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Celgene Corporation (NASDAQ:CELG)

Q2 FY08 Earnings Call

July 24, 2008, 09:00 AM ET

Executives

David Gryska - Sr. VP and CFO

Robert J. Hugin - President and COO

Sol J. Barer - Chairman and CEO

Analysts

Geoffrey Meacham - JP Morgan

Geoffrey Porges - Sanford Bernstein

Sapna Srivastava - Morgan Stanley

Yaron Werber - Citigroup Smith Barney

Michael Aberman - Credit Suisse Securities

Jason Zhang - BMO Capital Markets

May-Kin Ho - Goldman Sachs

Operator

Good morning, my name is Stacey and I will be your conference operator today. At this time, I would like to welcome everyone to the Celgene Quarterly Conference Call. As a reminder, today's call is being recorded. I would now like to turn the call over to David Gryska, Chief Financial Officer. Please go ahead, sir.

David Gryska - Senior Vice President and Chief Financial Officer

Good morning everyone and thank you for joining us today. I am Dave Gryska, Celgene's Chief Financial Officer and I would like to welcome you to Celgene's second 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 second quarter financial and operating results was issued earlier this morning and is also available on our corporate website. I'll start the conference call by sharing our second quarter results then I'll take you through our financial outlook for 2008. Bob will then review our operational and commercial results for the second quarter and give you the outlook for the rest of the year. Sol will then conclude 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 within the meaning of Section 27A of the Securities Act of 1933 and within the meaning of Section 21E of the Securities Act of 1934. Certain forward-looking statements, which involve known and unknown risks, delays, uncertainties and other factors not under our control may cause our actual results, performance or 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, research and activities, our products failing to demonstrate efficacy or acceptable safety profile, actions by the FDA, EMEA and/or other U.S. or international regulatory bodies. The financial condition of suppliers including their solvency and ability to supply product, and other factors detailed in our filings with the Securities and Exchange Commission such as our form 10-K, 10-Q and 8-K reports are referred to in the press release issued this morning.

Now I'll take you to the financial results. We believe the results speak for themselves. Quarterly revenues and earnings climbed to new highs, while they continue to drive commercial expansion and pipeline advancement in all markets. Non-GAAP total revenue for the second quarter increased to $567 million, an increase of 63% year-over-year. This increase was driven by multiple growing global revenue streams, including record quarterly results of REVLIMID, very strong sales of VIDAZA and solid sales of THALOMID in the U.S. and Thalidomide in the international markets.

Non-GAAP diluted earnings per share were $0.37 in the second quarter and $0.73 for the six-month period ended June 30th, 2008, demonstrating our commitment and focus to grow our commercial opportunities worldwide by continuing to invest in our R&D, but not at the expense of our bottom line performance. We are successfully penetrating U.S. and European markets with REVLIMID. We have made significant progress in the major European markets and are now launching in the peripheral European markets and preparing to launch in Canada and Australia. Sales of REVLIMID increased to $326 million, an 80% increase from year-ago results and up 14% from the first quarter of this quarter. European commercial launches of Thalidomide are underway and contributed further to our record results. Combined, THALOMID and Thalidomide net sales were $132 million for the quarter compared to $118 million in the same period last year. We anticipate sales from international Thalidomide will grow as we continue commercial country-by-country launch activities throughout Europe and the rest of the world over the next 18 month. Our third major revenue stream VIDAZA was acquired through our purchase of Pharmion in March. So second quarter reflects the first full quarter of that sales under Celgene. We are pleased to report that VIDAZA sales came in strong at $60 million the quarter. As a point of reference, VIDAZA sales for the full quarter ending March 31st were $50 million. We expect VIDAZA to lunch in Europe in the first quarter of next year.

Total non-GAAP net product sales increased to $538 million for the second, up 69% from $319 million, the year ago quarter benefited by the strong growth of REVLIMID and the addition of VIDAZA to the product portfolio. Revenue from FOCALIN and RITALIN family of drugs totaled $26 million compared to $25 million in the year ago quarter. ALKERAN, net product sales generated $20 million versus $19 million in 2007. Excluded from non-GAAP revenues for the second quarter our product sales of Innohep and Refludan, which we plan to divest.

Our non-GAAP gross profit margin for the second quarter was approximately 88% compared to around 90% in the first quarter. The decrease in gross margin was due to higher sales of ALKERAN and VIDAZA, which have lower gross margins and certain onetime costs incurring during the quarter. For the remainder of the year, we expect gross profit margins to stabilize near 90% with the product growth of higher margin REVLIMID.

Regarding operational expenses, we increased our funding of R&D to advance clinical development of our pipeline and support global regulatory filings. On a non-GAAP basis, which excludes stock-based compensation, the company incurred R&D expenses of $133 million. This is up 52% from the same period last year when R&D non-GAAP expenses were $87 million. These expenditures support clinical progress in multiple proprietary development programs, including significant incremental advancement for the advancement of REVLIMID in NHL and CLL and development of VIDAZA [inaudible] and other important compounds. As a point of reference, the Pharmion development programs were not in the 2007 expenses. Non-GAAP, selling, general and administrative expenses, which excludes stock-bases compensation, were $162 million for the second quarter of 2008 compared to $103 million for the second quarter of 2007. The increase reflects the integration of the Pharmion commercial organization, marketing support related to ongoing European product launches of REVLIMID and Thalidomide and continue expansion of Celgene international operations in over 60 countries.

As the global post-acquisition assimilation process of Pharmion continues, we will incur one-time integration costs primarily related to SG&A and clinical expenses of approximately $25 million to $30 million in 2008, of which $16 million has been spent year-to-date. This estimate of one-time integration costs are unchanged from the last quarter. I'm happy to report that all integration activities are on schedule.

Turning to taxes, our tax rate for the quarter was 24%. A reduction of about 1% as compared to last quarter due to greater international profitability. This rate reflects the approximate tax rate through the remainder of the year. In terms of the sequential foreign exchange effect on revenues, the impact of foreign exchange on second quarter 2008 represents less than 1% of total revenue. While the impact of foreign exchange rate fluctuations was minimal, the sequential quarterly financial results, we plan on early stage implementation of a hedging program at the end of the third quarter due to our growing presence in Europe and other ex-U.S. markets.

Next we want to update you on our financial outlook for 2008. Based on strong performance for the first six months and commercial and regulatory time lines, we expect total global revenue to reach approximately $2.2 billion in 2008. The third quarter is off to a great start. But it's important to recognize that growth for the remainder of the year, maybe subject to historical trends and the unpredictability around regulatory time lines. Non-GAAP earnings per share should advance to about $1.50 for the year. On a non-GAAP basis, selling, general and administrative expenses for the full year are expected to be approximately $610 million to $620 million. This will support multiple revenue driving activities, including the re-launch of VIDAZA with survival data in the U.S. and launches in international markets, ongoing product launches of REVLIMID, Thalidomide and VIDAZA and continued expansion of Celgene international operations outside of Europe. It also reflects the impact of one-time Pharmion integration activities, which should be substantially complete by year-end.

Finally, I would like to review our cash flows and balance sheet. We ended the second quarter of 2008 with cash, cash equivalence and marketable securities of $2.2 billion, and we expect this balance to be approximately $2.6 billion by the end of the year. At the end of the second quarter, the company had no debt, because the last of our outstanding bonds were converted to stock in June.

In conclusion, we believe our strong financial position enables us to maximize opportunities in global markets and accelerate our mission to become a preeminent global pharmaceutical company.

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

Robert J. Hugin - President and Chief Operating Officer

Thanks, Dave. Excuse me. The results of the quarter were exceptional. Outstanding operating results were achieved while simultaneously advancing key corporate objectives, including the aggressive development of our international strategy and the successful execution of the Pharmion integration.

Let me begin with a review of the commercial results. Several factors contributed to the success of the quarter, with strong growth in REVLIMID revenue highlighting the quarter's commercial achievements. REVLIMID revenue totaled $326 million, an 80% increase over the year-ago quarter and a 14% rise, sequentially. This substantial growth was the key driver in the sharp increase in total revenue to $567 million. This increase in revenue allowed us to continue to make the important investments in our research and development initiatives, in our global expansion, initiatives, which 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 superior near-term results. With the increase in the adjusted earnings per share to $0.37 accurately reflecting this focus. Strong performances in both the United States and European markets contributed to the outstanding REVLIMID results. In the United States, REVLIMID prescriptions grew by more than 10% over the first quarter. Increased market penetration and duration gains in multiple myeloma accounted for most of the prescription and revenue growth. The trends that we reported in previous quarters continued during the second quarter. Independent third-party market research reported that market share gains continued to be recorded in both the previously treated and newly diagnosed myeloma market segments.

Duration of REVLIMID therapy in multiple myeloma continued its upward trajectory with the average duration in myeloma now exceeding nine months. In Europe, the continued expansion into new markets was highlighted by the commercial introduction of REVLIMID into Italy. These new markets and increased penetration in the existing major markets contributed to the very positive results. REVLIMID revenue trends continued to indicate that it's likely that the revenue run rate exiting the year will be approximately two-thirds, U.S. and one-third from international markets.

Our other key products, THALOMID and VIDAZA also performed well in the second quarter. THALOMID product sales increased to approximately $132 million. THALOMID results continue to benefit from the overall expansion in the total number of actively treated myeloma patients in the United States, and the early commercialization phase in Europe. VIDAZA is beginning to make a significant contribution to our financial performance with net sales of nearly $60 million recorded in the second quarter, up from approximately $50 million in the first quarter. With near-term regulatory action expected in both the U.S. and Europe, growth in VIDAZA should become an increasingly important component of our growth strategy.

I will review VIDAZA in greater detail in a few minutes. As Dave mentioned, based on the very strong results in the first half of the year and the positive outlook for continued growth for the remainder of the year, we've raised our annual revenue guidance to $2.2 billion. In raising this guidance, we also took into account summer seasonal patents in key markets, the importance of implementing appropriate control distribution procedures in new Thalidomide markets and continued reimbursement and pricing pressures in various markets. The strong operating results of the quarter are all the more impressive as they were accomplished while affectively integrating the Pharmion team and products into the Celgene organization.

Let me now review some of the key developments and progress achieved in furthering our international strategy. With the commercial launch in Italy, approximately 75% of the developed European markets now have reimbursed access to REVLIMID. Progress has generally been quite good in achieving reimbursement across Europe, with the exception of the United Kingdom with the acceptance of innovative products remains challenging. We've also made good progress in other international regions during the quarter. We continued the development of Celgene organizations in the fast growing central and eastern European countries including Russia, the Czech Republic, Poland and Turkey in preparation for clinical, regulatory and commercial activities.

During the quarter, Thalidomide was approved in the European Union and Australia for the treatment of newly diagnosed multiple myeloma. We're now beginning the commercialization process, similar to the rollout of REVLIMID with reimbursement and risk-management program discussions taking place on a country-by-country basis. Pre-commercialization named patient sales continued to account for virtually all of the revenue recorded to date. Based on Thalidomide's history in Europe, we are proceeding with great respect with the specific circumstances of each individual country. We expect formal launches to begin in several countries over the next four to five months In Japan, both MDS and multiple myeloma regulatory time lines continue to be on schedule for REVLIMID regulatory filings late this year and in the first half of 2009. We're optimistic that we'll receive approval approximately one year after each filing. As the second largest oncology market in the world, after the United States, we're working diligently to ensure that we are fully prepared to commence commercial operations following regulatory approvals. We're also leveraging the progress being made in major markets and additional regions around the world. Good progress is being achieved in making REVLIMID available in markets in Latin America and Southeast Asia. The addition of VIDAZA to our product portfolio was a key value component of the Pharmion transaction. We're indeed unfortunate to now have both REVLIMID and VIDAZA as important growth drivers for Celgene.

Let me update you on plans to capitalize on recent and upcoming events regarding VIDAZA. Last week, we held a U.S. National Sales Meeting to ensure that our commercial team is fully prepared to re-launch VIDAZA later this quarter following FDA action. Assuming a positive FDA outcome, we anticipate that we will be able to promote the unprecedented survival data from AZA-001, the international randomized controlled Phase III trial that compared VIDAZA to Conventional Care Regimens in the treatment of patients with higher risk MDS. As presented at the most recent ASCO meeting, the VIDAZA arm of this trial produced a median survival of 24.4 months versus 15 months for the conventional care treatment arm, a nine-month survival advantage for patients receiving VIDAZA, making this therapy the first and only drug to show a survival benefit in this difficult-to-treat disease, and demonstrated a two-year survival rate of over 50% versus 26% for the comparative arm.

The significance of this strikingly positive data and the difficulty of effectively treating this high-risk patient population was further highlighted by the recent announcement of a negative result in a European cooperative group study of a competitive therapy. The competitive therapy, Dacogen failed to demonstrate a survival advantage over supportive care.

Having attended the National Sales Meeting, I'm very confident that our strengthened U.S. commercial team is ready to capitalize on the expanded label for VIDAZA that we expect later this quarter. VIDAZA is also an important part of our international growth strategy. Our marketing application that is under active review in Europe is supported by the unprecedented survival data just discussed. We anticipate an outcome from European regulators late this year or early in 2009. Once we receive this approval, we'll begin rolling out VIDAZA in a similar manner to REVLIMID and Thalidomide on a country-by-country basis over 12 to 18-month period.

Based on the ten-year orphan drug regulatory exclusivity available for VIDAZA in Europe, several studies are underway exploring its potential usefulness and additional indications. Included in these studies are trials combining VIDAZA with other highly active compounds, including REVLIMID. VIDAZA is a great addition to our hematology/oncology portfolio and should become an important component of our revenue growth over the next several years. I look forward to updating you as we advance VIDAZA over the coming quarters.

Let me now spend a couple of minutes updating you on our progress in advancing our REVLIMID franchise. We've already reviewed the exceptional progress achieved in commercializing REVLIMID globally. We are also committed to realizing its full potential in a wide range of hematological and other cancer indications. Our extensive clinical trial program has already produced significant data in a number of key additional indication for REVLIMID including newly diagnosed myeloma, Chronic Lymphocytic Leukemia, and Non-Hodgkin's Lymphoma, and others. It's our intention to expand on this data leading to additional presentations and publications and ultimately using the data to support regulatory applications in these new indications. In newly diagnosed multiple myeloma, market research indicates that increasing numbers of physicians are prescribing REVLIMID based on the presentation of data demonstrating an unprecedented survival advantage and favorable toxicity profile when compared to other treatments. During the quarter, updated data from the SWAG and ECOG Phase III studies of REVILIMID plus dexamethasone in newly diagnosed multiple myeloma were presented at major medical meetings.

The data presented illustrated the unprecedented 93% survival rate for patients at two years regardless of their age... excuse me or eligibility for stem cell transplant. These presentations updated survival data previously reported and demonstrated a continuing deep and durable response to treatment. Despite the strong response to this data in the marketplace, we are committed to gaining regulatory approval in the front line myeloma setting. We are continuing to work with both the SWAG and ECOG cooperative groups to ensure that the quality of the data can support regulatory scrutiny. When the complete this analysis and any additional remediation we will finalize discussions with the FDA to determine the acceptability of such a filing. As soon as there is a definitive resolution we'll provided additional updates. Our newly diagnosed regulatory strategy is further supported by MMO-15, our multicenter Phase III trial evaluating REVLIMID plus Malfalan and Prednisone versus Malfalan and Prednisone alone. It is anticipated that data from this trial will be available in 2009.

REVLIMID has become the drug of choice in many cooperative studies examining numerous combination therapies in newly diagnosed multiple myeloma. Demonstrating our commitment to this market segment, we have the initiated the largest international Phase III randomized control front line myeloma trial evaluating REVLIMID and low dose dexamethasone versus Malfalan, Prednisone and Thalidomide. We believe that the results of this pivotal 1,500 patient study would delineate the standard of care for newly diagnosed multiple myeloma for years to come.

Additionally, the characteristics of REVLIMID, durable responses and manageable toxicities position it ideally in the maintenance setting. There are multiple trials evaluating REVLIMID's utility as a maintenance therapy opposed [ph] autologous stem cell transplant due to its improved response over time and comparably low toxicity, which supports long-term use.

We are committed to ensuring that REVLIMID is positioned to provide myeloma patients the maximum benefit possible. We are also working vigorously to advance our clinical and regulatory programs in both Non-Hodgkin's Lymphoma and Chronic Lymphocytic Leukemia. As a result of encouraging findings reported from Celgene Phase II studies NHL-002 and NHL-003 there are now multiple clinical trials evaluating REVLIMID alone and in combination with Rituxan and other synergistic regimens in various NHL subtypes. The first peer-reviewed publication of results from the REVLIMID NHL trials was recently published in the Journal of Clinical Oncology. NHL-002, an international Phase II study, showed that REVLIMID had meaningful activity with a low toxicity profile in relapsed/refractory aggressive NHL.

We are now already halfway through enrollment of NHL-005, our clinical study evaluating REVLIMID plus dexamethasone in aggressive NHL. Based on positive findings in NHL-003, it is our intention to initiate our first Phase III special protocol assessment trial in mantle cell lymphoma by year-end. To support potential international regulatory filings, we are also planning to initiate MCL-003, a Phase III randomized study evaluating REVLIMID maintenance therapy versus placebo after first-line chemotherapy in mantle cell lymphoma. In patients with relapsed refractory NHL, we are planning to initiate a Phase II randomized study of REVLIMID monotherapy. Additionally, we are planning to initiate a Phase III randomized study-evaluating REVLIMID as maintenance therapy versus placebo after first-line or CHOP in high-risk diffuse large B-cell lymphoma.

We are encouraged by the clinical findings to date and by the enthusiasm expressed by clinicians to help us fully explore the potential of REVLIMID as both a monotherapy and combination therapy treatment for NHL. We've also made important progress advancing our programs in CLL this quarter. We are nearing completion of dose findings CLL-001 trial, which will allow us to begin our regulatory trial program. Pending discussions with the FDA, we are planning to initiate our first SPA trial, Phase III trial late this year. Investigator interest in CLL is also very high. In part due to multiple peer-reviewed publications reporting significant activity in relapse and refractory CLL patients treated with REVLIMID. The Journal Blood published data from a Phase II trial that showed REVLIMID induced complete and partial remissions in patients with relapsed and refractory CLL. The Journal of Clinical Oncology has also reported similar findings. Currently there are 13 active REVLIMID CLL trials with others soon to be initiated. Leading research centers such as MD Anderson and cooperative groups like CLL Research Consortium are enrolling patients in monotherapy and Rituxan combination studies of REVLIMID in untreated elderly symptomatic patients.

Other investigator initiated trials include studies evaluating REVLIMID alone and in combination therapy in patients who are previously untreated, relapsed/refractory patients and in the maintenance setting. REVLIMID has high potential in CLL. We are making good progress in important areas of research and look forward to the initiation of regulatory trials later this year.

REVLIMID and VIDAZA are exceptional commercial and clinical properties. We're committed to fully exploring their global potential. Though we spend the majority of our time on these assets, we are also making substantive progress in advancing our other hematology/oncology programs including Pomalidomide, CC-4047 that is currently being studied in myeloma and Myelofibrosis. Amrubicin, our third generation anthracycline is accruing patients in its SPA Phase III trial in small cell lung cancer. We are also advancing our clinical panels for CC-930, our JNK inhibitor and plan to submit our first IND for PDA-001, our Placental Stem Cells product this quarter. We also accelerated key apremilast trial, studying our promising Oral TNF-alpha inhibitors. It was quite a quarter for Celgene, strong commercial results and significant progress achieved on a range of important corporate goals and exceptional first half of the year for us to build upon. Let me now turn the call over to Sol.

Sol J. Barer - Chairman and Chief Executive Officer

Thank you, Bob. Our first full quarter post-Pharmion acquisition was truly extraordinary by all measures and further exemplifies our unique position as a premier global bio-pharmaceutical company. We are in an excellent strategic position with our sustained and rapid financial growth, our growing and significant financial resources, our strategic portfolio of cancer products, our geographic expansion bringing life-saving therapies to patients around the world, our world-class people, our strong and diverse pipeline targeting unmet medical needs, our partnering and alliances focused on further accelerating our pipeline with innovative therapies and a single-minded strategy of becoming a preeminent company.

This past quarter, we continued to execute on our strategic integration plan by combining the best of both organizations. We built on our already world-class commercial team to create an extraordinarily powerful global sales and marketing capability. We optimized our worldwide presence creating centers of expertise, focused on delivering exceptional results by exceptional people.

We created global cross-functional project teams focused on key products and product candidates towards accelerating development and commercialization. We substantially amplified our translational science efforts to increase the efficiency and focus of our early clinical programs by defining extended clinical utility for our products and pipeline candidates. We also strengthened our capability in pharmacoeconomics, a function that is becoming increasingly critical around the world. We executed on key regulatory, clinical and commercial milestones. We optimized the financial structure and operations of the new combined company. We continued to make significant progress towards our objective of creating a powerful and preeminent global company focused on building for the future while providing exceptional results in the present. Overall, as result of the strategic acquisition, we are optimizing the clinical, regulatory and commercial opportunities around an important portfolio of cancer therapies with survival benefit.

Our financial performance this past quarter reflects the extraordinary commitment, focus and execution. We achieved a record total revenue of $567 million, representing an increase of 63% year-over-year. We once again for the 20th consecutive quarter reported profitable results for non-GAAP earnings per diluted share. This very positive results enable us to reinvest in our robust research and development engine as well as improving our cash position, building for the future and giving us the strategic capability and flexibility to respond to opportunities globally.

Our global team had now launched REVLIMID in three quarters of targeted countries in the EU. Contributing to the growth of global REVLIMID revenues, the $326 million for the quarter, an 80% year-over-year increase. But this is just the beginning. We have established a foundation for accelerated growth and are executing towards maximizing the global commercial opportunities for REVLIMID to launches in Eastern Europe, Central Europe, Japan and Asia, Canada, Australia, Latin America and the Middle East, nearly 100 countries within the next five years as well as label expansion to newly diagnosed multiple myeloma, Non-Hodgkin's Lymphoma and Chronic Lymphocytic Leukemia. Overall, extending the potential patient population by hundreds of thousand around the world, providing life-extending therapy to seriously ill patients while building significant value for Celgene shareholders. We also advance VIDAZA, the standard of care for MDS, which is now poised for significant growth based on the recent unprecedented survival data reported at peer-reviewed medical meeting showing a nine-month benefit over conventional care. The first and only product to demonstrate a survival benefit in MDS. We are preparing for the re-launch of VIDAZA in the U.S. later this year with an updated label that includes the survival data, in the EU, and will submit additional regulatory applications around the world. In addition to MDS, VIDAZA had significant potential in AML for which it received Orphan Drug Designation in the U.S. and EU this past quarter.

We also made significant progress with Thalidomide this past quarter with it's approval in the EU and Australia for the treatment of newly diagnosed multiple myeloma, providing patients in those regions with an important therapeutic option and providing us our third truly global franchise. We advanced Amrubicin, an exciting and potentially revolutionary third-generation anthracycline important as part of our strategic expansion into solid tumors, the major cancer market. Amrubicin which received Orphan Drug Designation in both the U.S. and EU for small-cell lung cancer has demonstrated favorable results in controlled Phase II trials in the syndication and is undergoing an international FDA approved Phase III pivotal trial in small-cell lung cancer.

We also advance our strategy towards a fully integrated supply chain. During the quarter, we received U.S. and EMEA clearance, to open our new manufacture facility in Switzerland. This state-of-the-art facility provides us with operational and financial advantages for delivering our lead product REVLIMID and potentially other oral [ph] therapies to patients worldwide. The flow of clinical data is the lifeblood of a pharmaceutical company. The success of our products is driven by peer-reviewed data published in leading journals and presented at major meetings.

Highlighting the second quarter with nearly 100 studies presented at ASCO and EHA in June were finding some across the spectrum of Celgene therapies were presented. There were important publications on the activity of REVLIMID and NHL and CLL as well as several studies reporting pharmacoeconomic evaluations on REVLIMID and it's positive impact on patient's quantity and quality of life, and its cost-effectiveness to health-care systems. A pharmaceutical company is only as successful as it's pipeline. REVLIMID represents a pipeline in and of itself and is a key driver of our business. Over the next several months we anticipate a number of important milestones, including the continued expansion of REVLIMID geographically, progress with a newly diagnosed myeloma strategy, initiation of the first CLL, NHL pivotal trial and the initiation of a multitude of cooperative group and investigator initiated studies in combination trials. But our pipeline is much more than REVLIMID there is a deep and diverse portfolio of promising compounds in various stages of development focused on transforming therapies in areas of high unmet medical needs in hematology, oncology and inflammation.

In 2008 notable milestones will also include progress on VIDAZA with the U.S. label incorporating survival and regulatory action in the EU. Our inflammation franchise, potentially targeting very large numbers of patients is progressing with our lead compounds apremilast and CC-11050, entering a number of trials across a broad range of inflammatory diseases. We are advancing our solid tumor and hematology pipeline of placental-derived stem cell program as well as our lead clinical stage JNK inhibitor. In addition, we have a robust partnering strategy, which serves as an important adjunct to our internal research and encompasses alliances with innovative companies and of course therapeutic areas including relationships with Acceleron with new biologics affecting bone growth with potential implications ranging from cancer to osteoporosis, Array BioPharma in oncology inflammatory diseases, PTC in Avalon [ph] oncology mechanisms and others. All of these products and more continued our focus and the development of breakthrough therapeutics, the serious diseases with unmet medical needs.

Our achievements during the quarter would not have been possible without the contributions of the remarkable individuals that make up the Celgene family. We are fortunate to have a culture that reflects the best of the talented and devoted employees who have joined us from around the world and this is just the beginning. We continue to remain committed to the evolving needs of patients worldwide to ensure that medical progress goes hands in hand with a promise that patients who can benefit from our discoveries have the opportunity to do so.

Operator, please open the call to questions.

Question and Answer

Operator

Thank you, ladies and gentlemen. [Operator Instructions]. We will go first to Geoffrey Meacham with JP Morgan.

Geoffrey Meacham - JP Morgan

Hi guys, congrats on a good quarter. Question for you on REVLIMID growth in U.S. You have seen actually an acceleration versus prior quarters' despite competition. I am wondering if you can give us some color as to the key drivers, the shares, the duration and I've a follow-up on Europe?

Robert J. Hugin - President and Chief Operating Officer

I think that REVLIMID was strong in the U.S. and was strong outside the U.S. and Europe. I think the trends that we are seeing in the U.S. specifically are really a continuation of what we've seen for the last sort of six to nine months. It's benefiting from a combination of increasing market share, we've seen increased market share in both newly diagnosed in the second quarter as we saw in the first quarter and in the fourth quarter of last year and improved market share in the previously treated segment of myeloma. And also that we are just saying over the past sort of nine months to 12 months steady progress in the building of the average duration where we were a year ago in the five-month to six-month kind of duration where now we've succeeded nine months of average myeloma duration. So I would characterize the second quarter in the United States as a very positive one, but very consistent with the trends that we have seen for a number of quarters. We have been just good continued progress of market share growth and duration expansion. So very pleased with what we've seen in the second quarter and continued to... our outlook is very similar.

Geoffrey Meacham - JP Morgan

Just a follow-up to the extent that you can comment. Can you give as a... your expectation of the country's, specifically in the EU that you would expect to roll out in the second half of the year?

Robert J. Hugin - President and Chief Operating Officer

I think in the EU, we are making very, very good progress and both on a reimbursement and the launch perspective, we've just recently submitted to nice our application for their review. So we do expect at around a turn of the year that we'll get some, hopefully some feedback and we'll review that and figure out how that progresses. Just clearly getting a positive NICE, whether it's first time or second time or third time around is critical to adding the U.K. as a major revenue driver. If you look at all the products that don't get NICE approval, it's difficult to achieve significant revenue growth in the U.K., but once you do get NICE approval, you have an opportunity to have the U.K. as a meaningful major market. And we are optimistic that whether it is the first or second time we will find…we will get approval from NICE and get through that successfully. Well, we got to do that over the next six to twelve months. I think where we are seeing the good progress in the Europe is on the peripheral, the smaller countries where it takes time to go through the regional and reimbursement agencies and get the budgets aligned because often small countries, the budgets are designed on manual basis and it's difficult if the project is approved during the course of the year.

So I think we are making good steady progress. It's different from country to country, we've got a little bit better success in some countries than others and we have to modify our strategy country-by-country. But I think when we look at the core markets of France, Germany, Spain, Italy, we've got different strategies in each, but we are feeling very positive about what we've achieved and our outlook for the next 12 to 18 months. And as we've expanded beyond that, it's... that's where we are getting additional traction and we are…we think in '09 and '10 we will see significant benefit from the emerging European markets in Central Europe and Eastern Europe over the next one to two years.

Operator

Thank you ladies and gentlemen. We will go next to Geoffrey Porges with Sanford Bernstein.

Geoffrey Porges - Sanford Bernstein

Thanks very much for taking my question and congratulations on the quarter. Could you clarify a little bit more, the real timing that we should expect for your filings of REVLIMID in the U.S., in front line myeloma and also in NHL. You indicated that you are still scrubbing the data with the cooperative groups. How long is that likely to take and when do you think we'll have an answer on whether you have to wait for the ongoing trail or whether you can file on the existing trials? And more or less the same question on NHL, when will you know whether you are going to be out of file on the two Phase II trials or they are going to have to wait for the FDA trial? Thanks.

Sol J. Barer - Chairman and Chief Executive Officer

I think, first of all, on the up-front myeloma, we continued to make good progress, but we've got to ensure the quality of that data is as good as it is going to be before we get the FDA to give us a final answer, we've had good constructive cooperative discussions. It's…I think it's going to still take us a couple more months at a minimum before we are going to get resolution on that of whether we are going to be able to use it or not. So we are doing everything we can to work with both groups to ensure we can do it as quickly as possibly. So... and then obviously in parallel track we are moving MMO-15 as quickly as we can to get that. So we still have the work to do. We haven't found anything that is... has made us less optimistic, but we've got to be realistic that the... there are cooperative group trials, we've got a…they were in design for regulatory approval. But as soon as we have resolution on it, we will make, we are very clear about that.

On the NHL front, I think we have a number of different strategies. We are one very pleased to get our first peer-reviewed publication in NHL just in this past quarter. I think the base case has to be approval based on the Phase III trials. We obviously will continue to examine the phase II data as we get them in and if there is a possibility, we will have aggressive discussions of the usefulness of it and we want to get additional publications so that…that we do... that we can support physicians and patients through potential compendia listing in NHL over the next year or so by getting that second publication. So... but I think the bottom line with NHL is I think we are going along a multiple tracks, I think the base case has to be the Phase III trial that we are initiating now for... for NHL and in fact for CLL also but I think that that we are pleased with the peer-reviewed publications on the CLL front. We are pleased that we are making good identification of what the starting dose needs to be in CLL and that will allow us to strengthen our compendia argument in CLL that now that we have multiple peer-reviewed publications there and have the public presentation at major medical meetings of the starting dose that should be used for CLL.

Operator

Thank you. We'll go next to Sapna Srivastava with Morgan Stanley.

Sapna Srivastava - Morgan Stanley

Hi, thanks. I have two questions. One is on the SG&A, I mean just looking at the guidance it implies basically flat expenses in terms of SG&A for the next two quarters, if you can just give some more color on that? And secondly, if you could give the time lines for MMO-15 a little bit more precisely, also if interim analysis is possible in what timeframe can that be?

David Gryska - Senior Vice President and Chief Financial Officer

Hi, Sapna. It's Dave. Yes, that implies about flat SG&A for next two quarters. The SG&A is up, moreover our thinking was initially at the beginning of the year due to some of the additional expenses for launches in Europe, getting ready for VIDAZA launch and also the re-launch of VIDAZA in the U.S.

Robert J. Hugin - President and Chief Operating Officer

And on MMO-15, we sort of have mixed emotions about the trial in the sense that the longer the trial goes the better off likely the results are in the impact of REVLIMID in that upfront myeloma setting. And... but there certainly is the opportunity for interim analysis based on event... number of events that are taken. I think that if history repeats itself based on REVLIMID's activity in whether it's front line or in any sector of myeloma that... there was.. is the potential for interim analysis but again that's something, it's event driven, the trial allows for it and as soon as we have that data quickly... obviously it's blinded dots. As soon as we have any information, we would disclose that.

Operator

And we will go next to Yaron Werber with Citi.

Yaron Werber - Citigroup Smith Barney

Yes, hi, good morning. I have a couple of questions. The first one is on VIDAZA, can you give us a sense when are you expecting the CHMP to meet to discuss the application and perhaps give us a little bit of a sense as to how fast do you think you can perhaps capitalize on the [inaudible] in the market share. And in the following question actually with 10004, can you give us an update on when are we going to see the theoretical psoriatic arthritis study and psoriasis study? Thank you.

Sol J. Barer - Chairman and Chief Executive Officer

First, Yaron on the VIDAZA, we expect the review in Europe on VIDAZA to really be finalized in the fall and early winter and an outcome around the end of the year. So we... well, obviously that will accelerate as we go forward. Data is quite strong, so we are optimistic that we'll have a outcome late this year. On the market share issue, we are seeing in the United States, positive trends over the past few months in terms of REVLIMID... sorry VIDAZA 's market share. I think that the... there are several issues that I think that give us the potential for making a meaningful difference in the coming months really, probably more in the fourth quarter and in the first half of next year, we will hopefully begin to see significant improvement in market share gains.

One is getting the label itself and the PDUFA data is here in the next month or two, so we are optimistic. And that's the reason we had the sales force, national sales force to bring, the new sales force together we've made… we have now combined organization with a very strong focus on both myeloma and MDS and at the same time the RTC [ph] data that came out very recently will give us another impetus as we have the front line label. So I think we have seen some improvement in market share gains not to the extent that we think we will see as the label is expanded and the full impact of the Dacogen failure is into the marketplace and that patients and physicians understand that you have a proven data set and we’re on the other competitive product you have only a failed trial.

And you have to remember that when you're thinking about market share gains that we are talking about new patients, I think that… patients that are on a certain therapy they are going continue on that therapy until they fail or physicians get new patients. So, we are encouraged, but we’ve got still work to do.

Sol J. Barer - Chairman and Chief Executive Officer

And to talk about 10004 for a moment, Yaron own psoriatic arthritis trial is a randomized double-blind placebo-controlled trial, it's about 200, [inaudible] is about 200 patients and we have enrolled about three quarters of those now. So I would expect over the next several months, we will finish enrollment and sometime in 2009, we should be having results of that. In addition, we have a number of other signaling trials is what I call them that are being initiated, these trials are looking at validated TNF alpha diseases, examples that we're going to be looking at as such things as Ankylosing Spondylitis and so on we have actually started a trial… small trial in Cutaneous lupus and from those trials what we expect to do is to get a good perspective on the breath of activity of 10004, while we peruse the psoriatic arthritis and psoriasis trials.

Operator

Thank you. We will go next to Michael Aberman with Credit Suisse.

Michael Aberman - Credit Suisse Securities

Hey guys. Thanks congratulation on a great quarter. Wondering if you can give me some additional timing on the Asian filing and what do you see as the opportunity there from myeloma and REVLIMID?

Robert J. Hugin - President and Chief Operating Officer

Well, in Asia it's multiple markets, clearly the most important market for us in the near-term is Japan and we are on track for the MDS filing by the end of the year with an expectation of a one-year review. And then sometime hopefully early in 2009 that myeloma application will be ready and again we would expect a one year review there, and again we are going to commercialize in Japan our self, we've already begun applications outside of Japan in Southeast Asia, we are getting each individual country one-by-one, we have country managers now in South Korea, Taiwan, Singapore, obviously Australia we already have approval in myeloma and we are were working, hopefully by late this year to get a reimbursement, if not early next year that we would be able to really have a commercial launch in Australia. In China, we see China as a longer-term or medium-term attractive market for REVLIMID.

There is obviously a very significant population there, people that have healthcare benefits that have the opportunities to take advantage of innovative therapy like REVLIMID. We are going in the China market looking at it in several different ways, there are different regulatory strategies that we are investigating, we have got... I think good consultants there and we are hopeful in the next six months to have a clarity as to which path in China would be the best for us to pursue. But it's probably by the end of the year that we will have more resolution on that. But our view is that we want to as we're doing in Latin America ensure the drug is available in as many markets despite their size so that we have access to whatever markets where patients have a need and we can have a... there is market enough for us to launch the product. So age is an important part of our long-time strategy. I think you got to get a lot more about over the next 12 months to 18 months. But in the near-term, Japan is primarily the small market in Southeast Asia and you’ll have more information on the clinical regulatory strategy for China over the next six months to nine months.

Operator

Thank you. We will go next Jason Zhang with BMO Capital Markets

Jason Zhang - BMO Capital Markets

Thanks for taking my questions, also I’m willing to add my congrats to a good. Question is about your guidance. In raising your guidance, total revenue from $2.1 billion to $2.2 billion, you sounded a little conscious, you mentioned the seasonality, particularly for the summertime. You're also mentioning for the regulatory… certainly [inaudible] VIDAZA, could you be a little more specific.

David Gryska - Senior Vice President and Chief Financial Officer

I think Jason the future is always unpredictable. We like the trends that we see, we like the results of the first six months. I think under always competitive market, our products have performed extremely well and are positioned to do very well. You remember last year we had very strong second and fourth quarter results and the third quarter did have a seasonal pressure on it in Europe. And so, that… I think we have to be recognized that there have been patterns in previous years in the third quarter, hopefully our team is going to minimize those to the maximum extend possible.

I think we all started to recognize that we've had great success on reimbursement, we've had good success on pricing. But we continued to fight reimbursement challenges in every market, pricing challenges in every market. I think we want to be balanced in our outlook and we don't want people to extrapolate out without recognizing that with most drugs that are seasonal patterns and certain oncology drugs all this can be slow… hopefully not the case for us this year and that things don't always go exactly as you want and we're strengthening our capabilities in every markets with reimbursement and pricing experts but we're going to see challenges in the pricing front for REVLIMID in different market over time. So I think that we raised the guidance because we feel very good about what we're seeing but we also want to make sure that in raising that guidance, you are aware that we do consider other factors that we are going to continue to be challenged by. But we wouldn't raise it if we're optimistic about the outlook for the growth of our products.

Operator

Thank you. We will go next to May-Kin Ho with Goldman Sachs.

May-Kin Ho - Goldman Sachs

Hi, can we talk a little bit about the market share of REVLIMID in the U.S. and also some of the leading countries in Europe?

David Gryska - Senior Vice President and Chief Financial Officer

Sure, in the U.S. we continued to steadily make market share gains as we talked across them. I think in the newly diagnosed setting, we've increased over the last quarter a few percentage points, we’re in the mid to... it's not exact but we're starting to get break through the 25% market share in newly diagnosed on a spot basis, on the current basis. On the 12-month basis, it's continued to improve every quarter. Overall, we're in the 30s and we think there is another opportunity for us to be probably in the low 40s would be a good goal for us to have an overall market share in the U.S. In Europe, we have a lot more upside on the market share front, the drug hasn’t been out as long and in Europe based on budgetary constraints you tend to see news drugs like REVLIMID starting in the latest settings.

In some markets we have had more success in getting to the front-line or earlier stages or treatment where we have maybe as much as 25% market share in the second line and in some markets 5% to 10% share in the front-line as physicians decided to use it. But I think we're seeing the most use of REVLIMID so far. In Europe it has been in the third line setting, where in some markets we have very high market share and in some maybe 25% to 30%. So in Europe the market share opportunity is very significant, the challenge there is going to be more on budgetary front as the allocation to each drug often is capital returned [ph] or on an annual basis. So I think from an execution point of view we feel very good about our strategy, of what we have achieved in the U.S., of where we are going over the next 12 months and what we can achieve the upside in Europe is clear and it's an individual country-by-country strategy. Operator we are going to take one more call and then wrap it up.

Operator

Thank you. We will go next to Maged Shenouda with UBS.

Maged Shenouda - UBS Securities LLC

Sure, my question has been answered already. Thank you very much.

David Gryska - Senior Vice President and Chief Financial Officer

Thank you very much for your interest and participation in the call and we look forward to updating you at the end of the third quarter. Thank you very much.

Operator

Thank you ladies and gentlemen that will conclude today's conference. We do thank you for your participation and you may disconnect at this time.

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