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Executives

Gregory Mayes - Vice President and Interim General Counsel

John Johnson - Chief Executive Officer

Ken Zuerblis - Senior Vice President and Chief Financial Officer

Michael Bailey - Senior Vice President of Commercial Operations

Erik Rowinsky - Executive Vice President and Chief Medical Officer

Analysts

Eric Schmidt - Cowen & Company

May-Kin Ho - Goldman Sachs

Mike King - Rodman & Renshaw

Jeff Meacham - Goldman Sachs

Han Li - The Stanford Group

Steven Harr - Morgan Stanley

Maged Shenouda - UBS

Yaron Werber - Citigroup

Katherine Kim - Banc of America Securities

ImClone Systems, Inc. (IMCL) Q1 2008 Earnings Call April 24, 2008 11:00 AM ET

Gregory Mayes - Vice President and Interim General Counsel

Good morning, everyone, and welcome to ImClone's First Quarter 2008 Financial Results Conference Call. I am Greg Mayes, Vice President and Interim General Counsel for the company. And with me today are John Johnson, ImClone's Chief Executive Officer, Ken Zuerblis, Senior Vice President and Chief Financial Officer, Michael Bailey, Senior Vice President of Commercial Operations, and Eric Rowinsky, Executive Vice President and Chief Medical Officer.

John will begin today's call with the top-level review of our most recent achievements. Ken will then review our first quarter 2008 financial results. Michael will discuss the commercial aspects of ERBITUX, followed by Eric who will highlight the clinical development of ERBITUX and our pipeline antibodies.

On a legal note, I must remind everyone that certain information discussed on this call may constitute forward-looking statements within the meaning of the Federal Securities laws. Although we believe that the expectations reflected in these statements are based on reasonable assumptions, we cannot give assurance that the expected results will be achieved. We refer you to our Exchange Act filings for factors that could impact the company. For forward-looking statements made during this call, the company claims the protection of the Private Securities Litigation Reform Act of 1995 and assumes no obligation to update or supplement such statements.

I will now turn the call over to John.

John Johnson - Chief Executive Officer

Good morning everyone, and thank you for joining our call. As Greg mentioned with me today is our new Chief Financial Officer, Ken Zuerblis. Ken joined us on March 31st and is a valuable addition to our team. He has a wide range of biotechnology and public company experience. His skills and insight will contribute significantly to our efforts as we take this company to the next level. We are all pleased to have you on the team Ken. Welcome aboard.

The first quarter was a period of continued execution and growth for ImClone. We continued to build on our progress in 2007 strategically moving the company forward and enhancing shareholder value. We are particularly excited to have ERBITUX highlighted with two presentations in the annual ASCO Meeting Plenary Session, which features some of the most significant research presented at this prestigious scientific meeting.

We look forward to the presentation of this data and discussing the study results in more detail on June 1st. Overall at ASCO, the company expects more than 80 abstracts and posters at the meeting, covering both ERBITUX and our pipeline of novel antibodies. This demonstrates real progress from where the company was just a couple of years ago.

During the quarter, we continued to advance against our three primary goals; growing ERBITUX sales, accelerating our pipeline of novel antibodies, and expanding our capabilities and capacities.

With respect to expanding ERBITUX sales, I am pleased to report that we've achieved our fourth consecutive quarter of increased sales demand in North America, seeing a steady growth as anticipated. I would like to also congratulate our partners at Merck KGaA for another excellent quarter of growth in the rest of the world.

Michael will provide specific details on the first quarter performance of ERBITUX in just a moment. But I'd like to highlight a few notable key milestones for 2008 that will help us accelerate ERBITUX sales in future years. Building on our steady sales growth for ERBITUX, we expect to file two FPLAs in 2008. We'll file for first-line head and neck cancer mid year based upon the extreme data and we will file for first-line non-small-cell lung cancer in the second half of this year based upon the FLEX data.

In line with our efforts to maximize the global commercialization of ERBITUX, we are seeking approval in Japan and expect to launch in Canada in the next 12 months as well. These activities highlight our progress in capitalizing on the ERBITUX franchise by expanding its use in the US and around the world.

And while we expect steady growth this year, I would like to reiterate that we do not expect the impact of these potential new indications in the US to be seen until 2009 and beyond.

Turning to the clinical development area, we've continued to make progress against our second goal of accelerating our proprietary pipeline of novel antibodies. Most notably we are moving the first of our pipeline antibodies, IMC-1121B in the Phase III trial, as announced earlier this week. This is the first time we have advanced an antibody other than ERBITUX in the later stage trial, a critical milestone in ImClone's long-term growth strategy. Additionally we added to the number of Phase II clinical trials in which our internal antibodies are being studied. Eric will provide a full update of these activities in just a moment.

We also continued making progress towards our third goal of building our capabilities. During the first quarter we got the Hollister-Stier facility approved with the sales finished of ERBITUX. We initiated Phase I production of IMC-EB10, an antibody we hope to file an IND on in the second half of 2008.

We began the engineering of a second suite of our DB10 manufacturing facility to accommodate additional production of ERBITUX in the balance of our pipelines. And finally, we are planning to fully build out this facility with the engineering of the third suite in the near future.

These positive steps advance us toward our goal of becoming a more fully integrated multi product biotechnology company, well positioned to be a global leader in therapeutic antibodies.

As we mentioned on our last earnings call, we are planning to host an R&D day for the financial community this year to more fully discuss our rapidly advancing proprietary pipeline. With all of the excitement around the FLEX and K-Ras data being unveiled at ASCO we are looking forward to hosting this event later in the year where we can more fully discuss these results along with the significant progress that we have made in moving our pipeline forward.

Finally I'd like to take this opportunity to recognize and thank our employees for their dedication and hard work, through their efforts we continue to make a difference in the lives of cancer patients around the world.

I would now like to turn the floor over to Ken to discuss the details of our first quarter financial results, Ken to discuss the details of our first quarter financial results. Ken?

Ken Zuerblis – Senior Vice President and Chief Financial Officer

Thank you, John, and good morning, everyone. It is a pleasure to be speaking with you today as ImClone's Chief Financial Officer. This is very exciting time to join the company and I look forward to working with John and the rest of team here to take ImClone to the next level.

Turning to our financial results I'd like to briefly highlight the notable developments in the quarter. As our year-over-year comparisons are clearly outlined in our press release issued this morning, I will limit my comments here to quarter to quarter results, the focus on how we are tracking in terms of annual guidance for 2008.

Total revenue for the first quarter increased 7% to 162.6 million form 161.4 million reported in the previous quarter due to do higher sales of ERBITUX. Royalty revenue grew by 6% to 95 million as compared to 89.8 million for the previous quarter due to increased sales in the North America and the rest to the world.

Mike will provide more details on the ERBITUX market in a few minutes. Licensing fees and milestone revenue which is principally made up of amortization of the up-front payment we received from Bristol-Myers Squibb grew 58% to 24.1 million compared to 20.9 million for the previous quarter.

As you know the up-front and milestone payments from Bristol are being recognized as revenue based on the level of clinical development spending for ERBITUX. We continue to anticipate that full year 2008 milestone revenue will range between 100 and 110 million.

Also there remain approximately 260 million of milestone payments to be recognized as revenue over future periods which are classified as current and long term deferred revenue in our March 31, 2008 balance sheet.

Manufacturing revenue which is driven by the tiniest purchase of ERBITUX from our partners BMS and Merck KGaA grew 7% to 25.4 million from 23.7 million in the previous quarter.

Collaborative agreement reimbursement revenue grew 7% to 18.1 million from 16.9 million in previous quarter primarily due to an increase in reimbursement of clinical and regulatory expenses from Bristol-Myers and increased purchases of ERBITUX from Merck KGaA for use in clinical studies.

Total operating expenses decreased 31% to 124 1million from 174.9 million in the previous quarter. R&D expenses decreased 8% to 47.7 million from 51.6 million in the previous quarter. This decrease is principally due to a shift between commercial production of ERBITUX and the cost of clinical trial material for additional indication of ERBITUX, and our proprietary pipeline antibodies primarily for our planned Phase III trial of 1121B and 11F8.

Due to timing of production of clinical trial material, we will continue to see fluctuations of our R&D expenses on a quarter-over-quarter basis. But we reiterate our expectations that R&D expenses for the full year of 2008 will increase by 25 to 30% over levels reported in 2007. This is due to the increase in investment in clinical trial development of our proprietary pipeline antibody.

SG&A expense grew 8% to 24.8 million from 22.9 million in the pervious quarter but remained at 15% of total revenues for both first quarter of 2008 and the fourth quarter of 2007. This is consistent with our guidance for 2008 that on annual basis we continue to expect a marginal increase in the percentage of SG&A expenses compared to total revenue.

Royalty expense grew 43% to 23.5 million from 16.4 million in the previous quarter. While this is due in part to increased sales of ERBITUX the majority of the increase was due to the previous quarter expenses being lowered as a result of the reversal of royalties accrued related to the settlement of patent litigation with Yeda.

Royalty expense was 5.6% of total global net sales for the first quarter, which is less than our previous provided guidance of mid 6% range due primarily to the mix of North American and international sales. On annual basis, we continue to expect royalty expenses as a percentage of total global net sales of ERBITUX to be in the mid 6% range. Cost of manufacturing revenue grew to 24.1 million a slight increase from 23.9 million in the previous quarter.

First quarter operating income was 42.5 million compared to our fourth quarter operating loss of 23.5 million which included a $60 million charge related to patent litigation settlement with Yeda and Sanofi-Aventis. As mentioned in the press release during the first quarter we recorded impairment charge of 84.9 million related principally to auction rate securities.

As of March 31, 2008 we had a 161.7 million of principal invested in auction rate securities that experienced multiple auction failures. While these securities to continue to pay interest, the sustained decline in their estimated market values and the duration of problems in the auction rate securities market resulted in us writing down the values of these securities during the first quarter and taking a charge to our P&L as opposed to recording an unrealized loss on the security as with the case at year-end.

During the quarter we also a recorded a write down of equity securities including our securities available for sale. It's important to note that at March 31, 2008 the market value of auction rate securities after the write-down was 92.6 million versus less than 10% of the roughly 1 billion in cash, cash equivalents and securities available for sale. Because these write downs are non-indicative of our underlying operations we have presented earnings for the quarter adjusted for these charges as well as GAAP earnings.

Excluding the effect of the 84.9 million impairment charge non-GAAP pro-forma net income for the first quarter would have been 29 million or $0.33 per share. On a GAAP basis net loss for the quarter was 55.9 million or a loss of $0.65 per share. Adjusted income for the quarter has an effective tax rate of 41% which is in line with our previous guidance of 40 to 45%.

The impairment charge of 84.9 million recorded in the first quarter does not anticipate to generate any tax benefit because of its capital nature. This results in a much higher tax expense for our GAAP earnings for the quarter. But it's important to point out that for the quarter and for the coming years we do not anticipate paying significant taxes on a cash basis. This is due to the 138 million of net operating loss carry-forwards and 58 million of research and development tax credits we have at the end of 2007.

We continue to expect total cash payments to be less than 2 million for 2008. In addition we expect our effective tax rate for the remaining three quarters of 2008 to be between 40 to 45%. Our financial position remains strong with roughly 1 billion in cash, cash equivalents and securities available for sale at March 31, 2008. We had cash flow from operations of 3.6 million for the quarter ended March 31, 2008 and capital expenditures for the quarter were 4.7 million.

I'd like to now turn the floor over to Michael to provide a review of our commercial operations.

Michael Bailey - Senior Vice President of Commercial Operations

Thank you John. First quarter North American net sales for ERBITUX were 187.5 million, compared to a 160.1 million for the first quarter of 2007 an increase of 17%. Quarter-over-quarter reported net sales for North America increased slightly but when the impact of stocking is considered our first quarter demand day sales of 189.6 million was a 5% increase from the inventory adjusted 180 million we reported in the fourth quarter of 2007. This 5% demand day sales increase represents solid growth, especially in light of recently reported quarter-over-quarter declines in sales for other biologics that compete in the colorectal cancer space.

Furthermore, we are pleased to note that this increase in sales demand represents the fourth consecutive quarter of sales growth for ERBITUX. We believe our continued success in North America can be attributed to two key factors. First, the strength of the significant body of positive clinical data that has served as the basis for our regulatory approvals and promotion for ERBITUX. And second, ImClone's increased promotional efforts combined with steady BMS commercial support.

These initiatives have served to increase the number of ERBITUX treated colorectal cancer patients in third line plus as well as the duration of therapy in the second line. Furthermore we have increased the ERBITUX share in platinum refractory metastatic head and neck cancer patients. We spend time on our last earnings call discussing our move to a more traditional open distribution model in 2007 and the impact that stocking has had on North American net sales.

As we've previously reported this change resulted in wholesale inventory build-up of roughly 9 million for the third quarter of 2007. In the fourth quarter, this build-up was enhanced by the introduction of a second vial size, resulting in an additional 5 million of stocking as distributors optimized their mix with the 108 and 208 vials.

As mentioned on our last call, we expected a portion of this fourth quarter excess inventory would be utilized in the first quarter of 2008. As anticipated, the first quarter distributed inventory was reduced by 2.1 million which negatively impacted the reported net sales this quarter.

At this point we believe that an optimal balance of 108 and 208 vials has been achieved in our existing distributors. However, in the coming quarters we expect to contract with additional distributors and as a result will likely realize moderate additional sales attributed to inventory stocking.

We are pleased with the ERBITUX sale growth and demand that we have achieved and we're optimistic that we'll continue to achieve steady sales growth in North America this year as we execute our initiatives to bolster sales. In North America we are seeking to expand our FDA approved label with early stage setting and in new tumor type.

We have completed multiple registration quality early stage studies in colorectal, head and neck, and non-small-cell lung cancer. Eric will discuss our timelines and registration plans for these studies in just a few moments.

Additionally, we've been investigating the use of biomarkers including KRAS to provide colorectal cancer patients with the most effective personalized medicine option. This data will be presented at the ASCO during the preliminary session on Sunday, June 1st. We believe that early and more effective identification of which patient would benefit most from ERBITUX may support increased use of ERBITUX in the future.

Finally, we've submitted for and received compendia listings in Drug Points and DRUGDEX for early on use in colorectal and head and neck cancer. As we've discussed on previous earnings calls, we are waiting on the CMS decision as to whether these qualify as recognized compendia for reimbursement purposes.

Also following the presentation of the FLEX data at ASCO, we'll submit the first line non-small-cell lung cancer compendia listing with AHFS, the current CMS recognized compendia.

Internationally, we're seeking to expand our global roots. We're actively working for the regulatory process in Japan for our colorectal file and we expect to launch ERBITUX in Canada within the next 12 months. As we have stated, until these compendia and regulatory events occur, which will enable reimbursement and allow for sales promotion respectively, we do not anticipate to realize significant commercial impact from these data.

To conclude, I'd like to summarize our commercial progress in four key points. First, our significant promotional efforts have established ERBITUX as a standard of care in the refractory colorectal and head and neck caners. Second, we'll continue to leverage strong ERBITUX clinical evidence to expand our markets with supplemental regulatory approvals. Third, we've successfully maintained a positive sales trend and increased demand through ImClone's increased promotional efforts and the support of partner BMS. And fourth, we're well positioned to address the emerging market dynamic with expanding body of positive clinical data for ERBITUX and the best interest of patients in mind. Overall we are encouraged by the continued positive performance of ERBITUX and optimistic about our prospects for the long-term.

Eric will now discuss the detail with ERBITUX clinical development, as well as our unique pipeline.

Erik Rowinsky - Executive Vice President and Chief Medical Officer

Thank you Michael and good morning everyone. The last quarter was marked by progress in many clinical developments and regulatory areas. Not only those related to ERBITUX, but also to the advancement of ImClone's clinical pipeline. I will first review our progress with ERBITUX highlighting notable regulatory activities and presentations of the upcoming ASCO meeting and then a detailed progress with our clinical pipeline.

With regard to regulatory activities in the last quarter. We recently met with the FDA about the first of three planned, new indications for ERBITUX. This pre-SBLA meeting focused on the submission of an SBLA to register ERBITUX with platinum chemotherapy for the first line treatment of patient with metastatics and recurrent head and neck cancer. Based on the results of the extreme trial. We insist the patient's submitting this application mid-year and since ERBITUX demonstrated an un-parallel improvements in the survival as well as improvement in CFS, response rate and quality of life in this under served patient population a priority in the view as might be expected.

Turning to non-small cell lung cancer; in the last our partner Merck KGaA completed its data validation procedures for the line FLEX study which was followed by transfer of data to ImClone and collaboration of results in accordance with our internal procedures prior to meeting with the FDA.

A pre-SBLA meeting anticipated in the mid-year timeframe with a SBLA filing expected in the fourth quarter. Seeking registration for ERIBTUX in combination with platinum based chemotherapy in the first line treatment of patients with advancement non small cell lung cancer.

Based on the pivotal trial FLEX and supported by Lucas BMS 009and BMS 100. With regard to BMS 009 in which the merits of ERIBTUX were evaluated along with carbo-platinum tests and chemotherapy the requisite number of events to determine an effect on the secondary end point survival has not yet been reached. We expect the true survival data to be available in the early second half of this year.

Lastly, with the regard to registration activities and as discussed on our last earnings call we intend to enter into a formal pre-SBLA discussion with FDA. Following the availability of mature survival data from our first line colorectal cancer study CRYSTAL in the second half of this year. It should be emphasized that the overall regulatory dynamics in the first line metastatic colorectal cancer study are very complex. And in another way of complexity to these dynamics is the progressively increase in body of data indicating that the magnitude of clinical benefits derived by colorectal cancer patients treated with ERBITUX relates to whether or not they have the KRAS mutation, which I will discuss in a moment.

Recently we submitted an extensive package of data which relates the clinical outcome of patients participating in several pivotal trials of ERIBTUX to their KRAS mutational status to the FDA in the form of voluntary genomic data submission. This mechanism was specifically formulated to facilitate discussions with the agency about possible future clinical directions and registrational opportunities derived from this type of genomic data. And we plan to seek the FDA's guidance about this issues going forward.

Now I would like to turn to the upcoming annual meeting of ASCO during which time new ERBITUX data will be presented in a variety of forms including two preliminary sessions. ImClone and its partners have been extremely pleased to learning of that the ASCO program committee has selected ERBITUX study data to be highlighted in two to four preliminary sessions.

The first preliminary presentation will detail the top line result of FLEX. The first study in which the inhibitor of epidermal growth receptor has been demonstrated to improve survival in the first line non small cell lung cancer study. This presentation will provide details about the demographics of patients participating in FLEX.

A study in which the eligibility criteria was very inclusive, reflecting the general and lung cancer population at large. As it enrolled patients of cystologic types meaning squamous and non-squamous cancers alike. That the patients were not restricted based on their performance data, meaning it included patients with good and not so good performance capabilities. And as it enrolled patients irrespective of any specific co-morbidity, meaning it enrolled patients with past medical history that included hypertension, bleeding disorders and stable cardiovascular disease, which are all common in lung cancer patient.

The presentation of FLEX data at ASCO will be the first opportunity for physicians to see and understand this data, enabling them enabling them to make informed decisions about the use of ERBITUX in the first line setting. Not only just the patients in whom Avastin is not indicated, but in patients considered to be both ideal and not so ideal candidates for Avastin.

We also feel that it is important to highlight another ASCO presentation that will detail the final results in an approximately 90 patient RTOG Phase II study in locally advanced non-small cell lung cancer patients, which evaluated the merits of adding ERBITUX to chemo radiations, the standard treatment for locally advanced disease.

Preliminary results of the study presented at the International Lung cancer meeting last fall demonstrated that ERBITUX plus chemo radiations not only had an acceptable safety profile, but the preliminary efficacy results appears to be among the strongest to date in a large study in this disease setting. The RTOG and the MCI cooperative oncology group is preparing to launch two pivotal Phase II studies of ERBITUX combining with chemo radiations in patients with both locally advanced lung and esophageal cancers based on the growing body of exciting study results and extrapolating from the robust clinical benefit of ERBITUX when combined with radiation in treating patients with head and neck cancer.

The second ASCO preliminary presentation highlighting ERBITUX will be a presentation of efficacy results of the first line colorectal cancer CRYSTAL study, broken out by KRAS mutation status. As a background ImClone and its partners have been evaluating the predicted value of biomarkers that can assist in selecting, which patients might benefit most from ERBITUX for several years now.

Last year we and many independent investigators began including the reporting that the status of the tumor KRAS may identify which patients might benefit most from ERBITUX in the refractory setting. Now this work has been expanding extended to early stage patients receiving ERBITUX in the first line setting and several data from randomized clinical trials will be presented at ASCO.

It makes good sense that colorectal cancers without KRAS mutations, referred to as KRAS wild-type, which constitutes about 65% of all patients respond particularly well to ERBITUX compared mutated KRAS tumors in which the signaling protein has always been a turned on or tumor growth signatory confirmation.

It should be remembered that intent to treat analysis of the CRYSTAL study ,which examined the merits of adding ERBITUX to [platinum] chemotherapy showed significant improvements in progression free survival the primary study end point and response rate in all patients. The plenary presentation will further break out the efficacy results meaning both progression free survival and response rate in patients whose tumors have wild type confirmation as well as mutated forms of KRAS.

Furthermore, the final analyst of how KRAS mutational status impacts on the survival of patient in each treatment arm will be performed when mature survival data from the CRYSTAL study available at the second half of this year. On the similar note another ASCO presentation will detail progression free survival in response rate has functions of KRAS status in both treatment arms of the OPUS study a randomize Phase II trial FOLFOX alone grow FOLFOX plus ERBITUX in the first line setting.

Additional presentation at the meeting were focused on the KRAS dependable effects of the ERBITUX in more refractory disease setting, including an analysis of the KRAS status and efficacy across four refractory colorectal cancer study. And in (inaudible) study that evaluating higher than standard doses of ERBITUX.

It is clear that the identification of the highly predicted biomarker for ERBITUX would be good for patients increasing the likelihood that they will receive the most appropriate treatment. In doing so, ERBITUX will have greater utility in the treatment of colorectal cancer and patients may be more likely to receive ERBITUX much earlier in the course of the disease and for longer durations.

In addition to the aforementioned ASCO presentations the results of studies with ERBITUX in other tumor types and disease settings will be presented. One describes the results of a large Phase II study of ERBITUX in refractory colorectal cancer patients, whose tumors totally lacked EGFR immunostaining, often referred to EGFR negative. The results of CAIRO 2 a European Phase III first line study in which patients received treatment with XELOX plus Avastin with or without ERBITUX were also presented.

To wind up discussions on ERBITUX, aside from ASCO and the registrational activity, notable progress has been made in advancing several high value clinical trials. Just to name a few with regard to colorectal cancer, two large adjuvant studies, one in the US and the other in Europe are progressing rapidly and we need their planned approval in 2008.

In addition, it is also likely that the COIN study, is evaluating the merits of adding ERBITUX to FOLFOX chemotherapy in the United Kingdom will be fully approved this year. The COIN study presents a unique opportunity to evaluate the effects of adding ERBITUX to chemotherapy on survival which is the study's primary endpoint in the first-line colorectal cancer setting. This should not be confounded by the post-treatment use of ERBITUX in the control arm, since ERBITUX is not widely available in the U.K. at this time.

Lastly, Phase III evaluations of ERBITUX in locally advanced esophageal and non-small-cell lung cancers as well as metastatic gastric cancer will begin this year. And randomized Phase II [business finding] studies of ERBITUX have recently begun in patients with rectal, gastric, and bladder cancers with a randomized study in prostate cancer due to begin this quarter.

In addition to the considerable activity being put forward towards ERBITUX, ImClone is continuing to accelerate the development of its pipeline. At this juncture we are in various stages of developing four global Phase III studies, two involving the VEGF receptor 2 antibody, ImClone 1121B that will begin in this year, and two involving ImClone 11F8 the human antibody targeting the epidermal growth factor receptor which would begin 2009.

We intend to pursue the special protocol assessment for SPA mechanism with the FDA in all instances, the first of which was finalized last week. With regard to 1121B, which in contrast to other VEGF R2 directed therapeutics, binds to the VEGF receptor 2 and uniquely blocks signaling through the receptor, ImClone opens its third Phase II study in liver cancer this quarter in addition to ongoing Phase II studies in melanoma and kidney cancer.

Over the next several months additional Phase II trials of 1121B will begin in lung, colorectal, prostate and ovarian cancers. As mentioned, we also plan to begin two global Phase III trials of 1121B this year. The first in patients with metastatic breast cancer, which will be performed by The Cancer International Research Group also known as TRIO and formerly know as the BCIRG. And the second in another soon to be disclosed indication with a more abbreviated timeline. Earlier this week we proudly announced that the company and the FDA finalized a special protocol assessment agreeing on the developmental plan and design of the first of these trials, an 1100 patient trial evaluating 1121B in women with metastatic breast cancer in the first-line study. An interesting note about ImClone 1121B, which reflects the robust results noted with the agent in preclinical studies and all through its development presents a notable number of patients with various refractory cancers have remained on the original Phase I single agent study for at least one and even two years possibly reflecting how this agent may perform in ongoing disease directed trials.

Turning to our fully human IGG1 anti EGFI therapeutic ImClone 11F8, during the last half of 2007, ImClone initiated a Phase II study of 11F8 plus FOLTOX chemotherapy in colorectal cancer patients in Europe. And this 10-patient study is nearly fully approved.

Preliminary efficacy results will be presented at ASCO. Over the last quarter we also began to develop two global Phase III studies of 11F8 an indication based on knowledge ascertained about the biology and efficacy of other EGFR directed therapeutics to date.

We look forward to disclosing the details of these studies which incorporate cutting edge science and will start recruiting patients in 2009.

Now focusing on our progress with ImClone A12 which targets the insulin growth factor like receptor, accruing on to the first of two Phase II studies in colorectal and prostate cancers is strong. And we recently announced the opening of the third Phase II study in head and neck cancer in which patients are being randomized to treatment with either A12 or the combination of A12 and ERBITUX.

Among other ImClone sponsored trials that will begin over the next several months include additional studies in patients with prostate and colorectal cancers as well as sarcoma, neuroendocrine and lung cancers. Also National Cancer Institute has opened the first of 11 planned studies in indications that do not overlap with those selected by ImClone, including the large Phase I-II trial in children and young adults with various malignancies. This trial can result in several unique registrational opportunities, because of the high relevance of the target in many pediatric cancers that are clearly unmet medical needs.

Six National Cancer Institute trials can serve as foundation for future registrational efforts including randomized studies in pancreatic, breast, lung and liver cancers performed by various NCI cooperative groups. We anticipate that these studies will provide a solid foundation and information from which we intend to select top indications of pivotal trials of A12 in 2009.

Lastly progress continues to be made in our Phase I studies of ImClone's 18F1 which targets VEGF R1 found on both malignant blood vessels and cancer cells alike and ImClone's 3G3 which targets tumor growth factor, platelet derived growth factor receptor alpha. And we anticipate completing these studies over the next several months with Phase II studies being planned.

Finally ImClone is working towards filing an IND in the second half of this year with six clinical pipeline candidates ImClone's EB10 and IgG1 human antibody targeting FLT3 which is the most common mutated protein in acute myelogenous leukemia.

We will now open the floor for questions. Operator.

Questions-and-Answer Session

Operator

(Operator Instructions).

John Johnson

Hi, this is John. While we are compiling the Q&A roster upfront let me apologize for the problem with lines earlier on in this call. And let me just ask that we follow a couple of ground rules today during the question-and-answer period. First, in order to be fair with all of our investors I will ask in advance that you limit yourself to one question and then jump back into the quarter if you have more. And second, you know, while we are truly excited about the data being presented at ASCO and there is a lot of data being presented as we mentioned. We are going to fully respect the ASCO and BARCO and not discuss any of the upcoming presentations.

We will however, be hosting a reception at ASCO, where we will fully discuss the data in its entirety. We will announce the date and time of that as we get a little closer. Operator, please proceed with the first question.

Operator

Thank you. Your first question is coming from Eric Schmidt with Cowen & Company. Please go ahead.

Eric Schmidt

Good morning. Thanks for taking my question. It’s about the disclosure in the 10-K regarding the verbal notification from Merck KGaA that I guess, they consider your Yeda settlement of breach of the Merck KGaA contract and maybe perhaps are threatening to no longer reimburse for a percentage of royalties they reimbursed on to date. Could you, I guess a little more of I guess color on what's exactly going on there, has Merck stopped reimbursing, what kind of rights does ImClone have in this dispute, what are the next events et cetera?

Gregory Mayes

Sure. Yeah, this is Greg. Maybe I am happy to answer your question. We do not believe that the Yeda settlement agreement in any way altered Merck's obligation to repay us a royalty. And we are going to continue to seek reimbursement from them and we are in discussions to do so at this time. Beyond that it would not really be appropriate for us to comment any further.

Eric Schmidt

Can you say whether Merck is reimbursing as of today?

Gregory Mayes

We would not like to comment.

Eric Schmidt

Okay. Can I ask -- I will get back in the queue. Thanks.

Gregory Mayes

Yeah.

Operator

Thank you. Your next question is coming from May-Kin Ho with Goldman Sachs. Please go ahead.

May-Kin Ho

Hi. In terms of the sales in the US, you indicated you've basically have four quarters of growth, I guess there is a lot of kind of moving around the inventory. How confident are you about the -- actually the magnitude of the inventory, number one. And then you indicated that you are still growing while some of the competing agents are not, so does it mean that you have gained market share and what are the shares?

Michael Bailey

Thanks. May-Kin, this is Michael Bailey. As far as the inventory, I think we have got a very good handle on the inventory and we are tracking it very diligently. Obviously this is important to really understand what the demand base for the product is, and I think we've reflected that in our numbers.

The other question you had as far as where we gain shares, I mentioned in the script, basically there is a couple of areas that we have grown. The treated patients in third line plus, so that kind marketplace has grown a little bit and we have risen with that. We have not increased share in that population, but we have risen because the number of treated patients. The other place we talked about was second line colorectal cancer and the duration of therapy, and as we have mentioned on past earnings calls, it's -- we've got to focus on an initiative to really ensure the patients are getting the full treatment with ERBITUX, so managing some of toxicities and really emphasizing the value proposition that ERBITUX does provide and we have seen the benefit of that in the second line. The last place where we have seen some growth is in our share in platinum refractory metastatic head and neck cancer and we have seen some respectable growth in share in that marketplace pushing as up in the high 30% share range.

May-Kin Ho

And what were the shares in the third plus line and second line, I should have asked it that way?

Michael Bailey

The third plus line and second line of colorectal.

May-Kin Ho

Yes.

Michael Bailey

Yeah, third plus is a little lower 30%, around 30%, and in second line we are in the mid teens.

May-Kin Ho

Thank you very much.

Operator

Thank you. Your next question is coming from Mike King with Rodman & Renshaw. Please go ahead.

Mike King

Thanks for taking my question and congrats on a strong quarter. I wanted to ask about the gross margin. It seems like it continues to -- the cost of goods seems to be higher than we anticipated. Is there some factor accounting for that there? Is it start up cost of the additional trends or may be you can give us a little bit of color what’s affecting the gross margin?

Ken Zuerblis

Mike, you are referring to the manufacturing revenues, it’s Ken.

Mike King

Say again.

Ken Zuerblis

You are referring to manufacturing?

Mike King

The loss to manufacturing revenues?

Ken Zuerblis

Again Mike when you look that, you look at we are in the case of the BMS agreement we received a 10% markup on our product that we sale them. And as you know in the case of Merck, we transfer to them at our cost from that sampling. And so what this reflects really during this quarter was really a 50-50 mix from that standpoint of what we basically produced for and shipped to them from that standpoint. That mix will change over time, but based on overall shipments it's going to be in that I guess 5 to 10% range

Mike King

Okay. So it's just on geographic mix that affects that.

Ken Zuerblis

Based on shipping, correct, based on orders.

Mike King

Thank you.

Operator

Thank you. Your next question is coming from Jeff Meacham with Goldman Sachs. Please go ahead

Terry Coin

Terry Coin. I am in for Jeff from J. P. Morgan. I just have a question for you guys on the FLEX data at ASCO and without asking you to speak too specifically about what's going to be presented. I'm just wondering if you can kind a talk qualitatively do you think physicians will walk away from the presentation having an understanding of how ERBITUX compares or how well it works in eligible and ineligible patients specifically?

Eric Rowinsky

Hi, this is Eric. I think that question would be best posed after the presentation at ASCO and I would enjoy speaking with you and other investors and every and anyone else about making such qualitative and possibly quantitative statement. So let's reserve it until after the presentation.

Operator

Thank you. Your next question is coming from Han Li with The Stanford Group. Please go ahead.

Han Li

Hi, good morning. Quick questions on the ASCO -- one of the ASCO presentation. Eric had mentioned that we are going to CAIRO-2, this is front line -- chemo combination in first line colorectal?

Eric Rowinsky

Han, this is Eric. Those data will be presented at the ASCO meeting and again we will be happy to take any questions about those data as well as all other data sets that will be presented at the ASCO meetings immediately after their presentation and we hope to speak with you about it at that time.

Han Li

Okay. Is it going to be a late breaker or it's regular?

Eric Rowinsky

I believe it will be a late-breaking abstract.

Han Li

Got it, thank you.

Operator

Thank you. Your next question is coming from Steven Harr with Morgan Stanley. Please go ahead.

Steven Harr

I just want to know if you could give us a little bit of an update on the European colorectal cancer and do you guys know if you're on the [CPHP] agenda for this month?

Eric Rowinsky

Steve, hi. This is Eric. As Merck has announced, they have submitted the file, I believe last September. As far as discussing their filing, that is a question that we really will not discuss with regard to our partners and I think it is best posed to Merck.

Steven Harr

All right, thank you.

Operator

Thank you. Your next question is coming from Maged Shenouda with UBS. Please go ahead.

Maged Shenouda

Thanks for taking my question. This is for Eric. Eric you mentioned that you are in discussions with the FDA regarding KRAS segmentation. Now is that only for first line colorectal cancer or are you discussing this for second and third line of possibly the head and neck indication as well?

Eric Rowinsky

I mention were we have submitted voluntary genomic data submission package to the FDA and that was recently submitted. We've not entered into formal pre-SPLA discussions with the FDA. And with regard to first line, and we intend to do that and perhaps correlate all these data sets with the FDA when we've reached our survival endpoint and we have survival data. So also we have announces with regard to the first line package. So at that point, we will discus the first line setting as well as KRAS with the FDA. But we just recently submitted all those data sets.

Maged Shenouda

So I guess what I'm trying to get at here is just, is the FDA interested now in narrowing the label generally just to patients with mutant KRAS?

Eric Rowinsky

Well, I think at this point I just want to say that CRYSTAL, our first-line study was performed in all patients. So we've been at primary endpoints in all patients and our intention is to file on all patients was the intent to treat analysis. As far as what goes in the label and how KRAS factors all into that we'll disclose that and update you when we've had our discussions with the FDA.

Maged Shenouda

But the FDA has not sort of gone down the road of existing indications asking for KRAS data on existing indications?

Eric Rowinsky

As I stated, we've not had our formal pre-SPLA meetings with the FDA with regard to KRAS so and with regard to first line.

Maged Shenouda

Okay, thank you.

Operator

Thank you. Your next is question is coming from Yaron Werber with Citigroup. Please go ahead.

Kenom Hong

Hi actually this is [Kenom Hong] for Yaron Werber and thanks for taking my question. I have a question about FLEX and it has to do more with the design rather than the results that might be shown at ASCO. Eric, if you could maybe tell us if the histological subsets were powered to detect a statistical significance in survival and if so, what the magnitude of the survivor has to be in order to show that significance.

Eric Rowinsky

Yes history. FLEX was powered based on an intent to treat analysis focusing on survival in all patients. So although there are pre-specified subgroup analyses for histological, sub-type, ECOG Performance Status, and various other sub-types as well, the study was not powered for those sub-types. So our intention is to focus on the entire patient population and hopefully a label that reflects that as well.

Kenom Hong

All right, if the magnitude of this difference was actually pretty high for the subset, is it fair to say that it would show a statistical significance?

Eric Rowinsky

It can. That's true for all studies. So, it depends on the magnitude of the difference yes but whether or not that's relevant with regard to the end results, I don’t think it is because again our intention and the way the study is designed is you have to win across the board; in the intent to treat analysis with all patients.

Kenom Hong

Okay.

Eric Rowinsky

So I may not really understand where you are going with the question but we intend to actually present as is standard in such presentations. These pre-specified subgroups and how they performed?

Kenom Hong

Okay. So the subgroups will be broken out at ASCO with the data?

Eric Rowinsky

That is the standard and I can't really disclose how that presentation will be presented at this time but again this is the standard type of presentation.

Kenom Hong

Okay great. Thanks Eric.

Operator

Thank you. Your next question is coming from Katherine Kim with Bank of America. Please go ahead.

Katherine Kim

Hi so my question has to do with the filing for lung cancer in the US. You had mentioned early in your comments that you be filing sometime in the fourth quarter. So what is the rate limiting step there? Are you waiting for the OS data from BMS99 and then also do you plan to pursue a label that incorporates different chemo regimens not just a regimen used from FLEX?

Eric Rowinsky

Hi this is Eric. It's a good question. We intend to file FLEX. As we disclosed in our last earnings call, we were waiting for validation. Our validation steps and as I just mentioned during the prepared remarks, we've received the data. We've validated the data. And now we're approaching the agency for meetings.

There are some differences between filings in Europe and the United States and those differences really relate to meeting requests and obviously you've heard about what's happening with regard to the FDA these days; meeting requests. But more so I don't think that that’s a limiting factor. In fact there are things with the US submissions we do compile all the data. So, all the data sets, all the algorithms, all the programs, have to be compiled and that might take a little bit longer. And I don't think a lot compared to a European submission.

As far as the label is concerned, the background chemotherapy regimen obviously was vinorelbine and platinum. Certainly we would like to utilize our entire package of other supplemental studies to seek a broader label. And I think as most positions in the United States and I think worldwide realize on this point that one platinum-based regimen is just as good as another. So label, what we will try to seek, obviously will be the broadest label possible.

Katherine Kim

So in terms of -- you do intend to, when you file, to have data from the other supplemental studies including BMS99?

Eric Rowinsky

Yes we do. BMS99 since it was a company-sponsored trial and it utilized patients in first line. BMS099, BMS100, and Lucas and several other trials will be presented or will be in our package but the major application will focus on flEx.

Katherine Kim

Okay, thank you.

Operator

Thank you. Your next question is coming from Mike King Rodman & Renshaw. Please go ahead.

Mike King

Thanks for taking my follow up question. First of all I just want to thank you for clarifying the misunderstandings that have been gone around on 099 and the survival. Eric I am not sure that you are willing to say, according to Tom Lynch's presentation last August, you're targeting 558 deaths. Are you willing to say where you are in terms of the count?

Eric Rowinsky

Michael I am not walling to say that but I will say that we have not reached the requisite number of events. And we were gazing that we'll reach the requisite number in the mid year time frame.

Mike King

And then all of your other -- some of the additional ERBITUX studies that you spoke about in your formal remarks, Eric, gastric, bladder, prostate, are those all going to be selected for KRAS or not?

Eric Rowinsky

No Michael they won't because KRAS is not a prominent player in those malignancies. So, no KRASs really mutated in prostate cancer and cancer. It would be great to find biomarkers, however, similar to KRAS in those diseases. I think that’s really the way to go on what we are really looking to do in the future. Because as with KRAS we anticipate that we are really giving the patients the most appropriate therapy and certainly we would love to model that paradigm for the other diseases but KRAS is not relevant there.

Mike King

Okay, great. Thanks.

Eric Rowinsky

It may be relevant for lung and colon.

Mike King

Okay.

Operator

Thank you. Your next question is a followup question coming for Han Li with the Stanford Group. Please go ahead.

Han Li

Okay, yes quick follow up for Ken, the changing of distribution channel. Can you give us update on the percentage of wholesalers that sign up for the new distribution?

Michael Bailey

Yeah, this is Michael Bailey. We believe that about 50% or little over 50% of the wholesalers that are going to sign on have signed on at this point.

Han Li

Okay. So we should continue inventory build up over the next quarters, a couple of quarters.

Michael Bailey

Yeah as I mentioned in the earnings, in the script.

Han Li

Okay thanks.

Gregory Mayes

All right, I'd like to thank everyone today for joining our call. As you know, it is a very exciting time here at ImClone, both for ERBITUX as well as our pipeline and once again I'd like to thank the employees here for all their hard work in making so much happen. We all are looking forward to having the opportunity to sit with you and discuss all of the ASCO data here in the very near future. It is an exciting time. We look forward to that opportunity. And we appreciate you have joined the call. Have a great day.

Operator

Thank you and this concludes today's ImClone Systems first quarter 2008 conference call. You may now disconnect your lines and have a pleasant day.

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