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Millennium Pharmaceuticals, Inc. (MLNM)

Q1 2006 Earnings Conference Call

April 27th 2006, 7:30 AM.

Executives:

Kyle Kuvalanka, Director, Investor and Corporate Communications

Marsha Fanucci, Chief Financial Officer and SVP, Corporate Strategy

Robert Tepper, President, R&D

Deborah Dunsire, President and Chief Executive Officer

Christophe Bianchi, EVP of Commercial Operations

Nancy Simonian, SVP, Clinical, Regulatory and Medical Affairs

Lisa Adler, Vice President of Corporate Communications

Analysts:

Philip Nadeau, Cowen & Company

Christopher Raymond, Robert W. Baird

Craig Parker, Lehman Brothers

Tom McGahren, Merrill Lynch

Tim Smith, Citigroup

MayKin Ho, Goldman Sachs.

Chris Metropolis, JP Morgan

David Witzke, Banc of America Securities

Bret Holley, CIBC World Markets

Sapna Srivastava, Morgan Stanley

Jim Reddoch, FBR

Operator

Good day everyone, thank you for holding and welcome to Millennium Pharmaceuticals First Quarter Earnings Conference Call. Operator Instructions At this time, I would like to introduce your host for today's call, Mr. Kyle Kuvalanka, Director, Investor and Corporate Communications at Millennium Pharmaceuticals. Please go ahead, sir.

Kyle Kuvalanka, Director, Investor and Corporate Communications

Hello everyone and thanks for joining us a little early this morning. Today is an exciting day for Millennium as we opened the NASDAQ market and celebrate our first quarter of non-GAAP profitability in 2006 as well as our 10th anniversary on the NASDAQ.

With me today, in New York, at the NASDAQ market site are Dr. Deborah Dunsire, our President and Chief Executive Officer; Marsha Fanucci, Chief Financial Officer and Senior Vice President of Corporate Strategy; Dr. Bob Tepper, President of Research and Development; Dr. Christophe Bianchi, Executive Vice President of Commercial; Dr. Nancy Simonian, Senior Vice President of Clinical, Regulatory and Medical Affairs; and Lisa Adler, Vice President of Corporate Communications.

The agenda of our prepared remarks is as follows. Marsha will open with an overview of our financial results. Bob will provide an overview of our R&D activities for the quarter, and then Deborah will then provide her view of our activities this quarter. We will then wrap up with Q&A.

Before we begin though, let me remind you that we will be making forward-looking statements, when we discuss our growth signs, products and prospects, a point of reference is how we as a company think, expect or believe the future will look based on information as we know it today. No one can predict the future and there are risks that could cause the company's actual results to differ materially from these statements. You can review a list and description of these risks in the reports we filed with the Securities and Exchange Commission.

During this call, we will be referring to non-GAAP net loss, non-GAAP net income, non-GAAP profitability, non-GAAP R&D expenses, non-GAAP SG&A expenses. These financial measures are not prepared in accordance with Generally Accepted Accounting Principles. A description of the differences between these non-GAAP financial measures and the most directly comparable GAAP measures is included in the press release we issued this morning.

A discussion of why we believe these measures are useful to investors and of the additional purposes for which management uses these measures is included in the Form 8-K we furnished to the SEC this morning. The press release and Form 8-K are available on the Investor section of our website.

It is important to note that regarding our R&D and SG&A expenses as of January 1, 2006, Millennium adopted the Statement of Financial Accounting Standards Number 123(R) and is reporting stock-based compensation expense in our GAAP R&D and SG&A results for the first time. Going forward we will report these line items on a GAAP and non GAAP basis as our financial guidance for operating expenses is stated on a non-GAAP basis. 2005 comparisons do not include stock-based compensation, as the company did not recognize stock-based compensation under 123(R) in any other period.

Let me now turn the call over to Marsha.

Marsha Fanucci, Chief Financial Officer and SVP, Corporate Strategy

Thank you, Kyle and good morning everyone. Today I am proud to report that Millennium achieved non-GAAP profitability for the first quarter of 2006, bringing us closer to our goal of achieving non-GAAP profitability for the full year. Let me cover some of the high points.

Our non-GAAP net income was approximately $1 million for the quarter, a significant improvement over the Q1 2005 non-GAAP net loss of $27 million. VELCADE sales were up 19% compared to the first quarter of 2005, and research and development and selling, general and administrative expenses before stock-based compensation were reduced 22% compared to the same quarter in 2005.

Most importantly, we achieved these results while successfully executing on our refined strategy and continuing to invest appropriately in VELCADE and our pipeline to position Millennium for profitable growth beyond 2006.

Let me provide some additional perspective on our results starting with VELCADE. US net product sales of VELCADE were $53.4 million for the quarter, an increase of 19% over the first quarter of 2005. Based on our quarterly usage survey conducted in February, VELCADE continues to be the market leader in the relapsed multiple myeloma treatment setting. In the third-line and greater setting, our market share of treated patients remains in the range of 40% to 50%. In the second-line setting, our market share of treated patients improved to the high-end of the range of 40% to 45%. When you include VELCADE as induction therapy prior to stem cell transplant, our market shares are larger.

January was a soft month for VELCADE sales, however, average weekly usage and shipments increased steadily in the latter part of the quarter. We believe this growth is attributable in large part to the successful deployment of our newly expanded sales force. We remain confident in our annual guidance for VELCADE US net product sales of $225 million to $250 million. This growth is expected to come from increasing the average length of therapy used by patients as indicated in our label and from treating additional patients.

We continue to see unsolicited commercial use of VELCADE in the frontline multiple myeloma treatment setting and we maintain our market share of approximately 10% of treated patients. The number of states reimbursing VELCADE in this setting increased at the end of the quarter from 9 to 12. This is validation of the strength of our data and serves as an early indicator of physician's interest in using VELCADE as frontline therapy.

In Non-Hodgkin's lymphoma, we saw an unsolicited increase in commercial use of VELCADE, albeit still a small percentage of overall sales. VELCADE is reimbursed nationally for relapsed mantle cell lymphoma (MCL), and we now have five states providing reimbursement for VELCADE in relapsed follicular lymphoma. I'd like to emphasize that Millennium only promotes VELCADE for its approved indication of patients with multiple myeloma who have received at least one Chemotherapy.

Let me now turn to revenues received from our collaborators. Overall, revenues from our collaborators decreased this quarter to $69 million from $79 million in the first quarter of 2005. This decrease was primarily the result of lower net reimbursement received from Schering-Plough for INTEGRILIN. As you'll recall, effective September 1, 2005, Millennium modified its relationship with Schering-Plough from a co-promotion arrangement to a royalty based arrangement. As such, Millennium is no longer responsible for marketing and development activities or the expenses associated with these activities.

In 2006, revenues from collaborators were comprised of royalties and revenue under strategic alliances. In contrast, in 2005, revenues from collaborators were comprised of revenue under strategic alliances and co-promotion revenue. Royalties for the first quarter of 2006 were approximately $30 million and consisted of royalties from Schering-Plough for product sales of INTEGRILIN and from Ortho Biotech for sales of VELCADE outside the US. As a reminder, we expect to receive annual minimum royalties of $85 million from Schering-Plough for INTEGRILIN in both 2006 and 2007.

Strategic alliance revenue increased to $39 million in the first quarter of 2006 from 36 million in Q1 2005. The first quarter of 2006 included two milestone payments totaling $50 million received from Ortho Biotech for the achievement of pre-specified sales thresholds of VELCADE. As you'll recall, we announced at the start of year that we anticipate receiving $20 million to $25 million in milestone payments for VELCADE in 2006.

Turing to expenses. On a non-GAAP basis, R&D expenses in the first quarter of 2006 decreased 11% to 76 million from 86 million in Q1 2005, primarily as a result of cost reductions associated with the company's strategy refinement and restructuring effort that were announced in October, 2005. GAAP R&D expenses in the first quarter of 2006 were $83 million.

On a non-GAAP basis, SG&A expenses in the first quarter of 2006 decreased approximately 40% to 31 million from $52 million in Q1 2005, primarily as a result of the cost savings associated with the modifying relationship with Schering-Plough for INTEGRILIN and other savings in G&A from our strategy refinement and restructuring. GAAP SG&A expenses in the first quarter of 2006 were $36 million.

Full year 2006 non-GAAP operating expenses are expected to be approximately $425 million, roughly 30% lower than 2004 results and 19% lower than 2005 full year results. Our GAAP net loss for the first quarter of 2006, including stock-based compensation, amortization of intangibles and restructuring charges narrowed 43% to $21 million from 36 million in Q1 2005.

Turning to the balance sheet, we ended the first quarter with $633 million in cash, cash equivalents and marketable securities. Outstanding principal amount of convertible debt is $106 million, all of which is classified as short-term as of March 31, 2006 with $6 million due in June of 2006 and the balance due in early 2007.

In our release this morning, we reiterated the financial guidance provided earlier this year. During this transition year to non-GAAP profitability, quarterly results will fluctuate due to variability in expenses, strategic alliance revenue, including the achievement of milestone and product sales. We do not expect to be profitable in all quarters.

First quarter non-GAAP profitability was an important milestone for us. We continue to drive VELCADE and execute with fiscal discipline, putting us on track to achieve non-GAAP profitability in 2006. But profitability is just one marker in our evolution. We will continue to invest in VELCADE clinical programs and the pipeline to position Millennium for long-term growth. To learn more about the pipeline, I'll turn this over to Bob at this point.

Robert Tepper, President, R&D

Thanks Marsha, and good morning everyone. The R&D organization continues to show momentum around our clinical programs, and let me start off with VELCADE. Last week, together with co-development partner Johnson & Johnson Pharmaceutical Research & Development, we achieved one of our key corporate goals of initiating a Phase III trial of VELCADE plus rituximab versus single-agent rituximab in follicular lymphoma.

This is an important trial being studied under special protocol assessment, and a positive result could significantly enhance the market opportunity of the product for the two companies. The randomized open-label, multi-center trial will enroll up to 670 relapsed patients who are either rituximab naïve or rituximab sensitive. The primary endpoint is progression-free survival with secondary endpoints of overall response rate and duration of response.

VELCADE will be administered once weekly at 1.6 milligrams per meter square before the start of the once weekly rituximab infusion. Rituximab will be administered at full dose. The two drugs will be administered for up to five cycles for a total of 25 weeks. The decision to conduct this randomized trial was the result of positive interim data from our Phase II trial of the VELCADE/rituximab combination in the follicular relapse and refractory setting, which showed response rates over 50% with a manageable safety profile.

In the first quarter, we also announced the initiation of a three-arm randomized Phase II study of VELCADE in pemetrexed or ALIMTA, an approved standard of care in patients with locally advanced or metastatic non-small cell lung cancer, who have failed prior chemotherapy treatment. The arms of this study include VELCADE in combination with pemetrexed, pemetrexed alone, and VELCADE alone.

In the arms with VELCADE, the drug will be administered on a weekly schedule at 1.6 milligrams per meter square. Pemetrexed will be administered at the standard, schedule and dose. Target enrollment for this trial is approximately 135 patients. The primary endpoint is overall response rate, while secondary endpoints include time to progression and progression-free survival. The start of this trial advances our strategy with VELCADE in the relapse non-small cell lung cancer setting.

As you may recall, in an earlier study, VELCADE as a single-agent demonstrated response rates in line with traditional and new therapies. Our plan has been to build on these data by exploring the use of VELCADE in combination with newer agents such as Alimta. Now already underway is a two-arm randomized Phase II study of VELCADE in combination with Erlotinib or Tarceva for patients again, with locally advanced or metastatic non-small cell lung cancer.

Very importantly, three Phase III registration enabling studies in frontline multiple myeloma are ongoing. These three studies have a combined projected total enrollment of almost 2,000 patients. The trials continue to enroll on track, and we expect interim data from one of them to be presented in the second half of this year. In previously reported studies in the frontline multiple myeloma setting, VELCADE in combination with multiple other therapies have shown response rate as high as 92%, and complete and near complete response rates of up to 43% with a manageable safety profile. These results are some of the highest recorded in the treatment of this disease.

I want to highlight the outstanding data from our Phase II study of VELCADE in combination with melphalan/prednisone by Dr. San Miguel, which showed overall response rates of 86%, and near complete responses of 43%. These response rates are comparable to those typically seen only after transplant. This combination of VELCADE, melphalan and prednisone has formed the basis of our ongoing VISTA trial, which is one of the three registration enabling frontline studies.

Together with our partner J&J, we continue to develop VELCADE in a number of promising areas. And approximately 170 trials are ongoing, both company sponsored as well as investigator initiated and cooperative group sponsored trials. At the meeting of the American Society of Clinical Oncology this coming June, data should be available on VELCADE in multiple myeloma, Non-Hodgkin's lymphoma, and non-small cell lung cancer.

Our data presentation milestones for the first half of 2006 include final data from the SWOG Phase II frontline lung cancer trial. This trial is in combination with gemcitabine and carboplatin, and data from company sponsored Phase II trial of VELCADE in combination with rituximab in the relapsed follicular non-Hodgkin's lymphoma setting. We also expect to present the final Phase II data from the company sponsored trial of single-agent VELCADE in relapsed mantle cell lymphoma. These data will be used for our supplemental NDA filing in the mantle cell in the second half of 2006.

Now let me turn to our pipeline. Millennium continues to advance its pipeline of seven clinical and late preclinical molecules in oncology and inflammation. At the 9th Annual Meeting of the American Association of Cancer Research, data represented on MLN8054, a Millennium discovered oral, small molecular inhibitor of the Aurora A kinase, made up of a benzazepine core scaffold, which we believe represents a completely novel approach to kinase inhibition.

Data from experiments conducted in xenograft models and human culture tumor cells showed that MLN8054 is potent and selective to the Aurora A kinase agent and significantly inhibits tumor growth in a wide variety of cancers. We have been extremely encouraged by these early data, which served as the basis for initiating the first Phase I program in advanced malignancies, which began at the end of 2005. We expect to have data from multiple trials in our Phase I program of this agent in the first half of 2007.

Now turning to MLN02, the antibody to the integrin alpha4beta7. As you'll recall this antibody demonstrated statistically significant clinical activity over placebo in ulcerative colitis patients in a study that was reported in the New England Journal of Medicine in June of 2005. The current focus of this program has been to identify a commercially scalable cell line before moving into our pivotal trial.

We are pleased to report today that our team in process development and biology has identified a new show-based cell line and a back-up line, both of which we believe will economically yield commercial scale quantities. This keeps us on track to be in the clinic in a Phase I Bridging study in the first half of 2007. We have also initiated the process of designing our pivotal trial in ulcerative colitis and are quite encouraged that the key opinion leaders remain highly enthusiastic about this molecule. I will now turn over the call to Deborah for closing remarks.

Deborah Dunsire, President and Chief Executive Officer

Thank you Bob and welcome everyone. Millennium is off to a solid start in 2006. Financially, we continue to demonstrate that we can achieve our goals by driving VELCADE and reducing operating expenses through continued discipline.

Operationally, we are executing on our refined focused strategy and have already accomplished many of the goals we set for ourselves at the start of the year, including trial starts, such as the Phase III trial in relapsed follicular lymphoma with VELCADE and pipeline decisions on 2704 and 1202 for rheumatoid arthritis, just one of its indications. A key reason for focusing on strategy was to improve upon our execution and to ensure us that we win in areas where we compete. I feel that with so many of our goals already accomplished in 2006, we will have a great year this year.

Let me provide an update on our progress in our three focus areas. Starting off with VELCADE, we fully deployed the newly expanded sales force. We've developed new programs that highlight the impressive APEX data presented at ASH in December of 2005, and working in collaboration with physicians, we are providing better care to patients. These programs emphasize the product's single agent survival advantage, well characterized safety profile, the strong combinability we've seen in clinical trials, and VELCADE's effectiveness in a broad range of patients including those with significant renal impairment. Our market research shows that physicians are increasing the average number of cycles being administered to patient, and that more physicians recall the unique benefits of the product.

VELCADE improved its market share even with our competitor's free early access program. We expect some disruption in the marketplace, but remain aggressive in our execution against our goal. We anticipate continued growth of VELCADE in this year and the years to come. Coming up for VELCADE this year, we continue to push forward with our front-line strategy and are anticipating publication of key data, which will continue to educate physicians on VELCADE use in the setting and support compendia listing.

In mantle cell lymphoma, the team is actively working on the supplemental NDA and we are on track to submit the filing in the second half of 2006. Our pipeline is clearly another key focus area and the R&D organization is moving forward with a focus on oncology in our discovery area and a dual focus on oncology and inflammation in our development portfolio.

We continue to work towards our 2006 pipeline goals of advancing our high priority program with MLNO2 where we've made a significant progress in the first quarter as Bob mentioned, and with MLN518, our receptor tyrosine kinase inhibitor, which is partly in front line Phase I/II trial in AML. We're also progressing on our goal of bringing two new molecular entities to the Millennium pipeline this year from our discovery organization.

Another area of focus for us and one of my key areas of focus right now is actively evaluating in-licensing opportunity of late stage oncology product candidates with the potential of entering the market in the 2008 to 2010 timeframe. We are in active discussions with several companies. Despite fierce competition for these assets, we feel we have the advantages of firstly, a leadership position in the hematology-oncology space. Secondly, a history of strong and successful partnerships, and thirdly, a size that's attractive to smaller biotech companies.

We also continue to explore collaborations with our pipeline assets to reduce R&D risks and costs and to bring in additional revenues. While the completion of an in-licensing transaction or a collaboration is not necessary for us to achieve non-GAAP profitability in 2006 and sustain it beyond, the right one could significantly enhance the growth profile of the company in the long-term.

Overall, Millennium is showing strong execution in our priority areas, always mindful of balancing our short-term goal of achieving non-GAAP profitability in 2006 with the larger goal of continually discovering and developing new medicines in areas of high unmet medical need to sustain profitable growth in the long-term. This is an exciting turning point for the company and we look forward to keeping you updated on our results and progress throughout the year.

I'd like to thank the NASDAQ for hosting us this morning as we achieved our first profitable quarter in our year of non-GAAP profitability, and as we celebrate with them Millennium's 10th anniversary on the NASDAQ. Over to you Kyle.

Kyle Kuvalanka, Director, Investor and Corporate Communications

Thanks very much Deborah. Operator, we are now ready to take the questions.

Question-and-Answer Session

Operator

Operator Instructions. Our first question today will come from Phil Nadeau at Cowen & Company.

Q - Phil Nadeau

Thank you for taking my question. Just two quick questions. First on the Phase III/IV VELCADE and Rituxan, could you tell us if there is any planned interim analysis for that trial?

A - Kyle Kuvalanka

Sure Phil. Nancy Simonian is going to take that question.

A - Nancy Simonian

Hi Phil. There are interim analysis built into the trial, we have not discussed specifically what they look like. But that's we typically do those within our clinical trials.

Q - Phil Nadeau

Okay. And those interim analysis would have the power to stop the study for positive efficacy if that is warranted?

A - Nancy Simonian

I don't - as I said we haven't gone into specific details about what they look like at this point in time.

Q - Phil Nadeau

Okay. Then the second question is on VELCADE sales. Deborah, in your prepared remarks you mentioned, I think it was you that mentioned, that January was slow and then March seem to pick up. Do you have understanding of why that sales pattern happened during the quarter?

A - Kyle Kuvalanka

Phil, we're going to have Deborah answer that question.

A - Deborah Dunsire

Yeah, Phil. I think January was slow, physicians sometimes have concerns about changes in reimbursements in the environment, we did take a price increase and that could have impacted January.

Q - Phil Nadeau

Okay.

A - Kyle Kuvalanka

But Phil, we are going to have Christophe add to that comment.

A - Christophe Bianchi

Just to add one comment is that we also expanded our field force in the fourth quarter of last year, which led to some disruption of contact between our reps and the doctors. And it takes time for those relationships to be rebuilt, and hopefully we have seen the positive impact of that in the later part of the quarter.

Q - Phil Nadeau

Okay, and lastly, could you just remind us what that price increase was and when exactly it was taken?

A - Deborah Dunsire

That was a 5.91% price increase taken in the first days of -- the first working days of January.

Q - Phil Nadeau

Perfect. Thank you.

Operator

Our next question will come from Chris Raymond at Robert W. Baird.

Q - Christopher Raymond

I have a question. Last year, at your Analyst Meeting, you showed a slide that indicated that 75% of, if I remember correctly, that 75% of physicians had not been properly detailed and therefore we’re not being -- not using VELCADE for the prescribed amount of cycles. You know, knowing that you might not have an exact data at this point, can you maybe give some sort of bracket around where that percentage might be now? And whether or not you've made progress in terms of the number of cycles for those physicians?

A - Kyle Kuvalanka

Chris, thanks for your call. We're going to have Christophe start off with that answer.

A - Christophe Bianchi

Yeah. Thank you for the question. We do not have a precise number as to the number of -- as to the behavior of the physician. What we can say, however, is that from a length of treatment, we have seen some, you know, increase in the lengths of treatment that doctor are using VELCADE for effectively. You know, we have seen some increase in the number of cycles that we give to the patient. It indicates that they are now realizing the benefit of VELCADE administration.

A - Deborah Dunsire

And just to build on Christophe's remark, Chris, we have not yet repeated the studies on all the reach and frequency given that the field force was only fully deployed in January. But we do intend to do that. What we do see on message recall is a stronger recall of the survival message and a stronger recall of the appropriate length of therapy.

Q - Christopher Raymond

Okay great thanks. And then one quick follow-up. In terms of your competitors expanded access program, can you maybe indicate, do you think if there is an impact from that program? Is it from new patients or are you seeing any migration away from patients you started VELCADE?

A - Kyle Kuvalanka

Chris, Christophe is going to take that.

A - Christophe Bianchi

Yes. You know, we do not have precise information as to what kind of patients are being enrolled in the expanded access program. But we know that it's creating some disruption because effectively, the competitor is giving the drug for free. So we will see, how this evolves over time.

Q - Christopher Raymond

Okay. Thank you very much.

Operator

Our next question comes from Craig Parker at Lehman Brothers.

Q - Craig Parker

Good morning. I apologize for my voice. First, a question for Bob. Could you give us a rough idea about what the MLN02 pivotal trial program might look like in terms of the increase in criteria for patients, duration of treatment, etc.? And then, Deborah, I am interested in your assessment of the partnering environment, not just the assets that you guys bring to bear on discussions, but just whether you think it's become more competitive over the last six months? Are there some deals that you really wanted that you have lost out on?

A - Kyle Kuvalanka

Thanks, Craig. Bob will first start on the question on the O2 and then Deborah will follow-up with the question on partnering.

A - Bob Tepper

Yeah, just on the design of the MLNO2 pivotal trial, let me first say that we are, as mentioned, in active discussions with key opinion leaders in ulcerative colitis now to really design that study. What I can tell you is it's likely we'll target a moderate and moderately severe patient population, and will include both induction and maintenance. And other than that, I think we are still evaluating a number of different study designs.

Q - Craig Parker

Good.

A - Deborah Dunsire

And then, thanks for getting up so early, Craig. The partnering environment that you and I have talked about this, it has been very challenging and competitive all the way along. I don't think specifically in the last six months, it's increased. And I think it's slow. You know, it's a very deliberate process. So, no, I would not say we have lost out on things that we would have wanted. And would we like things to move quickly? Yeah we would.

Q - Craig Parker

Okay. That's helpful. Thanks Deborah.

Operator

Our next question comes from Tom McGahren at Merrill Lynch.

Q - Tom McGahren

Hey, good morning, just a couple of pipeline questions. I believe you had a Phase I/II trial ongoing with VELCADE plus Revlimid. I was wondering if you could provide an update on that, and also on MLN1202. I think you had some trials ongoing in MS, scleroderma and atherosclerosis?

A - Kyle Kuvalanka

Hi, Tom, Nancy is going to take both of those questions with Bob maybe following up.

A - Nancy Simonian

Yes. So regarding VELCADE and Revlimid, there was a data -- there was a Phase I/II trial that I think is now completed. That data was presented at ASH last year, which shows an overall response rate of 67% and a great tolerability between the two drugs together. The maximum tolerated dose at the time of the data presentation had not been reached. And I think you'd expect to see sometime this year of the completion of that trial and data from that trial. Because of the real excitement with the combination there, with the high response rate and good tolerability, we and others will be initiating additional studies of the combination in a Phase II study. So, I think I would expect to see this year a trial with VELCADE and Revlimid together in the Phase II.

Q - Tom McGahren

Sometime in the second half do you think?

A - Nancy Simonian

Yes.

Q - Tom McGahren

Okay.

A - Nancy Simonian

And then regarding that 1202 in the pipeline, so we do have ongoing two Phase IIa studies, one in multiple sclerosis and one in atherosclerosis. We expect to have data at the end of the first half of the year in the atherosclerosis trial and in the beginning of 2007 with the multiple sclerosis trial. The scleroderma trial, we expect to initiate that study in the second half of this year.

Q - Tom McGahren

Great. Thanks.

Operator

Our next question comes from Yaron Werber at Citigroup.

Q - Tim Smith

Hi, this is actually Tim Smith for Yaron. Just a question with respect to the recent increase in the size of the sales force, you know, VELCADE sales were relatively flat this quarter versus last. So just wondering what your thoughts were on and when we might see the impact of the larger sales force?

A - Kyle Kuvalanka

Tim, we're going to have Christophe answer the question.

A - Christophe Bianchi

Yes, Tim, thank you for the question. As you know, we increased the sales force to 95 representatives this year, which will give us a much better access to key customers. But as we did that, it led to some disruption of relationships. And those relationships take about two quarters we think to be rebuilt. So we would expect to see the full impact of that sales force expansions to the latter part of 2006.

Q - Tim Smith

Okay. Great thanks.

Operator

Our next question comes from MayKin Ho at Goldman Sachs.

Q - MayKin Ho

Well, hi. I noticed that for your new studies on VELCADE, you're using 1.6 mgs per tick weekly dose. Is it because of the safety profile is better? And how much better is it?

A - Kyle Kuvalanka

MayKin, we're going to have Nancy answer the question.

A - Nancy Simonian

MayKin, we did not do a lung cancer, which is I think what you're referring to these new studies with 1.6 weekly. We didn't do a direct comparison in lung. But in lymphoma, as you know, the 061 study that we presented last year, when we looked at 1.3 twice on a twice weekly and then 1.6 weekly, we actually found very similar efficacy, and in fact and better tolerability with the weekly. And in fact, the total amount of drug that was administered was actually greater with the 1.6, because patients were able to stay on the drug longer. So based on that and based on in lung cancer in the second line, the data that we had from our previous study in combination with Taxotere suggested that we needed to go to a more tolerable regimen to get more drug in. I think that's really the bottom line in the lung cancer study in the second-line. The most important thing is that you can get sufficient amount of cycles in to really be able to show the benefit of the drug. And that's really been the strategy in the second-line lung cancer study.

Q - MayKin Ho

And can you give us a little bit more color in terms of the duration or number of cycles right now?

A - Kyle Kuvalanka

MayKin, is that commercial use in multiple myeloma or in the lung cancer trials?

Q - MayKin Ho

It is commercial, I'm sorry.

A - Kyle Kuvalanka

So, MayKin, we have publicly stated in the past that the cycles are in the range of 5 to 5.5 cycles when a patient responds. We haven't updated that data. We did say though, in our prepared remarks that we are seeing an increase in the length of cycles, but we haven't been specific yet.

Q - MayKin Ho

And for the compendia listing for first-line usage of multiple myeloma, what kind of data will you be using to support that? Is this the interim analysis that you're going to have?

A - Kyle Kuvalanka

We are going to have Deborah answer that question, MayKin.

A - Deborah Dunsire

Yeah. There will be Phase II data from San Miguel, which will be published. You know, we have talked that that was presented at ASH. And the final publications will come and we'll expect from a number of our early front-line studies to have published data that will support the compendia listing. I'll ask Nancy to add any more comments if she would like to.

A - Nancy Simonian

I think that we've shown over the years an abstracts in all publications out will be more, all of the Phase II data and VELCADE in the front-line in a variety of different combinations. And so I think, we believe that based on those publications, in aggregate, would be potentially support compendia.

Q - MayKin Ho

So these trying to apply for that in the first half of this year?

A - Christophe Bianchi

We haven't been that specific in terms of timing.

Q - MayKin Ho

Thank you.

Operator

Our next question comes from Geoff Meacham at JP Morgan.

Q - Chris Metropolis

Hi. Actually, this is Chris Metropolis for Geoff. A couple of quick questions on market share. I was wondering, if you had those numbers for the first, second, and third line?

A - Kyle Kuvalanka

We'll have Marsha answer that question Chris.

Q - Chris Metropolis

Thank you.

A - Marsha Fanucci

As I had noted in my remarks a little bit earlier, when you look at the second line setting, what we saw was, we do this survey with 75 client prescribing physicians, just as a reminder. And so we believe that these results are a good directional result. What we saw in that area was that the share was at the high-end of the 40% to 45%. And that when we looked at the third line and beyond that we were in the 40% to 50% of treated patients. The front-line, we're still holding at about 10%.

Q - Chris Metropolis

Okay. Can you also discuss inventory levels from the 4Q to the first quarter?

A - Kyle Kuvalanka

I will -- we'll have Marsha answer that question again.

A - Marsha Fanucci

We have been striving to keep the VELCADE inventory at roughly one week of inventory. And it does move around a bit, mostly lower than one week of inventory. But at this point in time, we really see anything above that level. So it tends to range between half a week and one week.

A - Deborah Dunsire

And just to add to that, you remember, that we have one distributor for Millennium so that you will have to see the fluctuations that you might be seeing in companies that have a broader distribution network. It doesn't precludes that, you know at the retail level we don't know what happens to inventory.

Q - Chris Metropolis

Sure. Then last question, do you have any data on new patients starts for second and third line in the first quarter?

A - Deborah Dunsire

No. We don't have any specific data on new patient starts.

Q - Chris Metropolis

Thank you.

Operator

Our next question comes from David Witzke at Banc of America.

Q - David Witzke

Hi. Good morning. Question on cost of goods. I am sorry forgot the math out, was not on the call prior. It looks significantly lower first quarter versus the fourth quarter of '05, just what's behind that and what's a good run-rate going forward?

A - Kyle Kuvalanka

Dave, we're going to have Marsha answer that question.

A - Marsha Fanucci

If you remember, we were in the middle of the transition of a lot of the Schering-Plough activities and so you saw some bumpiness in that COGS number that was also offset by some strategic alliance revenue as we transferred inventory from our sales to Schering-Plough in that timeframe. And so as you look right now at the cost of sales in Q1, if our relationship with Schering-Plough continues exactly as it is set up right now, then that should be a pretty good indicator of the relative structure of COGS and revenues.

Q - David Witzke

Okay. So related to VELCADE US and INTEGRILIN US?

A - Marsha Fanucci

Yeah.

Q - David Witzke

Proportional. Good. And just a question regarding VELCADE sales guidance through the year. What are you assuming specifically on impact of Revlimid assuming it gets labeled?

A - Kyle Kuvalanka

Dave, we're going have Christophe answer that question.

A - Christophe Bianchi

Yes. You know our guidance for the year remains at between $225 million to $250 million. And we expect to see VELCADE growth to come from, number one, good market share in second-line and maintain our growth also through an increase in the number of cycles that the patients do receive. As you have seen, as we have said earlier, we have seen an increase in the number of cycles the patients receive. In addition to that, it sounds like the market is now more and more realizing the benefits of VELCADE and the survival advantage of the drug, and also using the drug earlier because we have demonstrated that when you give VELCADE early in the treatment of those patients, the patients effectively do better.

Q - David Witzke

Okay. Thank you.

Operator

Our next question comes from Bret Holley at CIBC World Markets.

Q - Bret Holley

Yes. A question for Bob. I just would like to get some more details on the interim analysis that you have set in the Phase III front-line multiple myeloma trial for VELCADE in the second half of the year?

A - Kyle Kuvalanka

Thanks Bret. Actually, Nancy is going to take that question.

Q - Bret Holley

Okay.

A - Nancy Simonian

Yes. So we have not been specific which study you're going to see data from. I think what we've said is that sometime in the second half of this year, we expect to see data from one of the trials. So today, we haven't really been very explicit about that. But you know, I think, in general, the three trials are enrolling on track and moving along. So I think we're pretty confident, can be getting data from those studies.

Q - Bret Holley

So is the interim analysis based on the number of events or is this based on an enrollment number that you're going to hit one of the Phase IIIs?

A - Nancy Simonian

It is based on a number of patients.

Q - Bret Holley

Okay. All right. Thank you.

Operator

And our next question comes from Sapna Srivastava at Morgan Stanley.

Q - Sapna Srivastava

Hi. I have two questions. One was just sort of sales structure. I believe that you expanded your sales force significantly. And I just want to understand that you said in January, basically numbers were hit because you transitioned and went to larger sales force and it caused disruption. I just want to get your level of confidence like how -- how much growth can you see from the new structure, if you're seeing these disruptions just in face of competition. And secondly, just in terms of guidance like considering probably, with 7% price increase, and pretty flat numbers quarter over last -- pretty over last quarter. What confidence again do you have in your guidance going forward, especially without coming on for Revlimid?

A - Kyle Kuvalanka

Hi, Sapna. Let me just confirm what the questions are that you asked. Number one, seems to be you're asking if we think the disruption from the sales force will continue and if so, how long?

Q - Sapna Srivastava

Right.

A - Kyle Kuvalanka

And then number two, is our comfort level with the sales guidance for the year given the performance for the quarter?

Q - Sapna Srivastava

Absolutely. Thank you again.

A - Kyle Kuvalanka

Great. As we're going to have Christophe take those questions.

A - Christophe Bianchi

Well, as I indicated before, it takes time for a relationship to be built. And when you increase the field force size as we did in the fourth quarter of 2005, it takes time for the doctors and the reps to make acquaintance and develop a professional relationship. We expect that it takes usually between one and two quarters to get those relationships rebuilt. And we increased the size of our field force in the fourth quarter, so we really expect and we are seeing already full impact of the field force in the end of the first quarter and in the second quarter. So hopefully in the second part of the year our field force will have a good relationship with the doctor and we expect to see the full impact. And based on that we remain confident with our guidance of $225 to $250 million of sales for VELCADE in 2006.

A - Deborah Dunsire

And just to add to that Sapna, the competitor is approved, it is a different indication, but of course, in the US physicians are free to prescribe in any indication they choose, and there is an EAP program running now. So, we do expect disruption, we've said that. We remain aggressive in our focus, and we have the assets in place, not only does a new sales forces need to form new relationships, but they need to develop product mastery. And we had been in training at the back end of last year. But they were really deployed into the field as of January. So that's when the disruption really takes place.

Q - Sapna Srivastava

So just in terms of January and March, like how much distance did you really see in sales, to just understand the impact of your sales force? You said January was weak and March was stronger?

A - Kyle Kuvalanka

So you want to know -- you want us to quantify the disruption?

Q - Sapna Srivastava

Yes. That would be great, if that's possible.

A - Deborah Dunsire

And I think the only thing we can quantify Sapna, and the disruption was the field force is that probably, between 40% and 50% of all the relationships were disrupted, when we expand the field force by 50%. In terms of the quantification of the monthly that's not something that we routinely communicate.

Q - Sapna Srivastava

Okay. Thank you.

Operator

And our final question today comes from Jim Reddoch of FBR.

Q - Jim Reddoch

Good morning. Just a question on pricing, since you took a 6% price increase in the first quarter. Just wondering if there is kind of top level of price increases, do you believe it's possible especially with reference to what other drugs look like, they maybe priced at in the myeloma market? Thanks?

A - Kyle Kuvalanka

Jim, we're going to have Deborah answer that question.

Q - Jim Reddoch

Okay.

A - Deborah Dunsire

Yes. Thanks, Jim. And, I think VELCADE is very responsibly priced in the marketplace. We also work on making it very accessible, it's medicare reimbursed, majority of myeloma patients are medicare patients but we do have patient assistance around it. And in terms of the way injectables are reimbursed, as you know the ASP plus 6 is in place. And so there isn't the freedom of pricing because physicians have a two-quarter lag in their reimbursement. So, I don't think that you'll see - which you've seen in some other segments in the market, product increases in high double-digit or the very high double-digits, that's simply not feasible in the injectable markets, neither is that something that Millennium would see as the right way to go.

Q - Jim Reddoch

Okay. Thank you.

Operator

And that was our last question. Mr. Kuvalanka, I'll turn it back to you for closing remarks.

Kyle Kuvalanka, Director, Investor and Corporate Communications

Thanks, Debby. And thanks everybody for joining our call today. That concludes the call. And we look forward to seeing everybody throughout the quarter.

Operator

Ladies and gentlemen, we do appreciate your participation. This does conclude the conference. And you may now disconnect.

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Source: Millennium Pharmaceuticals, Inc. Q1 2006 Earnings Conference Call Transcript (MLNM)
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