Celgene Corp. Q1 2008 Earnings Call Transcript

| About: Celgene Corporation (CELG)

Celgene Corporation (NASDAQ:CELG)

Q1 FY08 Earnings Call

May 8, 2008, 9:00 AM ET


David W. Gryska - Sr. VP and CFO

Robert J. Hugin - President and COO

Sol J. Barer - Chairman and CEO


Yaron Werber - Citigroup

Jim Birchenough - Lehman Brothers

Geoffrey Porges - Sanford Bernstein

Sapna Srivastava - Morgan Stanley

Geoffrey Meacham - JPMorgan

Michael Aberman - Credit Suisse

Jim Reddoch - Friedman, Billing, Ramsey


Good morning. My name is Candice, and I will be your conference operator today. At this time, I would like to welcome everyone to the Celgene First Quarter Conference Call. At this time, I would like to turn the conference over to Mr. David Gryska, Chief Financial Officer. Please go ahead sir.

David W. Gryska - Senior Vice President and Chief Financial Officer

Good morning everyone and thank you for joining us today. I'm Dave Gryska, Celgene's Chief Financial Officer, and I would like to welcome you to Celgene's first quarter 2008 conference call. With me are Celgene's Chairman and Chief Executive Officer, Sol Barer; and President and Chief Operating Officer, Bob Hugin.

The press release reporting our first quarter financial and operating results was issued earlier this morning and is also available on our corporate website. I'll start the call by reviewing our first quarter results; then, I will provide insight into the progress of our acquisition. I'll end by sharing our financial outlook for 2008.

Bob will then review our operational and commercial results for the first quarter and give you the outlook for the rest of 2008. Sol will then conclude our session with a strategic perspective on 2008 and beyond.

Before we start, we want to remind you that certain statements made during this conference call may be forward-looking or made pursuant to the Safe Harbor provisions of the Securities Litigation Reform Act of 1995. Certain forward-looking statements which involve known and unknown risks, delays, uncertainties, and other factors not under our control may cause actual results, performance, and achievements to be materially different from the results, performance, or other expectations implied by these forward-looking statements. These factors include the results of current or pending clinical trials; our products' failure to demonstrate efficacy or an acceptable safety profile; actions by the FDA, EMEA, and/or other international regulatory bodies; the financial conditions of suppliers, including their solvency and ability to supply product; and other factors detailed in our other filings with the Securities and Exchange Commission or referred to in the press release issued this morning.

As you may have seen in the press release, this is the first quarter where we report the results as a combined company. The Pharmion trends acquisition closed on March 7th, and therefore, we have included three weeks of Pharmion revenues and expenses in our first quarter results. During the second quarter and the remainder of the year, we will capture the revenue and expenses from the acquisition.

Now, I'll take you through the financial results. Non-GAAP total revenues for the first quarter 2008 increased to a record $461 million, an increase of 57.3% year-over-year. The increase was driven by growing revenue streams, including record quarterly product sales of REVLIMID and sales of THALOMID. Sales of REVLIMID increased in both the U.S. and European markets. In Europe, we continued to roll out REVLIMID country-by-country. Sales of REVLIMID also increased across all lines of therapy. This growth was realized in our strong bottom-line performance.

The non-GAAP diluted earnings per share for the quarter were $0.36. On a GAAP basis, the EPS is considerably different, primarily due to the in-process R&D charge of approximately $1.7 billion associated with the acquisition. This translates to a GAAP diluted earnings per share loss of $3.98. Total net product sales increased to 429.8 million for the first quarter, up 59% from $269.8 million in the year-ago quarter.

REVLIMID net product sales were $286.8 million, an increase of 96% over Q1 2007. More importantly, REVLIMID sales increased 16% quarter-over-quarter. THALOMID net sales, including three weeks of revenue from international thalidomide, were $113.9 million for the quarter compared to $106 million in the same period last year. Quarter-over-quarter sales of THALOMID were essentially flat; however, we anticipate sales from international thalidomide will increase later in the year as we initiate our launch activities in Europe on a country-by-country basis.

Product sales for the first quarter of 2008 included three weeks of revenue from VIDAZA from March 8th through March 31st. For those weeks, VIDAZA revenues were $13.8 million. As a point of reference, VIDAZA sales for the full quarter ending March 31st were just under $50 million.

Revenue from Focalin and the Ritalin family of drugs totaled $25.9 million compared to $19.8 million in the year-ago quarter. ALKERAN net product sales generated $15.1 million. Not included in our non-GAAP revenue for the quarter are product sales of Innohep and Refludan whose disposition is currently under evaluation.

Our gross product margin for the first quarter was approximately 90% as compared to 92% in the year-ago quarter. We expect gross margins for the rest of 2008 to be in the range of 90%. This number accurately reflects the impact of higher royalties and manufacturing costs related to VIDAZA and THALOMID.

To support clinical development and to advance global regulatory filings, the company increased R&D investments in multiple international clinical programs. On a non-GAAP basis, the company incurred R&D expenses of $102.3 million which exclude both stock-based compensation and the $45 million expense related to a collaboration with Acceleron. In the same period last year, these non-GAAP basis expenses were $76.9 million. These R&D expenditures support ongoing clinical progress in multiple proprietary development programs for REVLIMID and other IMiDs compounds; for apremilast and other oral anti-inflammatory compounds; our pleiotropic pathway modifier program; as well as our kinase inhibitor and placental-derived stem cell programs.

In the second quarter of 2008, our R&D expenditures will expand to include programs that support clinical development for VIDAZA, and other epigenetic compounds, as well as amrubicin, our lead compound for small cell lung cancer.

Non-GAAP selling, general and administrative expenses, which exclude stock-based compensation expenses, were $129.3 million for the first quarter of 2008 compared to $98.6 million for first quarter 2007. The increase reflects marketing and sales expenses related to ongoing launch activities in Europe, as well as continued expansion of Celgene International operations in over 50 countries. Importantly, the first quarter SG&A expenses included only three weeks of Pharmion SG&A expenses.

For 2008, on a non-GAAP basis, selling, general and administrative expenses are expected to reach a range of 580 to $600 million, and this estimate includes acquisition integration expenses.

Turning to taxes, our tax rate for the quarter was 25%, and we expect the rate to be approximately 25% for the remainder of the year. In terms of the foreign exchange effect on revenues, the impact of foreign exchange on first quarter 2008 represents less than 1% of total revenue.

Finally, I would like to review our cash flows and our balance sheet to highlight our strong cash position. We ended Q1, 2008 with cash and cash equivalents of approximately $2 billion and we expect to have cash and cash equivalents of approximately $2.6 billion by year-end. We believe these results accurately reflect the strong financial profile of the company as we pursue our goal of becoming the leading hematology/oncology company in the world.

We marked a major milestone in the first quarter of 2008 with the closing of the Pharmion transaction... acquisition. This strategic transaction will have a dramatic impact on our business in the quarters and years to come. We expect that this transaction will be dilutive by 5 to 10 cents in 2008, accretive in 2009, and materially accretive in 2010 and beyond.

On January 31st of this year, we announced guidance for the full year of 2008, excluding the acquisition. Now, we'll update you with our post-acquisition outlook for 2008. We are targeting VIDAZA global revenue to reach approximately $200 million for the 10 month post-acquisition period. We are planning on incremental contribution from international THALOMID sales of approximately $100 million for the post-acquisition 10-month period. Additionally for 2008, we expect global revenue to reach approximately $2.1 billion.

It is important to remember that this financial outlook is subject to timing around reimbursement approvals and other launch logistics as we commercialize our products on a country-by-country basis, and on U.S. and EMEA regulatory timelines. As to VIDAZA, we expect significant commercial sales to begin in 2009 in Europe and to report product revenues from our named patient program in 2008.

As a result of the acquisition and our integration progress to-date, we are forecasting non-GAAP diluted earnings per share of approximately $1.45. This outlook for 2008 reflects a 5 to 10 cent dilution to earnings resulting from the acquisition. As the global post-acquisition assimilation process continues, we will incur one-time integration costs, primarily related to SG&A and clinical expenses in a range of 25 to $30 million for 2008. Additionally, our weighted average share count for the year for purposes of computing diluted earnings will be approximately 462 million shares.

Now, I'll turn the call over to our President and Chief Operating Officer, Bob Hugin, who'll expand on the global commercial, clinical and regulatory successes of the first quarter, and give us a look at what's ahead on the operational front.

Robert J. Hugin - President and Chief Operating Officer

Thanks, Dave. As you have heard, the results of the quarter were exceptional. Our global team produced outstanding operating results, while significantly advancing key corporate objectives, including the continued aggressive development of our international strategy and the management and execution of the Pharmion transaction.

All components of our business contributed to the outstanding first quarter results with a strong growth in REVLIMID revenue highlighting the quarter's achievements. REVLIMID revenue totaled $287 million, a 96% increase over the year ago quarter and a 16% rise sequentially. This significant growth was the key driver in the 57% increase in total revenue to $461 million. This increase in revenue allowed us to continue to make important investments in our research and development initiatives and in our global expansion. These initiatives are designed to produce sustained long-term growth for our company.

At the same time, we have not lost focus on commercial execution and the importance of producing near-term results. The 126% increase in our adjusted earnings per share to $0.36 accurately reflects that focus. Strong performances in both the United States and European markets contributed to the outstanding REVLIMID results. In the United States, new REVLIMID prescriptions grew by approximately 10% over the fourth quarter. Increased market penetration and duration gains in multiple myeloma accounted for most of the product's revenue growth.

Independent third-party market research reported that market share gains continue to be recorded in both the previously treated and newly diagnosed myeloma market segments during this quarter. Duration of REVLIMID therapy has continued to increase, while the average dose dispensed has been constant.

In Europe the continued expansion into new markets was highlighted by the commercial introduction of REVLIMID into Spain. Both new markets and increased penetration in the existing major markets contributed to the very positive results. This strong performance globally positions us well to meet or exceed our REVLIMID growth objectives for the year, with an expected run rate exiting the year producing two-thirds of our REVLIMID revenue in the United States and about one-third from international markets.

Our other key products THALOMID and VIDAZA also performed well in the first quarter. THALOMID product sales increased to almost $114 million. THALOMID results continue to benefit from the overall expansion in the total number of multiple myeloma patients actively treated today. In our financial statements, we recognized $13.8 million of VIDAZA revenue for March 8th through the end of the quarter though not reflected in our financial statements, as Dave mentioned, VIDAZA revenue for the entire quarter approached $50 million.

Overall the results of the quarter reflect the strong operating focus of our global team and the potential that our products have to improve the lives of patients worldwide.

Let me now review some of the key developments and progress achieved in advancing our international strategy. We view the opportunity of delivering our existing and future products to patients in all major markets as a key growth and value driver for Celgene. Significant progress was achieved on several international fronts during the quarter. Approximately 60% of the developed European markets now have commercial access to REVLIMID. That percentage will increase with the commercial launch in Italy now underway.

Progress has generally been quite good in achieving reimbursement across Europe with the exception of the United Kingdom, where the acceptance of innovative products remains challenging. We have also made good progress in other international regions during the quarter. We began the establishment of Celgene organizations in the fast growing Central European countries, including Turkey. We plan to address these markets directly with Celgene teams.

Significant regulatory progress with REVLIMID was achieved in Canada and Australia during the quarter. In January, we received our first MDS deletion 5Q regulatory approval outside of the United States with the Health Canada approval. REVLIMID was also granted marketing approval for multiple myeloma in Australia. It is our goal to attain government reimbursement in both of these markets by year-end.

In Japan both MDS and multiple myeloma regulatory timelines are on schedule for regulatory fillings late this year and in the first half of 2009. We are optimistic that we will receive approval approximately one year after each filling. In Southeast Asia, we are building a Celgene organization commensurate with the opportunity. We are evaluating the potential of several markets and expect to submit our initial regulatory applications in this region during the next two quarters.

Progress is also being made in other markets in which we are establishing partnership arrangements. We have received initial conditional approvals in Latin America with small scale commercial launches planned later this year and throughout 2009. We are also hopeful of receiving our first Middle East approval later this year.

In many markets, significant budgetary limitation and political and administrative challenges to the value proposition of innovative therapies exist. Despite an increasingly challenging environment, we remain committed to our goal of maintaining a narrow global pricing band for REVLIMID.

Another major focus during the quarter was the closing of the Pharmion acquisition and the integration of the people and products into Celgene. The transaction closed on March the 7th, but not without a little excitement. In the end, approximately 87% of voting Pharmion shareholder supported the transaction. We're pleased to expeditiously clear regulatory hurdles and to close the transaction earlier than originally projected. Though the uncertainty of the shareholder vote delayed joint planning, integration, planning and execution has proceeded smoothly post closing.

We have often discussed the strategic value that the Pharmion products and people bring to Celgene, specifically, the opportunity to leverage our international and domestic commercial organizations, significantly strengthen our hematology product portfolio and franchises, and to enhance our functional capabilities with the addition of key Pharmion professionals. Our commercial regulatory, clinical, translational medicine and project leadership capabilities have already been enhanced with these additions.

Sales of VIDAZA globally and thalidomide in Europe are the key value drivers of the acquisition. Important progress is being achieved in integrating these products into our portfolio.

As Dave mentioned, the primary growth of our thalidomide franchise is now expected to come from Europe with its recent approval in combination with melphalan and prednisone for the treatment of newly diagnosed myeloma. We are finalizing launch preparations for thalidomide with country-by-country plans, including risk management and pricing and reimbursement strategies. We anticipate a commercial rollout consistent with the schedule achieved by REVLIMID. We will update you as we begin the European launch in the coming quarters.

The addition of VIDAZA to our product portfolio was an important rationale for the Pharmion acquisition, especially following the announcement of the striking survival data from the international randomized controlled Phase III trial comparing VIDAZA versus conventional care regimens in the treatment of patients with higher-risk MDS. The VIDAZA therapy produced the median survival of 24.4 months versus 15 months for the conventional care treatment arm, and demonstrated a two year survival rate of over 50% versus 26% for the competitor. This is the first time that the therapy has demonstrated survival advantage in high-risk MDS. Data from this trial supports regulatory applications in both Europe and the United States.

The review of the VIDAZA regulatory filing in Europe is on track for a potential approval late this year.

The establishment of the strong global MDS franchise is an important corporate objective for us. It now appears that we will not be able to combine the launch of VIDAZA in high-risk MDS with the launch of REVLIMID in del 5q MDS in Europe this year. We expect to receive a final ruling on our appeal of the negative CHMP recommendation for REVLIMID in del 5q MDS in the next month or two. On the other hand, we expect to receive the initial results from our controlled MDS 5q trial MDS-004 later this year which may serve to strength our international REVLIMID MDS 5q regulatory filings.

The success of REVLIMID, VIDAZA and Pomalidomide in Europe will enhanced by a focus and well trained field force. As in the United States we will have one sales organization with focused product experts promoting specific products in multiple myeloma and MDS. We are offering positions to most of the customer facing European Pharmion staff to accelerate our commercial launch of Thal and VIDAZA. Over time, we expect to have a field force in Europe of approximately 200.

In the United States, the VIDAZA label expansion supplemental application has been filed with the FDA, with action expected by the end of September. We intend to actively re-launch VIDAZA with survival data with a fortified and focused Celgene field force.

Within one sales force, we will have both myeloma and MDS teams. Our combined field force will be about 90% of the size of the two separate organizations and expect to have a total field force of approximately 200 including clinical nurse specialists. This commitment is timely to support the continued expansion of REVLIMID and the launch of the new VIDAZA data.

We are very pleased and appreciative of the commitment and progress that our teams have made in accelerating the integration process. We are convinced that these efforts will result in an exceptional hematology/oncology organization and produce significant shareholder value.

There have been a number of other activities during the quarter that also have the potential to strengthen our franchises over time.

On the regulatory front, we are making excellent progress in compiling and evaluating the quality of the data from the SWOG and ECOG newly diagnosed multiple myeloma trials which demonstrated significant clinical benefit and these updated results are expected to be presented at next month's American Society of Clinical Oncology Meeting in Chicago. We expect to finalize discussions with the FDA in the next few months as to the potential of using these trials in a supplemental filing to expand the REVLIMID myeloma label.

In the clinical area, progress was made on numerous projects. We advanced our strategies for REVLIMID in CLL and NHL including completing accrual on our 200 patient REVLIMID trial in Relapsed Aggressive Lymphoma, NHL-003. We anticipate initiating pivotal Phase III trials in both CLL and NHL of this year. We expect to begin accrual of MM-020, our 1500 patient global trial comparing REVLIMID Dexamethasone versus melphalan and prednisone Pomalidomide in newly diagnosed multiple myeloma patients this quarter.

Our next in at 4047 Pomalidomide is nearing full accrual in its Myelofibrosis trial and is enrolling patients in multiple other trials including solid tumors. We're also initiating numerous studies to augment the encouraging data that has been observed in Psoriasis with Apremilast, our lead oral TNF alpha inhibitor. We are indeed in the fortunate position to be able to produce such positive near term results and to have so many promising programs from IMiDs to oral TNF alpha inhibitors to numerous intercellular signaling programs to placental stem cells that have the potential to produce transformational results. We look forward to updating you in the coming months on our overall progress, including the new and updated data to be presented at upcoming major medical meetings such as ASCO and the European Hematology Meeting in June. Nearly 100 abstracts on Celgene products will be presented.

Before I turn the call over to Sol, in the interest of transparency, I do want to mention something on a slightly personal note. You may have noticed in the proxy that both Sol and I have a considerable number of options expiring in the next year or so. We will begin to manage these options through our state and tax planning strategies. Please be assured that we will continue to have a significant equity holding and options going forward.

Let me now turn the call over to Sol.

Sol J. Barer - Chairman and Chief Executive Officer

Thanks Bob. We've defined our corporate objective as becoming the preeminent global hematology oncology company with a major presence in the new inflammatory diseases. Our strategy towards accomplishing this is to develop truly differentiated and superior therapeutics for patients with serious and debilitating diseases. To date, we've advanced our mission through our internal research and development, but we clearly understand that to realize our long-term ambitious objective our approach must be global and multidimensional through partnerships and acquisitions as well as substantial investments in our own pipeline of diverse and promising compounds.

This past quarter marked an improvement milestone in this strategy by our completion of the acquisition of Pharmion. We are combining the best of both organizations to form a world class company. This acquisition is expected to accelerate our already rapid growth over the next five years, as well as adding important products and excellent people. In addition to the acquisition, we made substantial progress including record operating results and accomplishments in all areas.

In a time of uncertainty in the pharmaceutical industry characterized by lack of new products, we are in a unique position to build Celgene to be the leader in hematology and oncology and immune inflammation based on our science, global presence, growth and potency of our products, the potential of our pipeline, our financial strength and of course our people.

This past quarter saw advances each of these areas, specifically as Dave and Bob detailed our financial results were excellent with record revenues and earnings per share. With this financial growth, we'll now be adding revenues from our new products: VIDAZA, the first innovative therapy to demonstrate survival advantage in Myelodysplastic Syndromes; and Thalidomide in Europe, the first therapy to be approved in the EU that demonstrates survival advantage for newly diagnosed multiple myeloma patients.

Our products are expected to yield total 2008 global revenues surpassing the $2 billion milestone to $2.1 billion, approximately $1 million per employee, and EPS in the $45 range including integration cost.

Our product portfolio continues to advance significantly, including Thalidomide's approval for newly diagnosed myeloma in the EU, REVLIMID's ongoing successful European launch, as well as its regulatory process internationally. 2008 will see a continuation of this, with our focus on the continued successful commercial global commercialization of REVLIMID and the advance of its regulatory strategies for newly diagnosed myeloma in the U.S. and in CLL and NHL and importantly the leveraging of VIDAZA survival data, with an approval in high risk MDS in the EU and the expansion of the label in the U.S.

Overall, we would maximize the commercial potential of REVLIMID, VIDAZA and Thalidomide in more than 30 countries and plan for clinical, commercial and regulatory opportunities in nearly 100 countries over the next 5 years.

A pharmaceutical company is only as successful as its pipeline. In the past quarter, our new product candidate Amrubicin advanced in its pivotal trial in small cell lung cancer. Our lead product and a new inflammatory franchise, Apremilast had important and positive clinical data presented in Psoriasis at the American Academy of Dermatology meeting. Pomalidomide advanced in the hematology and oncology program, including hematological malignancies and solid tumors and our JNK Inhibitor, CC-930 continued to advance.

2008 will see a continuation of this strategy, where we will expand the range of trials and potential applications of Apremilast, continue to advance Amrubicin, our stem sales, other image as well as Pomalidomide and further progress our lead clinical stage JNK inhibitor. All of these products continue our focus on the development of breakthrough therapeutics for serious diseases with unmet medical needs.

We are pleased that our acquisition of Pharmion was completed earlier than expected and is continuing as seamlessly as possible with the formation of an energized and focused commercial team and an expanded global clinical regulatory and developing capability. We are really excited about the potential of the combined companies.

Within this environment, significant challenges come with success. These include the uncertain political environment in the U.S. for pharmaceuticals, the real and continuing challenges of pricing and reimbursement in Europe. Generic thalidomide, the competitive launch of Velcade in newly diagnosed multiple myeloma, and the regulatory challenges of the use of cooperative group trials for our accelerated newly diagnosed myeloma strategy.

Having said such, our financial, scientific and commercial position and prospects are excellent and we are on our way to establishing ourselves as one of the world's leading pharma companies.

This is the beginning of a new era of Celgene's global expansion that will benefit our company, our stakeholders and more importantly, patients suffering from debilitating diseases around the world. It is clear that our future prospects are linked directly to our ability to translate innovative science into next generation therapies that will deliver quality outcomes for better healthcare worldwide.

Over the next 5 years, we will expand geographically significantly while leveraging opportunities to deliver our innovative therapies to new indications. We have a robust pipeline that we continually seek to grow and which will provide us opportunities to serve patients in new areas such as solid tumors and immuno-inflammatory diseases. We are in the strong financial position and we will continue to leverage operational efficiencies to provide shareholder value.

When we last spoke to you in January, we said we expected 2008 to be year of truly dynamic growth for Celgene. Thanks to the incredible efforts of the hardworking and talented Celgene team, including of course our new colleagues from Pharmion, we are well on our way to achieving that. We look toward the future with utmost confidence and pride in our mission, our vision and our values to improve the lives of patients around the world.

We look forward to updating you on our global financial and operational progress on our second quarter conference call in late July. Operator, please open the call to questions.

Question And Answer


Thank you. [Operator Instructions] And we will pause for a moment to assemble the roster. We'll go first to Yaron Werber with Citi.

Yaron Werber - Citigroup

Yes, hi, good morning. I have two questions for you. One, can you give us the sense on the Rev growth between the U.S. and Europe quarter-over-quarter and what you are seeing in MDS, myeloma, and then I had a question to follow on the self-pricing outside the U.S.

Robert J. Hugin - President and Chief Operating Officer

What we have said about the Rev growth in the U.S. was that the prescription growth was approximately 10% and so that's as specific as we're going to be in terms of the difference. Obviously, we saw a good growth in both U.S. and Europe and that, and by the end of the year, we'd expect the ratio and the run rate to be approximately two-thirds U.S. and one-third Europe.

Yaron Werber - Citigroup

The, and the 10%, just to be clear, is that the same in myeloma and MDS, can you be a little bit more?

Robert J. Hugin - President and Chief Operating Officer

Yes, MDS overall is clearly flat, though we've seen slight encouraging signs on the new patient front, but the growth is primarily in myeloma at this time and one of the upsides to us clearly is going to be as we get a focused MDS force out there, within our sales force to really bring VIDAZA and REVLIMID together and energize MDS franchise and we will see if that doesn't just benefit VIDAZA, but hopefully we will benefit the MDS 5Q REVLIMID strategy also. But the growth in the U.S. has really been in myeloma and during the quarter, at the end of the quarter, we get market research and the all of the surveys and research that we looked at saw good market share growth in the both previously treated segments and in the newly diagnosed segments.


Over now to the Jim Birchenough with Lehman Brothers.

Jim Birchenough - Lehman Brothers

Hey, hi, guys just to key in on the frontline opportunity, where are you seeing the growth frontline, is it in the transplant or non-transplant setting, is it at the expense of Thal, are you seeing any combination use with Velcade and I... just to follow-up on that, I just want to get some further thoughts on your filing strategy on the ECOG, SWOG data and whether your confidence has increased or changed at all, as you've been reviewing the data in-house?

Robert J. Hugin - President and Chief Operating Officer

In our own internal systems, we get Myeloma MDS. We don't get the stage of disease or that in terms of our own data and we don't get any combination data, but what we have clearly seen is the bigger strength of REVLIMID is in either both the centers, cancer centers that view maintenance therapy in keeping people on the drug in a long period of time and that's one of the key benefits of bringing increasingly deepening and durable responses. So we have seen clearly some combination therapies with different regimens, upfront for induction post... pre-transplant, but I think for the most part, the real opportunity has been in the locations where transplant is being delayed or as a maintenance therapy post-transplant.

So we're continuing to evolve that research, but we... generally in the research indicated growth in a number of the different newly diagnosed segments. And we'll know more as we see things progress, but that has been pretty general across that segment.

So, in terms of the filing strategy, as you know there are two basic approaches. One is the traditional approach where we have the appropriate control blinded trial that is going on 0015 is accruing very well, that's evaluating REVLIMID. In addition, we have the less certain, more accelerated strategy that you refer to that involves the Cooperative Oncology Group studies.

So we may consider progress, I have to say in the evaluation of the potential opportunity to use both the SWOG study S0232 and the ECOG study E4A03 to submit in sNDA for Rev and newly diagnosed. So we have contracts with SWOG and ECOG to bring the data in-house, analyze it for filing, data transfers are ongoing and we've begun, obviously, we have ongoing communications with the FDA and we will be meeting with them face to face obviously to discuss this issue. And in addition, we are going to get more data at ASCO when the investigators are going to do presentations, both on SWOG which is the Rev/Dex, versus Dex trial of course and newly diagnosed myeloma and in the ECOG trial from Vincent Rajkumar, who is collecting obviously more data, will give us an update. It is an independent trial from Celgene, so it has that objectivity. So we are not aware exactly of where the data is going to be. But we are obviously confident in both the SWOG and ECOG trials.

Robert J. Hugin - President and Chief Operating Officer

And I just want to add a couple of points on the newly diagnosed market and some of the strategy that's been involved and give you some observations. We certainly have been pleased with the trends over the last five months that we've seen in physician usage in the different segments for REVLIMID. We are not aware of one patient that has been refused access and reimbursement to the drug in the United States since the Compendia Listing in newly diagnosed for REVLIMID at the end of last September. We have about 3,000 patients worldwide being studied or trials that will evaluate 3,000 patients in newly diagnosed myeloma. We have incredible focus on that, and I think we are encouraged by what we are seeing in terms of physician response to the ECOG and the SWOG data globally, as the importance of the kind of characteristics of what is the most effective and best to use therapy in the newly diagnosed settings.

We have seen the data being well received, and I think we know we put that in context what we saw with Thal achieving a 60% market share in newly diagnosed without a Myeloma label, obviously the situate... the world is a different place. But we are encouraged by what we are seeing in the newly diagnosed setting. We recognize the environment is going to be more competitive, that's one of the reasons why we are pleased to have a refortified sales effort going into the next couple of quarters, but all the trends continue to be positive. And we think in the end, the REVLIMID will stack up very well in the newly diagnosed setting.

Sol J. Barer - Chairman and Chief Executive Officer

And just to add, not to belabor the point, but just to add a lot of what Bob has indicated is also born out with the interest we're getting from clinical academia, clinical trial requests and so on. There are many, many trials going on and Newly Diagnosed Myeloma using REV in combination with a number of the therapies, in new regimens and specific segments of newly diagnosed myeloma patients. So there's a lot of exciting things going on with REVLIMID and it is in tremendous demand as an agent to be used in first line in a variety of clinical investigations.


We'll move now to Geoffrey Porges with Bernstein.

Geoffrey Porges - Sanford Bernstein

Thanks very much for taking the questions. Sorry to belabor this issue of REV, but Bob, maybe can talk a little bit about Europe. First of all, the use of REV is it primarily front line or Relapsed/Refractory so far? How are you going to be positioning REV and THAL in that market? And then just a little bit more on ECOG and SWOG, sorry again to pursue on that, but is there any chance you could get those studies into the label so you could use them in promotion without actually getting the front-line indication or is that an unrealistic sort of outcome here?

Sol J. Barer - Chairman and Chief Executive Officer

Okay. So let me do the second one first. It's a very good point, Geoff, but there are a number of considerations and findings in both of those studies that we are discussing with the agency, certainly from a safety perspective, there one can see that low-dose Dexamethasone in combination with REVLIMID does have, based on this trial results, significant advantages. So, yes, that will be part of the discussions with the FDA, and I'll probably just best leave at there, but you are making an important point.

Robert J. Hugin - President and Chief Operating Officer

And then in Europe, it's not one market as everybody... everyone is aware and we are seeing differentiated results in different marketplaces. In some markets, REV has started out very much as a fourth-line therapy advancing to third line and second line. Other markets, we have seen it move very rapidly to second-line usage. In most markets, it's not as a newly diagnosed therapy, and for different reasons, some are reimbursement strategies, some are budgetary concerns. In some of the leading markets, we are seeing a 10% to 20% market share in the newly diagnosed segment, where off-label reimbursement is available, and physicians and patients are taking advantage of that.

So, it's actually doing as about as well as it could do under the circumstances in that marketplace. It's not clear that we will see a lot of competition with THAL in many markets. I think THAL, once it is gets the pricing and reimbursement and launch in the different markets, I think in some of the very budget-constrained markets, you are going to see THAL being very, very high market shares in the newly diagnosed setting. And then the newer therapies like the REV and the VELCADE will fight it out for second and third line, so the maximum number of patients can be treated in that particular market.

So, I think the bottom line, what we have seen in every market that we've launched in Europe is very rapid uptake. Some of it sequentially, some of it moving more quickly to second line than others, but we still have a very big upside in terms of the penetration as we move it forward in therapy leading to longer duration of therapy, more patients in the earlier stage of disease. So I think other than the issues that we will always face in the European markets like we have in the U.K. with nice and pricing and reimbursement. There's going to be continued pressure on price. There will be continued pressure on reimbursement. That's why we are doing a lot of the trials to really demonstrate the value of REV is not to treat the best response, but to treat through a progression and demonstrate the ability to deepen and make responses even more durable.

So, the bottom line with Europe is we are very pleased with how the first year or the first nine months of the launch has gone. It has exceeded our expectations. But it's one that is a country-by-country strategy, and it has all the challenges that we know exist in those markets.


We will go now to Sapna Srivastava with Morgan Stanley.

Sapna Srivastava - Morgan Stanley

Hi. I have two questions, and one is again on just the REV breakdown. Could you help us understand in 2007 out of your 775 million number for REV, how much was that in ex-U.S. sales? And secondly in terms of the SG&A numbers that you gave; could you help quantify what's the increase in your organic SG&A growth versus what comes from Pharmion acquisition?

Robert J. Hugin - President and Chief Operating Officer

On the differentiation between European or international, and U.S. sales, we are not giving that number out or to separate the complete differentiation out for competitive reasons. But in terms of general planning, we do believe that we will be exiting the year on a run rate that would produce about two-thirds of the revenues from U.S. and about one-third from international sources. And then Dave?

David W. Gryska - Senior Vice President and Chief Financial Officer

Yes, on the SG&A, we mentioned that about 20... about 25 to 30 of the SG&A is going to be acquisition related integration one-time that will not repeat in '09. And we estimate that on the estimate of the SG&A that is related that will carry forward from the Pharmion legacy entity, that would be kind of in the range of about 20 to 25 million.


We'll go now to Geoff Meacham with JPMorgan.

Geoffrey Meacham - JPMorgan

Hi guys. Thanks for taking my question. Question for you on REV rollout on a geographic basis and a question on the pipeline. How many weeks, if you can tell us, did you see first quarter sales for new launch countries, such as Italy and Spain, and then what are the gating factors for the filing in Japan?

And then the question on the pipeline is, you guys have mentioned in the past about the possibility of filing on Phase II data for REV in Relapsed/Refractory NHL. Any updates to your thinking there and what kind of data do you need to see to file based on Phase II?

Robert J. Hugin - President and Chief Operating Officer

Let me make sure we have the questions. There was Japan, there was NHL, and there was one other... I didn't get the other question.

Geoffrey Meacham - JPMorgan

The question on how many weeks of sales for 1Q did you see in Italy, Spain?

Robert J. Hugin - President and Chief Operating Officer

Right. Let me take two of those questions. First, in Europe we did not have really any commercial or tiny commercial revenue from Italy in the first quarter. Italy really is coming on in the second quarter, and Spain was included in most of the first quarter, so that's that one.

In Japan, we have made very good progress in terms of the bridging studies. MDS is on track for expectation of a filing at the end of this year. And hopefully earlier in '09 we will have the myeloma on track, and we've found very encouraging signs so far. We haven't found anything that is making the Japanese market to be a different one than Europe or United States. In fact in the myeloma, it appears now that we have got confidence that the dosing levels are going to be identical in the Japanese population to those in the western population.

And all the signs there are once we have approved what we do believe is about a year review to approval, we should have very rapid uptake. The work we have done with Japanese, the thought leaders, etcetera, is very encouraging about how an oral therapy is going to be taken up quite quickly and we view it in a relatively quick period of time to become the second largest country for REVLIMID sales.

Sol J. Barer - Chairman and Chief Executive Officer

And the NHL question as well. So, we're really actually quite excited about the kind of results we are seeing in this, and we have been talking to the FDA regarding an overall NHL strategy and we have received... we're starting to receive some very good guidance from them in terms of relapsed/refractory mantle cell lymphoma, diffuse larger B-cell lymphoma. So, we intend to open FDA trials in the U.S. for patients with mantle cell lymphoma relapsed/refractory before the end of the year, and in the EU a similar patient population randomized trial. We have advanced our planning in diffuse large cell... a large B-cell lymphoma, and we're taking a look at a Phase III randomized trial for that before the end of the year, opening that as well.

And as you mentioned our NHL-003 which was, we completed approval to that in quarter one, that was the 200 patient Phase II study of REVLIMID in aggressive lymphomas, that has actually been accepted for publication in JCO, it's going to be the subject of an oral presentation at ASCO that we look forward to and it's going to be... this is not going to be a relatively easy approval... trial on which to base approval. I think it's going to be challenging. We are though, looking very closely at the responses, at the patient histories, at previous therapies and so on and this wouldn't be our base case, but we are looking at this very, very carefully.


Now to Michael Aberman with Credit Suisse.

Michael Aberman - Credit Suisse

Hey guys can you hear me? Hello?

Robert J. Hugin - President and Chief Operating Officer

Very clear.

Michael Aberman - Credit Suisse

Okay great. I just wonder, given the importance of the duration and increasing duration and you mentioned certain centers are driving that, can you disclose or discuss what specific data you have and in terms of randomized data that could get in the label to have a maintenance role for REVLIMID?

Robert J. Hugin - President and Chief Operating Officer

First on duration. Again, we saw continued duration gains in the first quarter and it's really myeloma that we see that and part of the gain is that you're seeing more people use it in the earlier stage of the disease which you expect duration to be longer, but we're seeing the kind of trend that we had hoped to see to produce the kind of long term duration that will certainly enhance the value of the product. We don't give a specific number. I think we did previously said it was in excess of eight months is what you are seeing is when a group of patients start as to what the average duration turns out to be, and again the first quarter there were positive trends in that.

In terms of reimbursement, in the United States, the label in terms of previously treated, so maintenance setting post transplant, is fully covered under that scenario. So it's just very important that the community doc and the thought leader physician sees the benefit of treating all the way through to progression, not to achieving a strong response and those are the reasons why we are doing so many trials in the maintenance setting: to ensure that if in the future reimbursement agencies in the US were to come back and say try and impose a regimen which do not exist, is not imposed today, that says treat to response, don't treat to progression. So we are not seeing that restriction today, but having the data to demonstrate that the benefit of that is critical to us in the long term in the U.S. and is very important in Europe where there is a more aggressive management with all products and in many countries about how long to use a drug and justifying it.

So, the data is important in the U.S. and it's especially important in Europe as we move earlier and earlier in treatment and the drug can be used for longer and longer. So again the bottom line is in all the markets the signs on duration continue to be positive. We are achieving what we had hoped to achieve and we are doing as many clinical trials to ensure we have the publications and support to justify that in all markets over the medium term.

David W. Gryska - Senior Vice President and Chief Financial Officer

Operator, we are going to take...

Sol J. Barer - Chairman and Chief Executive Officer

Let me just, I'm sorry to interrupt in there. Let me just add on to what Bob said in terms of what's going out there in the world and the number of trials that could potentially be of benefit in terms of maintenance, both as part of publications, presentations and potentially the label.

The nice part about REVLIMID is the fact that so far, we do not appear to see any cumulative toxicities associated with the drug, which makes it that patients are really treated until progression of the disease and it seems that that occurs after a relatively long period of time.

So based on that, there has been enormous interest in terms of using REV longer term and in maintenance trials, a lot of this, some of this is overseas like the French Group or the IFM trial, which has a 600 patient REVLIMID maintenance trial, CALGB which is the U.S., a 400 patient REV maintenance trial. There are long-term results from the ECOG trial, from the Mayo trial that are potential for publications, inclusions even in the label. So there is lot, it's a good question, there is lot of going on in the issue of REVLIMID maintenance and for the reasons that Bob elucidated, it is a very important and exciting area that REV appears to have some unique capability in.

David W. Gryska - Senior Vice President and Chief Financial Officer

So, thanks for taking so much time with us but we are going to have to just cut it to one more question. So we'll take one more question, operator.


Thank you. We'll take our final question from Jim Reddoch with FBR.

Jim Reddoch - Friedman, Billing, Ramsey

Good morning, thanks. A question on VIDAZA and the sale force organization. Do the former Pharmion sales reps have VIDAZA or REVLIMID in the T1 position. And when will this re-launch of VIDAZA be complete? Thanks.

Robert J. Hugin - President and Chief Operating Officer

Thanks for the question. In terms of the sales forces, as I mentioned on the call, we weren't really able to do the integration planning until the close. So we are in the final stages of it, and one thing that we are very concerned about is that we want one organization. So even though we'll have very focused myeloma experts and focused MDS experts, their compensation will be primarily in one of those fields, but the overall compensation will include the full portfolio of both REV and VIDAZA in their compensation, whether MDS experts or myeloma experts. And that we are hopeful that as we roll out the new organization in the next few weeks, we will reestablish budgets for the second half of the year and opportunities and performance metrics as to what we look to achieve.

I think the VIDAZA traction and the opportunity to re-launch VIDAZA comes with the label expansion, so that they will actually be able to very aggressively go out and promote the fact that this drug has a differentiated clinical data package and makes such a difference in patients in terms of survival in the high risk population. But the impact of that re-launch is going to be very quickly after the label expansion and we are hopeful that's going to be no later than September timeframe to get that so we can get out there and make a difference. But we will be out in the field with the new organization in the next few weeks.

David W. Gryska - Senior Vice President and Chief Financial Officer

So I guess...

Robert J. Hugin - President and Chief Operating Officer

Sorry, just one more quickly. And again, we are going to choose the best people for each force and make sure we have the best people out in the field every way.

David W. Gryska - Senior Vice President and Chief Financial Officer

So with that we will wrap up the first quarter conference call. We all will be around the rest of the day for questions so please call us for any follow-up questions. And with that, operator, I would ask you to end the call right now.


Thank you. That does conclude our conference for today. Thank you all for your participation and have a great day. You may now disconnect.

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