Celgene Q3 2007 Earnings Call Transcript

Oct.25.07 | About: Celgene Corporation (CELG)

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

MikeAberman - Credit Suisse

Operator

Good morning. My name is Audrey, and I will be yourconference operator today. At this time, I would like to welcome everyone tothe Celgene Quarterly Conference Call. At this time, all lines are in alisten-only mode. After the speakers' remarks, there will be aquestion-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 conferencecall.

With me on today's call are Celgene's Chairman and ChiefExecutive Officer, Sol Barer; and President and Chief Operating Officer, BobHugin. Today's press release reporting our third quarter 2007 financial andoperating results was issued earlier this morning and is available on ourcorporate website.

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

Before we begin, we want to remind you that certain statementsmade during this call may be forward-looking or made pursuant to the Safe Harborprovisions of the Securities Litigation Reform Act of 1995. Certainforward-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, ourproducts failure to demonstrate efficacy or an acceptable safety profile,actions by the FDA, the clinical condition of suppliers, including theirsolvency and ability to supply product, and other factors detailed in ourfilings with the Securities and Exchange Commission or referred to in the pressrelease issued this morning.

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

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

Most important, REVLIMID net revenue quarter-over-quarterincreased 10%. This is a noteworthy achievement concerning several events thateffective sales in the third quarter, including a US inventory drawdown in minimal MDSgrowth.

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

THALOMID net product sales increased to $111 millioncompared to $108 million for the same period in 2006, and down modestlyquarter-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 netproduct sales generated $18.9 million compared to $12.2 million in the sameperiod 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 anincrease 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 asof September 30th, 2007,an increase of more than $200 million over the prior quarter. We believe theseresults reflect both strong sales and efficient operational growth.

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

Also during the third quarter, we continued to makesubstantial progress in building our world-class commercial and regulatory organizationin Europe, Japan, Australia and Canada to capture our share ofthese large and growing markets.

While we continue to increase our presence in the globalmarketplace, Celgene now has operations in more than 40 countries. We arefocused on the importance of effectively and efficiently managing our globaloperational expenses. As a result, for the third quarter we incurred SG&Aexpenses of approximately $86 million compared to $103 million in the priorquarter.

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

While it is difficult to predict timelines and challenges wemay face as we pursue price reimbursement and distribution approvals in nearly30 countries throughout Europe, we aretargeting 2007 total revenue to approximately $1.375 billion. Additionally, weexpect 2007 earnings growth to approximately double year-over-year, and we aretargeting adjusted earnings per share to approximately $1.05.

Celgene has many achieved milestones in the first nine monthsof this year. Some of the high-profile accomplishments include increasingprofitability, strong cash flow, our fifth regulatory approval in less than twoyears with the approval in Switzerland, significant regulatory filings, globalclinical developments, growing volumes of critical clinical data acrossmultiple hematological indications, and expansion into new markets around theworld We believe these achievements have positioned Celgene to capitalize onthe many global opportunities before the company in the months and years tocome.

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

Bob Hugin

Thanks, Dave. The results of the quarter were very positivewith significant progress achieved across all areas of the company. The keydevelopments of the past several months position us extremely well to deliveron our long-term objective of maximizing the full potential of REVLIMID and ofbecoming the leading global hematology, oncology company, while at the sametime meeting or exceeding our major 2007 corporate objectives.

Dave outlined the significant financial results achievedduring the quarter. Let me add my perspective to these results, starting withour commercial achievements. The 43% rise year-over-year in total revenue wasdriven by the 48% increase in product sales, with REVLIMID the leadingcontributor to this growth. For the nine months of 2007, total revenue hasgrown from $624 million in 2006 to $991 million in 2007, an impressive 59%increase.

REVLIMID sales increased to $526 million from $197 millionduring the same period last year. Though REVLIMID sales of $199 million did notfully 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 USprescriptions and increasing European commercial sales contributed to thissolid performance.

Excellent progress was achieved in Europe with thesuccessful ongoing launch in Germanyand named patient sales in other countries. Importantly, recent positivedevelopments regarding reimbursement in France,Ireland and other countriesposition us for strong growth in Europe.

During the quarter, REVLIMID's US market share in myelomacontinued to grow. Third-party market research indicates that physicians continueto move REVLIMID to earlier lines of therapy with the largest market sharegrowth in first and second-line treatment. In the US, myeloma accounted forabout three-quarters of all prescriptions, with 20% for MDS and a variety ofother indications including CLL, NHL, myelofibrosis and prostate cancer accountingfor the remaining 5% to 6%.

With the increasing percentage of myeloma usage, averagecapsules per script edged down to approximately 23.5 as the myeloma labelindicates 21 days of therapy a month versus 28 in the MDS label. Consistentwith this evolution, we continue to see an increase in the duration oftreatment. There was an approximately 12% increase in the number of patientsreceiving six or more dispenses in the third quarter as compared to the secondquarter.

Despite the increased requirements for prior authorizationsand generally heightened standards to qualify for reimbursement, patientscontinue to have good success obtaining reimbursing for REVLIMID. Our multipleprogram supporting patient access to therapies, including our Patient SupportCoordinator Program designed to directly assist patients, physicians and caregiversin navigating reimbursement challenges had had a very positive impact onreimbursement outcomes.

Independent third-party non-profit foundations assistingpatients with co-payment funding continue to play an essential role infacilitating access for senior citizens covered under the Medicare Part Dprogram. Reimbursement is increasingly difficult for patient's prescribedtherapies not yet specifically approved by the FDA for the indication or not compendialisted. Importantly, REVLIMID dexamethasone very recently became compendialisted as a treatment for newly diagnosed multiple myeloma.

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

As a side note, a citizen's petition was filed on our behalfwith the FDA during the quarter, highlighting the very significant publichealth and safety risks -- excuse me -- that a generic THALOMID repose. There wereno other significant developments during the quarter in the litigation relatedto the generic filing.

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

Our international operations are a significant component ofthis 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 Germanycontinues with positive physician response to launch and their demonstratedwillingness to prescribe REVLIMID for patients across all previously treatedcategories. Named patient sales continue in a lot of markets while marketing,distribution, pricing and reimbursement plans are reviewed.

As mentioned earlier, risk management plans andreimbursement discussions are proceeding well. To-date, we have agreed toappropriate risk management and distribution plans in most European countriesdesigned to ensure patient safety with less complex patient and physicianrequirements than in the US RevAssist Program.

Recent positive developments in Franceand Irelandbode well for increasing revenue in late 2007 and in 2008. Resolution of riskmanagement and reimbursement plans in Italyand Spainare expected in the first half of '08. We were pleased to receive Swissregulatory approval for REVLIMID and multiple myeloma in September, and areadvancing pricing and distribution discussions there.

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

This has been a long and some what arduous process, but grantingregulatory approval based on a single open label trial necessitates a rigorousreview. The review has been thorough, and we believe that an outcome will befinalized by yearend. It is likely that we will either receive a positiverecommendation or withdraw the application at that time.

Regulatory applications in Australiaand Canadaare entering late-stage review. Actions in both markets could come early in theNew Year. Similar to Europe, reimbursementdiscussions will likely take considerable time to finalize.

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

New clinical data is the lifeblood of an oncology productand is the basis for treatment decision by healthcare providers. We are veryencouraged by recent presentations and publications of peer reviewed data regardingREVLIMID.

In mid-September at the Chronic Lymphocytic LeukemiaInternational Workshop in London,updated data from two ongoing studies evaluating REVLIMID inrelapsed/refractory CLL were reported. The study showed impressive activity forREVLIMID 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 thestudies.

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

Earlier in the year updated results of this trial werepresented at the European Hematology Association Meeting, showing that aftertwo years of follow-up overall survival was 91% with 75% of the patientsremaining progression-free. This data is especially relevant as we expect tocomplete accrual of our European registration track Phase III newly diagnosedmultiple myeloma trial with the same combination in the first half of nextyear.

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

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

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

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

Of particular interest, we understand that the EasternCooperative Oncology Group investigators are working diligently to be able topresent updated data from the unprecedented results of the ECOG Phase III trialthat evaluated REVLIMID with low dose dexamethasone in newly diagnosed multiplemyeloma patients

It has been previously reported that researchers found thatpatients in the study who received REVLIMID and low dose dexamethasone achievedstatistically, significantly improved overall survival, 96% at one year ascompared to 86% for patients treated with the standard dose of dexamethasone andREVLIMID.

Researchers reported that this was the best one-yearsurvival data ever generated in the Phase III study testing therapies forpatients with newly diagnosed multiple myeloma. Also, for the first time, weexpect to see the clinical results from the Southwest Oncology Group Phase IIItrail, evaluating REVLIMID with high dose dexamethasone in newly diagnosedmultiple myeloma patients.

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

Importantly, we believe this trial represents the firstclinical study to highlight in a peer reviewed setting the potential impactthat REVLIMID has on antibody-dependent cellular cytotoxicity. Additionally, long-termfollow-up data on patients with 5q deletion MDS and data on REVLIMID in CLL patientswith 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 meetingsworldwide, the prospects for REVLIMID's long-term growth are extremelyencouraging. We are very pleased with the progress achieved to-date in advancingthe REVLIMID franchise and are committed to exploring the full clinicalpotential of REVLIMID in a range of hematological and other cancer indications.

Numerous trials are underway at newly diagnosed multiplemyeloma and in all stages and all types of MDS, including low, intermediate andhigh-risk disease and acute myelogenous leukemia. REVLIMID clinical developmentis expanding with more than 100 clinical trials ongoing or to be initiated.

I previously mentioned the status of MMO-15, our Europeanregistration track newly diagnosed myeloma trial, which is rapidly accruing. Onour last conference call we outlined our plans in conjunction with leadingglobal oncology organizations, including the IFM group in France, to launch the largestmyeloma trial in history. This first trial which stands for first lineinvestigation of Rev-Dex versus standard THALOMID trial will compare REVLIMID andlow dose dexamethasone versus melphalan, prednisone and THAL in 1,590 newlydiagnosed multiple myeloma patients.

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

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

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

We arealso now initiating our dose finding and titration study in relapsed patientsand our regulatory track trials will reflect the REVLIMID dose and scheduleestablished by this trial. We're also exploring REVLIMID's activity in othermalignancies as well as in solid tumors, including prostate cancer. Theseclinical programs are designed to provide data that, if positive, will allow usto seek regulatory approvals worldwide.

Thoughwe appropriately spend the majority of our time discussing REVLIMID, it is onlyone compound in an exciting class of compounds, the IMiDs. We have two additional IMiDs in the in the clinic, 4047and 11006.

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

Based onits unique profile, 11006 is being studied in MDS trial this year, followingits successful completion of healthy volunteer testing. In addition to havingmade great progress in building a fully integrated market-leading globalhematology-oncology organization, we have also significantly advanced ourstrategy of building the foundation of a new anti-inflammatory franchise withthe recent developments in our proprietary class of oral TNF-alphainhibitors.

Earlier this year, we announced the positive results of aPhase 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 ofour oral anti-inflammatory program. We are discussing with regulatoryauthorities our next steps, including additional multi-center Phase II trialsto determine the effect of extending duration and dosing of apremilast on thetreatment of psoriasis and psoriatic arthritis.

In addition to our expanded ongoing Phase II psoriaticarthritis clinical trial, we recently opened another Phase II open label trialin recalcitrant psoriasis, and are currently evaluating possible protocoldesigns in psoriasis, including moderate to severe disease and as the firstsystemic therapy after topicals in combination with methotrexate.

Additionally, following regulatory guidance, we plan topursue a strategy of exploring Phase II proof of principal trials in a numberof TNF-sensitive diseases with high unmet medical needs, including orphandiseases such as cutaneous sarcoid, Behçet and cutaneous lupus. These diseasesoffer the potential of earlier approval and may serve as indicators of activityin 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 apremilastpreclinical program to ensure that all studies are either completed or underwayto demonstrate the safety profile needed to ultimately obtain regulatoryapproval in these indications. We are encouraged by the data that has beengenerated to-date.

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

During the quarter, we also made excellent progress inadvancing our intercellular signaling product candidates including CC-930 orJNK inhibitor targeted to be studied in inflammatory disease and in our stemcell programs. We expect to advance our proprietary placental stem cell programinto the clinic in 2008 in an immune inflammatory disease. Overall, veryimportant progress, building an excellent platform for accelerating growth thisyear and next.

Let me now turn the call over to Sol.

Sol Barer

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

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

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

We've made significant progress towards achieving thisobjective. As Bob mentioned earlier, our REVLIMID launch has been exceptionallysuccessful. The launch will achieve accumulative revenue of $1 billion within24 months of launch, a milestone previously achieved by only two other oncologyproducts.

The fact that REVLIMID is on track to reach this importantmilestone is particularly noteworthy as it is currently treating indicationswith smaller patient populations. We believe this reflects REVLIMID's long termimportance to patients worldwide.

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

And helping to establish survival as the ultimate and themost important endpoint for myeloma as it is in most other cancers, especiallysolid 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 inFrance has helped establish a very strong and solid foundation for the EuropeanREVLIMID franchise.

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

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

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

Overall, we consider Revlimid as a pipeline in itself, as acritical component of various oral combination regimens, complimented by itspotential importance as an amplifier of the clinical impact of therapeuticantibodies in use in hematological and solid tumor malignancies. Coupled withapplication across a broad range of geographies, the opportunity is exceptional.

Another major objective is to advance our pipeline where wecontinue building, both internally and on a selected basis externally, a deepand diversified pipeline of compounds at all stages of development.Specifically, this includes optimization of our IMiD franchise with our leadclinical developing candidate CC-4047 in development of myelofibrosis and othermalignancies.

Our anti-inflammatory franchise that is currently led by theCelgene discovered compound CC-10004 and CC-11050 as Bob mentioned. CC-10004, orapremilast, has demonstrated activity and tolerability in a controlled Phase IItrial in moderate to severe psoriasis, and is being evaluated in psoriaticarthritis with [calsis] and psoriasis, and will be investigated as a broadly effaceableanti-inflammatory agent for both chronic and acute indications.

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

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

Our preclinical program also advanced, including our JNKinhibitor CC-930, which will enter the clinic in 2008, our p38 inhibitor, whichwill address important inflammatory diseases, and 16057, the lead compound in anucleotropic pathway modifiers class is advancing to include clinicaldevelopment. These clinical candidates are Celgene discovered lead compoundswith unique chemistries and biological capabilities that position them forpotentially significant market growth.

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

Although stem cells are a difficult field which has undefinedroute to approval and commercialization, the potential for patients withserious diseases is significant. And this can eventually open very substantialmarkets for Celgene in areas of unmet medical needs.

Our key objective is to successful internationalization ofCelgene we have made enormous progress here. We now have, operations in placethan more than 40 countries and are rapidly expanding into additionalinternational markets

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

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

Despite the challenges of the quarter, we believe thesesolid bottom line results accurately reflect the expanding operating leverageof Celgene's global infrastructure. Moreover, these resulted from a long-termstrategy, of delivering bottom line results to our shareholders, whileexpanding our operations and our pipeline

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

Nevertheless, we are incredibly fortunate in having a leadproduct, with an extraordinary breath of activity, superb commercials teams inthe USand overseas, and world class Research and Development and indeed excellence inall of our functions. How we managed the challenges and execute our plans, willdemonstrate our strength and depth as we evolve in to a global pharmaceuticalcompany where people and ideas are valued, where extraordinary achievements areexpected and delivered, and a sense of understanding the direct impact of eachof us on patients and the greater growth is clear.

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

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

Question-and-Answer Session

Operator

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

Ian Somaiya - Thomas Weisel Partners

Thanks for taking my question. Ishare 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 toaddress this issue going forward?

Sol Barer

Sure, I think that, Davementioned the couple of factors that were impacting the third quarter, andinventory is one of them. In last quarter, and if you remember on the call, wesaid that’s the result of REVLIMID, were probably impacted $2 million to $3million by increased inventory, which is probably a similar move again notdramatic but that, there were number of other factors I mentioned that with thehigher percentage of that myeloma of MDS, you see a half of a capsule etceteraon average, that would also have a reasonably significant impact on thequarter. We had also a very short September in terms of the way that 30, 29 and28 settled out. So, as we think about, there are probably three or four factorsthat would have put the number more in line with what we had looked for thequarter to be, but overall still very solid.

Ian Somaiya - Thomas Weisel Partners

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

David Gryska

Alright, I think it’s very muchto be expected and I think we’ll see for an extended period of time similarlike we did with the growth of THAL over the years, you see new data, you seenew events, you see new markets, you see different data come out and thingscontinue to rise, plateau, rise. I think the fourth quarter is going to be verydepended on a number of different factors, including data that comes out, butimportantly the international expansion, country by country. So, we justrecently received very positive news about how the relationship of the Frenchlooking at the innovative perspective or REV being a very innovative therapy,very positive reimbursement announcements in Ireland. So, I think as we getcountries on board one by one it’s going to have clear impact on the growth. Inthe US it will continue tobe very much dependent on two factors, the movement to earlier stage in thedisease, 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. Wedo think we would see a reasonably strong fourth quarter. And as we saw a goodsecond quarter, not so strong third quarter, and a stronger fourth quarter, butits going to be dependent on movement to earlier disease myeloma duration, andcountry-by-country progress in Europe and around the world, and we think theyare doing a great job. So, we feel very good about how things look for thecoming 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 thethird quarter and have you observed any price sensitivity in the two marketsyou've launched?

David Gryska

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

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

Ian Somaiya - Thomas Weisel Partners

What was the number in the thirdquarter, 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 inthe teens this quarter.

Sol Barer

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

Operator

Next we will move to GeoffreyPorges at Bernstein.

Geoffrey Porges - Bernstein

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

And, so I wonder if you just thencomment 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 otherimage with the anti-inflammatory program. Why you need to do the Array deal andwhat that suggests about perhaps your confidence in the internal programs rightnow? Thanks

David Gryska

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

But, when you look at August,September versus even June, first and second line had the biggest increases interms of REVLIMID penetration. And so when a 12 month rolling average were intodouble-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 thatone of the questions that you talk about how it's going to be used in frontline is a very important consideration.

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

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

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

Sol Barer

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

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

So our deal with Array is part of a strategy to veryselectively pick companies that we think have the potential to have very goodpeople, great ideas. And that could lead to a diversification of our molecules,different targets, both in oncology and in anti-inflammatory, and leveragethose to continue building a great company. It says nothing about confidenceinternally, but it does say that in order to build a great company we need todo 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 onthe US,ex-US side. Can you give us a sense for US sales actually flat with thesecond quarter?

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

Bob Hugin

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

And the second part of the question was?

Sol Barer

The rate of adoption of a newly diagnosed myeloma, theimpact of that.

Bob Hugin

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

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

But it should not be a reimbursement challenge as it wasprior to getting the compendia listing. I think that as it was there haven'tbeen any change in paradigm. It's a slow gradual change and I think we will seeit 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 CLLtimelines. Last quarter you mentioned that you had stopped the trial trying tofigure out the right dose. Could you help us gain clarity as to in whattimeframe can we start seeing data for these expanded indications, which couldactually immaterialized in being registrational?

Sol Barer

Yeah. Good question. We are initiating that trial now orthat amendment now. And patients are -- the first patient probably isn'tongoing 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 thetrial, 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 howeffective it is, we'll see how long that goes. That trial I don't think will befinished until 2009, 2010, depending on what progression for each survival isand 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 inthe US and in Canadathat is showing profound activity. However, we really do have to get to thesepatients 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 - GoldmanSachs

I have a question about some of the studies ongoing both forREVLIMID as well as for VELCADE in first line multiple myeloma because thebackground therapy is sometimes quite different and also the patientpopulation. So for example, in the ECOG study, it looks like you are enrollingpatients regardless of whether they are eligible for transplant, whereas in therecent study that was discussed on VELCADE for VISTA that's really for peoplethat are ineligible for transplant, which seems to be the majority of thepopulation.

So I wonder whether you can help us kind of put everythingin 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 atREVLIMID, importantly, we view it's characteristics as ideal for all categoriesof newly diagnosed patients. Clearly, patients that are not eligible fortransplant, REVLIMID is an ideal therapy. Oral side effects are verymanageable, especially elderly population, maybe not either desirous orphysicians nervous about stem cell transplant. So we believe that overtimeREVLIMID will absolutely be a very, very attractive candidate fornon-transplant eligible patients.

But on the other hand, we intend both from clinicallyregulatory and commercial activities overtime to very much go after thetransplant eligible patient also. We think that when you think about thesurvival 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 diagnosedpopulation, there is going to be very strong argument that both from a patientpoint of view and a long-term survival perspective, we're going to prove thatpatients are better off doing REVLIMID before stem cell transplant and not moveto stem cell transplant until after that extended period of time, havingharvested the stem, the cells with early or in the middle of that therapy.

So we do think there is clearly different strategies fordifferent segments of the newly diagnosed market. But we think thecharacteristics of REVLIMID make it an ideal therapy for all areas of newlydiagnosed. And we intend clinically, regulatory and commercially toaggressively 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 foryou. Was REVLIMID demand stable throughout the quarter in the US; that is, you know, was thereany seasonality component that could help you in the fourth quarter?

Bob Hugin

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

Maged Shenouda - UBS

Okay, thanks. And just a couple of more follow-ups. Shouldwe 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 thatwe've -- our people in the UShave done, I think, a superb job of really making REVLIMID the drug of choicefor 5q population. And whether market research looks 60, 70% kind of marketshares in that indication, I think it's very positive.

I don't think you see very, very strong growth out of the 5qpopulation. 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 haveboth pros and cons in that area. The publication of that -- publication 2002 isa very positive development, finally have a Peer-Reviewed Publication thatphysicians and patients can be aware of, it show that, it come up as strikingbut its still very profound result and a very encouraging results in the non-5qpopulation.

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

Operator

Next we will move to Geoff Meacham with JP Morgan.

Geoff Meacham - JP Morgan

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

Bob Hugin

I thinkthe it has been a long processes but it’s one that we think it’s been done verythoroughly 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. Wehave 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, theresults are very encouraging, and I think we've got to present them and publishthem to not get ahead of ourselves, but what we have found so far and is beingpresented and has been presented to the EMEA, I think strengthens the case ofREVLIMID and MDS and specifically 5q.

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

Sol Barer

And I think, there are two pointshere, just to be clear. As Bob indicated, there is the clinical results, as wecontinually update the results of that trial which look more and more, not onlypositive, but very interesting, provocative and lead to a lot of otherpotential ideas for trials and things of that sort.

The other point is the regulatorypoint, having to deal with the fact that we've been very open with this, andeveryone knows it is that we went for approval in Europe with a single openlabel trial with unusual end point, and we recognized that it could be a toughsituation 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 allalong that it is probably less than a 50-50 chance, which is still there, butwe feel, I have to say, to echo what Bob said, we feel very confident regardingthe clinical aspects of this, and we'll see before the end of the year whathappens from the regulatory aspects of this. But we are going to try to publishas much as we can. As soon as we can on this patient population

Operator

And next we move to Mike King ofRodman & Renshaw.

Mike King - Rodman & Renshaw

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

Bob Hugin

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

So let's be clear at, obviouslywith THAL and REV we have very-very high market share and we are shifting theusage patterns of those drugs. So, I think they were issues and the quarterwasn't as strong as we would like it to be. But I will tell you it's alwayslumpy as we go along in these kinds of earlier stage of the drug building, thelaunch of it.

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

Operator

And next we'll go to Tom McGahrenat Merrill Lynch.

Tom McGahren - Merrill Lynch

Hi, thanks everyone. Just anotherquestion on the European rollout. Do you think it's on-track with yourexpectation so far, little faster, little slower now you mentioned that youexpect reimbursement in Spainand Italyin the first half. And also secondly can you remind us where you plan to go italone ex-U.S. whether those plans have changed and how those plans impact yourexpense expectations. Thanks a lot.

David Gryska

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

In terms of going alone and notgoing alone the base case is to go alone in those markets that we feel we canmake a difference and produce good results. And so in main Europe theexpectation is to go alone, in Japanto go alone, Canada, Australiato go alone. Latin America at least from theinitial start of the launch we'd likely to be distributorships. Middle Eastdistributorships, most countries in Central Europe we are going to look atcountry-by-country basis with a bias to where we think is an attractive marketthese small resources and do it ourselves.

Certain partsof South East Asia we’ll likely go alone andsome we will do with distributorship. So, the major markets are still clearlygo alone and we don’t think that the up front building cost and those aredramatically different from what we’ve seen so far. So, I think the strategy isclearly one of go alone, pick the distributorship where you think its reallybest 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 littlebit in the US.In myeloma you are up 10% quarter-over-quarter, yet the capsules are down. Iknow you mentioned as you move to myeloma from MDS, obviously myeloma has lesscapsules per month. But net-net, you have grown in both markets, so I guess Iam not understanding why did the capsule go down by half a capsule?

Bob Hugin

Well, it’s notthe total capsules, just the average capsules per scrip. The total capsulesobviously grew because the revenue grew.

Sol Barer

So, just to beclear Yaron, when I heard Bob say it, I was a little concerned that peoplemight take it that way. It is the average scrip had a very small decrease inthe 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 thetotal capsule certainly went up, coincident with directly proportional ofcourse to the demand. Okay is that clear? Yaron?

Yaron Werber - Citi

Yeah it'sclear.

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 moregranularity on the compendia listing in newly diagnosed myeloma? When exactlywere you listed, what's compendia and what kind of data you used for reportingthat listing? And then I have a couple of follow-ups.

David Gryska

Yeah, we received the compendialistings 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 andthe other major one, could you just give us a call afterwards, we'll give youthe specific name, but it’s the two major compendia listings, Drug Decks and Ithink Drug Points.

Mani Mahendru - Credit Suisse

And when exactly did that happen?

David Gryska

I want to say just three or fourweeks 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 salesin terms of that positive 13%. Was it 13% to 15% or 17%?

Bob Hugin

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

Sol Barer

For competitive reasons.

Bob Hugin

So probably, say for competitivereasons. Okay, so thank you everybody, joining us on today's call and for yourexcellent questions. We hope to see many of you at the upcoming financialconferences and at ASH in December. And we look forward to sharing our fourthquarter results with you on January 31 in 2008. So, thank you very much andgoodbye.

Operator

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

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