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Celgene Corporation (NASDAQ:CELG)

Q4 FY07 Earnings Call

January 31, 2008, 09:00 AM ET

Executives

David Gryska - Sr. VP & CFO

Robert J. Hugin - President and COO

Sol J. Barer - Chairman and CEO

Analysts

Geoffrey Meacham - JP Morgan

Yaron Werber - Citigroup

Jim Birchenough - Lehman Brothers

Maged Shenouda - UBS

Geoffrey Porges - Bernstein

May-Kin Ho - Goldman Sachs

Charles Duncan - JMP Securities

Sapna Srivastava - Morgan Stanley

Katherine Kim - Banc of America

Operator

Good morning. My name is Tom and I will be your conference operator today. 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 question-and-answer session. [Operator Instructions].

I would now like to turn the call over to Mr. Dave Gryska, Chief Financial Officer. Please go ahead Sir.

David Gryska - Senior Vice President & Chief Financial Officer

Good morning everyone. I am Dave Gryska, Celgene's Chief Financial Officer, and welcome to Celgene's Fourth-Quarter and Full-Year 2007 Conference Call. And thank you for joining us today.

I am in Boston, and with me in New Jersey are Celgene's Chairman and Chief Executive Officer, Sol Barer; and President and Chief Operating Officer Bob Hugin.

The press release reporting our financial and operating results was issued earlier this morning and is also available on our corporate website. I will begin the conference call by reviewing the fourth quarter and the year-end results and by sharing our financial objectives for 2008. Then Bob will review our operational and commercial results from 2007 and outlook for 2008. Sol will then conclude our session with a strategic perspective on 2008 and beyond.

Before we start, we want to remind that certain statements made during this conference call may be forward-looking or may pursuant to the Safe Harbor Provisions of the Securities and 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, and achievements to be materially different from the results, performance or other expectations implied by these forward-looking statements. These factors include the results of current or pending clinical trials, our product failure to demonstrate efficacy, or an acceptable safety profile actions by the FDA, the financial conditions of the suppliers including their solvency and ability to supply product and other factors detailed in our other filings with the Securities and Exchange Commission or referred to in the press release issued this morning.

Now, I will take you through the financial results. Total net revenue for 2007 increased to a record of $1.406 billion, an increase of 56% year-over-year. The increase was driven by multiple growing revenue streams, including record product sales of REVLIMID. Sales of REVLIMID increased in both the US and European markets in the fourth quarter and across all lines of therapy. The exceptional commercial performance of our global team translated into record bottom line growth for the quarter.

Fourth quarter of 2007, we reported adjusted net income of $132.8 million or adjusted earnings per diluted share of $0.31, this is an increase of 72% over the same quarter of last year, when adjusted diluted earnings per share were $0.18. For the full year of 2007, adjusted net income was $452.9 million or adjusted diluted earnings per share of $1.06 doubling the adjusted diluted earnings per share performance in 2006 of $0.53. We ended the year with a very strong product sales. Total net product sales of REVLIMID in the fourth quarter were $247.4 million. That is nearly double the year ago quarter results of $123.6 million, and a 24% increase sequentially quarter-over-quarter. For the full year of 2007, REVLIMID product sales were $773.9 million, an increase of 141% over full year sales of 2006.

Turning to THALOMID, net product sales for the fourth quarter increased to $112.6 million. Net product sales of THALOMID for the full-year 2007 were $447.1 million. Despite the extraordinary progress of REVLIMID in multi myeloma across all stages, THALOMID sales remained strong.

Turning to ALKERAN, net product sales for the fourth quarter were $20 million compared to $15.4 million in the fourth quarter of 2006. Sequentially, quarter-over-quarter, ALKERAN sales were up 5.7% from third quarter sales of $18.9 million. Revenue from Focalin, and the Ritalin family of rugs in the fourth quarter was $28.4 million, up from $19.6 million in the year-ago quarter. Sequentially, they increased 79% from $15.8 million in the third quarter of 2007. The increase was due to seasonal sales fluctuations as children often go off medication in the summer and start back up in the fall. Our product gross margin for 2007 was 90.1%; the gross margin in 2006 was 86.1%. Which means year-over-year there was an increase of 4.7 percentage points. We expect gross margins in 2008 to improve further to approximately 91%.

Now turning to expenses, in the fourth quarter of 2007 R&D was $93 million compared to $77.6 million in the year-ago quarter. For full year of 2007, adjusted R&D was $340.9 million. That's an increase of 38.6% over 2006 when adjusted R&D was $245.9 million. We have been investing more in R&D as we are fully committed to expanding the clinical and commercial potential of our pipeline and compounds into exciting new treatment areas in hematology and oncology as well as inflammation. Our Chief Operating Officer, Bob Hugin, will expand on those initiatives, in just a few minutes.

In the fourth quarter, SG&A was $119.8 million, an increase of 44.5% over the fourth quarter of 2006, which was $83 million. Quarter-over-quarter SG&A increased 39.8% in the third quarter of $85.7 million. This increase is due in large part to expanding international commercialization activities and programs in the U.S. to support patient access to REVLIMID, including patient co-pay programs. Year-over-year SG&A increased to $406.8 million from $268.5 million in 2006.

The increased costs are an investment in the long-term growth of Celgene as we are expanding into more countries and continents. Celgene now has a presence in over 50 countries with a total target of nearly 100 countries. Additionally, one of Celgene's core values is to support patient assistance and patient access programs around the world. As I just mentioned, in 2007 we substantially increased contributions to foundations to help underinsured cancer patients with prescription co-payments and other critical expenses, and we will continue to do so in 2008. We expect SG&A to increase approximately 10% in 2008. Our adjusted tax rate in 2007 was 28%. Since we have utilized our NOLs in 2007, we will be moving to a GAAP tax rate in 2008 of approximately 25% and we are reviewing our international structure to further approve upon that rate.

Finally, I would like to look at cash flows and our balance sheet to highlight our extremely strong cash position. We ended 2007 with cash, cash equivalents and marketable securities of $2.7 billion. This gives us the financial flexibility to maximize our potential, considered other opportunities and pursue our goal of becoming a leading hematology oncology company in the world. We expect cash generated from operations and investing activities to be approximately $900 million for 2008. 2007 marked the fifth straight year of continually increasing profitability and we look forward to greater success in 2008. We expect exceptional revenue earnings growth in 2008 driven by multiple products, countries and indications. We've previously announced on January 7th... here is our guidance for 2008 that does not include the Pharmion acquisition.

We expect total revenue to increase nearly 30% to approximately $1.8 billion. We anticipate REVLIMID global revenue to increase more than 60% to approximately $1.250 billion and we've had a strong start to 2008. We are targeting adjusted diluted earnings per share to increase approximately 45% to a range of $1.50 to $1.55.

Now, I'll turn the call over to our President and Chief Operating Officer, Bob Hugin, who'll expand the commercial success of the past year that we have established the momentum for a very promising and robust 2008.

Robert J. Hugin - President and Chief Operating Officer

Thank you, Dave. Please don't confuse the effects of my cold with my enthusiasm for the tremendous results of 2007 and for the exciting prospects for 2008. 2007 was an exceptional year for Celgene with all functions and geographic units contributing to the superlative results. Importantly, these accomplishments reflect our success in both producing stronger near-term results and accelerating the achievement of our long-term goal of becoming the pre-eminent global biopharmaceutical company focused on hematology, oncology and immune inflammatory diseases.

I'll now review the outstanding 2007 performance starting with our commercial operations. As Dave outlined, the numbers are impressive. REVLIMID’s growth of 140% to nearly $775 million was the key driver in the 56% increase in total revenue to over $1.4 billion in 2007. During the year, we also significantly increased our investments in the future by building our international infrastructure and expanding our clinical and pre-clinical research programs.

R&D investments in fact grew by 39% to almost $350 million. At the same time, our adjusted earnings per share doubled to $1.06 per share. REVLIMID’s growth was driven by significant increases in both the United States and Europe. In the United States, prescriptions grew by over 60% year-over-year and by approximately 9% quarter-over-quarter. REVLIMID usage in multiple myeloma accounted for most of the growth and for about three-quarters of all prescriptions. A little under 20% of prescriptions were for MDS and the remaining 5% to 6% were from other indications including CLL and HL and myelofibrosis.

REVLIMID’s market share in the United States grew across all lines of myeloma therapy with sharp increases in the earlier stages of the disease. The most recent third-party data reflects continued strong market share gains for REVLIMID with approximately 25% of all treated myeloma patients currently receiving REVLIMID. The successful launch of REVLIMID in several European country including France, Germany, Ireland, and Austria significantly contributed to REV's success in 2007. The remarkable efforts of our international team positions us well to reach our corporate objective of commercializing REVLIMID in all of Western Europe, Canada, Australia, and Latin America by this time next year.

We are optimistic that we will see continued strong growth in Europe in 2008 as pricing and reimbursement is achieved in the remaining countries in Western Europe and market share gains are achieved. In many market's significant advances have already been made in establishing REVLIMID as the market leader in the treatment of second-line multiple myeloma. Market share gains in Europe have generally been consistent with those achieved in the United States and similar stages of the REVLIMID launch. The presentation and publication of important clinical data has contributed to these market share gains. There were several data presentations that were most significant. The Eastern Cooperative Oncology Group and Southwestern Oncology Group’s new diagnosed multiple myeloma studied of REVLIMID and Dexamethasone illustrated the significant potential of REVLIMID in this stage of the disease.

In the ECOG trial REVLIMID and low does Dexamethasone achieved unprecedented one and two year survival rates of 96% and 87%. The SWOG study found that REVLIMID and Dexamethasone produced a superior overall response rate of 85% compared to 55% for Dexamethasone alone. Importantly, the study supported the continuing evidence of outstanding REVLIMID survival rates showing a 77% one year progression free survival compared to 51% for Dexamethasone alone. These two trials combined with other studies including the recently published Biaxin, REVLIMID and Dexamethasone trial showing a 39% complete response rate demonstrates the potential that REVLIMID has as a combinable oral therapy that produces deep and durable response rates that improve over time leading to increased overall survival for newly diagnosed myeloma patients.

Updated data from the two pivotal Phase III trials that have supported REVLIMID's approval in previously treated myeloma patients was published in the New England Journal of Medicine in this past November and presented at ASH in December. The updated data reported a median overall survival of 35 months, the longest reported median survival in previously treated myeloma patients in Phase III trials. These trials also highlighted that REVLIMID produced the highest reported overall response rates, the highest combine CR and near CR rates, and the longest duration of response in Phase III Relapsed/Refractory multiple myeloma trials.

As I mentioned, these trials supported regulatory approvals for REVLIMID. Last June, we received our first approval for REVLIMID outside of the United States with the European Union approval. We subsequently received marketing approval for previously treated myeloma in Switzerland and just announced Australia myeloma approval last week. We have advanced our regulatory program in Japan and expect to file both multiple myeloma and MDS 5q applications late this year or early in 2009. Additional approvals are expected throughout 2008.

We are committed to expanding REVLIMID'S role in multiple myeloma through additional clinical trials and regulatory approvals. It is a key corporate objective for 2008 to obtain the ECOG and SWOG data, prepare for regulatory submission and review its acceptability with regulators this year. In the first half of 2008, we will also complete approval of MMO-15, our newly diagnosed multiple myeloma trial comparing Melphalan, Prednisone and REVLIMID versus Melphalan and Prednisone. Data from this randomized double-blind placebo-controlled 450 patient trial is expected in 2009, and if positive would be used to support regulatory filings.

We are optimistic of the results of MMO-15 based on the preliminary results from Phase II trial evaluating the same regimen published in the Journal of Clinical Oncology this past September, which showed one year event free and overall survival rates of 92% and 100% respectively. A complete response rate of 24% and a combined CR and very good partial response rate of 48%. Further demonstrating our commitment to REVLIMID in the newly diagnosed multiple myeloma market, we're initiating MMO-20, the largest newly diagnosed multiple myeloma trial ever conducted comparing REVLIMID and low dose Dexamethasone to Melphalan and Prednisone and thalidomide. This global 1590 patient trial will begin enrolling patients in the first half of this year.

To fully capitalize on REVLIMID’s unique efficacy and side-effect profile, we have initiated or will initiate later this year more than a dozen trials with almost 4,000 patients exploring REVLIMID’s usefulness in upfront multiple myeloma with multiple combinations and in the high potential maintenance setting. We have the potential to produce data that demonstrates overall survival advantage increasing and durable response rates and high quality of life for extended periods of time. The promise of REVLIMID extends well beyond multiple myeloma.

We are committed to fully exploring its potential in multiple indications. REVLIMID is being studied in more than 100 clinical trials worldwide with the great majority outside of myeloma. Expansion of the REVLIMID franchise in MDS remains the high priority for us. We were pleased to announce last rate there our REVLIMID 5q Deletion MDS application had been approved in Canada, a very positive step in the initiation of our commercial operations in Canada.

At the same time, we announced the negative CHMP Opinion regarding the same application in Europe. We intend to appeal this decision and will supplement our application with additional analysis in the coming weeks. We are hopeful that our MDS 5q franchise will be further strengthened later this year when the data from our randomized controlled trial MDS-004 is released. This trial was fully approved last June as such we would expect the data to be available late in third quarter of this year.

New and updated data presented in 2007 reaffirm the potential of REVLIMID in both chronic lymphocytic leukemia and Non-Hodgkin's Lymphoma. Let me spent a minute updating you on our plans to accelerate these programs in 2008. In CLL, we've initiated our dose finding and titration studies CLL-001 in relapsed refractory patients, which is expected to conclude by mid-2008. These results will establish the dose and schedule for our Phase III SPA regulatory track trial, which we plan to initiate later in 2008.

In addition to CLL-001, there are six other studies currently enrolling patients in either single agent or combination studies. Over the next 12 months, we expect to initiate four registration track studies in addition to CLL-002 our planed SPA study and another eight to ten Phase II or independent investigator studies. In NHL, we are nearing complete enrollment of NHL-003, our 200 patient single agent open-label study in relapsed refractory aggressive NHL. Its regulatory utility in combination with the previously completed trial NHL-002 will be reviewed once the data is available late this year or early next year. It is our intention to initiate five registration trial including studies in diffuse large B-cell lymphoma and Mantle cell Lymphoma. Additional Phase II trials evaluating various combination therapies are initiating now.

By the end of 2008, we expect to have no less than 40 trials studying REVLIMID in CLL and NHL. These trials are designed to support regulatory applications, explore potential combination therapies, and provide direction for further clinical study and to support commercial strategies. In addition to REVLIMID, we are also continuing to advance our deep pipeline of IMiD compounds including our CC-4047 program in myelofibrosis, multiple myeloma, solid-tumor cancers and Sickle Cell Anemia.

2008 will also be the year of building a robust foundation for our anti-inflammatory franchise. Last year, we announced the positive results of our randomized placebo-controlled Phase II proof-of-mechanism trial for our lead TNF-alpha inhibitor, CC-10004 in psoriasis. The full data set from this study will be presented this weekend at the American Association of Dermatology Meeting in San Antonio.

Following recent regulatory discussions, we are embarking on an aggressive clinical program to explore the full potential of both CC-10004 and 11050 in a range of dermatological, rheumatological and inflammatory conditions. Later this year, we will initiate a Phase IIb study in psoriasis, examining the potential benefit of extended duration and higher dosing of 10004 in advance of commencing Phase III studies.

In addition to the ongoing psoriatic arthritis and recalcitrant psoriasis trials, it is our intention to launch five Celgene sponsored trials this year in addition to the 20 investigator initiated trials planned. Other Celgene programs also continue to make excellent progress. We recently filed an IND for our first oral JNK Inhibitor, CC-930 that we look forward to moving into Phase I the first half of the year. We are also on target to file our first IND for PDA001, our proprietary for central stem cell product this summer. We will update you further as these programs progress.

As I hope, you can tell we are very pleased with the progress that was achieved in 2007 and have high expectations for the prospects for 2008. In addition to the progress of our commercial clinical research programs, we strengthened our long-term growth prospects through a number of strategic collaboration highlighted by the Pharmion merger and also with the number of equity investments and high potential research focused biotech companies and research collaborations with Array BioPharma and PTC Therapeutics.

Let me now take a moment to update you on the Pharmion transaction. We believe that the combination of Pharmion and Celgene makes exceptional strategic sense and enhances the value of both companies. We look forward to working together with the outstanding team at Pharmion to advance our combined products and pipelines globally. We have made excellent progress in advancing the transaction on several fronts. Earlier this month we announced 30-day waiting period under the U.S. Hart-Scott-Rodino Antitrust Improvements Act had expired. And we also recently announced the transaction had cleared German Antitrust Regulatory Review. The S4 proxy statement has been filed with the SEC and we anticipate an expeditious filing of the final proxy and mailing of the proxy to Pharmion shareholders. It is expected that our shareholder vote would be scheduled approximately 30 days after mailing. Following a positive shareholder vote, the transaction is expected to close in March.

Let me now turn the call over to Sol.

Sol J. Barer - Chairman and Chief Executive Officer

Thanks, Bob. As you’ve heard 2007 was a landmark year for Celgene. We achieved record financial results reporting adjusted diluted earnings per share of $1.06. Established REVLIMID as one of the most successful hematology, oncology products with revenues of over three quarters of $1 billion with $247 million in the fourth quarter, began our international commercialization efforts with operations in 50 countries notably France and Germany, set the stage for our major international commercial expansion to almost 100 countries within five years, continue to advance our research and development pipeline with our IMiD TNF-alpha inhibitors, numerous kinase inhibitors and proprietary new classes of compounds and importantly began to grow Celgene with external partnerships and acquisitions in addition to our successful internal growth.

All this contributed towards the advancement of our strategic mission to become a pre-eminent, global biopharmaceutical company meeting the unmet medical needs of patients with cancer and serious and debilitating inflammatory immunological diseases. But this is just the beginning. We expect 2008 will be a year of year of truly dynamic growth driven by REVLIMID, our international expansion in our pipeline.

In 2008, we will continue to work towards regulatory approval for REVLIMID in two major indications, chronic lymphocytic leukemia and non-Hodgkin's lymphoma where we plan to initiate two new Phase III special protocol assessment trials. We will advance our REVLIMID pivotal Phase III international trial in newly diagnosed myeloma, which as Bob indicated is expected to be fully enrolled in the first half of 2008, while analyzing the REVLIMID newly-diagnosed myeloma co-operative group trials for potential submission to the FDA.

We are also significantly expanding the global reach of REVLIMID. We’ve recently secured approvals in Australia and Canada and anticipate REVLIMID being commercially available in more than 30 countries by this time next year. Beyond that, we look forward to expanding commercially into the Asia-Pacific region including Japan, Latin America and the Middle East by late 2009 and early 2010.

REVLIMID can be considered a pipeline in itself. In addition, our research and development team is advancing several promising candidates forward in hematology and solid tumor including pomilitimide [ph], CC-11006, PLEIOTROPIC PATHWAY MODIFIERS, kinase inhibitors such as CC-930 which is now entering the clinic and a new subclass of IMiD having potent solid tumor activity, improved clinical models.

As Bob indicated the next IMiD compound pomilitimide is currently being studied in myelofibrosis and sickle cell anemia with the trial in multiple myeloma to be initiated. Moreover we are beginning studies in 2008 in solid tumors. We are advancing our lead anti-inflammatory compound Apremilast or CC-10004, a proprietary oral agent that inhibits TNF-alpha among other cytokines and it's currently under evaluation in clinical trials in moderate to severe psoriasis, [inaudible] psoriasis and psoriatic arthritis, with plans to initiate trials in 2008 in a number of other dermatological and rheumatological diseases. Actually, data is going to be presented this weekend at the American Academy of Dermatology Meeting on this compound's activity in moderate to severe psoriasis.

As David mentioned, our financial picture is excellent, with strong cash generation targeted towards fulfilling our global mission and it's appropriate to grow Celgene through select global partnering opportunities and strategic investments. Notable in this regard is our agreement to acquire Pharmion, which from a strategic, financial, clinical, product and importantly human resource perspective represents an important step forward in our growth to a preeminent global hematology, oncology company. As always, our focus is on patients. Our therapies help physicians deliver higher quality healthcare resulting in improved patient outcomes worldwide. To this end, we continue to provide patient support that is both generous and caring.

Our RevAssist a new Patient Support Coordinator program remain unique to the industry. In addition, our donations to independent non-profit 501-C3 co-pay foundations and our three drug programs for qualified patients have been and will continue to be some of the most generous in the industry. This is an extremely exciting time in the company's history. This is only the beginning of our mission to maximize Celgene's potential worldwide. In the coming years, we will benefit from multiple high-potential global revenue streams, label expansions for REVLIMID in newly diagnosed myeloma, chronic lymphocytic leukemia, and non-Hodgkin's lymphoma, expansion into additional blood cancers, increasing our global opportunities and expanding our product line with new innovative therapies dealing [ph] with logical malignancies, solid tumors, and serious inflammatory diseases.

I've never been more optimistic regarding Celgene's future. We truly have the potentials to become an exceptionally successful pharmaceutical company. I'd like to thank the entire global Celgene team for all of the extraordinary accomplishments reached in 2007 and the many milestones that we plan to achieve in 2008.

Operator, now please open the call to questions.

Question and Answer

Operator

Thank you sir. [Operator Instructions] We will go first to Jeff Meacham with JP Morgan.

Geoffrey Meacham - JP Morgan

Hi guys. Thanks for taking the question. A couple of questions for you on financials. One, gross margins seem to be a little bit flattish in the quarter, despite a pretty good REVLIMID number, can you give us a sense whether there were any one timers there? And then also for SG&A it seem to a ramp up a little bit in the fourth quarter, is that mostly co-pay assist or does that reflect, I guess, more of the global rollout that you guys have done over the second half of '07?

Sol J. Barer - Chairman and Chief Executive Officer

Dave, could you take that one please.

David Gryska - Senior Vice President & Chief Financial Officer

Sure, Jeff. On the gross margin line, our contract with ALKERAN has adjustments that are built in that increased the cost of goods sold for us, so even though revenues are increasing, which is contractually, it's something that is in the contract where our revenue… our gross margins do look a little bit awful a bit in the fourth quarter, because of the ALKERAN contract. So if we didn't have that in there, the margins would have been better by a couple of points, number one. Number two, the SG&A did increase Q3 to Q4. A majority of that was just getting ready for expansion in other parts of the world into Asia and to other parts of Europe. So we have to hire some more key individuals along that line and we did make some contributions to some of the non-profit organizations on co-pay because there was simply a need for that and that was appropriate to do in the fourth quarter.

Robert J. Hugin - President and Chief Operating Officer

But the outlook for the year is still, I think, if you look at the SG&A, the guidance for ’08 is consistent with what they had outlined on the call of 10% or so in increase.

Geoffrey Meacham - JP Morgan

Right, just a quick follow-up on that Bob, with respect to the guidance for the year, it looks like. You know with the SG&A and margin and your tax rate, should we… I guess, we should expect pretty dramatic increases in R&D. And then what's the sort of the flexibility with some of those cost or is that just you guys sort of baking in and maybe some contemplation of Pharmion cost?

Robert J. Hugin - President and Chief Operating Officer

No, really the information that we provided in terms of guidance is really just for Celgene excluding Pharmion, but it is, I hope you can tell that we really do expect CLL and NHL, now that we get the dosing and titration underway, the result from CLL have just been in every potentially test REVLIMID and CLL the results have been striking and compelling. And so the fact we had to take some time here to get the dosing and titration schedule resolved is a necessary and important function, but as we are resolving that in the coming months, we are going to aggressively move forward and we are looking forward to getting SPA pivotal trials up in CLL and NHL and the MMO-20 to show the commitment to newly diagnosed myeloma.

So, I think we are optimistic that we are going to have positive results, which will support the increased expansion in R&D. If things don't move as positively as we hope, we might see some positive impact on that in the bottom line, but we hope that's not the case. Our intention is to move everything forward, including from stem cells to oral JNK inhibitors to 4047, to our new compounds coming into the clinic, even more quickly than we thought in accelerating pre-clinical compound. So, we are building for the future and that's why I think when you look at the whole picture of R&D internal, external collaborations, we want in 2015 to 2020 to be the most exciting time in Celgene's history as we are thinking to build that global company.

Geoffrey Meacham - JP Morgan

Okay, thanks.

Operator

Okay, your next question from Yaron Werber with Citi.

Yaron Werber - Citigroup

Hi, thanks for taking my question. I have two questions. First for Bob, can you give us a sense and the break between US and actual sales of REVLIMID or how much is the growth quarter-over-quarter was outside the US? Was there any stock stockpiling in the quarter? Then I had a quick question on Pharmion.

Robert J. Hugin - President and Chief Operating Officer

Yeah, I think, we haven't broken out US and non-US. I think over time, now we have made it very clear that we think the opportunity in the international is actually as equal or actually larger than the US potential, but I think in terms of the fourth quarter, trying to give you some sense of it that we saw 9% prescription growth in the US and strong growth internationally. So that's as specific as we are going to be. We anticipate in the guidance numbers that we’ve given for '08, good growth in both markets, both growth in the European markets where we've already launched as we gained increasing market share going from later stage patients up to second line patients and in markets that we haven't yet penetrated like Italy and Spain, that we hope the first six months of the year will bring on board in other countries as we bring them on step-by-step.

And in the US, we are seeing positive signs on duration which is a… which clearly is a benefit to us as we get patients, stay on the drug longer. We’ve in the relatively short period in time, since we launched in myeloma in the US, REVLIMID duration has expanded past the duration that we've been able to produce with THALOMID, obviously because of side effect profile of REVLIMID doesn’t have the neuropathy that other compounds like THALOMID and others have and it has good side effect profile with significant efficacy. So we are pushing hard for a growth in the US, its going to be on the myeloma, we are not anticipating in our guidance much growth, very little growth in MDS, slight growth and in International combination. So, overtime Europe is going to be a bigger… and Asia [ph] going to be a bigger part of the pie. It's going to be very important to the growth, but it's not the only part of the growth.

Yaron Werber - Citigroup

Was there any stock pilling in Q4?

Robert J. Hugin - President and Chief Operating Officer

I think that there might have been some minor benefit of a few million, as we said each quarter, the quarter end can vary. There might have been a little benefit so the run rate might be little bit less than 247, but it was still a very strong accelerating growth in the last few weeks of the quarter in December. In the third quarter we had a little de-stocking of inventory, in the whole schemes of the things on an annual basis we're talking about 1 or 2% numbers here that I don’t think really impact the long-term direction of the results of '07 looking forward, but again a minor benefit in the fourth quarter.

Yaron Werber - Citigroup

And just a follow-on on Pharmion, can you give us the sense, when was the proxy actually filed for this, no actual date on the material and is the vote 30 day after the proxy was filed, give us a little bit better clarity on when the vote might have happen?

Robert J. Hugin - President and Chief Operating Officer

I believe the date of the actual filling was the 22 or 23 of January, that time frame, and then, you lots of things, SEC can review it, they can review it minor they can move quickly, we are comfortable that there will be an expeditious filing of the final proxy and when the final proxy is filled, hopefully here in the near-term you would be have a mailing to the Pharmion shareholders and you'd expect under normal circumstances in a deal like this, the Pharmion shareholder vote would be scheduled about 30 days following the mailing of the proxy and everything is on track for an expeditious timing as we move forward here.

Yaron Werber - Citigroup

Great thank you.

Operator

We will take our next question from Jim Birchenough Lehman Brothers

Jim Birchenough - Lehman Brothers

Hi, couple of questions just on frontline myeloma. Just trying to get a sense with the ECOG study, we didn't have CR rates really at ASH, because of the lack of bone marrow assessment. Is there an ability to collect bone marrow samples going forward in that study and could we see updated CR data? Also I am wondering what the gating factors are to getting that data and how… and what you think the timeless are for discussion with FDA. And then just finally on the 015 study, final data in '09, but if you look at the early stoppage of VISTA [ph], is there some interim analysis that could provide data earlier in that study?

Robert J. Hugin - President and Chief Operating Officer

Okay, there were several questions in that. In terms of the CR rate in the ECOG study, as you know, bone marrow data was not collected, you would… you can go back and do that. But they are collecting CR data based on blood and urine. We understand the ECOG is doing that and from what I understand there is an abstract that's going to be presented at ASCO but again, we don't know to what extent they are going to make progress and how much they are going to collect within the period of time between now and then. But we are pretty optimistic in terms of... at the end of the day in terms of CR rates based on previous REVLIMID trials and certainly the CR, very good partially response rate is in the 40% plus range already. And one of the unique aspect of that, which I should mention and which is important is that REVLIMID has bit of a unique characteristic as a biological sort of modifying agents and the fact that CR rates will improve over periods of time, so patients can be on there for a while and CR rates can get even better.

And of course on top of all that CR data that will be coming in both from the ECOG trial, the BiRD trial in combination with Biaxin which had very, very high CR rates or the overall survival numbers which will continue to be reported on and updated which are obviously at the end of the day probably the most important thing we are facing, you have to be alive in order to respond. In terms of I think another question that you asked Jim was regarding the timing for the ECOG data and we are obviously working with ECOG to collect the data as quickly… as quickly as they can, that's what something that they are doing. This is not something that we do. We’ve obviously been through this before, our approval for the thalidomide in first-line myeloma was based on an ECOG trial, which they went through the same process.

I would plan [inaudible] timing on it but certainly in 2008, we will be going through the data, we will be making the appropriate analysis, we will talk to FDA regarding it and then based on the conversations with the FDA, we will be making a decision regarding submission, what specific indication or sub-indication to go for in terms of newly diagnosed myeloma, and it should be clear that this is a less certain path than the more belt and suspenders, MMO-15, which is a double-blind placebo-control trial, which all the belts and whistles associated with it. So this is something we are pursuing, obviously aggressively look forward to talking to the FDA and also the EU authorities based on the kind of data we get.

Sol J. Barer - Chairman and Chief Executive Officer

And Jim, your question about MMO-15. There are obviously opportunities for potentially earlier release of data but from our perspective we would like to keep the expectations as conservative as appropriate so that is why we outlined the timing that we outlined in the conference call and if the results are better that we will take the advantage of that upside. And I do just want to mention one thing that someone did raise a question about... earlier about... before the call about the press release about the compendia listing in the newly diagnosed sector. Do want to make it clear that at the end of September of '07 we received compendia listing for multiple compendia agencies for newly diagnosed myeloma. And it is very clear that we have compendia listing for all stages of myeloma but specifically for newly diagnosed multiple myeloma.

Robert J. Hugin - President and Chief Operating Officer

Next.

Operator

We will take the next question from Maged Shenouda with UBS.

Maged Shenouda - UBS

Sure, hi. Thanks. Just a question on Bob’s comment about market share dynamics in Europe, parallel in the US at similar stage of launch for REVLIMID. Does that also apply for first line multiple myeloma? Can you just elaborate on that?

Robert J. Hugin - President and Chief Operating Officer

Sure Maged. The market share is important dynamic when you think about what the ultimate over all prospects for the drug are in terms of the penetration rates and the number of patients etcetera to what [inaudible] is going to be. So we've been very encouraged. In Europe, it is not uncommon to start with the salvage later stage patients and move up, and we've been very pleased in the countries where we've launched to move quite quickly up in various stages of the disease. Europe is a different market than United States. There are some countries that are very much focused on the clinical benefit and physicians are able... and patients are able to get reimbursed for therapies for newly diagnosed myeloma or other indications that are not covered in the label, and there are some countries that are very resistant to that and prohibit and prevent that from happening.

So in the countries that we don't have a label, it's really up to physicians and the system to work that out. And we've been successful already, our patients have been successful and physicians have been successful in some of the larger countries who already be able to prescribe REVLIMID and get the patient reimbursed for… and newly diagnosed in some of the larger markets. And our own estimates, something we obviously would not and do not promote outside the label, that we would not be surprised to see something in the order of 10% market share in those markets in terms of… in the European markets for front-line, but our projections and our outlook are based on really having a major, major impact on second line myeloma.

Maged Shenouda - UBS

And what is your penetration right now in the front-line setting in the U.S.?

Robert J. Hugin - President and Chief Operating Officer

I think that we've looked different third parties but... and I just read different third party... and again we don't get it under the RevAssist, the different lines of... we just guess… who is myeloma patient etcetera. But I've seen a number of third parties studies that show us around a 20% newly diagnosed number, and that is a third-party estimates.

Maged Shenouda - UBS

Great. Thank you.

Operator

And we will take your next question from Geoffrey Porges with Bernstein.

Geoffrey Porges - Sanford Bernstein

Thanks very much for taking the question. Couple of... first, you mentioned that Compendia and given UnitedHealthcare is finally going to use the MCC and Compendia, I checked that this morning and it looks as though your listing there is only front line transplant candidates not non-transplant candidates in front-line setting. And this time you rated 2B rather than 2A. I'm wondering if you think that that can change and certainly also what you think that Medicare might switch to the MCC and Compendia.

And secondly just for Sol, on R&D, you came in at about 22% of revenue in the fourth quarter, 24% for the year and really a remarkably small number for a company of your size, $340 million or so. Obviously that is going to ramp next year, but I think we all had a sense that you are playing a little bit of catch up on a couple of things like maintenance, like MHO and even front-line. Are you going to be more aggressive about really investing in all of your potential opportunities and where might that R&D ratio go as you do that in the future? Thanks.

Robert J. Hugin - President and Chief Operating Officer

Yes. Let me… it is Bob, let me just answer the first one, which I think is an important one, because reimbursement in all the markets especially in United States is one that you need to be focused on, we certainly need to be focused on and are focused on, have a... I think a great track record, our team of ensuring that our products are well reimbursed for patients in United States and around, and the world. I think under Medicare, there is lots of things going on there and there is issues between comparability and equality between Medicare Part D and Part B. People who are… drugs that are only Part B think Medicare Part D is too favorable and people at Medicare Part D drug think Medicare Part B in terms of Compendia etcetera, is more generous. We so far have been very happy with what's happened with any physicians or patients just wanted to prescribe or take REVLIMID for newly diagnosed of getting complete reimbursement and I think in terms of the MCN... MCCN guidelines, you are actually right, and so we have it for that segment population we are... I think we're pretty confident about how that will be expanded in the relatively near-term but in terms of the Medicare the Compendia listings that we have do fully give us coverage for every patient on the Medicare Part D today. So, again this is always something we are focused on, we need to be focused on. It's something that will only have increasing importance, and so far we believe we are in very good shape but will continue to push hard to make sure we are always in the better shape.

Sol J. Barer - Chairman and Chief Executive Officer

And in terms of the R&D, I agree with you Jeff. Our perspective is that, and I’ve said this many times that research and development is the life blood of any pharmaceutical company [inaudible] Celgene were many, many [inaudible] development so far, virtually our entire pipeline has come from internal developments and we intend to be aggressive in terms of investing where we think some of the major opportunities are... not only in REVLIMID whereas Bob indicated, there are lots of trials that are ongoing. We are spending that significantly in everything from newly diagnosed to Chronic Lymphocytic Leukemia, Non-Hodgkin's Lymphoma and others but also a pipeline of products, CC-4047, 10004 and there are some very, very exciting early stage compounds that we are currently investing in, which I think is going to be very, very important.

I really would love to have the time to go through some of those and because there's so much in the pipeline and it really doesn't get the kind of visibility that we really think it deserves and can match the excitement within the corporation, we will have an Analyst Day later in the year, we haven't formulated the exact date, but we're going to do that and probably towards the end of the year, because I think there are so much going on, we do need to prepare for that, but nevertheless you will see research and development and expenditures it will be done in a prudent fashion but there are a number of areas that we think we can benefit from in the future and some very exciting stuff that we haven't talk about yet.

Robert J. Hugin - President and Chief Operating Officer

I think it's also just to make it clear to everyone that if you look historically there had been years where we have had very high percentages obviously which is obviously early in our development. We want to make it very clear that we don't have guidelines that hamstring or restrict us. We very much look at what the potential is and what we can afford and want to spend everything we possibly can to accelerate and grow the company for the long-term.

Geoffrey Porges - Sanford Bernstein

From their perspective its philosophical and strategic perspective of investing in research and development, I agree completely.

Operator

We'll take our next question from May-Kin Ho with Goldman Sachs.

May-Kin Ho - Goldman Sachs

Hi, a couple of questions. One is on REVLIMID, what is your share now in second and third line multiple myeloma? And the second is on the development on 4047. What are some of the lessons learned and that you have based on previous molecules that you are going to change for the development of this compound, and what exactly the plans for solid tumors? I know that you mentioned earlier that you'll be starting from studies.

Robert J. Hugin - President and Chief Operating Officer

Let me first deal with the REVLIMID market share that in the later stages… in different lines of therapies in the US where we’ve now been on the market for about a year and a half or so. In the later stages, it's a very high percentage, so any patient that had prior therapies before REVLIMID being approved see REVLIMID later in this treatment of disease, so we were in the 40% plus in the third and fourth lines, and in second lines, we are likely to be in the… different external third-party providers that we've looked at. The estimates are in the 30% market share in second-line.

Sol J. Barer - Chairman and Chief Executive Officer

All right. And I think the second part of the question was in terms of 4047. Let me just step back not everybody may know this compound. This is an ImiD, it is an ImiD, that had second priority obviously to REVLIMID where we’ve put most of our focus in. It is the most potent ImiD that we have found so far. Its potency is about in order of magnitude greater than that of REVLIMID. It is currently being investigated in some solid tumor trials. Our plan here is to look at it in specific hematological malignancies such as myelofibrosis and in multiple myeloma. I think a key thing that we do being very aggressive in terms of getting into the clinic is we need to understand the dosing regimens 4047 very well. The myelofibrosis trial is a trial that looks at dosing carefully. We have a small cell lung cancer trial, that is ongoing now. That's going to be initiated by the end of this first quarter. And we have another trial that will be initiated at the middle of the year in 4047 in soft-tissue sarcoma, which again is a Phase II open-label trial we did… that's going to open in US, EU and Australia with about 170 subjects, that has a couple of stages and sort of rebuilding in what we've learnt in the first stage. In the second stage, we understand the maximum tolerated dose for this compound is about seven mgs [ph], which is again very, very important compound. So we are looking at it from… at a variety of indications, but with a specific rationale to each of those indications.

Operator

We'll take our next question from Charles Duncan with JMP Securities.

Charles Duncan - JMP Securities

Thanks guys, congratulations on a good quarter and thank you for taking my question. I had a question on REVLIMID with regard to its duration of uses as well as it's dosing. You mentioned duration was beyond that of THALOMID. Can you give some specific information on that and then in terms of, what you're seeing in the market with regard to dose… maintenance of dosing?

Robert J. Hugin - President and Chief Operating Officer

Charles something happened on our line here. Would you repeat the second part of your question… didn't come through quite as clear.

Charles Duncan - JMP Securities

Yes, what I was interested in if you had data on the duration of REVLIMID dosing that you're seeing in the market as well as that dose kind of the magnitude of dosing. You know if you're seeing any reductions, or what are the dynamics with regard to REVLIMID dosing?

Robert J. Hugin - President and Chief Operating Officer

No, thank you. In the U.S., we are able to more closely look at these issues than we are outside the United States because of RevAssist. And we've seen over time very positive shifts in duration. As you'd expect early in the launch of REVLIMID in a lot of late-stage patients, we now have gone on a total basis, including the late-stage patients, the median above eight months. So, that's encouraging at this stage to us is, it's about half a month longer than we had targeted for this time in the drugs launch. So, we're encouraged by that and we're working very hard to do additional clinical trials and publications and we even help our people to be able to educate and promote how to use the drug even longer, because when you think about REVLIMID and its advantages it is the ideal drug for extended therapy. Efficacy that improves over time, very tolerable by patients, don’t feel or see the side effects of the drug generally, and can keep and maintain a response for a long period of time. So, that’s critical to us and we are starting to see the benefit of that in the U.S., as we’ve gone now past the [inaudible]. On the dosing side, we’ve also seen good stability where there are some patients that started 25 and will come down to 10 or 15, but the average dose in the 19%, 20% milligrams has been pretty consistent for a period of time now. So, both the trends on dosing and duration are encouraging for us and you know that our philosophy from a pricing point of view is that the cost of therapy should… surely should not be impacted by what therapy or what dosage forms are needed and that’s our intent with the pricing over time.

Sol J. Barer - Chairman and Chief Executive Officer

And just to summarize to build on what Bob has said, from a time perspective REVLIMID is a compound that is really interesting from a longer-duration perspective, because number one, it does not appear to be any cumulative toxicity such as peripheral neuropathy associated with it. It has a very, very different mechanism, which involves an immunological component, which also we think leads to improved responses over periods of time. So, we are very encouraged particularly given that the duration is increasing, there’s still a number of patients, a significant percentage, are still on lateral lines of therapy. Okay, so we're going to take just and I am being told it’s 10 o’clock, we're going to take two more questions now and the first, operator?

Operator

Yes, our next question comes from Sapna Srivastava with Morgan Stanley.

Sapna Srivastava - Morgan Stanley

Hi, thanks for taking my question. Two quick questions, one is just on seasonality I remember last few people had mentioned in fourth quarter to expect some negative trends because of the doughnut hole effect from Medicare and I wonder if you saw any of that in this quarter this year. And secondly, just on seasonality again, do we extend the patient co-pay, the duration for patient co-pays to be more concentrated in the latter half of the year every year or is this something, which is a 2007 phenomenon? And just a last question on front line filing, in the U.S. what updates can we get from you to see where you are in the process of filing in the U.S.? And lastly just in Europe with the Palimed [ph], slightly more limited label and you going with REVILMID MTR potentially there, how do you see that playing now in front line there?

Robert J. Hugin - President and Chief Operating Officer

Okay, let me go through a bunch of these one at a time. First, in terms of seasonality, we were concerned two years ago or a little over a year ago with the first time that Medicare Part D went through in December as most people are familiar with Medicare Part D. Patients have good coverage and then they hit into a doughnut hole, which exposes the patient to significant co-pays, and after they go through the doughnut hole, then get extensive coverage after that. And so you are worried of new patients gone and enter the doughnut hole for the first time very late in the year and then have a very large co-pay earlier in the next year. And I have to tell you frankly that, it's not clear that any year will predict next year, but the first two Decembers, the impact of the double doughnut hole has been less than I personally would have anticipated and that any effects that we see in August or December are more related to seasonal factors in patients and physicians’ personal lifestyle and choices on the holidays and vacations, etcetera have more impact on prescribing trends than that has the double doughnut hole had an impact. So, that really hasn't been as significant as possible.

In terms of the seasonality of co-pays, I think it's a combination of things frankly. One, we want to ensure that whenever possible we fully support the independent third-party non-profit foundations, and if the quarters allow us to be a little bit more generous in terms of funding them in advance of what potentially might be needed we'll do that. But generally, the largest donation period for co-payment foundations is going to be in the first quarter of the year and likely that's when we’ll have our most significant contributions in donations. But it’s not always as directly linked, but certainly their donations are heaviest in the first quarter and usually it will be ours also. And in terms of front line, in Europe... in terms of the United States, obviously as we outlined, we are going to get the ECOG data as quickly as we can and we'll analyze it and put it together in a way that would be most acceptable to the FDA. And if it’s acceptable to the FDA, we would look at it... ECOG and SLOG data are combined with the FDA. If it’s accepted by the FDA, we would also then have discussions with regulators outside the United States about it also. In terms of its impact of having whether it’s RevDex or MPR, so far we haven't seen that that's going to have an impact on the label having a specific usage in terms of its combination. As long as it’s approved in the front line, we would expect reimbursement to be well taken care of.

Sol J. Barer - Chairman and Chief Executive Officer

Thanks. One more question.

Operator:

Our final question comes from Katherine Kim with Banc of America.

Katherine Kim - Banc of America

Hi. Thanks. I am glad that I was able to squeeze in at the end. I have two questions. So, first is, could you give us an idea of the market potential in Japan for REVILMID?

Robert J. Hugin - President and Chief Operating Officer

Yes. Japan is basically, especially for cancer, the second largest individual market in the world, and for some indications it is really not an attractive market and some of the indications that we may eventually pursue will not be an attractive market. But for our most advanced marketplace, multiple myeloma, it has prevalence at or higher than the level seen in the United States and Europe. So, it’s a highly attractive market with good reimbursement, it's obviously a developed country and one way of pricing is very much dependent on the pricing parameters in other countries that use different mechanisms to look at the different market places and say what is the appropriate pricing. In the case of REVILMID, the fact that we have a relatively uniform global band of pricing makes Japan a very attractive market for us in multiple myeloma, especially since the myeloma market is an international market and the Japanese KOLs are very well known in the myeloma market. We’ve developed a very direct presence in Japan and developed strong relationships with KOL. So, as we look to file our applications in both MDS and MDS 5q and in myeloma, late this year, early next year, we are optimistic that once we get approval, we would expect a very, very rapid up tick in Japan. And I think just as a side note to mention that, when we went to the Japanese, The Ministry of Health early on to talk about REVLIMID's potential in both MDS and myeloma, the committee for unapproved drugs designated REVLIMID as the high priority for approval. So, again, we have to be cautious, we’ve got a lot of work left to do, but the trials have accrued rapidly in Japan, the regulators are very positive, and it's going to take time. But, so far, we are very encouraged about what the timing will be and what the prospects longer term in Japan will be.

Sol J. Barer - Chairman and Chief Executive Officer

And one thing I should just add on to Bob is, in terms to the relationship, it is a very important market for us, number one. And we thought that it would be critical for us to take advantage of this on our own and we have built up an important, still small organization in Japan that is entirely staffed by Celgene people to look through the registration process, the clinical trial process, and ultimately the commercial process as opposed to a partnering strategy. So, as Bob indicated, this is something that's a very attractive market, second largest country for oncology after the United States in the world, and this is something that we look to take advantage of for ourselves, for our shareholders completely. The other point is, in terms of relationships, we did host a mission from the regulatory authorities in Japan... in the United States for about a week to get to know Celgene, to get to know the distribution system regarding REVLIMID, etcetera. So, it is an important country for us and we look to having submissions there, perhaps a submission by the end of this year and the myeloma submission sometime in 2009 and… okay.

David Gryska - Senior Vice President & Chief Financial Officer

Thank you very much for joining us. We appreciate you making the time and commitment to go through all the questions, and we look forward to updating you on our next quarterly call and at investor conferences around the country, and thank you very much.

Operator

This does conclude today's conference call. We appreciate your participation. You may disconnect at this time.

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Source: Celgene Corp. F1Q08 (Qtr. End 12/31/07) Earnings Call Transcript
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