, the pivotal Phase III trial is over 50% accrued. This is a trial done together with J&J. So there is a lot happening to drive growth and I’m now going to turn it over to provide you with more details to Christophe to start talking about VELCADE.

Christophe Bianchi, M.D.

Well, thank you, Deborah and good morning, everyone. While we are pleased to report that VELCADE U.S. net sales increased by 7% from the prior quarter, this was driven by strong growth in demand and no price increase in the quarter.

In the second quarter we saw an increase in the number of previously treated multiple myeloma patients treated with VELCADE. This has led us to increase further our market leading position for VELCADE. We continue to see robust lengths of treatment in relapse multiple myeloma and robust utilization in mantle cell lymphoma. We continue to experience unsolicited use in front-line multiple myeloma.

Net sales did not fully reflect the strong growth in demand. We ended the second quarter with an inventory at the low end of (inaudible) range of one to two weeks and this eventually (inaudible) we saw in the second quarter impacted net sales by about $1 million.

The growth in demand was driven by our enhanced sales and marketing initiative whose implementation started at the end of last year, including our co-promotion with Ortho Biotech J&J, which is actually doing very well. I want to highlight also the fantastic job performed by the entire Millennium Commercial team.

We continue to confirm in all Phases that VELCADE is promotionally responsive. As you can see from the chart on slide 11 we have seen dynamic average weekly growth on a monthly basis. We increased our core frequency and we drove an increase in share voice as seen in our marketing research.

We have also seen an improvement in message recall, particularly around some of the key VELCADE attributes such as unmatched efficacy as a single agent, the benefit of driving VELCADE use up to eight cycles and VELCADE’s (inaudible) in combination as seen in clinical trials.

Looking at the rest of the year we are confident in the growth of VELCADE. In the previously treated multiple myeloma setting physicians see VELCADE as a trusted brand. The foundation of treatment, the one is the strongest single agent of efficacy and a very predictable and manageable side effect profile.

Physicians also like and appreciate VELCADE’s unique ability to treat patients with renal impairment. At the treatment free intervals the patients can get while in remission on VELCADE and without treatment.

(Inaudible) launch is on track and we continue to see also opportunities in this area as physicians become more familiar with VELCADE in non-Hodgkin’s lymphoma. Beyond those settings, growth will come from unsolicited use in front-line multiple myeloma and a very exciting expansion opportunity is the use of VELCADE in combination.

For instance the VELCADE/DOXIL combination was recently approved based on the strongest TTP of 9.3 months and also the median survival has not been reached yet. The Phase III study, which was the one used for this approval, has shown an overall survival benefit. As you recall, the Phase II study of this combination produces spectacular survival of 38.3 months.

So, finally, we also have studied ongoing with established agents added on the top of VELCADE and many new chemical entities being developed in multiple myeloma are developed on the backbone of VELCADE, which really bodes well for the future of VELCADE.

Data from Phase II trials presented at IMW Workshop in June showed the potential of VELCADE involved in transplant in a non-transplant setting. VELCADE consistently delivers very high complete response rate and the strongest survival rate seen to date. Among the trials we’ve seen CR rate as high as 42% in the VMP trial and the highest rate of survival at one, two or three years. We’re seeing 100% survival in most VELCADE at one year in both the VELCADE plus Adriamycin and DEX. We’re seeing 100% one-year survival with VELCADE/DOXIL/DEX an as well we’re seeing 85% three –year survival with the VMP combination.

Very importantly with VELCADE physicians are able to successfully and consistently mobilize stem cell for transplantation. It’s very important because transplantation is a very important part of treatment and it also shows that VELCADE does not have a negative impact on the bone marrow of the patient.

As you know, we have (inaudible) Phase III program involving about 2,000 patients in front-line multiple myeloma and two of those trials, both the VISTA and ISM cooperative group study have been fully enrolled. An interim analysis of VISTA is planned for the third quarter of this year. With strong data there is the opportunity to file an SNDA for front-line multiple myeloma in the fourth quarter of this year or in the first quarter of next year.

Regarding IFM, we have planned for an interim analysis, but given the rapid enrollment in that study, the IFM has conducted the final analysis instead and we look forward to seeing those results at ASH.

In preparation for front-line launch we have started new trials evaluating VELCADE as the foundation of treatment in additional combinations. Just this month we started two new trials, an upfront trial evaluation VELCADE in combination with commonly used agents, such as DEX, (inaudible) and prednisone. We know that VELCADE will be the backbone of treatment in front-line multiple myeloma and effectively the objective of this trial it will be found the optimal VELCADE based regimen in a non-transplant setting. The trial will enroll up to 500 patients and will be led by Dr. Rubin Milensky from Cornell Medical Center.

The (inaudible) trial will test VELCADE in a full combination including lenalidomide, dexamethasone and cyclophosphamide. It is led by Dr. Vincent (inaudible) from the Mayo Clinic.

So, in conclusion we are very optimistic about VELCADE. With our hand-hand sales and marketing activities we have seen solid growth, which is expected to be in the range of 14% to 18% this year and this in our existing medications. We feel that we’ll see further acceleration with our expansion in new medications and in combinations as clinical data matures.

I will now turn the call over to Nancy, who will discuss some more efforts in non-Hodgkin’s lymphoma and the rest of the pipeline.

Nancy Simonian, M.D.

Thanks, Christophe. We have had a productive quarter in R&D with multiple pipeline advancement. Let’s first start with VELCADE. You heard from Christophe on our front-line myeloma program, which is our highest priority and nearest term opportunity for a label expansion. Following front-line multiple myeloma, NHL is our next significant growth opportunity and priority.

As you know, VELCADE is currently the market leader in previously treated mantle cell lymphoma patients and is the first therapy to be approved in this very aggressive form of lymphoma with a very poor prognosis. In that setting VELCADE has been shown to provide clinical benefit to patients by inducing durable complete remissions with a well tolerated safety profile. Based on the clinical benefit already established in this very aggressive form of lymphoma as well as activity seen in follicular and other lymphoma sub-types, we are developing VELCADE in a broader NHL population including follicular marginal zone and (inaudible).

This is an exciting opportunity because greater than one million patients suffer from NHL worldwide and VELCADE has the potential to address this very large population.

We have an ongoing pivotal Phase III trial conducted under SPA evaluating the potential of VELCADE with Rituximab compared to Rituximab alone in the relapse setting. We had made significant progress in patient accrual with more than half of the patients enrolled in the study and we are on track to complete enrollment in the first half of 2008.

Strong pre-clinical and clinical data form the basis for this pivotal Phase III trial. In xenograph mouse models VELCADE in combination with Rituximab prolong survival versus Rituximab alone. In multiple Phase I trials VELCADE as a single agent induced responses including complete responses in relapse patients.

And, finally, in a Phase II trial in relapsed patients following standard front-line therapy we found that VELCADE combined with Rituximab generated a greater than 50% response rate, which was higher than the expected response rate in that patient population.

So we are very excited about the potential of VELCADE for relapsed follicular patients. At ASCO this year new data were presented on the utility of VELCADE in front-line lymphoma further adding to the body of evidence being established in NHL. In patients with follicular, mantle cell and diffuse large V cell lymphoma Dr. Munier from the Gila Group presented positive data on the combination of VELCADE added to RCHOP the current standard of care in newly diagnosed patients. He reported 100% survival after a 12-month follow-up and a CR rate of 83%, which exceeded the historical 55% to 75% CR rate seen with RCHOP alone. Based on these and other strong lymphoma data, the U.S. and European cooperative groups are planning or have underway larger studies in both mantle cell, follicular and other lymphomas, really underscoring the emerging role that VELCADE will have in the pipeline.

Millennium has a rich pipeline of ten molecules in oncology inflammation, with seven of these originating from our own discovery organization in the last three years, illustrating our productive discovery engine. We have made significant advancements in the pipeline this year and in the second quarter.

Let’s first turn to the oncology pipeline. Aurora A-Kinase is an attractive target for novel anti-cancer therapies. Aurora A-Kinase is a known onco gene that is over-expressed in a variety of cancers, including breast, colon, and pancreatic, and is a critical mediator of cell growth in the majority of cancer cell types. In solid tumor and lymphoma xenograft models, we have shown that selective inhibitors of Aurora A-Kinase have a significant impact on tumor growth and survival.

With our most advanced Aurora A-Kinase inhibitor program, MLN8054, we have demonstrated target inhibition in man based on evidence of mitotic arrest in patient skin biopsies. We are also evaluating target and pathway biomarkers in tumor samples from patients in a parallel clinical trial. Somnolence has been observed as the most common off-type side effect and dosing is currently being extended in order to achieve prolonged target inhibition.

With our second generation molecule, MLN8237, we are exploring whether the compounds greater potency and diminished off-target effects will enhance the utility of cancer patients. In the second quarter we initiated patient dosing with this molecule.

Now, turning to the inflammation pipeline, MLN3897 is an oral CCR1 inhibitor with broad potential in several inflammatory diseases. We are happy to announce that we have completed enrollment in a large phase two trial in RA patients which keeps us on track for results by year-end.

MLN002, our alpha four beta seven antibody, is being studied in inflammatory bowel disease. Patient accrual is proceeding well in both the volunteer and also the colitis study, which puts us on track to have data in the first half of next year and to initiate a pivotal trial program in 2008.

MLN1202 is our anti-CCR2 antibody, which has broad anti-inflammatory potential. As you recall, MLN1202 is the first CCR2 antagonist to show biologic activity and in a phase two trial in patients at high risk for (inaudible), MLN1202 significantly reduced C-reactor protein for a prolonged period of time after a single infusion.

Final multiple sclerosis data are now in house and we are on track to discuss results with you by the end of September. In addition, we plan to present data from the MS study at the ANA meeting in October and the ATRO study at the AHA meeting in November of this year.

Overall, this has been a busy time for us in the R&D organization with key data presentations and trial advancements. As you can see, we are poised to have new data from VELCADE as well as several of our pipeline molecules in the second half of the year. I’ll now turn the call over to Marsha.

Marsha Fanucci

Thank you very much, Nancy. We continue to have an outstanding year financially. As Deborah noted earlier, our year-to-date non-GAAP net income has improved over 200% to $16 million compared to the same period last year. In addition, taking a look at our GAAP net loss, this has decreased substantially 36% to $24.5 million compared to 2006. I’d like to turn to a few of the details of the financial results for the quarter, starting with VELCADE net sales.

Sales increased 6% over the second quarter of last year despite an inventory build in Q2 last year as well as a decrease in inventory this quarter. If we look at the royalties, we saw a 14% increase driven by strong growth of VELCADE in international markets. As you’ll recall, in this line item we include royalties from INTEGRILIN as well as from VELCADE ex-U.S.; the minimum royalty for INTEGRILIN at $85.4 million for the year.

For the strategic alliance revenue we saw a reduction that corresponded with a decrease in cost of sales. This was related to the INTEGRILIN decline in the third quarter of last year. You may remember that Schering-Plough began purchasing API for the product directly from the supplier rather than through us, so this is a primary driver of the change in strategic alliance revenue.

The net investment income was up $6 million, primarily due to higher interest earned on our higher cash balance. If we take a look at the non-GAAP R&D expense, this decreased 4% this quarter compared to the second quarter of 2006. This reduction corresponds to the strategic initiative to reduce our overall R&D investment. We have rebalanced the investment, as Deborah was discussing earlier, and the focus of our investment is in the development area to advance the later stage pipeline.

For non-GAAP SG&A, we increased investment in promotional materials and investment to support the VELCADE market expansion. If you take a look at the non-GAAP net income for the quarter it was at $3.3 million, slightly lower than the result in the second quarter of 2006. Our GAAP net loss at $17.7 million was equal to the result in the second quarter of 2006. As a reminder, the difference between GAAP and non-GAAP is our amortization, stock-based compensation expense, and restructuring charges.

For the quarter, we did experience a decline in stock-based compensation over 2006. This corresponded to the vesting of grants in the first quarter of the year, leading to the decrease. These savings were offset in part by an increase in restructuring charges associated with the consolidation of facilities. That is part of our 2006 restructuring plan.

We ended the quarter with over $844 million in cash and equivalents. The increase in cash this quarter was primarily driven by collections and accounts receivable. At this time we don’t expect to see similar quarterly increases in the cash balance. Our principal amount of convertible debt remains at $250 million.

I am very pleased to announce that we are raising our financial guidance for the year as outlined in the release this morning. Specifically, we are going to narrow the VELCADE sales guidance to the top end of the initial range. It will now be up to $250 million to $260 million level. We’re also increasing our overall guidance for royalties based on the continued growth of VELCADE in international markets. In light of the momentum and the strong revenue performance that we’re seeing, we have made the decision to make very select investments in VELCADE and the pipeline, and this leads us to increase our non-GAAP operating expenses slightly from approximately $425 million to the range of $440 million to $450 million.

Even in light of this increase, we are substantially increasing our non-GAAP net income guidance to the range of $20 million to $30 million from the earlier range of $10 million to $20 million. Our corresponding GAAP net loss guidance has been reduced to the range of $50 million to $60 million. Our cash guidance remains the same (inaudible) greater than $800 million for the year.

I’d like to close with a summary of the key upcoming milestones that we’d like to bring your attention to. With VELCADE, we are on track for the VISTA phase three interim analysis in the third quarter. Pending a positive result, we would file an SMDA in the fourth quarter of this year or the first quarter of next year, and we will plan to present the data by the end of this year.

With 002, we are on track to have the results from the ongoing studies in the first half of 2008. With 1202, as Nancy mentioned, we will communicate top line results in MS by the end of September and we will present data from both the (inaudible) and MS trials by the end of the year. With MLM3897, we will have the results from the rheumatoid arthritis phase two proof-of-concept study by the year-end.

As you can see, there are a number of exciting milestones to monitor over the next few quarters and we look forward to updating you on those throughout the year. I’d now like to turn the call over to Kyle for Q&A.

Kyle Kuvalanka

Thank you very much, Marsha. Operator, we’re ready to take your questions.

Question-and-Answer Session

Operator

Yes, sir. We will take the first question from Chris Raymond with Robert Baird. Please go ahead, sir.

Chris Raymond – Robert Baird

Hello. Thanks. Thanks for taking my question. Just sort of a commercial question. I know you guys are seeing some non-solicited frontline use in multiple myeloma with VELCADE. It looks like your primary competitor, Revlimid, as well. Can you maybe comment? Are you seeing any sort of influence or any decision or action on the part of payers with regard to either expressing any preference for one or two of these agents?

Kyle Kuvalanka

Chris, thank you very much for your question. Christophe is going to take that.

Christophe Bianchi

Thank you, Chris. Effectively, we think we have a great drug for frontline multiple myeloma. We don’t have the approval yet, so one action to take on (inaudible) is that we are not officially reimbursed by Medicare for the utilization of VELCADE in frontline multiple myeloma, although many states cover VELCADE for frontline multiple myeloma. That’s one thing that we see in the marketplace for frontline multiple myeloma.

We are seeing on an anecdotal basis, and I won’t get into too many details here, some payers expressing preferences for VELCADE, at least giving some incentive, product payers giving some incentive to the customers for the (inaudible) of VELCADE because they see VELCADE as a great agent, which is really cost effective, which is also providing great survival in the relapse setting, but also the hope of survival eventually in the frontline setting as well.

Chris Raymond – Robert Baird

You mentioned that they’re expressing preference or I think I heard you said providing incentives. Can you maybe describe a little bit more in detail what those incentives are?

Christophe Bianchi

The product payers can make decisions independently from CMS, obviously, and some of them have given preferred reimbursement rates for VELCADE and have given preferred formulary status for VELCADE in the sense of they could reimburse just what CMS reimburses or they could reimburse a bit more. In many instances we’ve had some payers reimbursing a bit more for VELCADE.

Chris Raymond – Robert Baird

It’s kind of a very qualitative question, but what kind of impact do you think that might be having and do you think that might expand at all or stay the same?

Christophe Bianchi

Well, as I indicated in my remarks, as we get indications for VELCADE, one, we get an approval, which is going to give us the ability to promote the use of VELCADE in frontline, which is the biggest driver that you can see for the sales. We get reimbursement on a national basis for VELCADE by CMS. Effectively getting this reimbursement on a national basis by CMS is really the key growth driver for the brand, which, depending on the results from VISTA interim analysis, it could happen as early as sometime next year, mid-next year.

Chris Raymond – Robert Baird

Thank you very much.

Operator

We will now move to a question from May-Kin Ho with Goldman Sachs.

May-Kin Ho – Goldman Sachs

Hello. I have a question on 1202. You said that next quarter you’re going to decide the path forward. What are some of the things that you have to think about in making this decision?

Kyle Kuvalanka

May-Kin, we’ll have Nancy answer that question.

Nancy Simonian

May-Kin, as you know, we already have it as a biologic activity in patients at high risk for atherosclerosis. The cardiovascular phase is not one of our strategic focus areas. Thinking about what to do in terms of that indication is somewhat predicated on what the multiple sclerosis data look like because that is an indication or a therapeutic area that we would consider developing and commercializing in.

We want to see what the results of the multiple sclerosis study are and then based on that determine the path forward in both athero and MS if the data warrants in both of those indications.

May-Kin Ho – Goldman Sachs

That means if the MS data are positive you would go ahead with the MS indication then and try to partner the cardiovascular indications, whereas if negative you may not develop it at all?

Kyle Kuvalanka

Deborah is going to take that question, May-Kin.

Deborah Dunsire

May-Kin, I think, as always, when you’re looking at a product you’re looking at what does the data look like, what does the data look like in conjunction with everything else that’s in the market, and what kind of a competitive profile could you expect that product to have? That has to be a assessed for the MS indication.

I think in cardiovascular what we have said is that isn’t the key strategic focus for our company. We don’t have a research effort behind it and we don’t have a pipeline of products, so that is a place that we would look for partnership on the molecule.

May-Kin Ho – Goldman Sachs

For VISTA, for the interim analysis, what kind of hurdle rates are there?

Kyle Kuvalanka

We’re going to have Nancy take that.

Nancy Simonian

We have not been explicit about what the hurdle rate is in the trial at this particular interim, but remember, the trial has been going on for some time, so it’s been fully enrolled for a while. We feel that the hurdle is something that we feel it’s very possible that we can achieve.

May-Kin Ho – Goldman Sachs

Is this the first interim efficacy analysis?

Nancy Simonian

There have been previous safety analysis.

May-Kin Ho – Goldman Sachs

For efficacy, this is the first one?

Nancy Simonian

Yes.

May-Kin Ho – Goldman Sachs

Thank you.

Operator

We’re now moving to a question from Jim Reddoch with FBR.

Jim Reddoch - FBR

Good morning. I have a question on the up-front trial. When will the interim look when that trial takes place and you change arms, add or drop arms? I’m curious when that interim would look?

Secondly, just more of a macro question, we actually had a myeloma call on the up front trial yesterday and I thought an interesting question came up on there, which was if, as doctors say, 100% of their patients will receive VELCADE in some line of therapy right now – first, second, third, whatever – what more do you gain by moving this drug up to front line? Thanks.

Kyle Kuvalanka

We’re going to have Nancy start off talking about upfront and then Deborah’s going to take the question on use of VELCADE in front line.

Nancy Simonian

Yes, what we wanted to do with this trial is to say what currently are the standards of care in the front line study and then to add VELCADE as a foundation of therapy with the current standards. So that’s why the trial is done with the dexamethasone, (inaudible) and prednisone and Selbex. But we wanted, also, to build into the trial the ability to adapt the regimen based on the data and also based on what’s kind of emerging in terms of the market in evolving standards of care.

We have not been explicit about exactly the criteria and the timing for which we would do the interim analysis when they potentially change arms, so I can’t tell you that specifically, because we haven’t been explicit about that.

And I’ll just add one other thing, when you think about the use of VELCADE and moving it up front, we know from data that we presented last year that VELCADE can be used multiple times. So if you use VELCADE once and you can use it again, you continue to see high response rates. So I think when you think about moving up front, you also have to factor in the notion that we believe VELCADE will be used repeatedly in multiple cycles.

Deborah Dunsire

Just adding to what Nancy said, our mission is really going for cure of cancer. And we know that if you treat with (inaudible) therapy up front in patients in the front line, you’re going to deliver a much better long-term outcome. And I think that’s always the role in the therapy of any tumor is to really bring the most powerful agents up front. So that’s really what we’re trying to gain in moving VELCADE up front. And then for those patients that do relapse, as Nancy pointed out, we definitely know that VELCADE can be successfully used again in patients who had a good response previously.

Jim Reddoch - FBR

But what further data might be shown on retreatment that could either have it used more broadly in retreatment or have it added to the label, if necessary?

Kyle Kuvalanka

We’ll have Nancy take that question.

Nancy Simonian

Last year I think there were three separate publications or presentations of data on retreatment at major medical meetings, and we think that will have a significant impact and those data will be published. And I think already, based on that, it says it’s within label, we are seeing people retreating, because there’s no reason that they can’t retreat based on the current label and the relapse setting. So I think getting the data out there and then having people actually retreat patients, like I said, it’s currently within label.

Deborah Dunsire

And building on that point, Jim, I think the combination or the combined ability of VELCADE, we have data showing VELCADE can be combined with pretty well every agent that’s used in myeloma very successfully and bring additional benefit when that happens. So in the retreatment setting, often it won’t be used as a single agent, it will probably be used in combination with another agent to bring more power to that more refractory disease.

Jim Reddoch - FBR

Thank you.

Operator

And now we will move to Jim Birchnoff with Lehman Brothers.

Jim Birchnoff – Lehman Brothers

Hi, just a few questions. One, on the front line setting for VELCADE, are you seeing a preference right now in the market for use pretransplant versus the non-transplant setting? And secondarily, if you have some data on that, do you have data on relative cycles between those two settings?

Kyle Kuvalanka

Jim, we’re going to have Christophe take those questions.

Christophe Bianchi, M.D.

Well, you know, Jim, thank you for the question. I think, yes, we have seen some slightly greater usage in the transplant setting than in the non-transplant setting. And we have seen, also a lot of interest after the ISM release for the data at ASH. As you remember, at ASH we had the advantage at least showing 20% complete response rate for VELCADE/DEX as opposed to 9.07% for the combination of increased (inaudible) in DEX and this has generated some interest. You have to think about the decision-makers who make the decisions to use the drug with no off-label and (inaudible) based physicians (inaudible) tend to be able to take decisions like this to use the drug off-label. Consequently, they have made the decision to use it in the pre-transplant setting when, in fact, the non-transplant patients tend to be more treated by the community for which members (inaudible) label is very important.

Jim Birchnoff – Lehman Brothers

Just a follow-up question; just wondering if you’ve had any discussions with FDA on the regulatory path for the subcu version of VELCADE, what you think will be required to see that to the market and when we should expect an update on next steps?

Nancy Simonian, M.D.

Yes, so regarding subcu, as you know Professor Harris Stowe presented data at ASCO this year in a trial looking at VELCADE given IV and subcu, and I think the really great news there is that there was a very similar exposure to VELCADE when it was given subcu compared to IV. The overall safety as well as the local tolerability were very similar than in, you know, obviously, small numbers of patients, but the responses were essentially the same in the two groups.

So, we’re quite encouraged by the data and the thought of being able to provide an additional option to patients and physicians for administration of VELCADE, we have put together a development plan with our J&J colleagues and we are under discussions currently with regulatory agencies, both in the U.S. and Europe regarding the plan. So, I think when that gets firmed up we’ll be able to be more explicit about the plan.

But there is precedence, as you know, for other agents moving fairly rapidly to an alternative form of administration.

Jim Birchnoff – Lehman Brothers

Just a final question and I’ll jump back in the queue. On the VISTA study I thought we had seen data from an unplanned interim with regards to efficacy. Am I correct there, and if so can you remind us what that data showed and if that would be sufficient if that’s replicated in the formal interim to move forward?

Nancy Simonian, M.D.

Okay, so as it relates to VISTA, there has been no data on efficacy that has been disclosed or presented because there has been no interim analysis to date. The first one is coming up.

There is the Phase II VMP trial, which has the near CR rate of 43% and the very long survival at three years, so there is a lot of discussion and follow-up on the Phase II study, which is VMP. And then the data, the Phase III study of which there were preliminary data presented, which was the IFM study and that was using VELCADE/DEX versus that as induction therapy and I think as Christophe mentioned to you, those data were very strong as it relates to more than doubling the CR rate post-induction and showing improved post-transplant outcomes. And I think if those data bear up in the full data set, which we expect to hear at ASH from Professor Harris Stowe, I think that would be a very strong data for approval in the induction setting.

Jim Birchnoff – Lehman Brothers

Okay, thanks for taking the questions.

Operator

And now moving to CIBC World Markets, Bret Holley

Bret Holley – CIBC World Markets

Yes, hi, thanks for taking the question. My question actually is I guess for Nancy. In profiling non-Hodgkins lymphoma you spoke of some investigator sponsored trials going forward with combo (inaudible), can you discuss the side effect profile that we saw in the Phase II data and how that might limit or somehow inform the usage of the drug in the trials going forward.

Kyle Kuvalanka

Nancy will take the question.

Nancy Simonian, M.D.

Yes, there were a couple of studies provided, that’s (inaudible) initiated and then the GLOF study was a cooperative group study. I think the question is what to do with the dose of the vincristine and in some of the studies going forward and the ones that were presented people are reducing the dose of vincristine in order to reduce the incidence of peripheral neuropathy. So I think that’s the only modification that we’re seeing made in some of the front line regimens – not all of them – so it really depends on the patient population in some of the dosing.

Bret Holley – CIBC World Markets

So there are not dose reductions in VELCADE?

Nancy Simonian, M.D.

No.

Bret Holley – CIBC World Markets

Okay. Thank you.

Operator

And now we’ll move to the next question. That will come from Yaron Werber with Citi.

Yaron Werber – Citigroup

Yes, hi. Good morning. Thanks for taking my question. Can you comment, in your ongoing studies, have you contemplated reducing the dose of DEX, just given some of the data with REV/DEX? And a follow on would be, if you looked at the REV/DEX data, I mean you really begin to question whether one needs to do a transplant anymore in front line myeloma. So can you comment, and if you looked at two-year survival, it’s pretty high, it’s over 90%? So in that kind of an environment, where would VELCADE fit in, given that you’re looking at an oral regimen right now?

Kyle Kuvalanka

We’re going to have Nancy take that question.

Nancy Simonian, M.D.

It’s a question regarding the dose of dexamethasone. So, first of all, VELCADE can be given with full dose dexamethasone without any issues as it relates to increased toxicity. In the studies in which we’re combining VELCADE with lenalidomide we have been modifying and amending the studies to reduce the dose of DEX because of the safety issues. Now, I think the real concern is at this point in time, we have no idea what impact that’s going to have on the efficacy of lenalidomide, but I think based on the safety concerns the study, so for instance, the ongoing studies with VELCADE lenalidomide DEX, the investigator initiated studies are being done with the lower dose of dexamethasone.

As it relates to the question about Revlimed, I think the importance, and we’ve talked about this a lot, is what we really want to do in front-line myeloma is give the most active agent upfront to put as many people as possible into complete remission because that has the greatest benefit for long-term outcomes and I think when you look at the (inaudible) based regimen in the front-line setting with VELCADE with multiple different agents we see the highest CR rate, which are now translating into the highest survival rates both at one year and three years. So, we feel quite confident that VELCADE is going to be a foundation in the front-line setting.

Deborah Dunsire, M.D.

I think your question about transplant, Yaron, just to build on Nancy’s comment, when we looked at the IFN data the second transplant that was given to patients if they did not achieve complete or near-complete or very good partial remission, the need for that second transplant was significantly reduced in the VELCADE group versus the non-VELCADE group in that study. So I think transplant is a way of getting people into complete remission and if you can do it in another way that may make sense in the future and we’ve vaguely demonstrated that through that IFN study.

Nancy Simonian, M.D.

One other thing I would add is Christophe mentioned to you this additional study that we just started up, which is looking at; what we’re trying to do is develop the chalk regimen in front-line myeloma, taking the most active drugs and putting them together because ideally if you could delay transplant it’s what you would want to do, and so that’s why we’re adding VELCADE in the study that we’re about to start with lenalidomide DEX and now adding cyclophosphamide because we’ve seen this really amazing synergy between VELCADE alkylating agents and so that study will see whether that four drug combo will really be the mainstay for front-line treatment.

Kyle Kuvalanka

And we’re also going to have Christophe add.

Christophe Bianchi, M.D.

Yes, just maybe a quick comment here. It’s important to keep in mind the big differentiating features of VELCADE, the great benefits of VELCADE, which are going to play an important role in multiple myeloma in the front line, particularly the ability for VELCADE to be used across the board (inaudible) patients, including those with renal insufficiency. We know that patients with multiple myeloma front line present about one-third of the time with renal insufficiency and VELCADE works very well in those patients. So that’s an important factor in the decision-making process.

In addition, we have got great data on VELCADE regarding the ability to collect stem cell on VELCADE, which is an important factor as well because the ability to collect stem cells means that you can go to transplant. You know, a lot of transplantors still believe that even if you achieve great results the best way to get to a cure is really to take the patients to transplant and VELCADE induction can effectively allow them to take their patients in a better way to transplant and improve the post-transplant results.

And finally, this ability to collect stem cells is important because it indicates that the patients’ bone marrow is not being damaged with VELCADE, which is also important as you want to keep those patients in remission. But eventually you must make sure that the bone marrow is going to function.

Finally, you’ve got to keep in mind the efficacy to safety ratio. We’ve got a drug with generally a very manageable safety profile. We don’t have life-threatening situations with VELCADE, generally we don’t, so it’s really a great benefit as well.

Yaron Werber – Citigroup

Can I just follow up? So, if you look at the Revledex data, the first year overall survival is 96%, two years is 92%; we don’t know what the three year is and what I understand REV can be given safely pre-transplant. It doesn’t impact your ability to harvest stem cells and it’s safe in kidney patients as well and we’ve seen that data now presented so where do you think you can take this three year remission? In the triple, is it just a question of do you need all these drugs upfront or would it be better to use a Revledex first and when you fail, you will go to a VELCADE? That’s another option that I hear a lot of physicians talking about.

Kyle Kuvalanka

We’re going to have Nancy take that, Yaron.

Nancy Simonian, M.D.

Yes, well I think we’re, obviously, studying the question that you asked, but I think in every other type of cancer people take their most active drugs and put them upfront so I think this would be a different paradigm if that wasn’t going to be the way that people are going to treat patients with myeloma.

And I would just say as it relates to lenalidomide in stem cell transplantation, there are data that have been published suggesting that there is a reduction in the yield for cells so I think it’s something that may impact the ability to mobilize stem cells.

Yaron Werber – Citigroup

And just a final question, how many patients were in the Patima Phase II study?

Kyle Kuvalanka

We’re going to have Nancy take that question on the VMP Mateo study.

Nancy Simonian, M.D.

Well, I think that was, I want to say 70 or 80 patients, I can’t remember right off the bat.

Yaron Werber – Citigroup

Right. Thank you so much, I appreciate it.

Operator

We will now move to a question from Tom McGahren with Merrill Lynch.

Tom McGahren – Merrill Lynch

Good morning. Could you remind us of the trial design for the MLN1202 MS Phase II trial and what data we can expect in September? And, secondly is MLN002 still alive in trials?

Kyle Kuvalanka

We’re going to have Nancy take both of those questions.

Nancy Simonian, M.D.

Okay, so the trial design in the Multiple Sclerosis study; so this was a frequent MRI cross-over design study. We took 50 patients with relapsing remitting MS that had active disease at baseline, did three baseline monthly MRI scans and then patients got randomized to one of two doses and then followed up on treatment for four months with frequent MRIs and then off treatment. So the primary endpoint is looking at the difference in active inflammatory lesions on MRI scans on treatment compared to pretreatment or MRI measures that reflect underlying pathology. So that’s the trial design.

As it relates to 002 in Crohn’s disease, this alpha-4/beta-7 antibody is a gut targeting antibody, which should have benefit in a broad range of inflammatory bowel diseases.

Right now our lead indication is ulcerative colitis, but we are actively evaluating an aggressive plan also in Crohn’s disease, which we believe that the drug will have benefit in Crohn’s disease as well as in ulcerative colitis.

Tom McGahren – Merrill Lynch

And if I could ask just one housekeeping question; the gross margin, should we think about the current gross margin going forward?

Kyle Kuvalanka

We’re going to have Marsha take that.

Marsha Fanucci

Yes, Tom, I think that’s a good proxy for going forward.

Tom McGahren – Merrill Lynch

Okay, thanks a lot.

Operator

And now we’ll move to a question from Rachel McMinn with Cowen & Co.

Rachel McMinn – Cowen & Co.

Thanks very much. Just on your expense side, the primary driver for the increase, is that primarily related to the pipeline or additional spend on VELCADE on the marketing side?

Kyle Kuvalanka

Marsha will also take that question.

Marsha Fanucci

Hi, Rachel. It’s a little bit of each of those because we looked across the number of, as we pointed out, very select strategic investments. Some of those are related to the VELCADE and investments in the long-term growth of the brand and others are related to opportunities to really advance the pipeline, primarily in the area of product supply and ensuring that we can move forward in parallel with trials from a product supply standpoint.

These investments are on the variable side of the equation. The fixed cost infrastructure remains consistent.

Rachel McMinn – Cowen & Co.

And so should we think about the additional investment in VELCADE as reinforcing particular messages that are resonating well or are these increased payments to J&J based off of the success of that collaboration?

Marsha Fanucci

A very small portion of this is related to J&J. The dominant portion of this is related to investments in the brands and once again, the long-term growth profile.

Rachel McMinn – Cowen & Co.

And then secondly, just on VELCADE itself in the quarter, do you have a sense of whether VELCADE is just being added to current therapies or if there is active switching to other regimens and do you know what those regimens might be?

Kyle Kuvalanka

Rachel, we’re going to have Christophe take that.

Christophe Bianchi, M.D.

Well, it’s a bit of both, Rachel. We see some change in direction or at least some changes in market share in that space. We are solidifying our market leading position on VELCADE in this quarter, but we also see some usage of VELCADE in combination, so other products are being added to VELCADE about (inaudible) usage is in combination for VELCADE right now. And we are also starting to see some impact of VELCADE/DOXIL launch with OBI. We have already seen some nice pick up for VELCADE/DOXIL based on the strong data that we have released on this combination.

Rachel McMinn – Cowen & Co.

And when physicians are using VELCADE/DOXIL, what are they replacing? What do they use it for?

Christophe Bianchi, M.D.

Well, either they replace other treatment with VELCADE/DOXIL or where they were using VELCADE they just add DOXIL to VELCADE and they’ve got a dynamite combination in terms of efficacy. So, we see a bit of both.

Rachel McMinn – Cowen & Co.

So overall market share, where did that come from in the quarter? Was that primarily in the relapsed/refractory setting or did you see an increase in the front line setting as well?

Christophe Bianchi, M.D.

It’s probably in the relapsed/refractory setting.

Rachel McMinn – Cowen & Co.

Okay, thanks very much.

Operator

And now we’ll move to Susquehanna and you’ll hear from Derek Jelenek.

Derek Jelenek – Susquehanna

On the IMW data you presented several small Phase I, II and Phase II trials. On the REV/DEX side, it was only 15 patients, but it showed a CR of 20%, quite low actually. I was wondering where that trial is currently and have we hit an MTD and what were the safety concerns? And another question, probably for Deborah, is on the DSO, thanks.

Kyle Kuvalanka

Derek, I’m sorry. We didn’t hear your last question.

Derek Jelenek – Susquehanna

Oh, I’m sorry. It was about the DSOs; what are they currently running at?

Kyle Kuvalanka

DSOs, can you help us out there?

Derek Jelenek – Susquehanna

The days sales outstanding.

Kyle Kuvalanka

Okay. We’ll have Christophe actually take that. So, starting off with Nancy around REV/DEX and VELCADE.

Nancy Simonian, M.D.

Yes, so the two trials that are being done with VELCADE lenalidomide and then (inaudible) in the front line of the relapse are investigator initiated studies. And I think my feeling at this point in time is these are small numbers of patient so I think it’s hard to draw any definitive conclusions in terms of the overall benefit of this combination. You know, as you pointed out there are 10 patients or so.

With the front-line trials, as you know, they were still dose escalating as of IMW and I don’t think we’ve had any updated data from that. And the toxicity that was seen didn’t really appear to be drug related so I think they’re likely to be able to continue to dose escalate and hopefully get up to higher doses of the combination.

Kyle Kuvalanka

Great. We’re going to have Marsha answer that question about the days of sales outstanding.

Marsha Fanucci

We don’t get into that level of detail with respect to the product sales. I’m not sure I understood the follow-on to that question.

Derek Jelenek – Susquehanna

It wasn’t a follow-on, I was just curious about the DSOs because you’ve been running about in the 100 day range and I was just wondering where they came in in this quarter.

Marsha Fanucci

We haven’t gone to that level of detail.

Derek Jelenek – Susquehanna

Okay, no problem. Thanks so much.

Operator

And now moving to Howard Liang with Leerink Swann.

Howard Liang – Leerink Swann

Thanks very much. Can you talk about the trial in NHL for VELCADE in terms of the design, whether there is an interim look?

Kyle Kuvalanka

We’re going to have Nancy take that question, Howard.

Nancy Simonian, M.D.

Yes, hi, Howard. The Phase III pivotal trial, which is in relapsed patients with follicular lymphoma, is Rituximab versus VELCADE plus Rituximab. As we standardly do in these large pivotal trials we do build in interim analyses. They are typically event-based and at this point in time we haven’t been explicit about when that will occur, but I think as we complete enrollment and we have a better sense of where we are in terms of the overall pool to net rate we’ll be able to tell you approximately when that may happen.

Howard Liang – Leerink Swann

Thank you very much.

Operator

And now we’ll move to Matthew Jacobson with BDR Research.

Matthew Jacobson – BDR Research

Hi, thanks for taking my question. Most of my questions have been asked, but I was wondering if you could update us on where INTEGRILIN has been running relative to the guaranteed minimum royalty?

Kyle Kuvalanka

We’re going to have Marsha take that.

Marsha Fanucci

Yes, INTEGRILIN has been running at roughly the level that is at the guaranteed minimum. I think as you look forward to the year you should look at it the $85.4 million.

Matthew Jacobson – BDR Research

Going forward for ’08 you mean?

Marsha Fanucci

For this year, 2007, just that we would come in at the guaranteed minimum.

Matthew Jacobson - BDR Research

Right, I guess I’m wondering because INTEGRILIN was moved down a bit this quarter based on what seems like maybe the current run rate based on changes in CCI use whether going forward you still expect it to be around the minimum when it’s no longer guaranteed?

Marsha Fanucci

There is a lot of variability quarter-to-quarter in INTEGRILIN sales. If you look back over the past you know you see quite a bit of bumpiness often related to anticipated price increases and just channel changes. I think that you should discuss directly with Schering-Plough, but they certainly communicate a lot of confidence in the brand and their own expectations of growth going forward.

Internally right now we’re viewing it from a conservative standpoint as thinking about the guaranteed minimum as being the outlook that we should plan for for the year. But I think there is additional upside there.

Matthew Jacobson – BDR Research

Great. Thank you.

Operator

And it looks like we have time for one final question and that will come from Geoffrey Meacham from J.P. Morgan.

Terry Coyne – J.P. Morgan

Hi, this is Terry Coyne in for Geoff today. Just a couple of questions on VELCADE. Have you seen any sales in combination with Revelmid? And then the second question, just in terms of dosing trends can you compare dosing trends today versus what you were seeing at the beginning of the year.

Kyle Kuvalanka

Terry, we’re going to have Christophe answer those questions.

Christophe Bianchi, M.D.

Anecdotally we see some usage of VELCADE plus Revelmid. We see some of that in some centers. It’s not the majority. The majority of the VELCADE used in combination is with dexamethasone. That’s where we see most of the usage of VELCADE.

And the second part of your question was?

Terry Coyne – J.P. Morgan

Dosing.

Christophe Bianchi, M.D.

Oh, the dosing. Maybe if you could explain a bit more. To answer your question in terms of length of treatment we have seen a reverse, about six cycles of treatment for VELCADE, which has remained stable to slightly increasing in the quarter. Again, our growth of this is not in this quarter due to an increase in the length of treatment. It’s in reverse length of treatment, but we are seeing more gains on the market share.

Terry Coyne – J.P. Morgan

Okay, and just in terms of what line of therapy you’re seeing combination with Revelmid, can you talk a little bit about that?

Christophe Bianchi, M.D.

We see that in second line and later line of treatment, in the third line of treatment. You know when Revelmid launched their penetration to market, treatment and we have seen some people using VELCADE in retreatment with Revelmid in third line of treatment, for instance.

Terry Coyne – J.P. Morgan

Okay, great. Thanks a lot.

Operator

Our Q&A session will end at this time. I will turn the call over to Deborah Dunsire for closing remarks.

Deborah Dunsire

I’d like to thank everybody for coming. It was a great second quarter. We’ve seen good momentum in the business and great execution on both our commercial and our development pipeline. So we look forward to updating you at the end of the third quarter. Enjoy the summer.

Operator

And that will conclude your conference for today. We do thank you for your participation. Everyone have a wonderful day.

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