Celgene Management Discusses Q2 2012 Results - Earnings Call Transcript

 |  About: Celgene Corporation (CELG)
by: SA Transcripts


Good morning, and welcome to Celgene's Second Quarter 2012 Earnings Conference Call. [Operator Instructions] I would like to remind you that this call is being recorded.

I would now like to turn the conference over to Patrick Flanigan, Vice President of Investor Relations at Celgene.

Patrick Flanigan

Thanks, Ellie, and welcome, everyone, to Celgene Corporation's Second Quarter Earnings Conference Call. The press release reporting our second quarter results, in addition to the presentation for today's webcast, can be accessed by going to the Investor Relations section of the corporate website at www.celgene.com.

Joining me in the room today with prepared remarks are Bob Hugin, our Chairman and Chief Executive Officer; Jackie Fouse, our Chief Financial Officer; and Mark Alles, who is our Chief Commercial Officer.

As a reminder, during today's call, we will be making forward-looking statements regarding our financial outlook in addition to regulatory and product development plans. These statements are subject to risks and uncertainties that may cause actual results to differ from those forecasted. A description of these risks can be found in our most recent 10-Q on file with the SEC. These statements speak only as of today's date, and we undertake no duty to update or revise them. Finally, a reconciliation of the non-GAAP financial measures to the most comparable GAAP measures are available as part of the earnings release.

I would now like to turn the call over to Bob.

Robert J. Hugin

Thank you, Patrick, and thank you, everyone, for joining us this morning. I appreciate the opportunity to review the results of the second quarter and our outlook for the remainder of the year.

The financial results for the quarter were outstanding, highlighted by annual total revenue growth of 16% and 37% growth in non-GAAP earnings per share. Our global commercial teams produced strong results across all geographies. Jackie and Mark will provide greater detail on our financial and commercial performance in a few minutes.

In addition to achieving these excellent commercial results, we advanced key strategic initiatives during the first half of the year. I’ll shortly outline some of the important accomplishments strengthening our hematology and oncology businesses, developing our inflammation immunology franchise and advancing our deep and diverse clinical and research pipeline. We're making investments that position us for sustained long-term growth while we deliver strong near-term financial results.

Based on these results and our outlook for the remainder of the year, we're increasing our earnings-per-share guidance $4.80 to $4.85 per share and are reaffirming our full year guidance for total revenue in REVLIMID sales.

Early in the year, we outlined numerous important clinical and regulatory milestones with transformative potential. Let me now review our progress on achieving these milestones. As depicted on this updated slide, we have accomplished a number of important milestones, had a delay in newly-diagnosed myeloma and advanced multiple programs to decision points during the first half of the year.

Pomalidomide is one of the most high-potential assets in our pipeline, and accelerating its development is of tremendous value. During the quarter, we submitted regulatory applications for relapsed refractory multiple myeloma in both the United States and Europe with both applications now under active review. And with the completion of enrollment in both our Phase III myelofibrosis study and MM-003, our international Phase III myeloma study, we expect data from these trials by the end of the year. Pomalidomide has the potential to become a major therapeutic advance for patients and to become our next global hematology blockbuster.

Other hematology programs, including REVLIMID in lymphoma and leukemia, are progressing well. We are on track to submit our sNDA for mantle cell lymphoma in the fourth quarter and expect to complete enrollment of our first Phase III CLL study by the end of the year. In addition, our pivotal registration studies for CC-486, oral azacitidine in AML and MDS are on track to initiate by the end of the year.

Substantial progress is being achieved in our ABRAXANE programs. We are now preparing for launch of ABRAXANE's new indication in non-small cell lung cancer in the United States with FDA approval anticipated in October. We’re also expecting data from our Phase III melanoma study in the next several months and data from our pivotal study in pancreatic cancer in late 2012 or early '13.

Advancing earlier-stage research programs is essential to ensuring sustained long-term growth. Excellent progress has been achieved in multiple early clinical development programs in both oncology and inflammatory diseases. Collaborations have both been added and strengthened with 2 new INDs submitted by our team and our partners with additional new compounds targeted for clinical study by year-end.

Not everything has proceeded as planned. We're disappointed to withdraw our newly diagnosed multiple myeloma application for REVLIMID in Europe. We accept responsibility for this delay and are ensuring that we learn from it. We're confident in the strength and importance of the data from MM-015, IFM and CALGB studies and intend to resubmit our European application as soon as the maturity of the data allows.

We continue to execute our regulatory strategy for REVLIMID in newly diagnosed multiple myeloma in other markets. In May, we submitted our application in Switzerland, and in the coming months, we'll submit applications in Australia and other markets. The timing and scope of the U.S. filing is under review.

As we announced on July 12, our first pivotal study in psoriatic arthritis with apremilast produced positive results. Apremilast holds the promise of a new global therapeutic franchise for Celgene. I'll spend a few minutes to provide my perspective on the progress of this program. And let me assure you that we are very excited about the positive results from our initial psoriatic arthritis pivotal study, PALACE-1.

PALACE-1, which enrolled 504 patients with active psoriatic arthritis, compared placebo to 20-milligram BID and, for the first time in psoriatic arthritis patients, 30-milligram BID doses of apremilast also. Patients were entered on the study with or without oral DMARD background therapy. As we reported, statistical significance was achieved for the primary endpoint, ACR20, for both the 20-milligram and 30-milligram doses at week 16. Additionally, the clinical effectiveness of apremilast in treating patients with active psoriatic arthritis was demonstrated by the consistent, statistically significant and clinically meaningful improvements seen across all measures of signs and symptoms and physical function. These included secondary endpoints such as ACR50, ACR70, DAS28 and measures of physical functions such HAQ-DI and SF-36 at week 16 and 24. We saw a dose response in efficacy between the apremilast arms, while the overall safety profile of both doses was comparable and favorable. Severe adverse event and dropout rates due to adverse events were similar between the apremilast arms and placebo. Additionally, no new safety signals were observed in the trial. The overall incidence of adverse events was lower than in the Phase II program.

We have made exceptional progress with our apremilast Phase III programs. PALACE-2 and PALACE-3 will report top line results in the next 2 to 3 months and, together with PALACE-1, will be the backbone of our initial registration package in the United States with a submission targeted in the first half of next year. As a reminder, the population of these 3 studies targeted patients with active psoriatic arthritis who had been previously treated with DMARD, including biologic DMARD and patients who have previously failed the TNF alpha blocker were also allowed in the studies. PALACE-3 includes a large subset of patients with significant skin involvement with psoriasis.

We're also pleased to announce that we have recently completed enrollment in PALACE-4, our apremilast monotherapy study in psoriatic arthritis patients not previously treated with any DMARDs. This study is an important component of our label expansion strategy, and when completed, the full PALACE program will cover all psoriatic arthritis patients in need of therapy.

Moving to psoriasis, we expect to have top line results in late 2012 or early 2013 for these ESTEEM program and, if positive, then submit our NDA for moderate to severe plaque-type psoriasis in the second half of 2013. Our European submission, which will include all 4 PALACE studies, as well as the ESTEEM studies in psoriasis, is also targeted for the second half of 2013.

We're accelerating our other clinical development efforts with apremilast. Our ankylosing spondylitis Phase III study in over 450 patients was initiated in April, and we expect enrollment to be completed within the next year.

Our European apremilast biologic comparative trial in psoriasis patients will initiate in the next few months, as will our Japanese registration program in psoriasis and psoriatic arthritis.

We're also awaiting results from a pilot Phase II study of apremilast monotherapy in rheumatoid arthritis to finalize our plans for further development of RA later this year. Dissemination of the results of our clinical studies to the medical community is a high priority. We look forward to the presentation of the PALACE program data in an upcoming medical meeting later this year and additional PALACE and ESTEEM data at medical meetings throughout 2013.

Apremilast has the potential to satisfy a major unmet medical need in a number of inflammatory and immunological diseases. There's a significant market opportunity for a safe and effective oral therapy for the approximately 7 million patients globally suffering from psoriatic arthritis, moderate to severe psoriasis and ankylosing spondylitis. Safe, effective and oral treatment options are extremely limited for these patients.

As we said in January, 2012 is a year of potentially transformational milestones for Celgene across our entire portfolio. We continue to make great progress and look forward to updating you on the outcome of the many important inflection points that are expected over the coming weeks and months as we continue to deliver on the promise of our pipeline for our company and the patients we serve.

Let me now turn the call over to Jackie.

Jacqualyn A. Fouse

Thank you, Bob, and good morning, everyone. Before I start, as a quick reminder, my comments today are focused on non-GAAP financial information, and the full reconciliation of our GAAP to non-GAAP figures can be found in the appendices to the slide deck posted for this webcast.

The Celgene team delivered great results across the board in the quarter. We produced strong total revenue and individual product sales growth while increasing both our operating and net profit margins. The quality of our growth is extremely high, as it is driven by volume increases and operating efficiencies. The combination of strong revenue growth and P&L leverage allowed us to grow year-over-year non-GAAP earnings per share for the quarter by 37%, more than twice our 16% revenue growth. This strong earnings per share performance has driven us to increase our full year EPS guidance by $0.05, and we have narrowed the EPS range given that we are halfway through this year and also feel that we have relatively good visibility on the drivers of our performance for the second half of the year. We are maintaining our revenue guidance. I will discuss the details of our guidance in a moment.

Both total revenues and product sales grew 16% in Q2 on a year-over-year basis. Each of these grew a strong 7.3% on a sequential basis compared to Q1 of this year. As we will see in a moment when we look at product sales, REVLIMID growth was excellent at 17.4% year-over-year and 8.5% sequentially.

The quality of our revenue growth is very high with over 87%, or 14 percentage points of the 16 percentage points year-over-year growth, coming from volume increases for our products. Price had a net positive impact of 3 percentage points, and foreign currency, net of hedge results, had a small net negative impact of 1 percentage point. As a reminder, on currency, our largest exposures are to the euro and the Japanese yen, and we hedged the amount of our estimated operating profit exposure to those currencies. We execute the hedges against our revenues, thereby limiting the amount of volatility throughout our P&L from currency fluctuations. The net impact of currency on our operating profit is negligible.

As we grew revenues, we also leveraged expenses to produce higher operating and net profit margins. This powerful combination of top line growth and P&L leverage drove earnings per share growth of 37% for Q2 on a year-over-year basis to $1.22 for the quarter.

As with revenue growth, the quality of our earnings-per-share growth is very high. 70% of EPS growth came from operating income growth, 26 points of our 37-percentage-point growth. The remaining 30% came from the combination of a lower effective tax rate and reduced share count.

Turning to individual product sales. We're extremely pleased with REVLIMID's performance in Q2 as the product reached $934 million for the quarter and grew by over 17% on a year-over-year basis and 8.5% sequentially. Growth was excellent both in the U.S. and outside the U.S., and Mark will cover those details a bit more in his comments. The majority of REVLIMID's growth came from market share and duration gains around the world.

VIDAZA continues to solidify its strong position outside the U.S. with year-over-year international growth of 35%. The product is also performing well in the U.S., despite its loss of exclusivity over 1 year ago, and global VIDAZA growth came in at 24% year-over-year and a strong 8.1% sequentially. ABRAXANE is evolving on a positive trajectory and posted strong global 16% year-over-year growth and 5% sequential growth. As a reminder, both VIDAZA and ABRAXANE international growth rates can be impacted in any given period by distributor ordering patterns.

Regarding inventory, in Q1, we told you that inventory issues negatively impacted REVLIMID by about $15 million to $20 million in that quarter, out of a total global negative impact for all products of $25 million to $30 million. In Q2, we saw approximately $8 million of positive inventory impact on REVLIMID for the quarter out of a $10 million total impact for all products.

Moving on through some of the key line items in our P&L. Product gross margins improved to 94.8%, driven by favorable revenue mix. Compared to the second quarter of 2011, the significant increase in gross margin is partly due to a decrease in VIDAZA royalties after the product's loss of exclusivity in the U.S. in May of 2011. R&D as a percentage of revenue declined 50 basis points for the year-over-year comparison and increased 80 basis points sequentially, as we had Avila expenses in for the full quarter in Q2 versus only 3 weeks in Q1. We continue to see nice leverage in SG&A expense on both a year-over-year and sequential basis with declines of 160 and 180 basis points, respectively. This P&L leverage allowed us to grow operating profit by 26% on a year-over-year basis and improve operating margin to 47.8% for the quarter. Our effective tax rate remains at 16.5% for this quarter and represents a 250-basis-point improvement over the same period last year.

On a year-to-date basis, we see that we are tracking for 2012 to continue the favorable evolution of expenses downward as a percentage of revenues, a trend that we have seen over the past few years as the Celgene business model develops globally. Driven by that leverage and growth in revenues, we are delivering an ever-improving industry-leading operating profit margin that reached 47% for the year-to-date first 6 months of 2012 and 47.8% for Q2.

The Celgene business model generated almost $1 billion of net cash from operations during the first half of 2012. We deployed some of that cash flow to business development activities, including the Avila acquisition in Q1 and the Epizyme and Inhibrx transactions in Q2. We also continue to actively use our share repurchase program in Q2, and with the $2.5 billion additional authorization we received from our board in June, we had just over $3 billion of authorization open at the end of June. Since its inception, we have repurchased about $3.3 billion of our own shares under our buyback program, and we continue to actively use the program on an ongoing basis.

We saw a favorable development during the quarter regarding accounts receivable collections in certain jurisdictions in Europe, and I would particularly highlight the fact that we received over $150 million from Spain during Q2. Our day sales outstanding improved in several countries across Europe over the course of the quarter.

Driven by continuously increasing profit margins, combined with strong balance sheet and capital structure management, we are producing higher returns on invested capital, a trend we expect to sustain. This metric is based on the more conservative GAAP operating income numbers, and you can find its calculation in the reconciliation tables accompanying our webcast slides.

Regarding our outlook for the full year, we reaffirm our revenue guidance for both revenues -- total revenues and REVLIMID revenues at $5.4 billion to $5.6 billion and $3.75 billion to $3.85 billion, respectively or growth of 15% and 19%. In light of our strong P&L performance for the first half of this year and our view of the business drivers we see for the remainder of the year, we are increasing our EPS guidance to $4.80 to $4.85 and narrowing the range. At the midpoint of this range, our EPS growth would be about 27%.

We continue to expect R&D expense as a percentage of revenues to come in at about 25% for the full year, including the Avila acquisition, and SG&A expense as a percentage of revenues to be about 21%. We expect the effective tax rate to be 16.5% for the year, and our EPS guidance assumes a weighted average share count of about 445 million shares.

To summarize, we are very happy with our strong revenue growth in Q2 and our even stronger profit and EPS growth. Not only are our growth rates strong, but the quality of the growth is also very high as it is volume- and efficiency-driven. This growth is fueling improved returns on invested capital, even as we continue to invest for the long-term health of our business. Our performance to date reinforces our confidence in our ability to achieve and exceed our original EPS guidance for 2012, and we, therefore, raised our full year earnings outlook by $0.05.

We look forward to a strong second half of this year with respect to our financial performance, and we are very excited about the numerous milestones and catalysts still to come between now and year-end.

Thank you, and I will now turn the call over to Mark.

Mark J. Alles

Thanks very much, Jackie. Good morning, everyone. As you heard from Bob and Jackie, Celgene made excellent progress during the quarter, advancing our products for unmet medical needs in cancer and immune inflammatory diseases, while delivering record operating results. My comments will focus on second quarter product sales, important drivers for continued top line growth and some insights into our expected near-term commercial launches.

First half 2012 total net product sales were $2,582,000,000, 17% growth compared with the first half of last year. We generated record second quarter net product sales of $1,334,000,000, representing sequential quarterly growth of 7% and 16% year-on-year. We remain confident that significant drivers of short and long-term sales growth are intact, including the resubmission of the REVLIMID newly diagnosed multiple myeloma regulatory dossier for CHMP, EMEA consideration. The timing for resubmission is dependent on longer-term follow-up and should become clearer by year-end. We are making important progress for the planned, early 2013 launch of pomalidomide for relapsed and refractory multiple myeloma, and we are making equally good progress preparing for the U.S. launch of ABRAXANE as the newest treatment for metastatic non-small cell lung cancer. Clearly, these pomalidomide and ABRAXANE marketing approvals represent 2 major near-term catalysts for significant business growth.

Second quarter 2012 total REVLIMID sales were $934 million, an increase of $73 million over the first quarter. This represents 8% quarter-on-quarter and 17% year-on-year growth. REVLIMID sales growth was balanced across our core markets. In the United States, sales were $537 million, up 10% quarter-on-quarter and 17% year-on-year. Total REVLIMID sales in our international markets were $397 million, up 7% quarter-on-quarter and 18% year-on-year. Quarter-on-quarter REVLIMID share of the U.S. and European myeloma markets was consistent, and we again realized improved duration of therapy. In Japan, REVLIMID market share expansion in second line myeloma and improved duration of therapy were particularly strong indicators of accelerating sales performance.

The recent publication of the REVLIMID MM-015, CALGB and IFM newly diagnosed and maintenance studies in the New England Journal of Medicine add significantly to the substantial amount of existing clinical evidence supporting patient treatment, new Phase III clinical trial concepts and the development of novel agents in combination with REVLIMID as the backbone of care. This level of peer-reviewed data should serve to strengthen the overall REVLIMID value proposition for patients, hematologists and payers.

Expanding our global commercial opportunity for REVLIMID in newly diagnosed multiple myeloma remains one of our most important objectives. Clinical follow-up on the results of MM-015, CALGB and IFM studies continues. And our Phase III MM-020 study remains blinded, pending the predefined number of progression events.

Beyond continued geographic expansions to markets such as Russia, Brazil, Mexico, China and South Korea, opportunities to better define the emerging role of REVLIMID for the treatment of lymphoma and leukemia should come into focus later this year. Important validation of REVLIMID and lymphoma should come from our mantle cell-001 Phase II study, we expect the MCL-001 studies to be available in time for this year's American Society of Hematology meeting and we plan to submit the sNDA for this indication by year-end. As you know, this is a Special Protocol Assessment Trial. Given new and updated data on the combination of REVLIMID and Rituxan in relapsed follicular lymphoma, we are evaluating a number of strategies potentially to realize regulatory approvals for this novel, biological regimen. In CLL, our REVLIMID pivotal Phase III study, CLL-008, comparing REVLIMID to chlorambucil as first-line therapy in elderly patients, is on track to complete accrual by late this year. We consider this study to be our key trial leading to global marketing approvals and standard of care status for REVLIMID in this important segment of the CLL market. Other studies include CLL-002, our REVLIMID maintenance trial and combinations in development with Rituxan and the new Btk inhibitors.

Since the late 1990s, clinical progress in multiple myeloma has been remarkable. Unfortunately, myeloma remains incurable and fatal for almost all patients, making the need for active and safe products for heavily pretreated patients very obvious. In the development of pomalidomide in relapsed refractory myeloma, we have accelerated dramatically. In the second quarter, the results of MM-002 allowed us to submit marketing applications to both U.S. and European regulatory agencies, and the pivotal international Phase III study, MM-003 study, reached its accrual target of just over 400 patients.

Given our progress and confidence in pomalidomide, Celgene is immediately allowing patient access through the PEXIUS program, or the Pomalidomide Expanded Access Program in the United States, and through the just approved and reimbursed access program in France known as the cohort ATU or Temporary Use Authorization. We continue to plan for clinical and commercial success with pomalidomide in myelofibrosis.

Second quarter VIDAZA sales were a record $201 million. Sequential quarterly sales grew 8% with strong year-on-year growth of 24%. In the U.S., sequential quarterly sales increased by 12% to $82 million and 12% year-on-year. Second quarter international VIDAZA sales grew to $119 million, up 6% quarter-on-quarter and 25% year-on-year. We expect new markets and increasing market share, plus duration of treatment in those existing markets, to drive improved international VIDAZA sales.

We continually work to optimize and leverage our global MDS franchise. Our Phase III registration study for VIDAZA in acute myeloid leukemia is advancing and should serve to expand its approved indication to include all categories of patients with AML. Investigator interest to conduct research with CC-486, or oral azacitidine, is very high with 2 specific strategies under active consideration. The first seeks to develop CC-486 for a subset of low-risk MDS, and the other will test CC-486 as maintenance therapy following transplantation or other induction therapy for AML. We expect a positive regulatory recommendation in Europe for REVLIMID in the treatment of low-risk, transfusion-dependent deletion 5q MDS by year-end.

Turning to ABRAXANE. Second quarter ABRAXANE sales were $110 million. This is our fourth consecutive quarter with sales greater than $100 million. These consistent results provide a solid base for increased growth from geographic expansion and new commercial opportunities we would realize following regulatory approvals for non-small cell lung cancer and positive Phase III data and marketing approvals in melanoma, pancreatic cancer and, perhaps, other solid tumors.

The PDUFA date for FDA to complete its review of ABRAXANE in the treatment of metastatic non-small cell lung cancer is October 12. We are in the very advanced phases of commercial launch planning, and I would like to take just a few minutes to provide some perspective on this market opportunity.

For context, please remember that in the United States, more people die every year from lung cancer than breast, prostate and colorectal cancer combined. Non-small cell lung cancer is the leading cause of cancer deaths in the world with more than 1 million deaths per year. The 5-year survival rate for patients with Stage III-B and IV lung cancer is less than 10%. In the United States, there are approximately 100,000 people with lung cancer considered treatable with various chemotherapy regimens. Most often, treatment decisions are made on the basis of the histological categories of non-squamous or squamous. Our proposed indication for ABRAXANE is for all Stage III-B and IV patients, but there may be differentiated market adoption in elderly patients with non-squamous histology and, potentially, in the majority of patients with disease histologically classified as squamous.

We are pleased with our second quarter results. Sequential quarterly net product sales grew by 7% and 16% year-on-year. The leading indicators of product performance are on track with our sales forecasts. We are beginning to more fully realize the commercial benefit of geographic expansion with several major new markets expected to come online over the next 6 to 12 months.

I'd like to conclude by thanking our global commercial team for the second quarter and first half 2012 sales results. We are committed to executing and delivering on our full year operating plan.

Thank you very much, and I'd like to turn the call back to Bob.

Robert J. Hugin

Thank you, Mark. We're energized by our progress to-date and the promise and potential of our key programs. We're focused on our near-term objectives, which position us to achieve multiple clinical and regulatory milestones throughout the remainder of the year while delivering on our revenue and earnings guidance. We're committed to producing exceptional results and to discovering, developing, delivering breakthrough therapies for patients in need around the world. Our operating momentum is strong as we continue to execute on our business model.

Thank you very much. Operator, let's open the call to questions.

Question-and-Answer Session


[Operator Instructions] Our first question comes from Yaron Werber of Citi.

Yaron Werber - Citigroup Inc, Research Division

So maybe it's a question for Mark, and relating to REVLIMID, certainly. Give us a little bit of a sense, kind of what are you seeing in terms of international growth? Where is the growth coming from? Is it growing in Europe? Or is it mostly coming from the rest of the world? And specifically, what drove sort of the reversal in the U.S. with REVLIMID? I mean, inventory is a part of it. I'm trying to get a sense, kind of organically, if you correct for the inventory last quarter and this quarter, what would've been the quarter-over-quarter growth?

Jacqualyn A. Fouse

Yaron, it's Jackie. Let me just jump in quickly on the inventory and then pass it to Mark. I mean, that's why I included that in my comments to make it very clear. So, back in Q1, we talked about the impact on REVLIMID at about $15 million to $20 million. Post that discussion, we talked about a particular transaction that we thought, in the M&A space, had an impact there, as well as the overall channel inventory levels, and we talked about how the channel maybe become somewhat more efficient over time. Then in Q2, I told you, everybody that we would let you know what the inventory impact was. We did see it be $8 million positive, again, versus the $15 million to $20 million negative in Q1. We think that inventory levels across all products now, including REVLIMID, are what we would consider to be at relatively "normal levels" for the channel in the U.S. And so, let's just be very clear about what the impact was in Q2 of $8 million. So we did not see the entire impact from Q1 come back in Q2. We did not expect that we would. The channel may become a little bit more efficient. Over time, we think the levels are probably relatively stable now. So with respect to the commercial dynamics, let me let Mark take that up.

Mark J. Alles

Yaron, so we saw balanced growth in REVLIMID across all our core markets. Europe, across-the-board, was stronger. France, a little bit better. We talked about the impact last year going back to some of the issues in the French market that were relatively unique and, perhaps, exaggerated. But Latin America, Japan, core markets in Europe and the U.S. were all up sequentially. Please remember in the U.S., we spoke to the Q1 dynamic of a very strong jump in new patient starts. We saw that share gain. We continued with that share gain through Q2, and we find ourselves in a position where demand on a TRx basis, so total prescriptions, and duration really combined across-the-board, perhaps a little bit better in the U.S. than other markets in the world, to deliver a solid quarter.

Yaron Werber - Citigroup Inc, Research Division

But so if you back into it, it looks like it's a 4% to 5% quarter-over-quarter growth in the U.S. x inventory. Does that make sense?

Mark J. Alles

No, I wouldn't characterize it that way. I think that there are ongoing dynamics that will grow sequential growth in different manners. But I think when you put the business together, we had, in the U.S., a fairly consistent performance, and now, we've seen a very nice growth rate quarter-on-quarter. That's all.

Jacqualyn A. Fouse

Well, I think, Yaron, if you look at the -- the sequential growth in the U.S. was around 10%.

Mark J. Alles

Well, it's up 10%. That's the point.

Jacqualyn A. Fouse

So even if you adjust for the $8 million of inventory and assume that, that was all in the U.S., I think you get very strong sequential growth that's much higher than in the 4% or 5%...

Mark J. Alles

It's still in the 6% range or better if you did all of the changes, but it's very strong.

Yaron Werber - Citigroup Inc, Research Division

No, what I'm thinking is that you took about $15 million to $20 million out of the channel in Q1, so if you add that in, because that was organic demand, and then you take out the $8 million this quarter, you get 4% to 5% quarter-over-quarter.

Mark J. Alles

Yes, I think, again, if mechanically, you want to do the math that way, it's fine. But I think as Jackie pointed out, channel management, quarter-by-quarter, on a brand now that is above $500 million in U.S. alone, will present either a buying pattern that's better or worse at the end of different quarters. So, the demand picture is solid, scripts are up, duration is up and we delivered in the U.S. and around the world a very strong REVLIMID performance.


Our next question comes from Mark Schoenebaum of the ISI Group.

Mark J. Schoenebaum - ISI Group Inc., Research Division

Jackie, just on your guidance you took up -- you obviously took up EPS, but you didn't change revenue. I'm just wondering what, in the P&L, in your internal forecast, has changed. And the second was, what's your current view on potentially partnering apremilast? I know you're probably in the early stages thinking about that, but any comments would be helpful.

Jacqualyn A. Fouse

So just with respect to EPS, you've got the revenue driver, and then you've got all, obviously, all of the expense drivers. So you might think about how we try to put our forecast together in that regard and whether we're conservative or not. But we left the revenue guidance fairly broad and are maintaining that because that's where we think that we’ll come in. But we -- given the visibility that we have a little bit more on the expense side and how we’ve performed to-date for the first half of the year, we feel like we're able to take that earnings guidance up at this time, until extremely confident in our ability to deliver that guidance. You may also remember that we did not change our original EPS guidance when we did the Avila acquisition. So we have absorbed those expenses. They’re now fully in the P&L, and we'll have them from now on. And then in the second half of the year, we do have some launch costs foreseeing for the lung indication and a little bit of a prelaunch activity for pomalidomide as we expect to move towards an approval in February of next year. So we're just thinking about all of those things as we pull the overall guidance together.

Robert J. Hugin

And Mark, on apremilast, we're pursuing multiple analyses and strategies. We're engaging in partnering discussions. But until we see the full range of the data, both psoriatic arthritis and psoriasis, we're going to go along the paths of just making sure we understand what the options are so that as we make decisions early next year, we're in the best position to maximize the value of the apremilast franchise. So we're going down all the routes to just keep all our options open, make sure we understand the full data sets that we get. We're very encouraged by what the potential is, and we're going to make sure we maximize the value of the asset for ourselves and our shareholders.


[Operator Instructions] Our next question comes from Geoff Meacham of JPMorgan.

Geoffrey C. Meacham - JP Morgan Chase & Co, Research Division

You guys, last quarter, talked about REVLIMID new starts in the U.S. and how it's been fairly high over the past few months. I want to get a sense for what's really driving this and how sustainable it is. Is it more comfort with the SPM rate as it evolves over time, and do you think that the withdrawal of the European application could have an impact on this vis-à-vis physician sentiment?

Mark J. Alles

Geoff, it's Mark. I think there are a convergence of factors. We have, as I pointed out, tremendous visibility through the benefit of REVLIMID and myeloma across all the stages of the disease now, whether it's smoldering, induction, maintenance, pure second line, our core indication around the world. There's a lot of confidence, again, in the brand. And I think what we've seen in the last, let's say, 5 to 6 months is that confidence being built back in on a global basis. You asked the question about withdrawing the NDMM application, and I have to tell you that I do think that there is awareness of that, and to some extent, the confidence in the brand, from a physician usage point of view is actually paradoxically stronger because it's hard, sometimes, to reconcile between regulatory review and the clinical interpretation data. So bottom line, there are a lot of basic elements of commercialization, levels of evidence, experience, confidence, leading to improved demand. Duration is always one of those variables that is such a key driver, and to the extent that the SPM question was in the mind of the market over the last 18 months or so, we do believe there's a lot more comfort and confidence that, that issue is largely behind us.


Our next question comes from Rachel McMinn of Bank of America.

Rachel L. McMinn - BofA Merrill Lynch, Research Division

I wanted to talk a little bit more about pomalidomide. Bob, I think you highlighted this as the product with significant or maybe the most potential in your pipeline. Can you talk a little bit more about this? Is this -- where does myelofibrosis fit into that? Do you think pomalidomide is going to be expanding the myeloma market or replacing REVLIMID at a higher price? Just any of the details you can give us on your thoughts.

Robert J. Hugin

I mean, we still have considerable work to do. We expect to see the Phase III data MM-003 by the end of the year, hopefully, at -- presented at ASH. So, we're very encouraged about the potential that pomalidomide has to expand the multiple myeloma market. We do not see it as cannibalizing REVLIMID. We think, in fact, mechanistic work that we've done really looks at the ability of that product to augment our portfolio and strengthen it and not -- and our ability to differentiate them will be, I think, very positive on its impact. And our forecasts are really focused on the myeloma market. We're encouraged by the fact that we're going to be able to -- we're hopeful, to launch in both Europe and the United States in 2013 and have the benefit of that nearly global or 90% of the market opportunity for us where we are today and, obviously, expand it beyond that as quickly as possible. So we see very strong opportunity in myeloma, expanding the marketplace, being a very preferential treatment for relapsed refractory myeloma patients. And in myelofibrosis, we view that very much as an additive opportunity. We have completed the accrual. As soon as the events hit the course, the specified amount, we'll have that data. And once we have that data -- and we're optimistic. We're talking about not just symptoms, but the real, underlying hematological impact of myelofibrosis on patients in dealing with those actual indications of the disease. So when we see that data, we'll be able to provide more guidance on what the opportunity is in myelofibrosis. But just in the myeloma space, our outlook is this will be our next blockbuster in hematology.


Our next question comes from Eric Schmidt of Cowen and Company.

Eric Schmidt - Cowen and Company, LLC, Research Division

Bob, in terms of apremilast profile and your plans to take this take commercially yourselves potentially, do you think that the drug needs to have efficacy as good as biologics? Or do you think you can win on lesser efficacy but, obviously, better convenience? And then, if I could just sneak in another one, could Mark please provide us the French ATU reimbursement price for pomalidomide?

Robert J. Hugin

On apremilast, just to be clear, we have not made up our strategic decision on how to best commercialize and how to best monetize or maximize the value of apremilast. We're very encouraged by our first pivotal data that we've received, and we’ll receive the second and third trials here in the coming weeks and months and, hopefully by the end of the year, begin to see the psoriasis data. So it's a near-term and very important strategic decision that we have to make. And so we're going to look at all the options available to us to ensure that we do the right thing in terms of the access to patients and maximizing the value of that franchise for us and our shareholders, as I mentioned. In terms of the data, I think that we're encouraged by what we're seeing in terms of what impact it has from an efficacy point of view, what it's going to have from an efficacy point of view, and combined what we've seen on the tolerability and safety profile, that benefit risk, we think, is going to be our opportunity or whoever markets the product, if it's not us, opportunity to really differentiate it and take advantage of what we think is an increasing identification of a tremendous opportunity for oral therapies in newly diagnosed or not heavily pre-treated patients and, potentially, after biologics also. So we think that the data will and has to stand up on its own. And efficacy and safety, when you combine them both, we think the opportunity is great, and we're going to see that all the data in the next 6 months or so.

Mark J. Alles

Just on the ATU price for pomalidomide, we're finalizing that as we speak, so it will become available shortly.


Our next question comes from Geoffrey Porges of Bernstein.

Geoffrey C. Porges - Sanford C. Bernstein & Co., LLC., Research Division

Jackie, you mentioned the payment from Spain, and we've heard this from a number of companies. And I think you said it was about $150 million. Could you tell us how that was incorporated into your revenue recognition? And if it was other than just cash, could you tell us which products you were paid for roughly distributed at across that $150 million?

Jacqualyn A. Fouse

Geoff, there's no impact on revenue recognition, so that was just related to accounts receivable balances that were in our balance sheet where we did have -- we do have small amounts of reserves against those. You can find those in our SEC filings, but they’re very small. And we did not change anything in our reserve accruals, even though we got a payment. So there's no impact on revenues at all. It's only a cash item and a balance sheet item in terms of reducing the accounts receivable. Most of our sales in Spain are from REVLIMID, as you might appreciate. So a big part of that balance would go against that particular product. But in essence, that amount of money essentially paid for receivables that dated 12/31/2011 or prior. So it was essentially like a catch-up payment for some of those older receivable balances there. And just on that topic, we also saw improvements across-the-board in Europe in all countries on the days sales outstanding. So we feel quite good about that situation.


Our next question comes from Ying Huang of Barclays.

Ying Huang - Barclays Capital, Research Division

Number one, if you do resubmit the front line filing in the EU, would it still go through the 210-day standard timeline? And then secondly, in terms of the near-term loss opportunity in front line in Europe, have you thought about more business development opportunities?

Mark J. Alles

It's Mark. Just the front part of the question, with respect to the regulatory procedure on resubmission, this would be considered a new submission, and the process procedure would happen as if we had not filed previously. Bob, on...

Robert J. Hugin

I didn't really…

Mark J. Alles

Sure, the question was, in the second part, because of, as I understood it, perhaps some revenue that is out of our model going forward, given the withdrawal, do we need some M&A activity or would we consider some business development activity to offset?

Robert J. Hugin

So let's be very clear. Our 2012 guidance and our 2015 guidance forecasts, no M&A activity to achieve those targets, and we don't believe that there's any reason for us to be considering any kind of major M&A at this time.


Our next question comes from Thomas Wei of Jefferies.

Thomas Wei - Jefferies & Company, Inc., Research Division

I had a question just on the European refiling front. We'd just love to get an update on the comment that you made, Mark, on having a much clearer situation by year-end. Can you just remind us again what exactly is all this data that you're going to be getting by year end? And presumably, that means that MM-020, the interim analysis, still on track to have data by then. And then also some sort of analysis of the ongoing front line trials as well, that's all culminating around that year-end mark?

Mark J. Alles

Thomas, it's Mark. So, as you know, MM-015, CALGB and IFM were extremely positive against the primary endpoint of progression-free survival. We think that is a relevant, very important end point, and these studies are extremely positive. The follow-up that is being considered as part of the strategy moving forward is for the maturity of the overall survival events and then the overall event-free and other analyses that would look at the clinical benefit. We believe that, with time, that maturity will give us a picture that allows us and EU regulators to consider the filing again. With respect to MM-020, as I said, it remains blinded, pending progression events, and it is an independent regulatory commercial strategy that we've had to make Rev/Dex, REVLIMID plus lodus [ph] dexamethasone, a new standard compared with the alkylator regimen, MPT. So while there is some overlap, potentially, of these programs, and we would hope that, eventually, the REVLIMID label would include MPR-R from 015, REVLIMID maintenance therapy post-transplant, and Rev/Dex as induction for other patients, these are strategies that will move in parallel.


Our next question comes from Marshall Urist of Morgan Stanley.

Marshall Urist - Morgan Stanley, Research Division

So just 2 quick things. First, just, Jackie, on the REVLIMID guidance for the year, are you guys still more comfortable at the kind of low to middle of the range, consistent with the previous comments? And then is it possible, was there any benefit of price quarter-on-quarter in terms of just realizing, I think, the late 2011 price increase as that kind of flowed through? Did we get any sequential benefit of that? And then just lastly, any kind of comments would be helpful on the extent of the dose response for the apremilast study that you saw at the higher dose. Can we get some, at least, qualitative comments, on how that looked relative to the 20-milligram dose?

Jacqualyn A. Fouse

On the REVLIMID, I think for right now, we would say we are still comfortable to say that we think that guidance range is more around the middle-ish part of the range that we would expect to come in at. We're very happy with where we are right now. We want to just manage expectations a little bit. On the price side, what you saw in the slides, I think, that I presented in the webcast and my comments, is that year-over-year, for the quarter, the contribution from price was 3 percentage points. So the total growth was 16, of which 14 points were volume, 3 points were price, and that is a global net price impact in total across the portfolio and a small 1 percentage point negative net impact from currency. So most of that contribution from price, or essentially all of it, would come from the U.S. Japan price, essentially flat. In Europe, we continued to see the downward pressure in Europe that we've seen for the past 2 years and have expected and built into our forecasts of kind of that 5% to 6% range in Europe, down overall. And you blend all that together, you get the 3% for the quarter year-over-year comparison.

Mark J. Alles

In the quarter-on-quarter comparison for REVLIMID, there is a very, very small impact on the price increase that flowed through, [indiscernible] to the price increase late last year that flowed through Q1 and into Q2.

Robert J. Hugin

And then on apremilast, obviously, we're looking forward to the presentation of all the data at the medical meeting, but we're encouraged by the dose response. The 20 milligrams certainly met the endpoints that we would seek to achieve in the trial, but what's really encouraging is that we saw the dose response of increased efficacy activity in the 30-milligram twice a day with no difference in the safety profile and basic tolerability, which really will beg the question over time, can we actually increase the dose and will -- is there an increasing dose response above the 30-mg BID? But I think clearly, what we're seeing so far from -- this is the first trial, it's just one, we need more than one trial, is that if we continue to sustain these results, that the 30 milligrams is going to be a very attractive dose to commercialize.


Our next question comes from Michael Yee of RBC Capital Markets.

Michael J. Yee - RBC Capital Markets, LLC, Research Division

I actually had a question on ABRAXANE. Obviously, some big Phase III readouts coming out over the next 12 months. In pancreatic, specifically, I know you had previously increased the enrollment in that study, if I recall. What are you looking for? What kind of clinical benefit and powering assumptions? How should we think about that study?

Mark J. Alles

Yes, we did increase the sample size from around 550 patients to around 800 patients. So you're correct in that assumption. That was to increase the power to detect an overall survival advantage to 90%. So the clinical benefit in pancreatic cancer of a meaningful improvement at survival is what we look for. This study will -- it'd be very binary. Gemcitabine is the control arm. There's a well-understood profile for that product. The Phase II data that we built this strategy around, using the combination of ABRAXANE plus gemcitabine, is quite, quite strong. So we look for the trial to be positive and for this doublet, ABRAXANE-gemcitabine, to be a major, major benefit for patients with this terrible disease.


Our next question comes from Ian Somaiya of Piper Jaffray.

M. Ian Somaiya - Piper Jaffray Companies, Research Division

I just had questions on apremilast. First, maybe a follow-up to Marshall's question. Can you just confirm that the 2 doses showed a statistically significant benefit at the -- in terms of the ACR20, 50 and 70 measures, it'll be 24? And then the second question, maybe one specific -- maybe one for Mark Alles was, what are the commercial implications for the dampening effect of methotrexate that you pointed out in your press release? And I'm sure there are many patients who would love to get off methotrexate. Just wanted to get your sort of view on that point.

Robert J. Hugin

Just on the first question, it is absolutely accurate that at both 20-milligram and 30-milligram BID, the ACR20, 50 and 70s were statistically significant at 24 weeks.

Mark J. Alles

The methotrexate question, I suppose, the answer is going to be pretty obvious. As the data for apremilast mature, if the use of apremilast differentially from methotrexate or in those patients who have had methotrexate, informs the treatment strategy, I think a lot of the marketplace would like nothing better than to discontinue methotrexate as an old fairly toxic drug. So I think it bodes well for us in regards to how the market would respond.

Robert J. Hugin

And one of the attractions is if the safety profile continues on our subsequent pivotal studies, we really wouldn't anticipate any monitoring of patients, and obviously, methotrexate does require monitoring. So the kind of patient and physician abilities to use apremilast to, as Mark pointed out, it would be a very attractive opportunity to market that. So, we've got a lot more data to gum [ph]. It's an important step for us, and we're very encouraged and excited about the coming months for apremilast.


Our next question comes from Matt Roden of UBS.

Matthew Roden - UBS Investment Bank, Research Division

Great. You guys highlighted upcoming data and potential registration in mantle cell, diffuse large B cell and CLL. Mark, can you comment on to what extent you see commercial utilization in these segments already? How do you see the incremental opportunity? And then Jackie, can you talk about how these segments factor into the year 2015 targets? And then, just secondly, can you speak to whether or not Brazil is in your REVLIMID guidance? And if you get approval this year, should we expect a Brazil bulk purchase?

Mark J. Alles

Yes, go ahead, Jackie. I'll follow up.

Jacqualyn A. Fouse

Let me just start quickly with the targets out to 2015 to set the stage, and Mark will come along on the remainder of the questions. Our targets out to 2015 include a little bit of revenue for the MCL indication because we expect that we can have an approval for that by the end of next year. There's not very much in the model for diffuse large B cell, and there is essentially nothing for CLL because we don't expect those approvals until sometime in the 2014, '15, maybe even '16 timeframes as those roll out in their different variations. So one of the messages is that as REVLIMID continues to expand its indications and move into non-Hodgkin's lymphoma then into CLL, that the most significant part of that growth opportunity is beyond the 2015 timeframe. And we feel very, very good about our ability to deliver the growth targets that we've stated to you out to 2015 without those. So with that, let me let Mark take up the rest of it.

Mark J. Alles

Yes. It's critical that we advance the REVLIMID mantle cell program to have an approval in a subset of lymphoma, which we think will have an opportunity for the product to grow. CLL, same thing. I mean, it's interesting, as I listen to this, there are thousands of patients now who are being studied with REVLIMID and CLL. In fact, there are, I think now, more than 1,000 patients who have been accrued to different clinical trials, yet the marketplace, to your specific question, and its use of REVLIMID in different CLL and NHL populations is still quite low. So I think what Jackie outlined in terms of timing is important to keep in mind. I guess I'll summarize by saying the clinical program is robust, but the upside in CLL and NHL is enormous. It's tremendous. And I think we can really realize that benefit and that potential soon. Brazil, we continue to work very, very aggressively with the regulatory authorities, and we see most of the performance in Brazil into future years. We're working to get regulatory approval and then into reimbursement approval over the next 6 to 10 months, depending on the regulatory procedures. So Brazil is up slightly, the numbers as well.


And our final question comes from Chris Raymond of Robert Baird.

Christopher J. Raymond - Robert W. Baird & Co. Incorporated, Research Division

Jackie, I just wanted to see if I could better understand the share count assumptions going forward. In the slide pack, you say that we should assume a constant share count to year-end 2011, but you're sizably down in Q2 from that, and by our count, I think you've got, what, $3.2 billion left in the authorized repurchase. So can you maybe talk about really what's embedded there?

Jacqualyn A. Fouse

So if I'm not mistaken, and I think you'll see all the numbers either in the reconciliation tables or when we file the Q, but just as a reminder, the weighted average fully diluted share count for Q1 was 448.6 million. For Q2, it was 445.4 million. Again, that's the weighted average. So when you think about the evolution of that for the remainder of the year and run through some scenarios on what the weighted average calculation on a fully diluted basis would be for the full year, that comes back to my comment about the 445 million assumption that gets you to our EPS guidance range of $4.80 to $4.85. And then, you can make some assumptions around that about how you think we will use the program from now until the end of the year and what impact that would have. And I would just reiterate that we actively use the program but would like to leave you to run those different scenarios. But I think if you take the 445 million in context with the first 2 quarters experienced for the year and use that as the assumption, you'll understand at least how we've constructed our guidance. And then you can make your own inferences about the potential scenarios around that.

Thank you very much, everybody. For any of those of you who are still in the queue, sorry you didn't get onto the call. We do try every time. It’s a long list of parties, and we'll follow up with you immediately after this call. So thanks very much for joining us today, and we look forward to speaking with you soon.


Ladies and gentlemen, this does conclude today's conference. You may all disconnect, and have a wonderful day.

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