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Executives

Tim Smith - Senior Director Investor Relations and Corporate Communications

Lonnie Moulder - Chief Executive Officer and President

Bill Spengler - Executive Vice President and Chief Financial Officer

Mary Lynne Hedley - Executive Vice President and Chief Scientific Officer

Eric Loukas - Executive Vice President, Chief Operating Officer and General Counsel

Analysts

Jim Reddoch - Friedman, Billings, Ramsey & Co.

Eric Ende - Merrill Lynch

John Sullivan - Leerink Swann

Chris Raymond - Robert Baird & Co.

Joel Sendek - Lazard Capital Markets

Geoff Meacham - JPMorgan

Katherine Kim - Banc of America

Philip Gross - Adage Capital Management

Eric Vieira - Majestic Research

MGI Pharma Inc. (MOGN) Q3 2007 Earnings Conference Call October 17, 2007 5:00 PM ET

Operator

Welcome to MGI Pharma’s Third Quarter 2007 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following the prepared remarks, there will be a question-and-answer session. Please be advised that this call is being recorded at MGI Pharma's request.

Now, I will turn the call over to Tim Smith, Senior Director of Investor Relations and Corporate Communications at MGI Pharma. Please go ahead.

Tim Smith

Thank you, Matt, and good afternoon. Welcome to MGI Pharma's third quarter 2007 financial results conference call. I am Tim Smith, Senior Director of Investor Relations and Corporate Communications.

With me on today's call are Lonnie Moulder, our President and Chief Executive Officer; Bill Spengler, our Executive Vice President and Chief Financial Officer. Dr. Mary Lynne Hedley, our Executive Vice President and Chief Scientific Officer; and Eric Loukas, our Executive Vice President, Chief Operating Officer and General Counsel.

We hope you have all had a chance to review the news release we issued this afternoon, which we will discuss during this call, and then we will open it up for questions.

I want to remind everyone that during this conference call we will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These may include statements regarding: intent, belief, or current expectations of the company and its management.

These forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that may cause the company's actual results to differ materially from the results discussed in these statements.

Factors that might cause such differences and other risks and uncertainties are detailed in the company's filings with the Securities and Exchange Commission, including our most recently filed forms 10-K and 10-Q. The information in this conference call related to projections or other forward-looking statements represents the company's best judgment as of today, Wednesday, October 17th, 2007.

While a recording of this call will be made available on our Corporate website for a limited period of time, the company does not assume a duty to update any of these forward-looking statements to conform them to actual results.

Now that I have covered these items, I will turn the call over to our President and Chief Executive Officer, Lonnie Moulder. Lonnie?

Lonnie Moulder

Thanks, Tim. Good afternoon. Thank you for joining us to discuss the strong operating results we have reported for the third quarter.

I will review product sales performance and provide an update on our product franchises in the MGI Pharma development pipeline. Bill Spengler will then discuss in more detail our third quarter financial results, and review our updated 2007 financial guidance. We will then open up the call for questions.

Total revenue for the third quarter was $112.5 million and included $66.3 million of Aloxi sales and $34.6 million of Dacogen sales. We are extremely pleased with the combined sales performance of these marketed brands and the accelerating profitability of our business for the third consecutive quarter.

In addition, the MGI Pharma team made significant progress on the regulatory front during the third quarter, as we submitted the Aquavan new drug application, were notified of the FDA acceptance of a supplemental NDA for Aloxi for the treatment of postoperative nausea and vomiting, or PONV, and received FDA approval of an sNDA that allows for multiple doses of Aloxi in association with multi-day chemotherapy regimens.

These regulatory milestones represent the collective efforts of numerous MGI Pharma associates, and I truly appreciate their hard work and dedication to achieving timely completion of these corporate objectives.

Turning to a discussion of our marketed products, I will begin with Aloxi. A best-in-class product and the only 5-HT3 receptor antagonist approved for both acute and delayed chemotherapy-induced nausea and vomiting or CINV in patients undergoing the most commonly used chemotherapy regimens.

Aloxi sales quickly rebounded this quarter from the transient disruption in the CINV market, increasing 37% versus the second quarter. While we expected sales to grow due to Aloxi's differentiated profile and our dominant share of voice in the marketplace, we are extremely pleased with the sales results during the third quarter.

In addition, we see a substantial opportunity for capturing market share that GlaxoSmithKline took from the older agents in the class over the past several years as they heavily discounted Zofran. The MGI associates working in the field and our offices and supporting the Aloxi brand are doing a great job.

As I mentioned earlier, this quarter the FDA approved an sNDA for Aloxi that included the removal of a dosing recommendation from the products label, which limited Aloxi use to once per seven-day interval.

Physicians are now able to prescribe repeated doses of Aloxi for cancer patients receiving multiple-day chemotherapy regimens. Multi-day chemotherapy regimens frequently used to treat lung, colon, and testicular cancers and hematologic malignancies can present a significant challenge in preventing nausea and vomiting due to the overlap of the acute and delayed phases of CINV.

This Aloxi label change opens up approximately an additional 10% of the CINV market that the prior label restricted us from penetrating.

Finally, we also see an opportunity to expand the Aloxi CINV franchise through the launch of an oral formulation. An sNDA for oral Aloxi capsules will be submitted to the FDA this quarter. For reference, oral formulations of 5-HT3 receptor antagonists represent approximately 10% of the day of chemotherapy market, but Aloxi has not yet been able to participate in this market. We continue to see the peak sales opportunity for Aloxi for CINV in the $500 million range.

During the third quarter, the FDA accepted for review the sNDA for Aloxi for the treatment of PONV and a PDUFA or Prescription Drug User Fee Act goal date of March 4th 2008 was established.

Data from study PALO-04-07, one of the two Phase III trials that form the basis of the NDA submission, were presented last Saturday at the Annual Meeting of the American Society of Anesthesiologists, or ASA.

Complete response rates, defined as no emesis and no use of rescue medication for those selected dose of Aloxi 0.075 milligrams, were significantly higher during the 0 to 24 and 0 to 72-hour time periods following surgery.

Similarly, results for study PALO-04-06, a second Phase III trial, show that the 0 to 24 and 0 to 72 hour complete response rate end points for the selected dose of 0.075 milligrams were achieved.

If the sNDA for Aloxi and PONV is approved by the FDA, we would expect to launch Aloxi in the PONV setting during the second quarter of 2008 with a newly established acute care field force.

We believe this field force would be promoting a differentiated product in Aloxi and its longer activity and efficacy will benefit patients in this setting. The addition of a PONV indication will also bring synergy to our CINV promotional activities in the hospital settings, allowing us to further accelerate our market penetration.

The PONV opportunity includes nearly 16 million surgery patients who receive an anti-emetic on a prophylactic basis annually in the U.S. In a large prospective observational study conducted last year in nearly 400 patients receiving standard of care, results show that many patients experience a significant level of nausea and vomiting in the first six hours following surgery, and also in the 72-hour period following surgery.

These data demonstrate that there is an ongoing need for effective agents that can improve control of both nausea and vomiting for the 72-hour period following surgery. Currently available treatment options are short acting, and none have been shown to provide longer-term relief.

Aloxi's unique pharmaco dynamic profile and extended duration of activity will enable dosing prior to surgery and could prevent PONV for up to three days with a single dose, potentially addressing a very significant unmet need in this large market. If approved by the FDA, we believe the PONV indication for Aloxi may add up to $250 million in peak sales in addition to the $500 million associated with the CINV indication. Aloxi for PONV would become the first of two new product launches for an expanded acute care field force in 2008.

I will now turn to Dacogen. Sales of Dacogen during the third quarter of 2007 totaled $34.6 million, representing 15% sequential growth versus second quarter sales of $30.2 million. End user demand is strong. We believe the success of Dacogen is due to the clinical benefit that it provides the MDS patient - a rapid time to response and a manageable side effect profile.

Dacogen is viewed by many clinicians as the more potent hypomethylating agent which, in terms of clinical experience, has been seen as translating into patients more quickly attaining a clinical response. According to data from IMS, Dacogen has achieved approximately a 50% market share of the hypo hypomethylating class of agents.

We continue to manage a broad clinical development program for Dacogen together with our partner, Janssen-Cilag. The Phase III EORTC survival trial in advanced MDS patients is fully accrued and we expect top-line data will be available in early 2008.

Our Phase III survival trial in AML continues to accrue patients, and numerous Phase I and II trials in MDS and AML, including maintenance therapy studies, combination studies, and trials in other malignancies are ongoing.

We look forward to an exciting American Society of Hematology, or ASH meeting in December where numerous Dacogen data presentations will occur.

Turning now to Aquavan, a sedative agent being evaluated in patients undergoing short surgical or diagnostic procedures, we submitted an NDA in September. The basis of the NDA includes results from three pivotal trials of Aquavan: a Phase III trial in patients undergoing colonoscopy; a Phase III trial in patients undergoing bronchoscopy; and an open label study of Aquavan in patients undergoing a variety minor surgeries. The primary goals of these studies were to demonstrate the safety and the efficacy of Aquavan in a variety of short procedures.

We have discussed previously the colonoscopy trial met its primary endpoint of sedation success with a P-value of less than 0.001. The safety profile of Aquavan in this study was predictable with no manual or mechanical ventilation required for any patient in the study. In addition, Aquavan demonstrated an advantage in recovery of cognitive function, or clearheaded recovery, following the procedure.

This is an important parameter that may help to differentiate Aquavan in the marketplace by enabling patients to more quickly resume normal function and improve through-put in the colonoscopy or procedure suite. A quicker recovery from sedation benefits patients, may reduce a patient's time in the recovery room and requires fewer resources.

Similarly, the bronchoscopy trial met its primary endpoint of sedation success with a P-value of less than 0.001 as well as all secondary end points. The safety profile of Aquavan was predictable and similar to the safety profile of the control arm. Results of this trial will be more fully presented at CHEST 2007, the annual conference of the American College of Chest Physicians in Chicago this weekend.

To summarize, we believe the pivotal program results described an effective sedative agent with solid safety across a spectrum of patients and common procedures that do not require monitored anesthesia care sedation. If approved by the FDA, we expect to launch Aquavan during the second half of 2008 with an expanded acute care sales force that will focus on Aquavan and Aloxi in the PONV setting.

Aquavan will likely be the only product being promoted in the moderate sedation setting. Its rapid onset of action, high rate of sedation success, rapid clearheaded recovery, and predictable safety profile will serve as significant differentiating features versus other agents.

As for the market opportunity for Aquavan, we believe Aquavan could add at least $400 million in peak sales to our top-line. We estimate there are more than 40 million procedures per year in the U.S. requiring moderate sedation with gastrointestinal procedures encompassing approximately one-half of this total.

Finally, our R&D portfolio is progressing well. We expect our pivotal trial for amolimogene in patients with high-grade cervical dysplasia to be fully accrued by the end of this week. While prophylactic vaccines are now available for the prevention of human papilloma virus infection, we estimate 1.2 million patients per year will develop cervical dysplasia in the U.S.

Recent published data confirms that HPV prophylactic vaccines are not effective in patients who have been exposed to the virus. Amolimogene is being developed as a therapeutic to treat cervical dysplasia and could provide an alternative to an invasive surgical procedure.

AKR-501, an oral small molecule thrombopoietin mimetic, is currently being evaluated for the treatment of idiopathic thrombocytopenic purpura or ITP in a randomized double-blind placebo-controlled Phase II study. Approximately 65 patients with chronic relapse refractory ITP will receive daily doses of placebo or AKR-501 at doses of 2.5, 5, 10, or 20 milligrams for 28 days.

End points for this study include the proportion of patients who achieve platelet counts greater than, or equal to 50,000, the proportion of patients who achieve a platelet count greater than or equal to 100,000, and the proportion of patients who double their platelet count. We are also preparing to initiate Phase II clinical trials of AKR-501 in hepatitis induced thrombocytopenia and chemotherapy induced thrombocytopenia over the next several quarters. We look forward to updating you in the future regarding the progress we are making with this exciting product candidate.

Regarding the ZYC 300 Phase I, II program for patients with solid tumors, the initial enrollment target of 20 patients has been met and, due to encouraging initial clinical activity, the investigators have requested that additional patients be enrolled. We expect to enroll these patients by the end of the year and to initiate a Phase II trial of ZYC 300 during 2008.

These focused R&D investments, along with lifecycle initiatives for Aloxi and Dacogen, will provide a foundation for longer-term growth. With that, I will turn the call over to Bill who will review our third quarter 2007 financial results and our 2007 guidance. Bill?

Bill Spengler

Thank you, Lonnie, and good afternoon everyone. Before I begin, I would again ask that you please keep in mind that our adjusted disclosure is a non-GAAP presentation. And as a result, I direct your attention to the reconciliation schedules that accompany our earnings release for more specific information. During the call, I will primarily be referring to period comparisons using the adjusted numbers. I will then also identify and briefly compare GAAP information, particularly when referring to operating profit and net income results. With that, I will turn to the numbers.

Beginning with the P&L, total revenue in the third quarter was $112.5 million compared to $97 million in the third quarter of 2006. Total revenue, therefore, grew year-on-year by 16%, primarily due to the inclusion of Dacogen sales, following its commercial launch in the second quarter last year. Total revenue also grew by 21% over the second quarter of 2007. Aloxi sales in the third quarter were $66.3 million, representing a 37% sequential increase over the prior quarter.

Our net selling price or NSP for Aloxi vial rose to the mid-120s, up from approximately $120 per vial in the second quarter. A primary factor contributing to the increase in Aloxi's NSP is the ongoing reduction in the level of quarter-end discounts being offered. These reductions are also serving to continue the leveling of revenue achieved month-by-month during a quarter. Also noteworthy, Aloxi's inventory held at the distributor level declined quarter-on-quarter.

During the third quarter, sales of Dacogen totaled $34.6 million, representing a 15% sequential quarter-on-quarter growth. This result contains a $1.9 million reversal of deferred revenue related to a program, which began in the second quarter of last year to support the initial launch of Dacogen.

Finally, sales of Gliadel were $8.4 million in Q3 and therefore, in summary, we have very favorable revenue results to report this quarter. Adjusted gross margin in the quarter was $76.3 million, or 68% of product sales, versus $63.1 million, or 65% of product sales in the third quarter of 2006. The approximately 3% of sales improvement in the margin ratio year-on-year was primarily due to product mix, in particular, the inclusion of the relatively higher margined Dacogen revenue.

Adjusted selling, general administrative expenses were $34.4 million in the third quarter compared to $36.1 million during the same period last year. This year-on-year decline is largely attributable to the controls in place over our selling and general administrative expenses. Adjusted research and development expenses for the quarter were $16.7 million compared to $20.5 million in the third quarter last year. This $3.8 million year-over-year decline is largely the result of having concluded certain clinical trials that were ongoing at this time last year, and also due to the restructure activity undertaken at the end of 2006.

On an adjusted basis, this quarter our operating income was $25.2 million, a nearly four-fold improvement over the adjusted operating income of $6.6 million reported for the same period in 2006, and an increase of $13.9 million or more than double that reported in the second quarter of this year. Also on an adjusted basis, our net income in Q3 was $24.8 million or $0.30 per diluted share, compared to a net income of $5.8 million or $0.07 per diluted share for the same period in 2006. This result also represented a $0.17 per share improvement over Q2 of this year.

This significant increase in adjusted net income and adjusted earnings per share, whether compared to the preceding quarter or compared to the same period in the prior year, reflects the P&L leverage inherent in the MGI business model. We expect this leverage to become even more apparent in the coming quarters, as revenue growth continues to outpace expense growth. Again, our adjusted disclosure is a non-GAAP presentation and I direct your attention to the reconciliation schedules I mentioned previously.

I will now turn briefly to a discussion of our results under U.S. GAAP. GAAP product gross margin totaled $74.3 million or 66% of product sales in the third quarter, compared to $62.1 million or 64% of product sales in the third quarter last year. The margin improvement on this accounting basis occurred for similar reasons to those identified in our comments on our adjusted results.

GAAP SG&A expenses totaled $38.7 million for the third quarter compared to $38.4 million in Q3 2006, while GAAP research and development expenses totaled $22.8 million in the third quarter compared to $21.2 million of R&D expense in Q3 of 2006. GAAP R&D in the current quarter contained a $5 million milestone payment to HELSINN, related to the FDA's acceptance for filing of the sNDA for the PONV indication of Aloxi.

MGI reported GAAP operating income $11.2 million in the third quarter, and a GAAP net income of $10.9 million or $0.13 per diluted share. This compares to operating income of $2.6 million and net income of 1.7 million or $0.02 per diluted share in the third quarter of 2006.

I will now briefly overview our year-to-date results. For the nine months ended September 30, 2007, total revenues were $288.8 million compared to $262.4 million during the same period last year. Total revenue, therefore, grew year-on-year by 9%, despite the transient pressure on Aloxi in the first half of the year, and primarily due to the inclusion of Dacogen following its commercial launch in late Q2 of 2006.

On an adjusted basis, combined SG&A and R&D expenses for the first nine months of 2007 were $153.7 million, compared to $166.8 million during the same period last year. We continue to be well positioned to achieve our full-year expense guidance on an adjusted basis. Our year-to-date gross margins have also improved.

Product gross margins on an adjusted basis for the first nine months of this year totaled $199.5 million or 69% of product sales, which compares with $170.7 million or 65% of product sales in the first nine months last year. As we have discussed in the past, the addition of Dacogen and increased revenue on higher margin Gliadel are beneficial, as is the elimination of the Guilford legacy product Aggrastat from our product mix.

Adjusted net income for the first nine months of 2007 was $45 million or $0.55 per diluted share, compared to an adjusted net income of $1.7 million, or $0.02 per diluted share during the same period last year. We also achieved profitability on a U.S. GAAP basis for the first nine months with net income of $13.7 million or $0.17 per diluted share.

I will now turn very briefly to our balance sheet. Cash and marketable debt securities at the end of the third quarter were $166.5 million compared to 4127 million at the end of the third quarter of 2006, approximately $5.4 million than at the end of Q2 this year.

Although partly offset by incremental cash collections after quarter end cut-off, our cash balance was reduced by $%45 million last week as we funded closing payments related to the exclusive license to develop AkaRx products and the opportunity to eventually exercise an option to acquire 100% of the company. In light of the size of this business opportunity, we are extremely pleased to have concluded this transaction.

I will now review our 2007 financial guidance on an adjusted basis. As we approach the end of the year, we continue to be confident in the 2007 financial guidance provided in August during our conference call to discuss the development and license agreement with AkaRx.

We therefore continue to anticipate adjusted SG&A expenses this year of approximately $140 million to $145 million and adjusted R&D expenses of approximately $73 million. We also continue to anticipate positive adjusted operating income. At this point, we see Dacogen sales of least 115 million for the full year, and we continue to see single-digit growth in Gliadel.

Turning to Aloxi, at this early point in the quarter, we now expect approximately a 10% sequential growth in fourth quarter revenue when compared to the third quarter. Finally, please once again note that this adjusted guidance commentary excludes amortization of intangibles, non cash stock compensation expense, license and milestone payments, charges related to restructuring under the plan that we announced last year, and in-process research and development charges, IP R&D, related to the AkaRx transaction.

With that I will turn the call back over to Lonnie.

Lonnie Moulder

Thank you, Bill. We will now open up the call for questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Jim Reddoch from FBR.

Jim Reddoch - FBR

Well, good afternoon and nice quarter. A couple of quick questions on Aloxi. Where do you think you exited the quarter, market share-wise? I believe you said before that you have thought you were around 40% market share, maybe headed to as high as 60% market share. Where are we now on that trajectory?

I believe, Bill, you said that the inventory was drawn down over the quarter. Had it been overstocked or was it above the mean level exiting Q2 such that you are now below the mean level? How does it look? Thanks.

Lonnie Moulder

Tim, I will talk to the market share question. The market share that we last discussed was approaching 40% overall. We will have in a few weeks the September IMS data, and we need the monthly data in order to compare how we are doing to the other agents in the class. We do get weekly data, but that is only on our own drug.

So I will not be able to update market share for exiting the quarter until we have that October release of IMS data for the month of September. And as far as the 60% share, that is the share that we believe we can grow this franchise to for CINV in the IV and the oral formulation with approximately 6 million -- just over 6 million annual day of chemotherapy doses with about a 60 share. That would give us sales at our anticipated pricing in excess of 500 million at peak, again, for CINV.

Bill will address your other question.

Bill Spengler

Yes, Jim. Actually, the inventory level really came down at the distributor level by about 10 days or so. Both numbers are within normal range. We have an agreement with our distributors that they will not hold more than approximately a month's worth of inventory. They were approximately at that level at the end of the preceding quarter. They are running right down and closer to the two-week level, right now. It has to do with the improved level of revenue during the period.

Jim Reddoch - FBR

So there was no buy-in in advance of the change in reimbursement?

Lonnie Moulder

There was not. And, Jim, there is no need for them to do that. They can get product within 48 hours from us.

Bill Spengler

Okay, fair enough. I will not take all of everybody else's questions but I have one more on the Dacogen Guidance, which looked kind of interesting. Do we need to know anything about how September looked? Because all we have seen are numbers from July and August but those were months that seemed to be tracking for something better than what your guidance implies for the fourth quarter. Certainly, if it is at the 115 level. I guess you said more than 115, but that was September up from August. We will start at that. Thanks.

Lonnie Moulder

Demand continues to grow for the brand, Jim.

Bill Spengler

And we did adjust at least the comment to at least 115, which I think is reflecting some of the thinking you are putting across.

Jim Reddoch - FBR

Okay. Fair enough. Thanks.

Operator

Our next question comes from Eric Ende from Merrill Lynch.

Eric Ende - Merrill Lynch

Thanks. I have a bunch of Dacogen-related questions. You said that you guys had 50% share of hypomethylating agents. Is that dollar share or script share? Because I think you used to have 55%.

Lonnie Moulder

Eric, we say approximately 50%. The IMS dollar share last reported was over 50%. I was just rounding that. It is approximate. Our actual patient share and it is a bit complicated to do this. You have to make some assumptions, assuming what the actual dose is, that a patient will get, how many vials, and you track the vials with IMS. Our actual patient share is probably just under 50%. So that is what we have been saying. I am just confirming that. Overall, it is about a 50 share.

Eric Ende - Merrill Lynch

Bottom line is you have not lost share. You are not implying that, are you?

Lonnie Moulder

No, not at all.

Eric Ende - Merrill Lynch

You also said there was a reversal of something for one point something million. Can you just repeat that?

Bill Spengler

Yes. It was a deferred revenue item really from last year. I think we spoke to this at the time of launch. We said that for a select group of doctors, and this was initially to encourage trial.

In the event that there were not reimbursement through Medicare for the use of Dacogen we would, in effect, provide the product to them. We would reimburse them for what they had paid on the products.

Now, under the accounting rules, that required us to wait to recognize that revenue until we could validate that no one had actually redeemed under that program. In the entire year, there has only been five vials redeemed related to that. That was awhile ago, so it took us this period of time to validate no history of having any redemption.

Therefore, in this quarter that $1.9 million that had previously been deferred could be brought into the revenue line. Hopefully, that made sense.

Eric Ende - Merrill Lynch

Yes. Basically, what you are saying is demand was $1.9 million essentially?

Bill Spengler

Yes. I will say ex-factory was that.

Eric Ende - Merrill Lynch

Can you guys talk about if you are actually seeing market expansion within the hypomethylating agents now?

Lonnie Moulder

Eric, clearly since we launched the drug there has been significant market expansion that is continuing. If you recall, at the time we launched, we estimated approximately 20% to 25% of the eligible patients with MDS were receiving a hypomethylating agent. That has almost doubled now.

If you are speaking to over the last month or two, have we seen any changes in that trend? No. It continues to grow, and, again, I do not have information on the competitive product for the month of September, only through August.

Eric Ende - Merrill Lynch

Just quickly, stock option expense, what is the expectation for 2007?

Bill Spengler

We have not actually provided guidance in the reconciling items. I would say that you could take what you are seeing as Q3 numbers, which are disclosed at the back, and add that in for Q4. So it would be approximately a $25 million kind of number, full year.

Eric Ende - Merrill Lynch

I appreciate it.

Operator

Our next question comes from Howard Liang from Leerink Swann.

John Sullivan - Leerink Swann

Hello, this is actually John. I am filling in for Howard. I just have a quick question about the inventory levels. I know that the suppliers can get them very quickly, and now the levels are around two weeks. Do you see any anticipate any change in that? Do you think it will maintain it to around the two-week area or fluctuate somewhere between that in the one month time frame?

Lonnie Moulder

In the oncology marketplace, the distributors are able to obtain the product quickly. They then need to quickly be able to ship the product off to the clinics, because many of the clinics want to put in an order two or three times a week and just have the drug available for when the patients come in. They can predict that.

So the agreements we have with our distributors allows up to a month of inventory. Now, what is a month? Well, it depends on what your sales trends are and looking back and estimating what the month is.

Since our sales trends for Aloxi are up - significantly up - an amount of Aloxi that might be similar to what has been held in the past is actually less days of inventory. I am sure you could see how that works.

But actually the amount of units ending the third quarter in the distribution channel was less than the end of the second quarter, which was about a month. So those are the factors.

Having about two or three weeks is reasonable. A product like Dacogen actually has just under two weeks, but it is a much more expensive product. So we would anticipate that the distributors will keep something clearly under a month, but more than a week. That may fluctuate from time to time.

John Sullivan - Leerink Swann

Very good. The intra quarter distribution of Aloxi sales, I know you made a comment that it has been greatly reduced, or flattened, due to the reduction of end-of-quarter discounts. Do you see any more change, or is it only a little bit more adjustment for that? You think it will stay similar to what you saw this quarter going forward?

Lonnie Moulder

There will be changes over time into the future, as you look at contract changes, pricing changes. So there's always going to be a little bit of volatility, but not nearly what had occurred when we had the competitive rebating program versus Glaxo.

What you will see in the third quarter is about what you will see going forward. Of course, again, we are on an upward trend with the product. So each month in a quarter, and each quarter will be up over what had been seen previously.

John Sullivan - Leerink Swann

Very good. The same thing with - I think you answered this - with Dacogen. Again, the inter-quarter sales trends with that drug, because it is, again, a similar sort of thing, because it is still progressing. Are you just seeing steady increase, or is there, again, a weighted month at the end of the quarter?

Lonnie Moulder

There is some volatility with Dacogen, but it is not a pattern that one could discern. If you go back and look at the end user demand, you will see months that are a great acceleration over prior months, and then maybe a month or two at about a stable level at a new plateau, and then another month of acceleration, and then stable for a month or two.

That has been the history for the whole class, if you look back at it using either IMS or NDC data. Some of that is related to holidays. Obviously, with the five-day regimen with Dacogen or the seven-day regimen with the other agent, the Thanksgiving week, the Christmas week is a bit lower than a typical week. I think if you look back at the data it really stands out.

John Sullivan - Leerink Swann

Very good. Thank you very much.

Operator

Thank you. Our next question comes from Chris Raymond from Robert Baird & Company.

Chris Raymond - Robert Baird & Company

Thanks for taking the question. I just wanted to understand a little bit about the R&D number. Back about month and a half ago I guess you guys raised your R&D spending guidance. If you touched on this I apologize, but I was a little surprised that the R&D number was as low as it was this quarter. Can you talk a little bit about that? Should we expect a big step up in fourth quarter? And what is driving that, if so?

Lonnie Moulder

Well, we did talk about that actually. We discussed it when we discussed the AkaRx transaction in August. We are bringing in at this point the ongoing costs of the existing Phase II trial and we are gearing up for two other Phase II trials. So the run rate does not, in the past, include bringing in that expense base. So that is a change from the run rate. In addition, we aad previously been studied ceed the full year estimate.

Chris Raymond - Robert Baird & Company

So 73, right?

Lonnie Moulder

Correct, that is the number we have out there.

Chris Raymond - Robert Baird & Company

Great. Also after this transaction, I think you mentioned that you had a $45 million step-down, which I think brings your cash - if I do the math - to about $120 or so. Is that correct?

Lonnie Moulder

Assuming all other things being constant, that would be correct.

Chris Raymond - Robert Baird & Company

Right. Can you comment a little bit about the adequacy of that cash going forward in terms of need for new financing et cetera?

Lonnie Moulder

Yes, wholly adequate. We are showing operating cash flow profitability, we are generating cash as our receipts go up related to increased Aloxi and Dacogen revenue. We have no change in terms as a result. We are just collecting more cash. Our expense base is under control. Payables are under control.

We have a line of credit, should we need it, a revolver available to us for up to $75 million. So there really is absent a significant transaction of some kind which we do not foresee in the near term. There is absolutely no need for an incremental financing.

Chris Raymond - Robert Baird & Company

One final question. What was Gliadel revenue this quarter?

Lonnie Moulder

$8.4 million. I think I mentioned that in my comments.

Chris Raymond - Robert Baird & Company

Okay. Thanks.

Operator

Thank you. Our next question comes from Joel Sendek from Lazard Capital.

Joel Sendek - Lazard Capital

Thanks. I have a bunch of questions. First of all, on Aquavan, can you tell us what the PDUFA date is?

Lonnie Moulder

Joel, the submission occurred at the end of September, and we are in that period of up to 60 days before we will hear back on the filing of the NDA by the FDA and the establishment of the PDUFA date. But we would assume a standard review, so that is 10 months from the submission.

Joel Sendek - Lazard Capital

Okay. Are you prepared to launch Aquavan immediately once you get the approval?

Lonnie Moulder

Obviously, there is the final packaging that needs to be done, and the shipment into the distribution channel. I would say, though, if it comes right before the Labor Day holiday it is probably best to wait until afterwards. August is not a great time to launch a new pharmaceutical product. So we are targeting late third quarter.

Joel Sendek - Lazard Capital

Okay. Turning to Aloxi real quick, do you know if any Aloxi was used off-label for more than once a week or is that totally a green field opportunity for you?

Lonnie Moulder

There was some use there. Although what we now have are evidence of benefit from CMS carriers for actually reimbursing, at least under CMS, for multi-day chemotherapy regimens with Aloxi. So having that label change is helpful.

Joel Sendek - Lazard Capital

Okay. My last question is on Dacogen. I am wondering if you can give us any feel for the duration of therapy, whether that has changed at all.

Lonnie Moulder

That is a good question. I have been challenged to clearly identify a quantitative data source to land on what the number of cycles are per patient. We know since launch, it has gradually moved up and is it in the 4-plus range now. Probably. That is the best I can do.

Joel Sendek - Lazard Capital

Okay. Thanks a lot. That is all.

Operator

Thank you.

Lonnie Moulder

Next question.

Operator

Our next question comes from Geoff Meacham from JPMorgan.

Geoff Meacham - JPMorgan

Hi, guys. Congratulations on a good quarter.

Lonnie Moulder

Thanks, Jeff.

Geoff Meacham - JPMorgan

Question for you, just a follow-up to Joel's question on Dacogen. I think the ERTC protocol is, formally, treatment up to eight cycles for Dacogen. Do you have any sense for what percent of patients commercially can tolerate that in your experience so far?

Lonnie Moulder

Tolerating it is something. As the MDS patients start to have their marrow recover, they do fine with hypomethylating agents. It is usually the first cycle or two that are tough. Once they get through that, in each subsequent cycle some patients may have a drop in count. One of the reasons why so many more patients are receiving these agents is that the clinicians understand that now, and they just manage them through what might be a small drop in counts immediately after a cycle. So tolerating the drugs is not the issue in the long term.

There are patients that, on any chemotherapy regimen over time, can become fatigued just with the process of going in for chemotherapy. That is probably a bigger issue. Obviously, now that there is more and more discussion about survival benefits with this class of agents, and the physician being able to educate the patient that the additional cycles are important, yes, their counts may be more normal, and the blast cell counts are down, so they are less likely to progress to leukemia with less cycles. But for a survival benefit, more cycles are beneficial and that will be helpful for clinicians to talk to the patients to allow them to stay on therapy. I know of situations where patients have been on therapy for over two years, meaning more than 20 cycles.

Geoff Meacham - JPMorgan

Thanks. That is really helpful. Just a question on Aloxi. What is your guidance imply, your sequential guidance imply for NSPs and how are you guys thinking about that as we go into 2008?

Lonnie Moulder

When we launched the drug, you may recall this, the net selling price that we recognized per vial of Aloxi was close to 140. After the rebating program that Glaxo put in place - that we then countered - beginning two and a half years ago, our net selling price has degraded, along with Medicaid rebating that became greater than what was initially anticipated.

So, we came down to, actually in the fourth quarter of last year, below 120, into the low teens, and then most recently we have been in the 120 range. This quarter we are back up to the mid-120s and we see this fairly quickly getting into the 130s. We will have to give you specifics on that quarter-by-quarter, though.

Geoff Meacham - JPMorgan

Okay. Thanks.

Operator

Thank you. Our next question comes from Katherine Kim from Banc of America.

Katherine Kim - Banc of America

Hi. Can you hear me?

Lonnie Moulder

Yes, Katherine.

Bill Spengler

Yes, we can.

Katherine Kim - Banc of America

Okay. My first question is on the Dacogen guidance of at least 115. Obviously, there is upside there, but is there anything specific that you are seeing in the marketplace or anything for why you are not actually raising the number?

Leon Moulder

There is really nothing specific I think in trends that exist now or we foresee existing in the fourth quarter. The only thing that is critical to remember, which is why we are a little circumspect, is that we have - as Lonnie mentioned before - just a slowdown in use over a Thanksgiving and Christmas kind of a period, which is just a seasonal effect that maybe we are being prudent to try to keep in mind.

Katherine Kim - Banc of America

Okay. For the EORTC phase III trial on the survival trial, you said that you expect top line in early 2008. Are we talking somewhere in the first quarter?

Leon Moulder

Katherine, with the survival trial, that is event-based. We can not project that to the specific month. Early means it is in the first half of the year.

Katherine Kim - Banc of America

Okay.

Leon Moulder

We would anticipate it coming sometime probably prior to ASCO, but we will not be able to give you more information until we get that information from the EORTC.

Katherine Kim - Banc of America

Okay. Could you just talk about the status of the AML study? When do you expect to complete enrollment and when do you think you can have data?

Leon Moulder

The global AML survival trial, this is the trial in elderly AML patients with poor cytogenetics, 480 patients in total. The enrollment will complete by yearend next year. Then the patients are followed for one year, but again, the enrollment will complete next year at the end.

Katherine Kim - Banc of America

Okay. All right. Thank you.

Operator

Our next question comes from Phillip Gross from Adage Capital Management.

Phillip Gross - Adage Capital Management

Hi everybody. Just a couple of questions. You had mentioned that you are getting some leverage on the P&L and that that should continue through the ensuing quarters. Should we expect that essentially in every quarter next year, and/or for the year 2008, given the sales force ramp and the preparation for launch of Aquavan and Aloxi PONV?

Leon Moulder

What I would say is that it may not be in all quarters, but it would clearly be for the year. So what happens is you are ramping up the field force in the first quarter, then launching the PONV indication shortly thereafter.

You do not have any revenue coverage on the costs you have in the first quarter. However, offsetting that still in the first quarter is the ongoing growth in both Dacogen and Aloxi. The leverage will not be quite as evident in the first quarter as I suspect it will be in the second and the future quarters, and definitively on a full-year basis.

Phillip Gross - Adage Capital Management

Okay, that is very helpful. A little more specifically as Jeff has raised some questions about that selling price, should we -- I understand it is going to rise over time. The $5 jump is a little more than we were expecting.

How should we -- is there a kind of a natural bump-up because of the transition that is going on, that is kind of a bigger step than we should expect going forward quarter-on-quarter? Or is it the beginning of a ramp that will happen over the next two years?

Leon Moulder

I think there are several factors here. Clearly, we pulled back on some of the level of rebating that existed in the past. We had situations in the past where the Medicaid rebating came in a bit higher than anticipated, and that may have almost artificially depressed the NSP, Phil, and that is now behind us. So, I would see moderate increases quarterly under our new contract.

Philip Gross - Adage Capital Management

And the Medicaid was double dipping for a while. Is that over now, so we are only having single dipping in the NSP? Or are you still reserving for both of the rebate payments that exist?

Lonnie Moulder

Yes, that still occurs, but the actual impact is much lower than it was in the past.

Philip Gross - Adage Capital Management

Okay. A couple of other questions. One is inventories throughout the channel. At the clinic level, are you comfortable? Do you have visibility on where the inventories are at the clinic level as opposed to the distributor level?

Lonnie Moulder

No, we do not have visibility at the clinic level. We do run a lot of the same numbers you guys might be looking at on the trends over time and demand. We just assume that most clinics are not in the business of holding a substantial amount of Aloxi vials. So, no, we do not have crystal clear vision, no reporting mechanism on clinic inventory.

Phillip Gross - Adage Capital Management

But do you feel like those are at normal levels, if not below normal levels?

Lonnie Moulder

I think that is really built into our guidance for Aloxi going forward. But we see growth, and that is true underlying growth, and no impact of how much product clinics may be pulling in. Remember, the significant rebating programs associated with some of the quarterly volatility, or end of quarter volatility are now really gone.

Phillip Gross - Adage Capital Management

Okay. A last question. GAAP EPS versus essentially cash or adjusted EPS. How do you want us to look at that? I noticed that First Call is still using the GAAP EPS in terms of their reporting convention. How do you switch that? Do you guys have to get on the road to convince people, do you want to convince people that cash is the right way to look at you guys? And when do you start paying taxes?

Bill Spengler

That is an interesting question. I think because of significant charges that come in at times for IP R&D. I will give you an example. We will have a $45 million charge in the fourth quarter related to the fact that we have just spent $45 million for the option and the right to develop the AkaRx products. I think, that should be adjusted out of the information because it is a one-time non-attributable charge. It bears no trends to the correlations in the business, and it would confuse the reader.

If you get into questions on stock-based compensation, most people will adjust out that number. The reason is that, as all of us adopted the new rules (123R), we all accelerate investing on prior options. So there are significant changes in stock-based comp as the new layers of grants begin to build into the base and it grows. And depending on your investing period, you peak either at three years or four years from now. Because of that difference, most people like to adjust that out.

Beyond that, you can put a restructured charge in or out. That is an uncommon thing for us, but that is kind of your call. I therefore think the best way to track us in general is by an adjusted earnings number, because it removes the one-offs and gives you an idea of trends in the business. Apart from that than I would take a look at cash, those kind of things, any swings in the balance sheet.

Phillip Gross - Adage Capital Management

How do you get First Call to change their reporting convention? Are you guys involved in that at all?

Bill Spengler

No. I have to pretty much leave that to them. It is not my effort to try to tell them how to take a look at these things.

Phillip Gross - Adage Capital Management

And the taxes?

Bill Spengler

Taxes? Well, we really have, we are not a taxpayer at this point with the exception of minimal state obligations. We do not see that changing in the near term.

Phillip Gross - Adage Capital Management

Meaning throughout 2008 and into 2009?

Bill Spengler

It is possible. As you probably know, you need a series of sequential quarters and then cumulative earnings to be able to get to the point where you become a taxpayer. In that case, that could be - the absolute earliest would be at the end of 2008. It is likely more of a 2009 event for us.

Phillip Gross - Adage Capital Management

Okay. Thank you.

Lonnie Moulder

Thanks, Phil.

Operator

Thank you. Our next question comes from Eric Vieira from Majestic Research.

Eric Vieira - Majestic Research

Thanks for taking the call. Phil asked the question I was really looking for, but maybe to get a little more color on that, you are assuming minus the net sale price increase, you are really looking at about 33% growth quarter-over-quarter with Aloxi. So is it correct to assume then that, as you said, it is pretty much end-user demand driving that growth?

The second question regards to guidance for the fourth quarter. You have 10% quarter-over-quarter growth, and you also made a statement that your expectations for the multiple dosing has a growth opportunity of 10%. Where is that multiple dosing growth - I mean, is that going to be growing over time to get it to a peak sale growth of 10% representing all of Aloxi, or are we expected to see that 10% coming into the second quarter and then, therefore, potential flat growth coming from just other demand for Aloxi? Thanks.

Lonnie Moulder

I am not sure if I am understanding what you are asking. Let me try and clarify this. It sounds as if you are mixing the multi-dose chemotherapy 10% market opportunity with our 10% sequential sales increase as far as guidance, fourth quarter over third quarter. The two are only partially connected. Obviously, if we are sitting at just under a 40% market share overall, on the day of chemotherapy market, which is just over 6 million doses, we have an opportunity to grow in a variety of ways.

We can be growing because of the multi-day chemo regimens, where we have not had as much utilization in the past, but that is only 10% of the overall market. What we are seeing now is some more use there, but clearly just general growth across the entire market of chemo regimens.

A lot of those regimens being those considered more emetogenic, having a higher propensity to cause nausea and vomiting, and clearly there is an opportunity where GlaxoSmithKline had captured almost 20 share points from the old 5-HT3 antagonist in the clinic setting by aggressive contracting. That aggressive contracting changed the economics for the clinics, and that is now gone. So those 20 share points just in general across the market are up for grabs.

In addition in the hospital market setting, where we have actually gained share during the first half of the year, the Glaxo bundle contract no longer exists. It is not an obstacle to us to continue to gain share. So there is a variety of places we intend to gain share as I said before, ultimately towards a 60% share overall. So it is really an accelerating franchise for us right now.

Eric Vieira - Majestic Research

Now, that helps me understand. It will be slower growth, and just coming at a one-time thing. But then, getting back to my first question with regards to-- you obviously have no insight then into end user demand to see what that growth was versus what Phil was discussing about clinic inventory levels?

Lonnie Moulder

Yeah, we have insight into end user demand. We cannot be precise with any number, but it is extremely strong. Thanks. Last question.

Operator

Our final question comes from Jim Reddoch with FBR.

Jim Reddoch - FBR

A quick follow-up, if I could on what we might see at ASH. Is the adopt data going to be an oral presentation? Will there be survival? It seems like I had heard that SuperGen had been saying that there might be survival, so I was confused on that, even in terms of survival? Also, will there be a median number of cycles in the adopted day-to-day? Thanks.

Lonnie Moulder

The ASH presentations are not yet publicized by ASH. As you know, the investigators and the authors receive notification - and most of them have by now - but it will not be until early November where that is public. So it is not appropriate for us to be discussing that until ASH puts that forward. We will then communicate what we know.

Adopt was submitted as an abstract - I can share that with you - and the Adopt trial was the five-day dosing every 28-day regimen that had previously been studied at a single institution. That study is really looking at clinical responses in order to add that dosing regimen to a label that currently exists based on a response rate employed for Dacogen in a randomized Phase III trial.

So that study looks at responses in a single-arm trial. Obviously, over-time-survival will be tracked for those patients, but it is not a head-to-head trial - it is not controlled. There will be data that we would hope to see at ASH based on a number of presentations and other MDS studies, AML studies, combination use, and looking at survival in MDS. But as we get into November, and that becomes public, then we will share with everyone what the data presentations will be, what form they will be in, what day, what time, all of that.

Jim Reddoch - FBR

Okay.

Lonnie Moulder

All right. Well, thank you, everyone. We have a number of key milestones ahead of us related to our commercial franchises and our pipeline this year, and we look forward to updating you. Have a great evening.

Operator

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

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