Celgene Q2 2007 Earnings Call Transcript

| About: Celgene Corporation (CELG)
Wall Street Breakfast


Q2 2007 Earnings Call

July 26, 2007 9:00 am EDT


Sol Barer - Chairman and Chief Executive Officer

Bob Hugin - President and Chief Operating Officer

David Gryska - Chief Financial Officer


Ian Somaiya – Thomas Weisel Partners

Sapna Srivastava – Morgan Stanley

Yaron Werber – Citigroup

Jeff Meacham – JP Morgan

Tom McGahren – Merrill Lynch

Rachel McMinn – Cowen & Company

May-Kin Ho – Goldman Sachs

Eun Yang - Jeffries



Good morning, my name is Gwen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Celgene Quarterly conference call. All lines will be in a listen-only mode throughout today’s conference. After the speakers’ remarks, there were will be a question and answer session.

I would now like to turn the call over to David Gryska, Chief Financial Officer. Please go ahead, sir.

David Gryska

Good morning, everyone. I am Dave Gryska, Celgene’s Chief Financial Officer, and welcome to our second quarter conference call. With me on today’s call are Celgene’s Chairman and Chief Executive Officer, Sol Barer and President and Chief Operating Officer, Bob Hugin.

Today’s press release reporting our second quarter 2007 financial and operating results was issued earlier this morning and is available on our corporate Web site. I will begin the conference call with a review of our second quarter results and financial objectives for 2007. Bob will then take you through our commercial, clinical, regulatory and international achievements during the quarter, followed by Sol who will provide a strategic overview of our corporate objectives.

Before we begin, we want to remind you that certain statements made during this conference call may be forward-looking or made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995. Certain forward-looking statements which involve known and unknown risks, delays, uncertainties and other factors not under our control may cause actual results, performance, achievements to be materially different from the results, performance or other expectations implied by these forward-looking statements. These factors include the results of current or pending clinical trials or product failure to demonstrate efficacy or an acceptable safety profile, actions by the FDA, the clinical condition of suppliers, including their solvency and ability to supply product and other factors detailed in our other filings with the Securities and Exchange Commission or referred to in the press release issued this morning.

Now, for the second quarter results. Total net revenue for the quarter ending June 30, 2007 rose to $348 million, a 76% increase over the year ago quarter. This significant rise in revenue was a result of our growth from multiple product revenue streams, underscored by strong commercial performance for Revlimid. Total net product sales increased to $319 million for the quarter, up 81% from $176 million in the year ago quarter. Revlimid net product sales increased 187% year-over-year to $181 million for the quarter. THALOMID net product sales reached $118 million compared to $107 million the same period in 2006. Revenue from Focalin and the Ritalin family of drugs totaled almost $25 million, approximately a 40% increase over the same period last year. ALKERAN net product sales generated nearly $19 million compared to approximately $5 million in the same period last year.

For the second quarter, we reported adjusted net income of $110 million, or $0.26 per share, representing an increase of 136% over the same period last year. During the quarter, our gross profit margins expanded more than 7% year-over-year and were basically unchanged sequentially over the prior quarter. We believe that our gross margins will remain within a very narrow range of our second quarter results for the remainder of the year.

Moreover, Celgene reported greater than $2.3 billion in cash and marketable securities as of June 30, 2007, an increase of more than $200 million over the prior quarter ended March 31, 2007. We believe that these results reflect both strong sales and a significant increase in operational efficiencies worldwide. As we remained focused on both maximizing the full potential of Revlimid and a broad range of indications and accelerating development of our IMID and other pipeline programs, R&D spending increased to $87 million in the quarter. Bob will outline the significant progress they’re making on the clinical front worldwide and our clinical plan of action for the upcoming quarters.

Also during the second quarter, we continued to make substantial progress in building our world class organization in Europe, Japan, Australia and Canada to capture our share of these large and growing markets. We now have operations in nearly 35 countries around the world, and our global regulatory efforts are focused on making Revlimid available in all major markets.

It is an exciting time at Celgene as we continue to build our global organization that has the potential to bring our products to many thousands of patients around the world and to produce exceptional long-term rewards for our shareholders. With this in mind, our adjusted selling, general and administrative expenses increased sequentially over the prior quarter to approximately $103 million. These results were driven primarily by an increase in marketing and sales expenses to support multiple product launch activities in Europe over the next several quarters as well as our ongoing international expansion. We believe that the second quarter SG&A results reflect an accurate run rate for remainder of the year.

Though significant uncertainty still remains around launch trajectories of Revlimid to all member countries in the EU and our ability to project specific product revenue at the local level, we are updating our 2007 financial guidance based on our second quarter results targeting total revenue to a $1.4 billion range and adjust the earnings per share to a range of $1.00 to $1.05. Considering the substantial accomplishments and progress achieved in the first half of this year, strong revenue growth, increasing profitability, strong cash flow, our fourth quarter regulatory approval in 18 months, significant regulatory filings, and global clinical developments as well as our rapid international expansion all provide for meaningful momentum as we look forward to capitalize on the many global opportunities in the coming quarters.

Now, I’ll turn the call over to Bob.

Bob Huginr

Thanks, Dave. It truly was an outstanding quarter with all areas of the company contributing to these impressive results. Significant progress was achieved towards the accomplishment of virtually all 2007 corporate objectives. Let me add my perspective to these results, starting with our commercial achievements.

The exceptional growth in revenue accurately reflects the value of our products and the high quality of the Celgene team committed to delivering the best possible result. A 76% rise year-over-year in total revenue was driven by the 81% increase in product sales with Revlimid the primary growth driver. Revlimid sales of $181 million reflect the nearly 24% quarter-over-quarter growth rate. Continued strong U.S. growth and increasing European commercial sales contributed to this excellent performance. The U.S. results were positively impacted by a $2 million to $3 million increase in specialty pharmacy inventories.

During the quarter, Revlimid’s U.S. market share in myeloma continued to grow. Third party market research indicates that physicians continue to move Revlimid to earlier lines of therapy with the largest market share growth in first and second line treatment. Consistent with this evolution, we’re seeing an increase in the duration of treatment. There was an approximately 25% increase in the number of patients receiving 6 or more dispenses in the second quarter as compared to the first quarter. So Revlimid was clearly the growth driver for the quarter. THALOMID maintained a strong position in the multiple myeloma market, contributing $118 million to our top line, despite a slight decline in prescriptions offset by previous period price increases. We continue to expect to see further decline in the use of THALOMID as new Revlimid data is presented and published. Presentation of important new clinical data at major medical meetings is the lifeblood of an oncology product. We’re in a fortunate position where unprecedented clinical data highlighting Revlimid’s potential continues to be reported and presented at major international medical meetings across multiple blood cancers where there are limited therapies and where substantial unmet medical needs exist.

During the month of June alone, there were more than 140 abstracts presented worldwide evaluating the clinical potential of Celgene products. Let me now review the key Revlimid data presented at these recent major medical meetings. At the 9th International Symposium on Myelodysplastic Syndromes in Florence, Italy, updated data demonstrating the efficacy of Revlimid was reported. This data revealed that Revlimid can provide long-term survival benefit and prevent progression of the disease in patients with transfusion-dependent anemia due to lower intermediate risk myelodysplastic syndromes associated with the lesion 5q with especially significantly prolonged survival for 87% of cytogenetic responders. We plan to build upon these results as we strengthen our Revlimid franchise in MDS.

At the American Society of Clinical Oncology meetings in Chicago, important clinical findings from a large randomized double-blinded Phase III study conducted by the Eastern Cooperative Oncology Group were reported. The study was designed to evaluate the safety and efficacy of Revlimid in patients with newly diagnosed multiple myeloma. Researchers found that patients in the study who received Revlimid and low dose Dexamethasone had statistically significantly improved overall survival, 96% at one year as compared to 86% for patients treated with the standard dose of Dexamethasone and Revlimid. Researchers reported that this was the best survival data ever demonstrated in a Phase III newly diagnosed multiple myeloma study.

At the European Hematology Association meeting in Vienna, Dr. Antonio Palumbo reported impressive survival data from a Phase II trial that evaluated Revilmid plus melphalan/prednisone in patients newly diagnosed with multiple myeloma. After two years of follow up, overall survival was 91%, and 75% of patients remained progression free.

At the International Myeloma Workshop in Kos, Greece, unprecedented overall survival data of 35 months with Revlimid/Dexamethasone for patients who were previously treated for multiple myeloma was presented in a pooled update of our two pivotal, large randomized phase three clinical trials, MM009 and MM010.

Also at ASCO, updated data from our Phase II trials in aggressive and indolent NHL were presented, and responses continued to be durable and frequent in all histological subtypes of NHL. New data from a Phase I-II study of Revlimid in combination with Rutuxan in relapsed refractory mantle cell lymphomas was also reported by Dr. Michael Lange of M.D. Anderson. The data were very encouraging with an overall response rate of more than 60%. Importantly, we believe this is the first clinical study in a peer-reviewed setting to report the potential synergistic effects of Revlimid in antibody-dependent cellular cytotoxicity. This is an extremely exciting area of clinical research that may add a new dimension to the potential of Revlimid and the IMID compounds in combination therapy, both in hematological and solid tumor cancers.

Another major transformational event in the quarter was the June 19th announcement that Revlimid had been granted full marketing authorization in Europe for the treatment of previously treated multiple myeloma, a major advance in the building of our global franchise. This approval has allowed us to initiate our commercial launch operations in Europe, a key component of our long-term growth strategy. While this approval and oncology regulatory approval is generally in the European Union or pan-European marketing, distribution, pricing and reimbursement plans and approvals for each country are separate and distinct. Based on local regulations and practice, we have launched Revlimid in three countries, the most significant being Germany where the initial reception has been very positive. Importantly, we’re optimistic that we will get appropriate pricing and reimbursement in France and Ireland in the early fall and Italy and Spain in the first half of 2008.

In terms of pricing, we are establishing a narrow global price band. It is our policy that those foreign exchange rates and market practices may differ from country to country. It is our intention to keep the net price paid for Revlimid comparable across the developed world over time.

We continue to prepare for the potential launch of Revlimid in the remaining countries in Europe and are advancing our regulatory strategies in Japan, Canada, Australia, Switzerland, Israel and other international markets. Negotiation of an appropriate risk management and distribution plan is an important component of each country’s prelaunch program. To date, we have agreed to appropriate risk management and distribution plans in most European countries designed to insure patient safety with less complex patient and physician requirements than the U.S. Rev-assist program. Having now achieved the important milestone, clinical and regulatory teams are focused on the challenge of seeking regulatory approval for Revlimid as a treatment for transfusion dependent low and intermediate risk MDS patients with the five Q chromosomal deletion. We have a two-pronged strategy to achieve this objective. During the quarter, we completed accrual on a double-blinded placebo controlled European phase three trial, MDS-004, examining Revlimid’s safety and efficacy in this deletion 5Q MDS patient population.

Our higher risk strategies for MDS is based on our single open label trial in MDS 5Q that led to our U.S. MDS approval. This application remains under review with the EMEA, but based on the length of time to come to agreement on data analysis and the potential inability to match the trial results with historical data sets, we have recently become more pessimistic about achieving approvals based solely on this data from this open label trial.

As we work to make Revlimid available to as many patients as possible in Europe, we’re still working everyday in the U.S. to ensure broad access for patients to our therapies. During the quarter we further strengthened our patient support program by expanding our patient support coordinator program and reaffirmed our commitment to our industry leading free goods and co-payment foundation support.

We’re very pleased with the progress achieved to date in advancing the Revlimid franchise, and are committed to exploring the full clinical potential of Revlimid in a range of hematological and other cancer indications. A major objective of our Revlimid clinical and regulatory strategy is to expand on our current data in MDS, myeloma, CLL, NHL, and other hematological malignancies through extensive clinical trials. As this data is generated, information will be presented at major medical meetings, published in peer-reviewed publications, and utilized to support regulatory applications.

Numerous trials are underway in newly diagnosed multiple myeloma, and in all stages and all types of MDS, including low, intermediate, and high risk disease, and Acute Myelogenous Leukemia. Revlimid clinical development is expanding, with more than 100 clinical studies ongoing, or to be initiated this year. During the quarter, we reviewed with international myeloma investigators our plans in conjunction with leading global oncology organizations, including the IFM group in France, to launch the largest myeloma trial in history. This FIRSST trial, which stands for First Line Investigation of Rev-Dex versus Standard Soledimide Trial will compare Revlimid and low dose Dexamethasone versus Melphalan Prednisone, FAL, in newly diagnosed multiple myeloma patients. This 1,590 patient trial will begin later this year.

We also continue to accrue our European pivotal trial comparing Melphalan, Prednisone and Revlimid versus Melphalan and Prednisone in newly diagnosed multiple myeloma patients. We are working vigorously to advance our regulatory programs in both non-Hodgkin’s lymphoma and chronic lymphocytic leukemia. In NHL we are marking excellent progress in advancing our programs. Importantly, we are receiving key signals from ongoing trials to guide our strategy. We have submitted our special protocol assessment proposal for the FDA for our pivotal phase three trials. Timing of these trials will depend on FDA response. Other regulatory trials in NHL are accruing on target. These trials include relapsed aggressive NHL following standard induction therapy, a randomized control trial with Rutuxan and Follicular NHL and trials with Rutuxan and previously treated refractory mantel cell lymphoma. We are also initiating several other NHL trials, including Revlimid by Rutuxan in relapsed refractory follicular NHL and Revlimid plus Dexamethasone in relapsed refractory aggressive NHL.

In addition, we plan to initiate trials in Hodgkin’s Lymphoma and T-cell lymphoma. Larger phase two trials can potentially serve as the basis for supplemental approvals, if the results are compelling. We will, of course, also be conducting the major phase three trials submitted in our FDA application. In chronic lymphocytic leukemia, strong evidence of meaningful clinical activity is being observed in all Revlimid CLL trials.

As Dr. Asher Chanan-Khan from the Roswell Park Cancer Institute in Buffalo New York reported from it’s phase two study, and published in The Journal in Clinical Oncology, higher doses of Revlimid can reduce both rapid and profound responses, including molecular remissions, and may also cause Tumor Lysis Syndrome, requiring dose reduction or interruption. Tumor Lysis Syndrome has been observed in approximately 3% of CLL patients treated with Revlimid. Similar reactions have been observed with other immune modulating agents in CLL. As a result of these findings, we are delaying the enrollment of new patients into our CLL-001 higher dose study while we amend the protocol to incorporate a dose escalation regime to the targeted dose. Our regulatory track trials will reflect as appropriate the results of this dose finding and titration study. These regulatory trials include studying all stages of CLL, and in combination with other agents including Rutuxan.

We’re also exploring Revlimid’s activity in other hematological malignancies as well, as in solid tumors including prostate cancer. These clinical programs are designed to provide data that if positive will allow us to seek regulatory approvals worldwide. Though we appropriate spend the majority of our time discussing Revlimid, it is only one compound in an exciting class of compound, the IMIDs. We have two additional IMIDs in the clinic 4047, and 11006. Clinical trials evaluating 4047 as a potent oral therapy in a wide range of indications that are underway or soon to be initiated. The clinical development plan for 4047 includes trials in relapsed and refractory multiple myeloma, solid and soft tumor cancers, graft versus host disease, and hemoglobinopathies. Based on its unique profile, 11006 is moving forward in an MDS trial this year, following a successful completion of healthy volunteer testing.

In addition to having made great progress in building a full-integrated market leading global hematology oncology organization, we have also significantly advanced our strategy of building the foundation of a new anti-inflammatory franchise with the recent developments in our proprietary class of oral TNF-alpha inhibitors. This past quarter we announced the positive results of a phase two proof of mechanism trial for our lead TNF-alpha inhibitor, CC-10004 Apremilast in moderate to severe psoriasis and the decision to advance the development of our oral anti-inflammatory program. Our next steps include additional multi-center phase two trials to determine the effect of extending duration and dosing of Apremilast on the treatment of psoriasis and psoriatic arthritis.

In addition to our ongoing phase two psoriatic arthritis clinical trials, we’re exploring a number of other phase two open label trials and diseases such as recalcitrant psoriasis, and are currently evaluating possible protocol designs in psoriasis, including moderate to severe disease, and as the first systemic therapy after topicals in combination with (inaudible). Additionally, we are pursuing a strategy of exploring phase two proof of principle trials in a number of CNF sensitive diseases with high unmet medical needs, including orphan diseases, such as cutaneous sarcoid, Baschetts, and cutaneous lupus. These diseases offer the potential of earlier approval, and may serve as indicators of activity in other disease states. In addition, we plan to investigate larger indication in rheumatology, such as rheumatoid arthritis. We’ve also made significant progress in our Apremilast preclinical programs to ensure that all studies are either completed or underway to demonstrate the safety profile needed to ultimately obtain regulatory approval in these indications. We’re encouraged by the data that has been generated at date. We currently anticipate discussing our complete Apremilast program with the FDA later this year.

Our next compound in this anti-inflammatory series, CC-11050, was demonstrated to be safe and well tolerated in healthy volunteers, with a potentially different pharmaco dynamic and pharmacokinetic profile than Apremilast. We are currently considering various development strategies for this TNF-alpha inhibitor and anti-antigenic agents.

During the quarter we also made excellent progress in advancing our intercellular singling product candidates, and our stem cell programs. We recently accomplished key milestones, including the validation of the processes for expanding unique proprietary placental stem cells to allow for a uniform pharmaceutical quality dosing regime when we advance this program into the clinic in 2008 in immune inflammatory indication.

Overall, impressive results. Building an excellent platform for accelerating growth this year and next. Thank you. Let me now turn the call to Sol.

Dr. Sol Barer

Thanks Bob and Dave. Good morning, everyone. I’d like to present a strategic perspective on our results for the quarter, our strategic direction and our challenges and opportunities as we grow into a major biopharmaceutical company.

Our strategic mission is to meet the unmet medical needs of patients worldwide by establishing a preeminent biopharmaceutical company in hematology, oncology, and longer term in inflammatory immunology within an empowering and vibrant corporate culture. Towards meeting this vision we have delineated six major objectives. One, achieve industry leading financial results. Two, successfully internationalize cell genes. Three, ensure for Revlimid’s continued growth into a leading hematology oncology therapeutic globally. Four, advance our strong pipeline and flow of new products through development to successful commercialization. Five, ensure for a continued strong research and development capability, delivering meaningful new chemical entities to the clinic. Six, continue to build a world-class organization while retaining our entrepreneurial culture.

During the past quarter we achieved important milestones towards these six objectives. We continue to deliver on our first objective to achieve industry leading financial results. We had another record quarter with total revenues increasing 76% to $348 billion and adjusted EPS to $0.26. Driven by Revlimid’s continuing momentum as the most successful multiple myeloma product in history. We continue to deliver financially to provide the necessary resources for the growth of the company.

We also made enormous strides towards our second objective, the internationalization of cell genes. The approval of Revlimid by the EMEA this past quarter is a seminal and transformational event for our company. It transforms us into a truly international company. Even more importantly, multiple myeloma patients in the European union will now have access to the first breakthrough oral therapy available in Europe in more than 40 years.

We are also advancing Revlimid’s international regulatory progress in numerous countries, including Switzerland, Australia, Canada, Japan, and Israel, with discussions also ongoing in a variety of other countries. We made substantial progress towards our third objective of growing Revlimid into a world leading therapeutic with Revlimid net product sales increasing 187% to $181 million for the quarter. Over 60 Revlimid abstracts were reported in major international meetings. We advanced our strategic objective of demonstrating Revlimid has a potential paradigm shift in the treatment of patients with multiple myeloma with the presentation at international medical meetings of Revlimid plus low dose Dexamethasone data from the major NCI sponsored ECOG trials, and Revlimid melphalan prednisone data with both studies reporting unprecedented one year survival than newly diagnosed multiple myeloma patients.

An important part of our global strategy is to develop Revlimid broadly in hematology with more than 100 clinical trials already initiated or planned to be initiated. Specifically, we advanced our strategies in hematological diseases and continue to explore Revlimid’s activity in solid tumors. Revlimid is being evaluated as monotherapy and also in combination therapy, including with antibodies to delineate its potential in the area of antibody dependent cellular cytotoxicity, a particularly exciting area.

We continue to progress towards our fourth critical objective, the successful advancement of our strong pipeline. In addition to Revlimid’s commercial value, and at the pipeline in itself, we believe its greatest value is actually a proof of principle for the IMID class of compounds. Other IMIDs in development include CC-4047, which is being advanced in a number of indications, CC-11006, an evaluation in MDS, and a number of other candidates may soon be in the clinic, such as CC-10015, CC13097 and CC150955 (inaudible) transformation in therapeutic outcomes. We are just at the beginning.

We also made significant progress in our strategy toward building a new anti-inflammatory franchise, as Bob said, with the positive results of a phase two proof of mechanism trial for our lead TNF-alpha inhibitor, Apremilast, in moderate to severe psoriasis. Based on this result we will be advancing this new unique and proprietary class of all TNF-alpha inhibitors. We are currently formulating the next steps in our program for both psoriasis and psoriasis-related diseases, as well as a number of other TNF-alpha sensitive indications.

In addition, we are fortunate to have another member of our TNF-alpha series through phase one, CC-11050, which has a different profile than Apremilast, and will also be evaluated in the appropriate diseases. We are quite excited about the tremendous potential of this area recognizing the challenges of changing treatment paradigms in large diseases.

On the research front, we continue to discover and advance drug candidates beyond the IMID and oral TNF-alpha antagonists, including our novel and proprietary pleiotropic pathway modifiers and targeted (inaudible) antagonists. We have expanded our efforts on other projects in the inflammatory arena that we will report in subsequent quarters. We continue to progress in our stem cell program, including the advancement of our programs in placental perfusates and in our unique potential derived cells to latter towards the clinic in 2008 in an immune inflammatory indication. Our manufacturing processes, intellectual properties, and regulatory interactions are proceeding very well in support of the above novel therapeutic approaches.

We also continue to ensure progress towards our fifth objective, a strong R&D capability. We recognize that building a global company will entail continuously developing our scientific capabilities by bringing to Celgene some of the best and brightest (inaudible) clinicians, as well as evaluating external opportunities to broaden and deepen our research and scientific base in strategic areas.

Our sixth objective, to continue to build a world class organization while retaining our entrepreneurial approach with its fundamentals. We have indeed built a world class international organization in Europe, and in other countries, including Japan, Australia, and Canada. All from a zero base in the last two years. We have added, in a prudent manner, capabilities in the appropriate functional areas, while maintaining the culture that develops in commercialized (inaudible) discover, develop and commercialize revenue, achieve full regulatory approvals within the past 18 months, and discover new classes of compounds, including unique oral anti-TNF-alpha agents, as well as other new classes of biologically technology.

Along with that significant progress and growth comes challenges. These include maintaining our unique entrepreneurial culture in the face of rapid growth and organizational expansion, prioritization of a myriad of opportunities, continuing to bring to Celgene the best run industry in academia, establishing our new anti-inflammatory franchise, as we expand globally in hematology oncology, continuing to ensure for patient occurrence of our therapeutics, and, of course, the ongoing litigation with respect to generic (inaudible).

Finally, it should be clear that the execution of ambitious plans, and the accomplishment of this extraordinary milestones do not happen as a matter of course. They happen through the determined and extraordinary efforts of teams of people working relentlessly to change medicine and improve the lives of patients worldwide. We are fortunate at Celgene to have extraordinary people supporting us in all functional areas throughout the world. We congratulate all stakeholders who have worked so hard for so long to turn this global ambition into reality. As a company we can take great pride in these accomplishments, which are helping patients by discovering and developing new therapies that are changing the course of fatal diseases.

We are committed fully to rapidly advance (inaudible) therapies through development so that many more patients can be served. We are dedicated to ensuring that all patients in need have access to our innovated therapy. We look forward to announcing our third quarter financial and operational results on Thursday, October 27th.

Operator, now please open the call to questions.

Question-and-Answer Session


(Operator Instructions) We’ll go first to Ian Somaiya with Thomas Weisel Partners.

Ian Somaiya – Thomas Weisel Partners

Thanks for taking my question. I had a couple of questions for Bob and one for Sol. The two questions for Bob, first related to Revlimid penetration numbers that you highlighted. Is the share gain that you’re seeing in first and second line, is that a one-to-one offset with shared losses for Thalomid? Just curious how much incremental market share you’re gaining with having both Revlimid and Thalomid on the market?

Bob Huginr

The gain that we’re seeing, and we don’t discuss the specific numbers, obviously, for competitive reasons. But, again, we want to make sure you understand, it’s not from Revlimid or steps that we get market share data. We do use third party independent market research firms. The most reliable data really is on the 12 month rolling data. So you really can understand the trends and have a higher degree of confidence. In fact, the increases that we’re seeing with Revlimid in terms of market share are clearly in excess of any kind of changes in Thalomid market shares.

Ian Somaiya – Thomas Weisel Partners

The other question was, what portion of the first line myeloma patients now being treated with Revlimid are actually undergoing stem cell transplantation versus just choosing to continue on Revlimid therapy?

Bob Huginr

We really don’t have data that would give us confidence to be able to say we’re definitive about this is happening or not happening in terms of the changing paradigm of the treatment of front line patients. Clearly, our strategy over time is get regulatory approval, give clinical data, dissemination, educate people about the clear benefits of an oral therapy without significant side effect profile, non-neurotoxic, etc., in terms of that as the potential for changing the paradigm. But as of this point there isn’t market research that we could definitively speak. It’s probably a long term evolution of that market place.

Dr. Sol Barer

As Bob indicated, the market is evolving. It’s not there yet in terms of transplant and not transplant. And the data that was presented at the latest ASCO in terms of the NCI sponsored trial, the ECOG trial, did spark a lot of debate in terms of do you go to transplant as a matter of course for many patients or do you wait and see how they do on Revlimid. So that’s going to be an evolving story over a period of time, and more data obviously is going to be needed to support the decisions. But it is an ongoing discussion within the hematology oncology community. And it will be a longer term shift.

Ian Somaiya – Thomas Weisel Partners

I’ll just get back in the queue.

Sapna Srivastava – Morgan Stanley

Congratulations on a strong quarter. I had two questions which were much more about regulatory timelines. What’s the best case timeline for CLL that you’re projecting now? And also if you can give visibility of the status of your front line filings for your (inaudible) front line myeloma.

Bob Huginr

Let me take first the front line myeloma. We clearly have multiple strategies there. We have primary, secondary strategies, depending on the marketplace. Starting in Europe, the MMO-15, which is the melphalan prednisone Revlimid versus melphalan prednisone is what I would call the primary strategy there. We’re working hard to fully accrue that trial. So that’s several years off, depending on what the results are.

There are other shorter term strategies of data that’s coming out that we will discuss with regulators in Europe about its potential, but I think that’s the baseline that we’re looking at in Europe today with other potential upsides, but not ones that we would think have a high enough probability that we would change that outlook.

In the U.S., obviously, we have the data from ECOG and SLOG that are very, very significant in terms of the potential impact on both the first line paradigm retrievement and also potentially the regulatory. So by the end of this year we’ll have a much better understanding of the quality of the data, the requirements, etc., the full data package and if the ECOG and SLOG would provide that opportunity to us. But we have a number of front line studies that will produce data over the next couple of years also.

So in the U.S. it’s a different strategy than as in Europe, and there are multiple strategies, and we’re hopeful that the more aggressive ones will turn out to be the case. In CLL it’s a little difficult to give you the regulatory timeline because we’re moving forward on several fronts, upfront therapies, combination therapies, relapse, different dosing regimens. Clearly the higher dose studies are going to take a little bit longer because we’re now going to titrate to get to those higher doses, understand the exact dosing regime. But we’re certainly several years away from being able to submit, unless something changes significantly in the next six or eight months.

Dr. Sol Barer

We try not to project if we get compelling results in some trials. So we’re going along with the more conservative timelines, which are pivotal control, line dated trials, and there still is, as Bob said, a few years away. The other alternative of filing based on shorter term compelling results from open label trials, or two arm trials, which we have a number of them ongoing, we just can’t project. We don’t know if the results are going to be compelling. We don’t know the reception of the agency to that and so on. But we are planning to file as quickly as we can in CLL, and of course in NHL based on what we think to be very promising data and very high biological activity by this agent in those two important diseases.

Yaron Werber – Citigroup

Also congrats on a nice quarter. Can you split up for us a little bit what were the Revlimid sales in the U.S. versus outside the U.S.? Also, can you comment a little bit as to where is the principle growth coming from, is it myeloma or MDS?

Bob Huginr

Obviously the bulk of the revenues are clearly U.S. In the last year we saw 5% to 10% European percentages. In the first half of this year we’re really starting to launch in July really in one country, it’s a little bit more than 10%, but it’s in the low double-digits what we’re seeing so far as a percentage of the revenues.

In terms of the U.S. we saw prescription growth in both myeloma and MDS but myeloma is carrying 80% of the load in terms of the revenue, and is a significant part of the growth. So both MDS and myeloma did grow during the quarter.

Jeff Meacham – JP Morgan

Also congrats on a good quarter. A question of Revlimid commercialization, I realize that a lot of your SG&A spend this year is ahead of the European launch. But just generally speaking, what should we expect next year in going forward as you roll out in other regions, like the Far East, Canada, Australia, etc.?

Bob Huginr

I think, Jeff, when we look at SG&A, we’re very careful because we do have a very strong desire to produce outstanding bottom line results like we did this quarter, but we’re not going to put ourselves at a position where the initial launch of the drug is not appropriately positioned. Every country in Europe we want to make sure that at first six months, 12 months of launch, that drug is supported in an appropriate way, whether its through promotional medical education, etc. And we’re going to do the same thing in Canada, Australia, Japan, and other markets that we’re going towards.

In the U.S. we will continue to be very focused on ensuring patient access, availability to drug, and will to support at the highest degree appropriate, co-payment foundations, free goods, etc. We are sensitive that we don’t want to have SG&A become such a component that we’re not going to produce the kind of bottom line results.

So while I think we have very appropriate discipline in that regard. And the investments we are making are not ongoing parts of that expense since they’re related to launch activities and building of that infrastructure. And as we’re at the right position, we have the right positioning of the drug, I think we’ll see the leverage from the organization, we’ll see continued strong EPS growth over the next two, three years.

Dave, I don’t know if you want?

David Gryska

Jeff, I think we’re going to be looking at an SG&A number this year that’s going to top out at about $400 million, and then as Bob said then we’ll look selectively into next year as we grow in these other markets and build appropriately as we go into Japan, Canada, Australia and Israel.

Bob Huginr

I think there’s a very good balance between investing in R&D, building the infrastructure and producing the commercial discipline, again, to produce the kind of financial (inaudible) have over the next five years.


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

Tom McGahren – Merrill Lynch

Thanks a lot. Could you remind us as to whether Celgene has submitted any Phase III protocols to the SPA for CLL thus far? Secondly, maybe you could talk a little bit more about the progress in Revlimid in India’s 5q minus and in Europe; the progress of the Phase II trial over there?

David Gryska

Right. In terms of the SPA’s in the U.S., we have submitted both NHL and CLL. Clearly, the CLL SPA will be modified depending on the results of the titration study so that as we get to that higher dose, the SPA trials are higher dose studies, we’ll make amendments to that. We don’t expect any substance of changes in those SPAs other than the dosing titration schedule that will come as a result of this amendment to the protocol air.

Then on the NHL front; we’ve submitted it and we’re awaiting comments on that regard.

In MDS, nothing has changed in Europe in terms of the strategy for regulatory approval. The trial in terms of the MDS-004, which is the placebo double blind trial, has fully accrued. We will follow those patients for 12 months. We’ll see those results. That will either be a Phase IV commitment. A Phase IV commitment in the U.S., we’d submit that for the approval that we already have. It will either be a Phase IV, similar Phase IV, kind of, post approval commitment in Europe. Or, if we’re not successful in getting the kind of convincing the EMEA European authorities regarding the single open label trial application, then it would have to be the Phase III application, but hopefully it will be the Phase IV. But we’ve got to be realistic about that.


We’ll go next to Rachel McMinn with Cowen and Company.

Rachel McMinn – Cowen & Company

Yes, thank you. Just to follow up there; the decision that you’re expecting, timing there; is that still towards the end of the third quarter on the MDS application?

David Gryska

It’s certainly by the end of the year. It really comes down to can we provide the kind of matching to the single open label trial to give people confidence; the European regulators confidence. That the uncontrolled data can be matched enough to give them confidence that the results are representative of what would justify an approval.

So, it’s difficult, always, with a single open label trial. I think we’re working hard; they’re working hard. It’s a question of whether the data itself can be acceptable to the regulators.

Unidentified Company Representative

Yes. What it is, as you know, Rachel, the propensity of the EMEA to approve relatively small open label trials is not great. Although we’ve had a very, and are having, a very productive dialogue for that, they are, I think, bending over backwards in terms of allowing us to match patients to, sort of, turn this into a pseudo-controlled trial. Their questions are, basically, based on the fact that it’s an open label trial. How do these patients do versus patients who haven’t been treated with Revlimid? What happens to them a year after that? What are the outcomes?

So, I think all of those things are addressable. But I’m left in, certainly, 50/50 percent, which I usually talk about in terms of that accelerated strategy being effective and that more our base strategy of going through a traditional Phase III trial.

Unidentified Company Representative

We’ll see, certainly, by the end of the year.


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

May-Kin Ho – Goldman Sachs

Hello. Can you talk a little bit about the market share at this point of Revlimid in different lines of therapy; number one? Number two, on the CLL dosing. Do you think it will effect the progress of NHL, non-Hodgkin's lymphoma?

David Gryska

Yes. I’ll do one and Bob will do one of those answers. In terms of the CLL dosing, it appears to be more of a problem and an issue in CLL (inaudible) opportunity than it does in NHL. Although there’s a lot, May-Kin, that we’re learning about this very very active agent.

What we’ve learned is that it is, in CLL especially, extraordinarily biologically active and that we have trials now going with even 2.5 milligrams which are showing complete responses in patients. So it really depends on the patients. It depends on how bulky the disease is and on other issues regarding the patients.

So, and we’ve also found that we can avoid most of these side effects, including TLS, based on a dose titration up. In other words, start low and go up. We’re certainly not seeing this in NHL that I’m aware of. Those are accruing, by the way those trials, more rapidly than we had anticipated and we’re finding some very interesting things.

So the quick answer is no with the explanation I just gave.

Bob Huginr

As to the market share of Rev, again, we have third party research. We don’t get market share data from Rev or S.T.E.P.S. assist; RevAssist or S.T.E.P.S., we just get from the Myeloma indication. We don’t get the stages disease, but the market share just continues to show very strong growth for Rev, across Myeloma, especially in the first and second line indications. To be more specific than that, my commercial colleagues would have a big problem with me.

Operator, we have time to take one more question, please.


We’ll take our last question from Eun Yang with Jefferies.

Eun Yang - Jeffries

Thanks very much. Question on CLL; the anti-CD23 product in combination with (inaudible) product actually hasn’t shown quite good of a complete response. Question to use is that Revlimid as a single agent, is there any specific response or complete response rate that you would like to see or consider as compelling?

David Gryskar

In terms of –Well, let me go back. Most of the Revlimid trials that have been initiated or are being initiated are single agent trials. What we’re now doing also, as one should with every hematology oncology agent, is combining it with other entities including antibodies. We’re even seeing higher response, as Bob indicated, is certainly that’s been demonstrated in NHL with the ADCC synergy with antibodies.

So, the kinds of responses we’re getting are relatively high in percentage. I don’t want to pick a target in terms of the number of percent; what we’re looking for, etc. But we are getting complete responses and simulations. We are getting complete molecular responses as a single agent. I expect a lot more data coming out on this, but I’m pretty excited by this.

We don’t, sort of, have a target. The reason is is, as that the FDA will tell you when you sit down and talk to them, is what are compelling results; well, if you show them to us we’ll tell you if they’re compelling. But we think we’ve got a shot at indeed having compelling results in this patient population based on the biological activity of this compound and what we’ve seen.

Bob Huginr

So, I guess, this will be our last question; Eun’s question. Thank you again for joining the call. Thank you for your great questions. We look forward to our October 27th conference call to give you the third quarter results. At this point we’ll call and end the call right now, Operator. Thank you.


Thanks to everyone for joining us. This concludes today’s conference. You may now disconnect.

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