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Celgene Corporation (NASDAQ:CELG)

Q3 2007 Earnings Call

October 25, 2007 9:00 am ET

Executives

David Gryska - CFO

Bob Hugin - President and COO

Sol Barer - Chairman and CEO

Analysts

Ian Somaiya - Thomas Weisel Partners

Geoffrey Porges – Bernstein

Rachel McMinn – Cowen

Sapna Srivastava - Morgan Stanley

May-Kin Ho - Goldman Sachs

Maged Shenouda – UBS

Geoff Meacham - JP Morgan

Mike King - Rodman & Renshaw

Tom McGahren - Merrill Lynch

Yaron Werber – Citi

Mani Mahendru - Credit Suisse

Mike Aberman - Credit Suisse

Operator

Good morning. My name is Audrey, and I will be your conference operator today. At this time, I would like to welcome everyone to the Celgene Quarterly Conference Call. At this time, all lines are in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions)

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

David Gryska

Thank you. Good morning, everyone. I am Dave Gryska, Celgene's Chief Financial Officer. And welcome to our third 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 third quarter 2007 financial and operating results was issued earlier this morning and is available on our corporate website.

I will begin the conference call with a review of our third quarter results and financial objectives for 2007. Bob will take you through our commercial, clinical, regulatory and international achievements during the quarter, followed by Sol, who will provide a strategic overview of our global long-term objectives.

Before we begin, we want to remind you that certain statements made during this 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 and other expectations implied by these forward-looking statements. These factors include the result of current or pending clinical trials, our products 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 filings with the Securities and Exchange Commission or referred to in the press release issued this morning.

Now, for the third quarter results. Total revenue for the quarter ending September 30, 2007 rose to $350 million, a 43% increase over the year ago quarter. The increase was a result of our growth from multiple revenue streams lend by an expanding global commercial performance for REVLIMID and strong sales of THALOMID.

Total net product sales increased to $331 million for the quarter, up 48% from $223 million in the year ago quarter. REVLIMID net product sales increased 97% year-over-year to $199 million for the quarter.

Most important, REVLIMID net revenue quarter-over-quarter increased 10%. This is a noteworthy achievement concerning several events that effective sales in the third quarter, including a US inventory drawdown in minimal MDS growth.

It is important to note the official launch of REVLIMID occurred in only one major country in Europe this summer, which was Germany. We still have many more countries to go in the next 12 months.

THALOMID net product sales increased to $111 million compared to $108 million for the same period in 2006, and down modestly quarter-over-quarter from THALOMID net product sales of $117 million.

Revenue from Focalin and the Ritalin family of drugs totaled $15.8 million compared to $17.9 million in the same period last year. ALKERAN net product sales generated $18.9 million compared to $12.2 million in the same period a year ago. In the third quarter, we reported adjusted net income of $124.1 million or adjusted earnings per diluted share of $0.29, representing an increase of 93% over the same period last year.

During the quarter our gross margins expanded 5% year-over-year. For the third quarter, we had gross profit margins of 90%. Moreover, Celgene reported greater than $2.5 billion in cash and marketable securities as of September 30th, 2007, an increase of more than $200 million over the prior quarter. We believe these results reflect both strong sales and efficient operational growth.

As we strive to maximize the full potential of REVLIMID in the broad range of indications worldwide, an accelerated development of our IMiDs compounds, TNF-alpha antagonist compounds such as CC-10004 and other pipeline programs, R&D spending increased to approximately $84 million in the quarter.

Also during the third quarter, we continued to make substantial progress in building our world-class commercial and regulatory organization in Europe, Japan, Australia and Canada to capture our share of these large and growing markets.

While we continue to increase our presence in the global marketplace, Celgene now has operations in more than 40 countries. We are focused on the importance of effectively and efficiently managing our global operational expenses. As a result, for the third quarter we incurred SG&A expenses of approximately $86 million compared to $103 million in the prior quarter.

The reasons for the decrease is that certain of the launch expenses of our European operations as well as donations to patient co-pay assistance programs were lower in the third quarter. We expect SG&A expenses of approximately $93 million to $97 million in the fourth quarter.

While it is difficult to predict timelines and challenges we may face as we pursue price reimbursement and distribution approvals in nearly 30 countries throughout Europe, we are targeting 2007 total revenue to approximately $1.375 billion. Additionally, we expect 2007 earnings growth to approximately double year-over-year, and we are targeting adjusted earnings per share to approximately $1.05.

Celgene has many achieved milestones in the first nine months of this year. Some of the high-profile accomplishments include increasing profitability, strong cash flow, our fifth regulatory approval in less than two years with the approval in Switzerland, significant regulatory filings, global clinical developments, growing volumes of critical clinical data across multiple hematological indications, and expansion into new markets around the world We believe these achievements have positioned Celgene to capitalize on the many global opportunities before the company in the months and years to come.

Now, I will turn the over to Bob who will expand on those opportunities.

Bob Hugin

Thanks, Dave. The results of the quarter were very positive with significant progress achieved across all areas of the company. The key developments of the past several months position us extremely well to deliver on our long-term objective of maximizing the full potential of REVLIMID and of becoming the leading global hematology, oncology company, while at the same time meeting or exceeding our major 2007 corporate objectives.

Dave outlined the significant financial results achieved during the quarter. Let me add my perspective to these results, starting with our commercial achievements. The 43% rise year-over-year in total revenue was driven by the 48% increase in product sales, with REVLIMID the leading contributor to this growth. For the nine months of 2007, total revenue has grown from $624 million in 2006 to $991 million in 2007, an impressive 59% increase.

REVLIMID sales increased to $526 million from $197 million during the same period last year. Though REVLIMID sales of $199 million did not fully reflect underlying demand for some of the reasons that Dave outlined, sales rose 97% year-over-year and 10% quarter-over-quarter. A 10% rise in US prescriptions and increasing European commercial sales contributed to this solid performance.

Excellent progress was achieved in Europe with the successful ongoing launch in Germany and named patient sales in other countries. Importantly, recent positive developments regarding reimbursement in France, Ireland and other countries position us for strong growth in Europe.

During the quarter, REVLIMID's US 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. In the US, myeloma accounted for about three-quarters of all prescriptions, with 20% for MDS and a variety of other indications including CLL, NHL, myelofibrosis and prostate cancer accounting for the remaining 5% to 6%.

With the increasing percentage of myeloma usage, average capsules per script edged down to approximately 23.5 as the myeloma label indicates 21 days of therapy a month versus 28 in the MDS label. Consistent with this evolution, we continue to see an increase in the duration of treatment. There was an approximately 12% increase in the number of patients receiving six or more dispenses in the third quarter as compared to the second quarter.

Despite the increased requirements for prior authorizations and generally heightened standards to qualify for reimbursement, patients continue to have good success obtaining reimbursing for REVLIMID. Our multiple program supporting patient access to therapies, including our Patient Support Coordinator Program designed to directly assist patients, physicians and caregivers in navigating reimbursement challenges had had a very positive impact on reimbursement outcomes.

Independent third-party non-profit foundations assisting patients with co-payment funding continue to play an essential role in facilitating access for senior citizens covered under the Medicare Part D program. Reimbursement is increasingly difficult for patient's prescribed therapies not yet specifically approved by the FDA for the indication or not compendia listed. Importantly, REVLIMID dexamethasone very recently became compendia listed as a treatment for newly diagnosed multiple myeloma.

Though REVLIMID is clearly our growth driver, THALOMID maintained a strong position in the multiple myeloma market, contributing $111 million to our topline. Previous period price increase has offset the slight decline in THALOMID prescriptions. However, we expect to see further decline in the use of THALOMID as new REVLIMID data is presented and published.

As a side note, a citizen's petition was filed on our behalf with the FDA during the quarter, highlighting the very significant public health and safety risks -- excuse me -- that a generic THALOMID repose. There were no other significant developments during the quarter in the litigation related to the generic filing.

The bottomline EPS number and substantial cash flow generation actively reflect the strong operating leverage of our business model. Adjusted earnings per share rose 93% year-over-year with cash and marketable securities increasing by more than $200 million this quarter alone.

Our international operations are a significant component of this operating leverage and a key element in our long-term growth strategy. Meaningful progress was achieved as we advanced the REVLIMID brand globally.

On the commercial front, the initial momentum achieved in Germany continues with positive physician response to launch and their demonstrated willingness to prescribe REVLIMID for patients across all previously treated categories. Named patient sales continue in a lot of markets while marketing, distribution, pricing and reimbursement plans are reviewed.

As mentioned earlier, risk management plans and reimbursement discussions are proceeding well. To-date, we have agreed to appropriate risk management and distribution plans in most European countries designed to ensure patient safety with less complex patient and physician requirements than in the US RevAssist Program.

Recent positive developments in France and Ireland bode well for increasing revenue in late 2007 and in 2008. Resolution of risk management and reimbursement plans in Italy and Spain are expected in the first half of '08. We were pleased to receive Swiss regulatory approval for REVLIMID and multiple myeloma in September, and are advancing pricing and distribution discussions there.

As we are executing our country by country launch of REVLIMID and multiple myeloma, we are still focused on the challenge of seeking European regulatory approval for REVLIMID as a treatment for transfusion-dependent low and intermediate risk MDS patients with a 5q chromosomal deletion.

This has been a long and some what arduous process, but granting regulatory approval based on a single open label trial necessitates a rigorous review. The review has been thorough, and we believe that an outcome will be finalized by yearend. It is likely that we will either receive a positive recommendation or withdraw the application at that time.

Regulatory applications in Australia and Canada are entering late-stage review. Actions in both markets could come early in the New Year. Similar to Europe, reimbursement discussions will likely take considerable time to finalize.

In Japan, we have fully enrolled our MDS bridging study and are enrolling the myeloma trial. Good progress is being made and we are targeting approval in Japan in late 2009. We're also developing our strategies for accessing other markets around the world, including Eastern Europe, South East Asia and Latin America. Overall, the achievements of the international organization have been exceptional.

New clinical data is the lifeblood of an oncology product and is the basis for treatment decision by healthcare providers. We are very encouraged by recent presentations and publications of peer reviewed data regarding REVLIMID.

In mid-September at the Chronic Lymphocytic Leukemia International Workshop in London, updated data from two ongoing studies evaluating REVLIMID in relapsed/refractory CLL were reported. The study showed impressive activity for REVLIMID with overall response rates of 58% and 34% as a single agent therapy. Additionally, a median progression-free survival of 19.4 months was demonstrated in on of the studies.

Data from important REVLIMID clinical trials were also published in various peer reviewed periodicals during the quarter. In elderly patients with newly diagnosed multiple myeloma, updated results of an international study evaluating a combination of oral agents, melphalan, prednisone and REVLIMID were published in the Journal of Clinical Oncology, showing an 81% overall response rate.

Earlier in the year updated results of this trial were presented at the European Hematology Association Meeting, showing that after two years of follow-up overall survival was 91% with 75% of the patients remaining progression-free. This data is especially relevant as we expect to complete accrual of our European registration track Phase III newly diagnosed multiple myeloma trial with the same combination in the first half of next year.

REVLIMID plus dexamethasone as a treatment for newly diagnosed multiple myeloma was also the subject of updated long-term results in the study published in the Mayo Clinic proceedings. The data showed an overall response rate of 91% with an overall survival rate at three years of 88%, important data consistent with the exceptional ECOG data and further evidence of the potential important of REVLIMID as a newly diagnosed myeloma therapy.

In September, the online version of the journal Blood announced the final results of a Phase II study, MDS-002, showing that REVLIMID provided durable results for non-5q deletion transfusion independent low and intermediate risk MDS patients, helping them to achieve transfusion independence and remain transfusion-free with follow-up reaching nearly four years.

The study, which had 214 patients, was the largest to-date in low or intermediate-1 risk MDS patients. We found that 43% of patients showed a hematological improvement, with 26% achieving transfusion independence for a median of 41 weeks.

Importantly, our extensive REVLIMID clinical program is leading to new and updated data to be presented at upcoming major medical meetings, including the American Society of Hematology meeting in early December. At ASH, we expect to hear numerous presentations highlighting new and updated clinical data across a broad range of hematological disorders, addressing high unmet medical needs, including newly diagnosed multiple myeloma, non-Hodgkin's lymphoma, chronic lymphocytic leukemia, mantle cell lymphoma, MDS and others.

Of particular interest, we understand that the Eastern Cooperative Oncology Group investigators are working diligently to be able to present updated data from the unprecedented results of the ECOG Phase III trial that evaluated REVLIMID with low dose dexamethasone in newly diagnosed multiple myeloma patients

It has been previously reported that researchers found that patients in the study who received REVLIMID and low dose dexamethasone achieved 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 one-year survival data ever generated in the Phase III study testing therapies for patients with newly diagnosed multiple myeloma. Also, for the first time, we expect to see the clinical results from the Southwest Oncology Group Phase III trail, evaluating REVLIMID with high dose dexamethasone in newly diagnosed multiple myeloma patients.

New and updated clinical data evaluating REVLIMID in various stages of NHL, CLL and MDS and other hematological disorders is expected, as well as follow-up data to the Phase I/II study of REVLIMID in combination with rituximab in relapsed/refractory mantle cell lymphoma.

Importantly, we believe this trial represents the first clinical study to highlight in a peer reviewed setting the potential impact that REVLIMID has on antibody-dependent cellular cytotoxicity. Additionally, long-term follow-up data on patients with 5q deletion MDS and data on REVLIMID in CLL patients with unfavorable [jetted] profiles may also be presented.

Based on the growing body of unprecedented clinical data on REVLIMID, published in peer reviewed journals and presented at major medicals meetings worldwide, the prospects for REVLIMID's long-term growth are extremely encouraging. We are 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.

Numerous trials are underway at 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 trials ongoing or to be initiated.

I previously mentioned the status of MMO-15, our European registration track newly diagnosed myeloma trial, which is rapidly accruing. On our last conference call we outlined our plans in conjunction with leading global oncology organizations, including the IFM group in France, to launch the largest myeloma trial in history. This first trial which stands for first line investigation of Rev-Dex versus standard THALOMID trial will compare REVLIMID and low dose dexamethasone versus melphalan, prednisone and THAL in 1,590 newly diagnosed multiple myeloma patients.

We are also working vigorously to advance our regulatory programs in both non-Hodgkin's lymphoma and chronic lymphocytic leukemia. In NHL we are making excellent progress. Importantly, we are receiving key signals from ongoing trials to guide our strategy. NHL-003, our REVLIMID monotherapy trial in relapsed aggressive NHL following standard induction therapy has rapidly accrued and is now being expanded to 200 patients.

A randomized control trial with Rituxan and follicular NHL and trials with the Rituxan and previously treated refractory mantle cell lymphoma are planned. We are also initiating several other NHL trials in putting REVLIMID plus Rituxan in relapsed/refractory follicular NHL and REVLIMID plus dexamethasone in relapsed/refractory aggressive NHL.

Overtime, we anticipate studying REVLIMID in all stages of NHL and in multiple combinations. In addition, we plan to initiate trial on Hodgkin's disease and T-cell lymphoma. In chronic lymphocytic leukemia, strong evidence of meaningful clinical activity has been observed, and we are now planning Phase II and Phase III trials in the setting of relapsed patients, patients with bulky disease, REVLIMID's maintenance therapy after response to conventional therapies and combination of REVLIMID with Rituxan or with fludarabine.

We are also now initiating our dose finding and titration study in relapsed patients and our regulatory track trials will reflect the REVLIMID dose and schedule established by this trial. We're also exploring REVLIMID's activity in other 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 appropriately spend the majority of our time discussing REVLIMID, it is only one compound in an exciting class of compounds, the IMiDs. We have two additional IMiDs in the in the clinic, 4047 and 11006.

Clinical trials evaluating 4047 as a potent oral therapy in a wide range of indications are underway or soon to be initiated. The clinical development plan for 4047 includes trials for relapsed and refractory multiple myeloma, solid and soft tumor cancers, graft-versus-host disease and sickle cell anemia. We are also making good progress in accruing our most advanced 4047 trial, examining its potential in myelofibrosis patients.

Based on its unique profile, 11006 is being studied in MDS trial this year, following its successful completion of healthy volunteer testing. In addition to having made great progress in building a fully 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.

Earlier this year, we announced the positive results of a Phase II 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. We are discussing with regulatory authorities our next steps, including additional multi-center Phase II trials to determine the effect of extending duration and dosing of apremilast on the treatment of psoriasis and psoriatic arthritis.

In addition to our expanded ongoing Phase II psoriatic arthritis clinical trial, we recently opened another Phase II open label trial in 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 methotrexate.

Additionally, following regulatory guidance, we plan to pursue a strategy of exploring Phase II proof of principal trials in a number of TNF-sensitive diseases with high unmet medical needs, including orphan diseases such as cutaneous sarcoid, Behçet 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 indications of rheumatology, such as rheumatoid arthritis. We've also made significant progress in our apremilast preclinical program 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 are encouraged by the data that has been generated to-date.

Our next compound in this anti-inflammatory series, CC-11050, has demonstrated -- was demonstrated to be safe and well-tolerated in healthy volunteers with a potentially different pharmacodynamic and pharmacokinetic profile than 10004. We are currently considering various development strategies for this TNF-alpha inhibitor and antiangiogenic agent.

During the quarter, we also made excellent progress in advancing our intercellular signaling product candidates including CC-930 or JNK inhibitor targeted to be studied in inflammatory disease and in our stem cell programs. We expect to advance our proprietary placental stem cell program into the clinic in 2008 in an immune inflammatory disease. Overall, very important progress, building an excellent platform for accelerating growth this year and next.

Let me now turn the call over to Sol.

Sol Barer

Thank you, Bob and Dave, and good morning, everyone. I'd like to take a few minutes to provide you with a strategic perspective in our accomplishments in the quarter towards achieving our overall corporate objective.

The global milestones that we have achieved so far this year and this quarter are significant by any measure and represent just the beginning of strategically positioning Celgene to achieve our overall goal of becoming the leading pharmaceutical company focused on providing important and innovative therapies for patients with cancer and serious immune inflammatory disorders.

We've made significant progress this past quarter towards achieving our major strategic objectives for 2007 and 2008. Our first objective is to ensure that REVLIMID becomes the global blockbuster. The newer term goals focus on the achievement of the very significant hematological potential of this growth with specific regulatory targets encompassing indication in myeloma, myelodysplastic syndromes, non-Hodgkin's lymphoma, chronic lymphocytic leukemia and other diseases and potentially longer term solid tumors.

We've made significant progress towards achieving this objective. As Bob mentioned earlier, our REVLIMID launch has been exceptionally successful. The launch will achieve accumulative revenue of $1 billion within 24 months of launch, a milestone previously achieved by only two other oncology products.

The fact that REVLIMID is on track to reach this important milestone is particularly noteworthy as it is currently treating indications with smaller patient populations. We believe this reflects REVLIMID's long term importance to patients worldwide.

Growth in the United States is supported by a steady trend towards earlier usage in multiple myeloma based on early but strikingly positive ECOG survival data. The ECOG data presented at ASCO, the American Society of Clinical Oncology, demonstrated the best one use survival reported in a Phase III multiple myeloma trial in history. And that's going to be updated at the upcoming ASH we expect.

And helping to establish survival as the ultimate and the most important endpoint for myeloma as it is in most other cancers, especially solid tumors such as non-small cell lung cancer, small cell lung cancer, ovarian and breast cancer, and a recent launch in Germany and most recently in France has helped establish a very strong and solid foundation for the European REVLIMID franchise.

With the base we've established we anticipate REVLIMID revenue will continue to grow to well over $1 billion in 2008. We expect that the full potential of REVLIMID in multiple myeloma and myelodysplastic syndromes will be begin to be realized in late 2008 and 2009 with the completion of its European launch.

We view REVLIMID in hematology as an international pipeline in itself. Today, we are executing global plans to fully exploit the clinical regulatory and commercial potential of REVLIMID in over 70 countries in previously treated multiple myeloma and 5q deletion MDS followed by chronic lymphocytic leukemia and non-Hodgkin's Lymphoma and other diseases.

In addition, REVLIMID has the potential to further expand its market beyond hematological malignancies to solid tumors. Preclinical and early clinical data support an effect of REVLIMID to synergize with antibody-based cancer therapies that exploit antibody-dependent cellular cytotoxicity. As clinical data is developed, we anticipate that the synergy mechanism could form the foundation of new REVLIMID usage in both existing and new indications.

Overall, we consider Revlimid as a pipeline in itself, as a critical component of various oral combination regimens, complimented by its potential importance as an amplifier of the clinical impact of therapeutic antibodies in use in hematological and solid tumor malignancies. Coupled with application across a broad range of geographies, the opportunity is exceptional.

Another major objective is to advance our pipeline where we continue building, both internally and on a selected basis externally, a deep and diversified pipeline of compounds at all stages of development. Specifically, this includes optimization of our IMiD franchise with our lead clinical developing candidate CC-4047 in development of myelofibrosis and other malignancies.

Our anti-inflammatory franchise that is currently led by the Celgene discovered compound CC-10004 and CC-11050 as Bob mentioned. CC-10004, or apremilast, has demonstrated activity and tolerability in a controlled Phase II trial in moderate to severe psoriasis, and is being evaluated in psoriatic arthritis with [calsis] and psoriasis, and will be investigated as a broadly effaceable anti-inflammatory agent for both chronic and acute indications.

CC-11050 has been demonstrated to be safe and well-tolerated in healthy human volunteers and will be evaluated in a number of diseases. I should note that this compound's preclinical biological activity includes very positive, but very early results of macular degeneration which will be further evaluated.

Our young anti-inflammatory franchise has significant promise, as well as hurdles, as we create a major new franchise for Celgene. The Array BioPharma Research Collaboration announced during the quarter it's focused on new chemistry for oncology and inflammatory target, and builds towards achieving our objective of ensuring for the diversification of our pipeline, both structurally and mechanistically.

Our preclinical program also advanced, including our JNK inhibitor CC-930, which will enter the clinic in 2008, our p38 inhibitor, which will address important inflammatory diseases, and 16057, the lead compound in a nucleotropic pathway modifiers class is advancing to include clinical development. These clinical candidates are Celgene discovered lead compounds with unique chemistries and biological capabilities that position them for potentially significant market growth.

We are also making exciting progress in the stem cell area, where we are progressing with the manufacturing, regulatory program and biological characterization of our new Celgene discovered and placentally-derived stem cells, where we are expecting to enter the clinic in 2008 for an anti-inflammatory indication.

Although stem cells are a difficult field which has undefined route to approval and commercialization, the potential for patients with serious diseases is significant. And this can eventually open very substantial markets for Celgene in areas of unmet medical needs.

Our key objective is to successful internationalization of Celgene we have made enormous progress here. We now have, operations in place than more than 40 countries and are rapidly expanding into additional international markets

We achieved the approval in Switzerland on multiple myeloma and advanced our regulatory applications in Canada and Australia. While progressing with our global regulatory program including the Far East Asia, the Middle East and Latin America. The international potential of REVLIMID provides the continuing opportunities in growth over a period of years. And provides us a with a highly leverage-able position.

We essence to continue investing in REVLIMID and our global infrastructure and in the life blood of our company our pipeline. Well continuing, to grow our earnings as per our most recent financial results. Our earnings growth in the past quarter was impressive with adjusted earnings per diluted share increasing 93% year-over-year to $0.29.

Despite the challenges of the quarter, we believe these solid bottom line results accurately reflect the expanding operating leverage of Celgene's global infrastructure. Moreover, these resulted from a long-term strategy, of delivering bottom line results to our shareholders, while expanding our operations and our pipeline

For all of us at Celgene, it is important to remember that with growth and success comes many challenges, including a difficult reimbursement environment. A generic THALOMID challenge, the lag between approval and reimbursement overseas and the uncertainties in drug development.

Nevertheless, we are incredibly fortunate in having a lead product, with an extraordinary breath of activity, superb commercials teams in the US and overseas, and world class Research and Development and indeed excellence in all of our functions. How we managed the challenges and execute our plans, will demonstrate our strength and depth as we evolve in to a global pharmaceutical company where people and ideas are valued, where extraordinary achievements are expected and delivered, and a sense of understanding the direct impact of each of us on patients and the greater growth is clear.

In closing, our thoughts and prayers are with our colleagues and indeed all residents of San Diego. We are facing the adversity from the very difficult situation there. These employees have shown great resolve and ingenuity under a very difficult personal and family circumstances as they continue their important work. Our thoughts are with them and we hope for their continued well-being as we do for all residents of the San Diego area.

Now we will turn it over to the operator for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). We go first to Ian Somaiya at Thomas Weisel Partners.

Ian Somaiya - Thomas Weisel Partners

Thanks for taking my question. I share three questions for you. First on the inventory draw down in the quarter, can you just quantify that and maybe just talk to what steps you are taking to address this issue going forward?

Sol Barer

Sure, I think that, Dave mentioned the couple of factors that were impacting the third quarter, and inventory is one of them. In last quarter, and if you remember on the call, we said that’s the result of REVLIMID, were probably impacted $2 million to $3 million by increased inventory, which is probably a similar move again not dramatic but that, there were number of other factors I mentioned that with the higher percentage of that myeloma of MDS, you see a half of a capsule etcetera on average, that would also have a reasonably significant impact on the quarter. We had also a very short September in terms of the way that 30, 29 and 28 settled out. So, as we think about, there are probably three or four factors that would have put the number more in line with what we had looked for the quarter to be, but overall still very solid.

Ian Somaiya - Thomas Weisel Partners

Okay, as I look at your guidance for the year now, specifically of your total revenue guidance the 1.375. If I assume THALOMID continues to be cannibalize at a modest rate and the rest of your revenue and line items track the way they have in the past couple of quarters, implication is that REVLIMID sale pick up. The growth could be in the high teens, can you just sort of confirm that a sort of analysis and then, and what factors are going to drive that re-acceleration in growth?

David Gryska

Alright, I think it’s very much to be expected and I think we’ll see for an extended period of time similar like we did with the growth of THAL over the years, you see new data, you see new events, you see new markets, you see different data come out and things continue to rise, plateau, rise. I think the fourth quarter is going to be very depended on a number of different factors, including data that comes out, but importantly the international expansion, country by country. So, we just recently received very positive news about how the relationship of the French looking at the innovative perspective or REV being a very innovative therapy, very positive reimbursement announcements in Ireland. So, I think as we get countries on board one by one it’s going to have clear impact on the growth. In the US it will continue to be very much dependent on two factors, the movement to earlier stage in the disease, and the positive trends we’re seeing under Asia. So, I don’t think anyone of us will argue with your outlook on the quarter. We do think we would see a reasonably strong fourth quarter. And as we saw a good second quarter, not so strong third quarter, and a stronger fourth quarter, but its going to be dependent on movement to earlier disease myeloma duration, and country-by-country progress in Europe and around the world, and we think they are doing a great job. So, we feel very good about how things look for the coming quarter and next year.

Ian Somaiya - Thomas Weisel Partners

And just the last question is on, just house-keeping I guess. What were international sales of REVLIMID in the third quarter and have you observed any price sensitivity in the two markets you've launched?

David Gryska

We have not seen price sensitivity yet. REVLIMID is being viewed as an innovative therapy in the markets that we've brought it to, whether it be United States and Germany and France and Ireland. Our objective overtime when it comes to pricing is going to be that, in all the developed world that over an extended period of time we want the payers to feel that it was a very fair and equitable responsibility to myeloma patients or MDS patients. And so, that’s our objective.

And so far, the pricing pushback has been very manageable. We've got issues that we will deal with overtime there but our objective is overtime to keep things very equitable. We've seen an increase in international sales, but not, it’s a bit an increase but not dramatically changed from a percentage that we've seen in the past.

Ian Somaiya - Thomas Weisel Partners

What was the number in the third quarter, Bob?

Bob Hugin

We haven’t said the exact number. In the past it's been in the 10% range. It was a little bit higher than that in the teens this quarter.

Sol Barer

And I know you recognize this, Ian, is as opposed to the United States where there is at least historically been a greater freedom for physicians to prescribing every reimbursement that's less of the case. Clearly in Europe, where there are reimbursements is much more centered on the improved indications as well.

Operator

Next we will move to Geoffrey Porges at Bernstein.

Geoffrey Porges - Bernstein

Thanks very much. I wonder if you could share a little of data, about by your front line myeloma penetration right now? What are you seeing, in terms of your share from your tracking data and the average duration of therapy, you are seeing in front line and then how reps being used in that setting right now? It sounds that are the maintenance first thing or sort of short duration?

And, so I wonder if you just then comment on something about the Array deal. I was a little surprised by that, given that you have so much going on in your portfolio, with REV, the other image with the anti-inflammatory program. Why you need to do the Array deal and what that suggests about perhaps your confidence in the internal programs right now? Thanks

David Gryska

No, I appreciate it. On up-front myeloma the REV system does not give us each stage of, it just gives us the myeloma indication. So we do know, what myeloma is? We do subscribe to different third party services, that look at market research say what drug is doing what? And even in the third quarter, the data is a little bit unreliable because we do look the most relied, we relied most significantly on the 12 month rolling data.

But, when you look at August, September versus even June, first and second line had the biggest increases in terms of REVLIMID penetration. And so when a 12 month rolling average were into double-digits, when you look at where we are, over in that on a spot forecast. It's little bit harder to tell but it's probably above that, and I think that one of the questions that you talk about how it's going to be used in front line is a very important consideration.

The data that we see in the clinical trails, gives great promise to delaying or limiting transplant. And so, how that plays out is clearly part of the clinical strategy and regulatory strategy we have is to have patients on front line and delay in stamp therapy as long as possible.

And so far, the signs are encouraging. But we really have to rely on the broader duration, which is not -- we're not able to segment between the different lines of therapy, and then look retrospectively using third-party market research.

So these are the things we look at very closely. We're encouraged by what we see in it. As we see trends develop, we'll keep you up. But that's the perspective that we have on it.

Sol Barer

And in terms of your question, Geoff, on the Array deal, I think you have to step back and ask what our objective is and where we're going? We are clearly focused on becoming a very, very important major company in cancer and severe immunoinflammatory diseases.

As such, we recognize that it's going to be very difficult for us just to do this completely on our own. That just isn't done. I have great confidence in our people in research and development, have great confidence in many of the compounds. But reality is such is that we all know not every compound makes it. In fact, if you're doing 50%, you're doing extraordinarily well.

So our deal with Array is part of a strategy to very selectively pick companies that we think have the potential to have very good people, great ideas. And that could lead to a diversification of our molecules, different targets, both in oncology and in anti-inflammatory, and leverage those to continue building a great company. It says nothing about confidence internally, but it does say that in order to build a great company we need to do it both internally and on a selective basis externally.

Operator

Next we'll move to Rachel McMinn at Cowen.

Rachel McMinn - Cowen

Yeah. Just two quick questions. Just still unclear here on the US, ex-US side. Can you give us a sense for US sales actually flat with the second quarter?

And then, just flipping over to the compendia listing comment that you had, should we expect this to have a very rapid impact or is it something because you can't really market in the front line setting that it will be a little bit slower to have an impact? Thanks.

Bob Hugin

MDS -- in the US, prescriptions rose both for MDS and myeloma. MDS was a very small rise. The myeloma was up about 10%, though the number of capsules was down, you know, half a capsule or something like that. So we didn't get the full benefit of the 10%. But it certainly was higher in both MDS and myeloma.

And the second part of the question was?

Sol Barer

The rate of adoption of a newly diagnosed myeloma, the impact of that.

Bob Hugin

I think it is very clear and there is lots of materials that have been written about Medicare Part D and how it's very restrictive on off label reimbursement for patients. And obviously, Medicare Part D is a major part of any kind of cancer drug that's oral. And I think that -- so it's very clear on label for a compendia listing.

Other than that it's extremely difficult for patients to get reimbursed under that program. So the fact that in the last few weeks we did get -- REVLIMID and dexamethasone were now listed on compendia listings as a therapy for newly diagnosed myeloma is very important. And therefore, we should not see a reimbursement challenge for patients in the US who want to get -- doctors who want to prescribe it and physicians who want to take the drug. We obviously can't promote it regardless of compendia listings.

But it should not be a reimbursement challenge as it was prior to getting the compendia listing. I think that as it was there haven't been any change in paradigm. It's a slow gradual change and I think we will see it overtime. We think the data is superb, but it's just going to take time.

Operator

And next we'll move to Sapna Srivastava at Morgan Stanley.

Sapna Srivastava - Morgan Stanley

Yeah, hi. The one question I had also was just on the CLL timelines. Last quarter you mentioned that you had stopped the trial trying to figure out the right dose. Could you help us gain clarity as to in what timeframe can we start seeing data for these expanded indications, which could actually immaterialized in being registrational?

Sol Barer

Yeah. Good question. We are initiating that trial now or that amendment now. And patients are -- the first patient probably isn't ongoing now, but will be so in a couple of weeks. So we can start seeing data, we think, in certainly next year with respect to that. And with respect to the trial, which we certainly hope is one that can potentially lead to approval, that trial will go with the appropriate dose, Sapna, sometime in 2008.

And depending on how long patients stay on the trial and how effective it is, we'll see how long that goes. That trial I don't think will be finished until 2009, 2010, depending on what progression for each survival is and overall survival.

So I'm actually very excited about the results we've seen. We have a number of trials in CLL ongoing at various stages of the disease in the US and in Canada that is showing profound activity. However, we really do have to get to these patients the appropriate dose. So it could be both safe and effective.

Operator

And next we'll move to May-Kin Ho at Goldman Sachs.

May-Kin Ho - Goldman Sachs

I have a question about some of the studies ongoing both for REVLIMID as well as for VELCADE in first line multiple myeloma because the background therapy is sometimes quite different and also the patient population. So for example, in the ECOG study, it looks like you are enrolling patients regardless of whether they are eligible for transplant, whereas in the recent study that was discussed on VELCADE for VISTA that's really for people that are ineligible for transplant, which seems to be the majority of the population.

So I wonder whether you can help us kind of put everything in context in terms of how we look at these data at ASH.

Sol Barer

I think it's very important. I think when we look at REVLIMID, importantly, we view it's characteristics as ideal for all categories of newly diagnosed patients. Clearly, patients that are not eligible for transplant, REVLIMID is an ideal therapy. Oral side effects are very manageable, especially elderly population, maybe not either desirous or physicians nervous about stem cell transplant. So we believe that overtime REVLIMID will absolutely be a very, very attractive candidate for non-transplant eligible patients.

But on the other hand, we intend both from clinically regulatory and commercial activities overtime to very much go after the transplant eligible patient also. We think that when you think about the survival rates, that we think REVLIMID is going to show both one, two, three, four, five years out with the treatment starting in the newly big diagnosed population, there is going to be very strong argument that both from a patient point of view and a long-term survival perspective, we're going to prove that patients are better off doing REVLIMID before stem cell transplant and not move to stem cell transplant until after that extended period of time, having harvested the stem, the cells with early or in the middle of that therapy.

So we do think there is clearly different strategies for different segments of the newly diagnosed market. But we think the characteristics of REVLIMID make it an ideal therapy for all areas of newly diagnosed. And we intend clinically, regulatory and commercially to aggressively go after all of those sectors.

Operator

And next we'll move to Maged Shenouda at UBS

Maged Shenouda - UBS

Thanks for taking my question. I have a few questions for you. Was REVLIMID demand stable throughout the quarter in the US; that is, you know, was there any seasonality component that could help you in the fourth quarter?

Bob Hugin

I think that there was -- you see August as being slightly softer months in terms of new patients coming on to therapy. But I don't want to overstate it either. I don't think it was anything unusual compared to other years that August -- and in December sometimes, later December can also have some of the same characteristics that you see in August. So absolutely had some seasonal impact, but I wouldn't want to overstate it.

Maged Shenouda - UBS

Okay, thanks. And just a couple of more follow-ups. Should we think of MDS as no longer a growth opportunity for you?

Sol Barer

I think one of the things that is difficult with MDS is that we've -- our people in the US have done, I think, a superb job of really making REVLIMID the drug of choice for 5q population. And whether market research looks 60, 70% kind of market shares in that indication, I think it's very positive.

I don't think you see very, very strong growth out of the 5q population. I think we'll continue to do as new patients come on are diagnosed, we're going to see opportunity there. So that's it.

The non-5q population. We have both pros and cons in that area. The publication of that -- publication 2002 is a very positive development, finally have a Peer-Reviewed Publication that physicians and patients can be aware of, it show that, it come up as striking but its still very profound result and a very encouraging results in the non-5q population.

On the other hand the world in term of Medicare part D for non-compendia listed non-specific label makes it very difficult for physicians and patients or patients to get reimbursement there. So, we got to work hard to get compendia listing, we’re starting the Phase III non-5q trial, we have work going on in Europe and we’ll be, and I think as more clinics and more physicians are involved in those trials, it gives them more confidence to use it outside of 5q. But, we still got to work on the compendia listing because it’s frustrating for a physician and the patient to decide this is the right therapy but not be able to be reimbursed. So, I don’t want to diminish the reimbursement issue but assuming that when we get compendia listing and also when we get approval on non-5q setting, MDS still remains an important market for us and one where we see very attractive growth profiles, but we got to do these things and we got to deal with the reimbursement issues.

Operator

Next we will move to Geoff Meacham with JP Morgan.

Geoff Meacham - JP Morgan

Hi guys, thanks for allowing me to ask a question here. Question for you, a follow-up to Maged’s question on MDS. Any new info that you guys have provided for EMEA for the 5q minus application and what are your thoughts on the incremental spin there to promote MDS in Europe?

Bob Hugin

I think the it has been a long processes but it’s one that we think it’s been done very thoroughly and fairly, we have no complaints whatsoever. We think the process, unfortunately long, but when you have single open label it can be that way. We have done the most unbelievable analysis and followed up these patients. And I think we are going to benefit from that in a lot of different ways, including Peer-Reviewed Publications, because what we are finding is, the results are very encouraging, and I think we've got to present them and publish them to not get ahead of ourselves, but what we have found so far and is being presented and has been presented to the EMEA, I think strengthens the case of REVLIMID and MDS and specifically 5q.

So, it remains one trial open label, I think we are finally down to getting a decision on outcome here. And so, we are optimistic, we are encouraged, I think by the end of the year we are going to know. But what we have found in the most rigorous analysis and the follow-up with these patients is increasingly encouraging about the role of REVLIMID and MDS.

Sol Barer

And I think, there are two points here, just to be clear. As Bob indicated, there is the clinical results, as we continually update the results of that trial which look more and more, not only positive, but very interesting, provocative and lead to a lot of other potential ideas for trials and things of that sort.

The other point is the regulatory point, having to deal with the fact that we've been very open with this, and everyone knows it is that we went for approval in Europe with a single open label trial with unusual end point, and we recognized that it could be a tough situation and we hoped that, that might lead us to approval early well luckily, myeloma came in relatively quickly. So, that wasn’t important, but we said all along that it is probably less than a 50-50 chance, which is still there, but we feel, I have to say, to echo what Bob said, we feel very confident regarding the clinical aspects of this, and we'll see before the end of the year what happens from the regulatory aspects of this. But we are going to try to publish as much as we can. As soon as we can on this patient population

Operator

And next we move to Mike King of Rodman & Renshaw.

Mike King - Rodman & Renshaw

Hi guys and thanks for taking my question. I just wanted to perhaps, revisit not to beat a dead horse. But just as far as the breakdown between domestic and international. So Bob, if we just apply, let's say a low teens rate of about 13% that's applying about $25-ish million ex US number which. Plus the US number in about $173 million range. So I hear what you are saying on lower dose and reimbursement. But what steps can you guys take to reinvigorate the domestic sales trends?

Bob Hugin

I think that, when you look at the factors, I think in myeloma the sales trends continue to look very good. I mean it's not colorectal cancer, but when we think about the number of patients that were treating in the market shares we have, and the growth of them. There remains a very attractive growth profile in multiple myeloma in the United States.

So let's be clear at, obviously with THAL and REV we have very-very high market share and we are shifting the usage patterns of those drugs. So, I think they were issues and the quarter wasn't as strong as we would like it to be. But I will tell you it's always lumpy as we go along in these kinds of earlier stage of the drug building, the launch of it.

But I think what we see we were not have penetrated in terms of ultimately where the REVLIMID number of patients are going to be. Now, some of that's are going to come of THAL and etcetera overtime. But there is still good growth there and I think we shouldn't extrapolate too much when the things were little bit better than people expected in the second quarter and maybe not quiet as good as they expect in the third quarter. So the change is slope of the line. I think it's a good study profile where we are going on myeloma in the United States. MDS we have challenges it's one that we are open about to deal with. We still feel very good and as a good opportunity for us and internationally we are just cracking the surf just started scratching the surfaces and starting to launch there and I have tell you, we were very excited that people are doing a great job and we think the prospects are very bright.

Operator

And next we'll go to Tom McGahren at Merrill Lynch.

Tom McGahren - Merrill Lynch

Hi, thanks everyone. Just another question on the European rollout. Do you think it's on-track with your expectation so far, little faster, little slower now you mentioned that you expect reimbursement in Spain and Italy in the first half. And also secondly can you remind us where you plan to go it alone ex-U.S. whether those plans have changed and how those plans impact your expense expectations. Thanks a lot.

David Gryska

I think in terms of Europe things are going at least as well as we had hoped for. Certainly not less than we expected and really in most cases much better than we had expected. In terms of, but it is a country-by-country thing and the people are doing a great job and the results are really very good and are going to be continually important to us.

In terms of going alone and not going alone the base case is to go alone in those markets that we feel we can make a difference and produce good results. And so in main Europe the expectation is to go alone, in Japan to go alone, Canada, Australia to go alone. Latin America at least from the initial start of the launch we'd likely to be distributorships. Middle East distributorships, most countries in Central Europe we are going to look at country-by-country basis with a bias to where we think is an attractive market these small resources and do it ourselves.

Certain parts of South East Asia we’ll likely go alone and some we will do with distributorship. So, the major markets are still clearly go alone and we don’t think that the up front building cost and those are dramatically different from what we’ve seen so far. So, I think the strategy is clearly one of go alone, pick the distributorship where you think its really best and built that franchise yourself.

Operator

Next we’ll move to Yaron Werber at Citi.

Yaron Werber - Citi

Yeah hi Bob, Sol and Dave, just wanted to get a little bit more clarity. You mentioned MDS, it sounds like the market grew a little bit at least scrip trends grew a little bit in the US. In myeloma you are up 10% quarter-over-quarter, yet the capsules are down. I know you mentioned as you move to myeloma from MDS, obviously myeloma has less capsules per month. But net-net, you have grown in both markets, so I guess I am not understanding why did the capsule go down by half a capsule?

Bob Hugin

Well, it’s not the total capsules, just the average capsules per scrip. The total capsules obviously grew because the revenue grew.

Sol Barer

So, just to be clear Yaron, when I heard Bob say it, I was a little concerned that people might take it that way. It is the average scrip had a very small decrease in the number of capsules in it. And that really had to do with the myeloma percentage, because of myeloma there is a 21 days therapy versus MDS, 28 days. But the total capsule certainly went up, coincident with directly proportional of course to the demand. Okay is that clear? Yaron?

Yaron Werber - Citi

Yeah it's clear.

Sol Barer

Okay, alright. So, let me have, we have been going for a while, if we can have just one more, Operator.

Operator

Okay. And we will go to Michael Aberman at Credit Suisse.

Mani Mahendru - Credit Suisse

Hi, this is [Mani Mahendru] filling up for Michael. Just a couple of questions. Can you give a little more granularity on the compendia listing in newly diagnosed myeloma? When exactly were you listed, what's compendia and what kind of data you used for reporting that listing? And then I have a couple of follow-ups.

David Gryska

Yeah, we received the compendia listings in two of them, its Drug Decks, and what is the name of the other one, like Drug Points or -- actually I might have it here. So, it's Drug Decks and the other major one, could you just give us a call afterwards, we'll give you the specific name, but it’s the two major compendia listings, Drug Decks and I think Drug Points.

Mani Mahendru - Credit Suisse

And when exactly did that happen?

David Gryska

I want to say just three or four weeks ago. Late in September I believe.

Mike Aberman - Credit Suisse

Okay. It's Mike Aberman here. Also on a follow-up, could you give the specific percentage for European sales in terms of that positive 13%. Was it 13% to 15% or 17%?

Bob Hugin

What we said was that it was in the teens, we don’t give the percentages Europe international. We try to give a sort of range for it, and I think that was Mike King who was making an approximation for a calculation. But, we are saying it's in the teens, we don’t get very granular in terms of that.

Sol Barer

For competitive reasons.

Bob Hugin

So probably, say for competitive reasons. Okay, so thank you everybody, joining us on today's call and for your excellent questions. We hope to see many of you at the upcoming financial conferences and at ASH in December. And we look forward to sharing our fourth quarter results with you on January 31 in 2008. So, thank you very much and goodbye.

Operator

And that does conclude today's conference, again thank you for your participation.

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