Celgene (CELG) Mark J. Alles on Q1 2016 Results - Earnings Call Transcript

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Celgene Corp. (NASDAQ:CELG) Q1 2016 Earnings Call April 28, 2016 9:00 AM ET


Patrick E. Flanigan III - Corporate Vice President, Investor Relations

Mark J. Alles - Chief Executive Officer & Director

Peter N. Kellogg - Chief Financial Officer & Executive Vice President

Jacqualyn A. Fouse - President, Chief Operating Officer & Director

Scott Andrew Smith - President-Global Inflammation & Immunology

Robert J. Hugin - Executive Chairman


Michael Yee - RBC Capital Markets LLC

Robyn Karnauskas - Citigroup Global Markets, Inc. (Broker)

Geoffrey C. Porges - Leerink Partners LLC

Mark J. Schoenebaum - Evercore ISI

Cory W. Kasimov - JPMorgan Securities LLC

M. Ian Somaiya - BMO Capital Markets (United States)

Ying Huang - Bank of America Merrill Lynch

Eric Schmidt - Cowen & Co. LLC


Good morning and welcome to Celgene's first quarter 2016 earnings conference call. I would like to remind you that this call is being recorded.

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

Patrick E. Flanigan III - Corporate Vice President, Investor Relations

Thanks, Karen, and welcome, everyone, to our first quarter earnings conference call. The press release reporting our financial results in addition to the presentation for today's webcast can be accessed by going to the Investor Relations section of the corporate website at www.celgene.com.

Joining me in the room today are Bob Hugin, our Executive Chairman; Mark Alles, our Chief Executive Officer; Peter Kellogg, our Chief Financial Officer; Jackie Fouse, our Chief Operating Officer; and Scott Smith, President and Global Head of our Inflammation & Immunology franchise.

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

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

Mark J. Alles - Chief Executive Officer & Director

Thank you, Patrick, and thank you, everyone, for joining us this morning. We are pleased to be with you today to discuss the details of our exceptional start to 2016.

During the first quarter, we continued to successfully execute on our key strategic imperatives, and the results and progress we will highlight today reflect the strong operating momentum of our global commercial franchises and significant advancements made in the key areas of research and development. Importantly, we achieved these results while both investing in our high-potential research portfolio and assertively managing our capital structure.

Our first quarter performance and key market dynamics for our products strengthen our confidence that we will achieve at least the midpoint of our 2016 EPS and product sales guidance ranges that we provided in January. To that end, today we are raising the lower end of our 2016 sales and EPS ranges. Our excellent business momentum also presents us with the opportunity to provide further clarity on our 2017 targets, where we now expect top line growth of approximately 18% and EPS growth of approximately 22% based on the midpoints of our adjusted 2016 and 2017 ranges.

Peter will provide additional details on our updated 2016 guidance and 2017 targets. And in addition to reviewing our excellent commercial performance, Jackie and Scott will discuss the progress our global teams are making towards maximizing the potential of our marketed products and broadening the footprint of our therapeutic franchises.

With the positive results of the Phase IIIb PSA-006 trial evaluating OTEZLA in biologic-naive patients with psoriatic arthritis, we have entered a two-year period when we expect to have the results from 18 Phase III clinical trials involving our commercial portfolio and several key late-stage compounds. These significant later-stage programs and several molecules in early and mid-stage development are expected to provide the platforms for our continued growth through the next decade. Under the leadership of Rupert Vessey and Rob Hershberg, our Thematic Centers of Excellence and our integrated collaborative research model continues to advance our portfolio of unique and potentially transformative early-stage molecules towards critical decision points.

Since the start of this year, we have already achieved important milestones relating to the development of three novel therapies. We filed investigational new drug submissions for: CC-90009, a cell-mod for acute myeloid leukemia; CC-90010, a BET inhibitor in development for solid tumors; and in collaboration with our partner Bluebird Bio, we have dosed the first patient with BB-2121, our BCMA CAR-T therapy for patients with multiple myeloma.

Additionally, based on the tremendous progress our partner Juno has made with its CD19 CAR-T therapy, we exercised our option on the program, providing yet another opportunity for us to build on and leverage our existing expertise and infrastructure to accelerate the development of a unique therapeutic approach in the promising field of immuno-oncology.

Combining our expertise in immunology and inflammation, protein homeostasis, epigenetics, and immuno-oncology with insights gained from our world-class partners is rapidly increasing our understanding of the biology and drivers of cancer and immune-inflammatory diseases. This research engine is enhancing our discovery capabilities and driving the identification of therapies that have the potential to disrupt and improve the treatment paradigms for significantly underserved patient populations.

Our first quarter performance and important research, clinical, and regulatory achievements have us well positioned to deliver high growth in the near, medium, and long term.

Thank you, and I'm pleased to welcome Peter to our call.

Peter N. Kellogg - Chief Financial Officer & Executive Vice President

Thank you, Mark, and good morning everyone.

As Mark mentioned, this has been an exceptional start to the year, with strong, volume-driven product sales growth of 21% driving bottom line growth of 23%. We are delivering this industry-leading performance while significantly increasing our R&D investments, as we lay the foundation for long-term growth. Our business momentum has us on track to achieve the upper half of our previously issued 2016 adjusted earnings guidance. Accordingly, we are now raising the bottom end of that range, updating guidance to $5.60 to $5.70 per share. Later on the call, I will discuss how we see this momentum continuing into 2017 and right through to 2020.

First, I would like to provide our thoughts on the outstanding Q1 results. Q1 net product sales grew 21% to approximately $2.5 billion, really strong growth. And key contributions were made by REVLIMID, POMALYST, and OTEZLA. Both Jackie and Scott will address the underlying demand dynamics and outlook for these products later on the call.

Separately, as I mentioned on the last earnings call, the sequential performance from Q4 to Q1 is always impacted by several items. REVLIMID and POMALYST were impacted in Q1 by higher gross-to-net adjustments related to early Medicare donut hole and other ACA payments. In addition, international REVLIMID sales were favorably impacted by the Russian tender in Q4. And ABRAXANE sales were impacted by customer contract optimization that resulted in a buy-in during Q4, followed by a sell-through in Q1. Not surprisingly, these dynamics resulted in a 2% sequential decline to net product sales from Q4.

Looking at our top line drivers of growth, volume accounted for 19 of the 21 total percentage points of growth, outstanding operational performance. A modest contribution from price was partially offset by foreign exchange. The strengthening U.S. dollar drove a negative ForEx impact of approximately $31 million, or a 1.5% negative impact to net product sales.

At the bottom line, adjusted earnings per share grew 23% to $1.32 per share, which includes a $0.065 impact from milestone payments made to collaboration partners for the advancement of our joint programs. Now you may recall that we did not have any milestone payments in Q1 last year. This performance exceeded our guidance range of $1.27 to $1.30 per share due to this strong operational performance. U.S. REVLIMID sales are ahead of expectations, and OTEZLA and POMALYST posted very solid year-on-year growth.

Turning to the P&L line items, as you can see, Celgene's outstanding P&L performance continued. The adjusted operating margin improved 160 basis points to 54%. We saw meaningful leverage from G&A and also from the fact that we are now lapping strong sales and marketing investments that were in place a year ago. And these investments last year supported the launches of REVLIMID in newly-diagnosed multiple myeloma, the U.S. OTEZLA launch, and global rollouts for ABRAXANE and POMALYST/IMNOVID. This year, the increase in SG&A was primarily to support the rollout of OTEZLA in the European Community.

As we highlighted over the last few quarters, we are making significant investments in advancing our next generation of growth drivers through the mid to late-stage clinical trials. Year over year, R&D grew 37% due to: increased clinical trial activity; the Receptos operations, which were not part of our Q1 financials last year; and the $65 million of collaboration-related milestone payments that I just mentioned earlier.

Finally, the tax rate increased from the prior period, largely due to product and geographic mix.

The exceptional operational performance in Q1 drove adjusted earnings per share. Operating income growth drove $0.27 per share of the $0.25 per share bottom line growth. In total, financial levers had a negative $0.02 impact, primarily due to higher interest expense from the $8 billion bond offering last summer.

We ended the quarter with approximately $5.7 billion in cash and marketable securities. As we mentioned on the last call, given current market conditions and our long-term view on the value of the company, we accelerated our full-year plans and were forceful during Q1 with the repurchase program, acquiring $1.4 billion of shares. We achieved this level of activity while preserving financial flexibility to continue making strategic investments that further build long-term shareholder value.

Based on the strong start to the year, we are updating our 2016 guidance. We now expect REVLIMID to achieve sales of $6.7 billion, the high end of the previous range. ABRAXANE sales are expected to be in the $950 million to $1 billion range due to a highly competitive U.S. market for lung and breast cancer therapy. OTEZLA and POMALYST are on track with solid trajectories for the year. All of this gives us confidence to raise the lower end of the previous total net product sales range to $10.75 billion.

We expect R&D to increase throughout the year based on clinical trial activity and new programs coming into the portfolio such as the recent opt-in on Juno's CD19 CAR-T program. Based on these adjustments, we are also raising the lower end of the adjusted earnings guidance to the new range of $5.60 to $5.70 per share, as I mentioned earlier.

A great first quarter and an improved outlook for 2016; and very importantly, we anticipate that this strong operational momentum will carry forward.

Our guidance for 2016 equates to 19% top line growth and 20% bottom line growth. We have spent some time assessing how this great 2016 momentum will carry forward beyond our current guidance year into our target timeframe. We are very pleased to say that despite the previously discussed ForEx impact of the strengthen in the U.S. dollar and our ongoing substantial late-stage R&D investment, we expect to sustain our top and bottom line performance into 2017 and through to our 2020 target goals. This has been achieved as we significantly increased our R&D late-stage pipeline investment, funding 18 Phase III trials and is based on current ForEx exchange rates. Our outlook for 2017 now establishes a target of 18% growth top line, completely in line with our 2020 target CAGR previously announced. It is again worth noting that viewed on a constant currency basis, this 2017 top line outlook represents performance at the high end of our previous target range.

Additionally, we anticipate that the 2016 bottom line growth rate will be improved in 2017 to 22%, which is approaching our 2020 CAGR previously announced in our prior targets, and it represents an improvement over the increased 2016 bottom line guidance range. Of course, all these growth rates are based on the midpoints of our target ranges. With these outstanding growth prospects the operational performance of Celgene is expected to remain outstanding relative to the industry for the duration of our target timeframe.

Now let's focus on the two target years specifically. Turning to 2017, the primary driver in our expected commercial performance is REVLIMID, which we now expect to achieve sales of approximately $8 billion, a $1 billion increase from our prior target. Both POMALYST and OTEZLA are on track and expected to achieve our previous targets. These three drivers are partially offset by ABRAXANE due to the previously mentioned competitive dynamic.

Importantly, our R&D agenda remains very full in 2017. Programs such as GED-0301, ozanimod, durvalumab, and Juno's CD19 program are exciting high-potential assets that represent next-generation growth drivers for the company, and they will all receive important R&D late-stage investment in 2017.

At the bottom line, we now target 2017 adjusted earnings per share of between $6.75 and $7.00 a share and expect a 22% increase from 2016 based on the guidance midpoints in each year.

Finally, for modeling purposes, we advise you to use a diluted share count of 825 million shares. Now, this figure is in line with our prior target but higher than our 2016 guidance. Beginning next year, a change to the FASB accounting standards for share-based payments eliminates the favorable adjustment that is currently provided in the treasury stock method for calculating the diluted share count. This will increase our share count based solely on the new calculation methodology. Additionally, increases in the Celgene share price will also create an increase in the calculated share count.

To round out our longer-term targets, we are on track to achieve our 2020 targets of over $21 billion in product sales and over $13.00 in adjusted earnings per share. As I mentioned, these figures now reflect the current ForEx environment. We are on track despite the weakened U.S. dollar due to our operational strength. We expect that our mix of products will be different, as we now anticipate that the momentum and upside expected with REVLIMID, POMALYST, and OTEZLA will be offset by our reduced ABRAXANE outlook.

As you can see, Q1 financial performance was outstanding. It supports a strong full-year outlook and aligns with our targets for 2017 and 2020, a very strong position for Celgene.

Thank you. I would now like to turn the call over to my colleague, Jackie.

Jacqualyn A. Fouse - President, Chief Operating Officer & Director

Thank you, Peter. Good morning, everyone.

Our teams around the world produced excellent results during Q1. Our hematology franchise performance is particularly robust, especially in multiple myeloma. We have leading positions in many geographies across all lines of myeloma therapy, and we have significant growth opportunities ahead of us.

Our global launch of REVLIMID in newly-diagnosed myeloma continues and is a key driver of our growth trajectory. POMALYST/IMNOVID remains a critical component of our portfolio and has a strong global position in relapsed refractory myeloma. ABRAXANE's growth outside the U.S. remains solid, as the product rises to a standard-of-care position in multiple markets in pancreatic cancer. In the U.S. we continue to face significant competitive challenges as we compete with novel agents in terms of both breast and lung.

Our clinical, medical, and regulatory teams delivered another strong quarter of execution on our development programs. We've made progress across all therapeutic categories on our portfolio of trials, including opting into Juno's CD19 program. We look forward to the ongoing advancement of our programs, including the first readout from our Phase III REVLIMID lymphoma program, with top line results from REMARC for diffuse large B-cell lymphoma coming soon.

Significant growth opportunities are ahead of us in multiple myeloma. REVLIMID and POMALYST/IMNOVID are now backbone therapies within combination regimens across all lines of myeloma treatment. Triplet combinations and continuous treatment are driving and will continue to drive increases in duration. We are gaining shares in newly-diagnosed myeloma across many geographies and will continue to build on our competitive position with label expansions for REVLIMID in the post-stem cell transplant segment and for POMALYST/IMNOVID in renal impaired patients and over time for both products in combination regimens.

Generally for multiple myeloma, the pool of patients is growing around the world with the aging population and with new therapies expanding survival and thus prevalence. And large areas of unmet medical need in myeloma remain. We believe we have a strong portfolio of novel agents in development that position us very well to deliver new therapies to patients who are not yet cured of their disease, and we will report on our progress with those programs as they advance.

Even as those development plans evolve for new novel agents starting already now with recently approved and soon to come triplet regimens, we see nice growth opportunities for IMiDs and combination regimens including IMiDs to continue to gain market share in the U.S., EU-5, and other geographies as well.

REVLIMID had a great quarter in Q1, and we are extremely pleased with our 19% year-over-year growth excluding negative foreign exchange.

In the U.S. in multiple myeloma, we continue to see strong growth in new Rx's and total Rx's, positive momentum in duration, and the ongoing adoption of the continuous treatment approach with REVLIMID. Our growth is mainly volume-driven, and we expect this to continue for a long time to come.

This strong momentum stems from a series of positive events that put REVLIMID in an outstanding position as a backbone therapy in the treatment of multiple myeloma. We now see solid trends in the U.S. with 12 to 18 months of experience, demonstrating the impact of these events in the marketplace. These same trends are taking hold outside the U.S. as well, as we achieve reimbursement for newly-diagnosed myeloma across Europe and now in Japan. With approximately one year of data post the launch of newly-diagnosed myeloma in Europe, now in several countries across Europe we feel highly confident in REVLIMID's future growth trajectory as we continue its broad global expansion.

POMALYST/IMNOVID's global growth remained stellar at 38% for the quarter on a year-over-year basis and is robust across most major geographies. One exception was France, where net revenues for the quarter were negatively impacted in the amount of about $15 million due to a one-time adjustment to rebates. Globally, growth is volume-driven from share gains and increasing duration of treatment. POMALYST/IMNOVID now holds a leading position in third-line and greater myeloma in all major markets where it is approved and reimbursed.

Growth will continue to be strong in 2016 and beyond, as we will have our first full year of product sales in Japan, as duration trends continue to increase around the world, and as we work to update our label for renal impairment data, which will allow us to better address that patient segment. In addition, POMALYST/IMNOVID combination regimens are being studied with a variety of novel agents, and additional future growth will come as those data and subsequent approvals become available.

ABRAXANE continues to hold a solid position in the treatment of breast, lung, and pancreatic cancers within a highly competitive marketplace. In the U.S., overall demand for the product has been relatively stable. In pancreatic cancer, ABRAXANE in combination with gemcitabine remains the standard of care, with around 50% share of first-line patients. In both breast and squamous lung, U.S. shares have been generally flat, while shares are somewhat down in non-squamous lung. We are also seeing some downward impact on the number of breast cancer patients being treated with chemotherapy post the launch of palbociclib early last year.

Outside the U.S., ABRAXANE growth is good as the product is moving to a standard-of-care position for pancreatic cancer in the markets where it is reimbursed. Future catalysts for ABRAXANE include data from the now fully enrolled apact adjuvant pancreas trial, expected in 2017, and data from immuno-oncology combination trials in lung, expected in 2017, and triple-negative breast expected in 2018.

Our hematology/oncology franchise is off to a great start to the year, with particularly strong trends in hematology. As Peter highlighted, this momentum is causing us to now see REVLIMID coming in at the upper end of our revenue guidance range for 2016 at around $6.7 billion. With the strength we see across our hematology portfolio this year, when we look ahead to next year we now expect a target range for 2017 total hematology revenues of $10.2 billion to $10.5 billion and range of $11.2 billion to $11.5 billion for the combined hematology/oncology franchise, including the net negative impact of foreign exchange.

Our clinical programs are advancing, with lymphoma in the lead, and we look forward to sharing top line data with you soon from the REMARC diffuse large B-cell trial. As we move into 2017, we will have even more data coming from our lymphoma program, as we will see the readout of the RELEVANCE in follicular lymphoma in the first half of the year and the AUGMENT trial in the second half.

Moving to the longer term, we have expanded the number of new compounds and indications in our mid to late-stage hematology pipeline. This progress gives us significant confidence in our ability to deliver on our 2020 target of over $17 billion of hematology/oncology sales despite negative currency impacts. We look forward to providing you with more updates on our clinical programs during upcoming medical meetings, as ASCO [American Society of Clinical Oncology] and EHA [European Hematology Association] are upon us, and we have excellent sets of abstract submissions for both congresses.

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

Scott Andrew Smith - President-Global Inflammation & Immunology

Thank you, Jackie, and good morning.

Q1 was a strong quarter for Celgene I&I and for OTEZLA. In Q1 we saw revenues continue to grow throughout the quarter in the U.S. and the EU. Leading indicators of demand remain strong in all geographies in which we have launched, and in March we filed the JNDA in Japan. We also significantly advanced the development pipeline for Celgene I&I by taking important steps forward in the GED-0301 and ozanimod programs as well as with many other early to mid-stage clinical programs.

Global OTEZLA net sales for Q1 2016 were $196 million. This represents a 224% year-on-year increase. Sales in Q1 continued to increase despite normal TRx market declines in the first quarter. The majority of revenues remain from the U.S., but we are also seeing encouraging metrics in the early launch countries in Europe. In 2016, our focus in Europe is not only on execution in the early launch countries but also on gaining optimal reimbursement decisions in the next wave of countries and more broadly expanding our footprint in the EU. This should be a significant source of growth in 2017 and beyond.

Overall, we are very pleased with the global execution of the OTEZLA launch as we head into the second full year of commercialization. This strong start in 2016 will help enable us achieve our goal of $1 billion in sales in 2016.

Now looking specifically at the U.S., physician and consumer campaigns are driving increases in brand awareness, patient requests, and trial. It's important to note that OTEZLA continues to lead all other therapies in new-to-brand share, with approximately 40% of both psoriasis and PSA markets. Additionally, OTEZLA total market share in the large psoriasis market has surpassed Enbrel and now stands at 20% of the total branded market. In the slower evolving PSA market, OTEZLA has already achieved 15% market share of the branded market.

Also importantly, earlier this month at the AMCP [Academy of Managed Care Pharmacy] meeting, data was presented that concluded OTEZLA patients showed a similar persistence compared with a biologic cohort amongst adults with psoriasis in the United States.

We are continuing to execute and advance on a robust lifecycle plan for OTEZLA. As previously mentioned, we filed for both psoriasis and PSA in Japan. We also received data from PSA-006, a Phase III study in biologic-naive patients. This was our fifth positive Phase III study for OTEZLA in PSA. We expect a number of milestones in 2016 in 2017, including data from our once-daily registration program as well as Phase II studies in atopic dermatitis and ulcerative colitis. Phase III data from the global Behçet's trial should be available in 2017.

We are aggressively advancing all pipeline programs, including GED-0301 and ozanimod. Specifically looking at GED, in Q1 we completed enrollment in the endoscopic study CD-001 in Crohn's disease as well as continuing to enroll the large pivotal Phase III Crohn's disease trial CD-002 and a Phase II proof-of-concept study in ulcerative colitis.

During Q1 we saw significant data readouts for ozanimod, including presentations of both the 72-week MS data at ACTRIMS [Americas Committee for Treatment and Research in Multiple Sclerosis] and the TOUCHSTONE UC Phase II data at ECCO [European Crohn's and Colitis Organization]. We also expect the TOUCHSTONE data to be published in a major medical journal in the very near future.

Q1 was a quarter of tremendous progress for Celgene I&I. The execution of the OTEZLA launch has put us in a position to have a blockbuster contributor to the Celgene portfolio this year and beyond. We also moved all major development programs ahead. These programs will be major contributors in driving strong growth through 2020 and beyond. We are very excited and optimistic about the future of OTEZLA and the rest of the I&I portfolio as we move deeper into 2016.

Thank you for your attention. I'd like to now turn the call back to Mark.

Mark J. Alles - Chief Executive Officer & Director

Thank you, Scott, and thanks, Peter and Jackie.

As you've heard from the team, we had an outstanding first quarter, and our global teams made great progress towards meeting or exceeding many of the aspirational goals and objectives we set at the beginning of this year. We look forward to providing further updates regarding these milestones at key conferences and major medical meetings throughout the year. Our business momentum is accelerating, driven by the robust value propositions of our major products and the beginning of a catalyst-rich two-year period, with data expected from 18 late-stage clinical trials.

We are energized and focused on executing on our strategic imperatives, maximizing our incredible potential, and discovering, developing, and delivering transformational therapies to patients in need. Our outlook has never been stronger, more dynamic, or held as much promise as it does today.

Operator, please open the line for questions.

Question-and-Answer Session


Thank you. Our first question comes from the line of Michael Yee from RBC Capital Markets.

Michael Yee - RBC Capital Markets LLC

Hey, thanks. Congratulations, Mark; it's your first big earnings call as CEO. On the 2017 guidance, I appreciate slide 39, which really implies that it's all due to FX. Can you just help me connect the data points between REVLIMID going up by $1 billion but total net product sales going down by about $1 billion? So that would imply changes not only to ABRAXANE but OTEZLA and possibly POM [POMALYST], which wasn't necessarily commented on. Can you walk us through what the thinking is around those other products and if the guidance you're thinking has changed on 2017? Thanks.

Peter N. Kellogg - Chief Financial Officer & Executive Vice President

Hi, Michael, it's Peter. Let me start on that, and then I'm going to pass it to Jackie and Scott as well just to comment on their outlooks for each of their related products.

So you referenced a slide that actually, for the benefit of all the listeners, is actually in the backup. It's the first slide, I believe, in the backup of the slides that we went through. And it just simply highlights that over time we've had targets for 2017 revenue, which actually from when they were originally issued to more recently they were $13 billion to $14 billion, which was an increase from the original target. And if you eliminate the ForEx impact, what it shows is that in fact our current operational performance is in the high end of that guidance range. The entire discussion for 2017 total product sales is entirely a question of the strong operational performance offset by foreign exchange impacts by a strengthened dollar. So thanks for pointing that out.

I think the key is also, though, and very importantly, is with the targets that we've laid out for 2017 and for 2020, we can see now our path forward, at current foreign exchange rates, to having very strong sales momentum that we're achieving this year, that we anticipate maintaining that momentum in 2017, and quite frankly that sets us up very well to maintain that momentum all the way through 2020.

Now in terms of the individual products, maybe I'll let Jackie and Scott each just comment on what they see happening.

Jacqualyn A. Fouse - President, Chief Operating Officer & Director

Thanks, Michael. So just on the Heme/Onc franchise, we've talked about the mix for the franchise for probably about a year or so as being different than what we had expected back in 2013 when we gave these targets, largely driven by the dynamics for ABRAXANE in the marketplace post the era of the checkpoint inhibitors and a couple of other novel agents as well. So if you take the REVLIMID update of $8 billion compared to $7 billion before, that's the plus $1 billion that you talked about. When you think about the operational performance though, the lion's share of the foreign exchange would also hit REVLIMID. That $8 billion excluding foreign exchange would be even higher, significantly higher.

The other product that would come next in the ranking of those impacted by foreign exchange would be POMALYST/IMNOVID, now that we're into the year where we have more international sales for that product. You will remember that the ABRAXANE target for 2017 that was given in 2013 was $1.5 billion to $2 billion. So now honing in on that ABRAXANE number of around $1 billion, you can see I think pretty clearly where that mix shift is.

Scott Andrew Smith - President-Global Inflammation & Immunology

This is Scott. On the OTEZLA side, we're reaffirming the 2017 target for OTEZLA, regardless of FX, at $1.5 billion to $2 billion.

Michael Yee - RBC Capital Markets LLC

Okay, thank you.


Thank you. And our next question comes from the line of Robyn Karnauskas from Citi.

Robyn Karnauskas - Citigroup Global Markets, Inc. (Broker)

Hi, guys. Thanks for taking my question, and the slides are great, by the way, for all of us here. I just had a big picture question and a maintenance question. The big picture question is I get a lot of questions from investors trying to understand what kind of changes to the REVLIMID dynamics are going to happen as we approach the cliff. You've got a lot of new combos and data that are coming out this year. I'm wondering if you thought about how you might articulate to investors how to think about, either qualitatively or quantitatively, what percentage of REVLIMID you might be able to offset with these new combos because modeling that in the out years really makes a difference, and there's not a lot of color out there right now.

Then the second question is a maintenance question for Scott, any changes in prior auth [authorization] requirements for OTEZLA that you've seen in the last three months? Thanks.

Jacqualyn A. Fouse - President, Chief Operating Officer & Director

Thanks, Robyn. It's Jackie. I'm going to jump in on the REVLIMID question, and if any of my colleagues who want to add to it, please feel free. The main thing that we see as we continue to make progress on the top line is we feel like we've got pretty clear visibility to how we will be able to bring more targeted novel agents to market to further address certain patient segments within multiple myeloma, be they high-risk patients, patients that are refractory to certain compounds. And we I think have a plan and a strategy that's as clear as it's ever been with the agents that we have in our hands today, and you saw that on one of the slides where we have quite a nice portfolio.

And what we've learned about the mechanism of action of the IMiDs over time is also allowing us to potentially accelerate the next generation of compounds coming out of that platform and the cereblon-modifying agents to allow us to achieve that segmentation and then bringing in more targeted therapies to the different patient segments. So when we think about REVLIMID as we approach that 2025 – 2026 timeframe, we see it probably not being replaced by one new novel agent, but by a basket of novel agents and combination therapies that are going to allow us to grow through that patent cliff, and I think that's probably as much is I need to say at this point in time. I would also maybe add that at some point when we do another research day or an analyst/investor day, I think we'll be looking to give you a bit more visibility to how we're thinking about those things.

Let me also maybe just summarize before I turn it over to Scott. Sorry for the long-winded answer, but with the negotiation on the patent litigation, I think from your perspective in modeling, now that you've got that 2026 goalpost in there, you can see how we get there over the next 10 years in terms of bringing these novel agents forward, and I think you'll see that our development programs are taking us in that direction. Sorry I'm keeping – going long with this, but there are some compounds that are also not in any of our forecasts yet, including durvalumab, for example, which is one that you've got a decent amount of visibility to already in terms of the clinical development program, and you'll see data over time. So with that, I'm going to stop.

Scott Andrew Smith - President-Global Inflammation & Immunology

Thank you for asking the question, Robyn. I think to understand – to answer your question, I think you have to look at the market dynamics and what you see for the market as a whole in Q1 relative to Q4, Q3, Q2, is this idea of patients re-insuring and re-having to go through the prior auth process. And so you definitely see for all compounds, all products in the space that there is an increase in that prior auth process early in the year, and then the patients work through it. A number will have to redo it every year, some will go continuously. But what you see overall is a little bit of a chilling or a drop in Q1 in the overall psoriatic marketplace, and you've seen it for number of years in a row. And then you see the increases happening in Q2, Q3, and Q4, and we see that in the market this year. So you do see an increase in the number of prior auth requirements for OTEZLA, but you see it for the whole market. It's a normal market phenomenon that we see in Q1.

Robyn Karnauskas - Citigroup Global Markets, Inc. (Broker)

What about step edit? Do you have to use Enbrel ahead of OTEZLA? Is that changing yet?

Scott Andrew Smith - President-Global Inflammation & Immunology

It's a dynamic environment in terms of the payer environment. Over time, we are increasing the number of patients who aren't exposed to step edits. One thing I will say is that the step edits that exist in plans are not necessarily mandatory step edits. There are processes, letters of medical necessity, and other things that can happen to allow access for patients even on plans where there are step edits. Our guess right now is that 80% of patients who are being prescribed OTEZLA are getting OTEZLA, regardless of the edits on the plan, within a reasonable period of time. So we're continuing to evolve the landscape. We want to make it better and better, but the access position is relatively good for a launch product at this point in time.

Robyn Karnauskas - Citigroup Global Markets, Inc. (Broker)

Great, thanks so much.


Thank you. And our next question comes from the line of Geoffrey Porges from Leerink Partners.

Geoffrey C. Porges - Leerink Partners LLC

Thanks very much for taking the question and congratulations on clarifying 2017. Peter, I just wanted to, if you can, give us a little bit more color on the sequential gross-to-net from Q4 to Q1 in the U.S. for OTEZLA, REV [REVLIMID], and POMALYST. You mentioned that.

And then secondly, you talked in your presentation about the strong financial flexibility; that you have a certain amount of leverage already on your balance sheet. Could you give us a sense of where you might be willing to go in terms of debt to EBITDA or debt to total capital using your balance sheet from here? That would be helpful. Thanks.

Peter N. Kellogg - Chief Financial Officer & Executive Vice President

Sure. Good morning, Geoff, thanks for the question. So the first thing on the sequential, what you see each quarter, at the beginning of each year in the first quarter, I think this is actually not so much specific to Celgene even necessarily. It's an industrywide phenomenon, which is with the ACA program you do make payments. Each of us has a certain tax we pay, as well as we have to make higher gross-to-net payments early in the year to fill the donut hole. So I think that's a dynamic where you see a lot of that coming through, and basically it's a first quarter effect that hits the gross-to-net. That's the main item.

I don't think there's anything else beyond that. And I do think probably if you found products that came into the same reimbursement world with the government programs under ACA, you'd see that for most companies. I went through that. Just to highlight, as you go from Q4 to Q1, it's just an odd thing. If you happen to be looking at sequential quarters, which personally I always like to look at year-over-year growth obviously. But if you look at sequential quarters, these are the things to keep in the back of your mind; that the gross-to-net does pick up some extra volume in the first quarter.

Also, just to remind you, in Q4 we actually did have a very favorable tender that helped our performance in the first quarter. It's not so much of a gross-to-net, but it's a good volume item, and I mentioned that as well. And then Jackie in her comments, we did have one adjustment into our gross-to-net in France that actually impacted the gross-to-net for POMALYST. So POMALYST really I think is key to understand that there is a slight adjustment in the first quarter. It's a one-timer, it's a catch-up. So POMALYST I think you need to read through that a little bit to make sure you get an accurate view of the momentum of POMALYST, which is just great and doing very well around the world.

On the second question relative to our flexibility, I would just highlight a couple things. First of all, as we went to the transaction with Receptos last year, we did increase our debt load. And obviously we highlighted that that took us up to a much higher debt-to-EBITDA ratio for the short term. And with the very strong cash flow performance of the company, that will be worked back down again, pretty quickly actually. We've obviously covered that with the credit agencies very carefully and full understanding and agreement on that, which is great.

The other thing I'd say is that as we do our business development activity, we are able to use some of our foreign cash in a lot of these transactions because very often we have rest-of-world rights. So we're actually buying IP that, for example, when we did the AstraZeneca deal, that IP was already offshore, or as you get other transactions like GED-0301, likewise an offshore asset, so we are able to use that. And so as a result, our U.S. cash position relative to the Moody's rating is not as stressed. We were also able to do that with Receptos, so we have a relatively good U.S. cash position. We highlight that in the 10-Q. You'll see that in the 10-Q each quarter. We did it for the 10-K as well. And in fact, our U.S. cash position is actually relatively good having gone through that transaction. So from that standpoint, we feel very good about our debt to EBITDA. We actually just recently met with all the agencies. Everything is good.

Now your question was more prospectively. If a transaction came along, how would we look at it? Those are situation specific. I think it was a large transaction – obviously we're not trying to forecast that would be the case, but obviously you might end up using some equity, or you might push yourself up again a little bit. But we obviously have got a very, very full arsenal right now between our internal pipeline as well as our collaboration portfolio. And so we really did use 2015 as a major year to step into immuno-oncology.

Are we still hungry for BD deals? Absolutely, you see us continuing to do transactions with different companies, often fitting in the profile of our collaboration portfolio. So from time to time, if the right opportunity came along, we would be happy to step up. And I think the point about strong financial flexibility is that we have been very fortunate to have a very strong cash flow in this company. We work very closely with the credit agencies on a regular basis, and we feel very comfortable about where we are and where we're going.

Geoffrey C. Porges - Leerink Partners LLC

Great, thanks very much.


Thank you. And our next question comes from the line of Mark Schoenebaum from Evercore ISI.

Mark J. Schoenebaum - Evercore ISI

Hey, everybody. Thanks for taking my question, I really appreciate it. Congratulations to Mark. It seems everyone is breaking the rules, so I'll ask two questions too. You can decline to answer one if you like.

But I think Bob is in the room. I know Bob has been very involved I think in pharma and bio. And a big top-down issue for the sector is drug pricing. I'd love to hear, Bob, you just talk about where you think that's going and how that's going to evolve either with your Celgene hat on or with your pharma/bio hat on, if you're willing to.

And then a more operational question – not really operational, a pipeline question. Can you just talk more about the REMARC trial? The primary endpoint I believe is PFS [Progression-Free Survival], and I'm assuming it's not powered for OS [Overall Survival]. So is PFS enough, A), to gain regulatory approval in both the U.S. and the rest of world and without OS? And, B), if it is approved, do you think physicians will adopt this therapy without seeing and OS benefit? Thank you very much.

Jacqualyn A. Fouse - President, Chief Operating Officer & Director

Hi, Mark. It's Jackie, so I guess I get to choose which question we don't answer?

Mark J. Schoenebaum - Evercore ISI

Yes, that's fine. You can answer both, though.

Jacqualyn A. Fouse - President, Chief Operating Officer & Director

I'll take the REMARC one first and then turn it over to Bob. I think I can answer the REMARC question pretty quickly. I think we've talked about this before. Everybody knows the trial that's on is REVLIMID maintenance for patients that have responded to R-CHOP. It's for two years. It matches up very nicely with the unmet medical need in that space.

The trial is powered for both PFS and OS. What we would expect to see – I think we've even told you and you can see out there in ClinicalTrials.gov that the expected PFS difference would be about 15 months versus the control. And we would expect or hope to see a positive statistically significant result on PFS and a trend on OS. We do not necessarily expect at this time to see a statistically significant trend. So we think that with the trend in OS and a positive PFS trial that we've got a nice regulatory submission.

Mark J. Schoenebaum - Evercore ISI

Thanks, Jackie.

Robert J. Hugin - Executive Chairman

And then, Mark, on the pricing and the environment that we face, I think there are important issues that we need to make sure we're all aware of. We have the overarching economics of the demographics of the developed societies that are going to keep pressure on healthcare economics for several decades. And so I think the most significant issue that we all face is how do we afford the healthcare that we want to have and make the investments in the future that we want. And I think that we're very concerned by the level of noise in the environment. It's very concerning and it's real.

And also to put it in perspective, every eight years we have a presidential election. When that's definitely going to turn over, you see this happening whether you look at 1992 or 2008 and what happens. And so it is an important time for us to address these issues. So first, we're going to be faced with these issues of cost and value for a long time regardless of the politics of it. The politics are important to us. I think we need to make sure we understand that the kind of changes that anybody would propose to really affect our outcomes are going to be very significant are unlikely to occur.

So we think the issues are going to have to be dealt with through the normal operations of our businesses and the systems in our ecosystem, whether it's payers and providers. And we've got to work to do a better job to define what value is, and I think you're seeing people on one side of the system trying to decide this is the way we'll define value and others are going to other methods. I think there are many collaborative efforts going on today between companies on our side and also versus payers, working together to find solutions to these issues to ensure that we do constrain cost but not at the reduction of these kind of investments that we need to deal with the incredible issues that we as a society face from Alzheimer's, cancer, metabolic disease, et cetera.

So we're very concerned about it. Before the end of this presidential debate, we've got to change the tenor to it to ensure that there's a balance to the discussion. We've got important initiatives coming on from the industry about that in the coming weeks and months. But I think we all have to recognize, this is a long-term issue that we're going to be dealing with based on the longer-term healthcare economics of the entire system, and we're going to have to (48:40) be prepared for that discussion.

Mark J. Alles - Chief Executive Officer & Director

I think, Bob, just to wrap the point up and we'll go on to the next question, Mark, you know Celgene has been engaged in this discussion for a long time. It's not new for us, as Bob said. This is a very long-term issue, and we're totally engaged worldwide. We've built core capabilities across the globe in our franchises and in our global functions. So it's a thoughtful, engaged approach. And so for us, this idea of patient access, sustaining innovation, I think the narrative that's in the media is different than what's actually happening between governments, innovator companies like Celgene, and the patient groups that we deal with all the time. So I think we'll see the tide change a little bit after the election. But we're totally engaged. It's constructive. And I think for the long term, we understand what our value proposition is as a company and what we have to do in research to continue to bend the curve in the future. So maybe we'll go to the next question, Patrick.

Mark J. Schoenebaum - Evercore ISI

Thanks, Mark.


Thank you. Our next question comes from the line of Cory Kasimov from JPMorgan.

Cory W. Kasimov - JPMorgan Securities LLC

Hey, good morning, guys. Thanks for taking the question. I wanted to follow up on REVLIMID and the implications of the 2017 guidance. I'm really curious about the actual drivers behind the sizable bump to your updated rev outlook for 2017 and how much recent positive data sets like the SWOG S0777 study are driving this. Because if they are, I'm curious if there's any particular reason why 2020 stays the same for now, in terms of that outlook. Thanks.

Jacqualyn A. Fouse - President, Chief Operating Officer & Director

Maybe the short answer to your question on 2020 is conservativism. The trends are – that's one reason why we put the slide in there where we show some of those events that have occurred over the last 12 to 18 months that support REVLIMID's position as a backbone therapy and the dynamics around its performance in the marketplace. And now we just had the SWOG data presentation at ASH [American Society of Hematology] last year.

But with that, what we're seeing, and this is true across the world. I think we also included the slides for the early launch countries for newly-diagnosed in Europe, where we now have about a year's worth of data. We see very strong share uptake in the markets where the product is reimbursed, and we're seeing positive duration trends in all geographies. We're also seeing physicians who previously did not necessarily fully embrace the continuous treatment paradigm now embracing that paradigm. We're also seeing fundamental support for not only REVLIMID, but also POMALYST in combination, that is going to be a reality for a long time to come. We're seeing very nice increases in duration for POMALYST as well. So I think that we're in a great position.

When you run some of the numbers out and do some scenarios, we could have some nice upside to 2020. I think today, what we are prepared to say about that is we would expect the mix to be different between heme and onc, as we have said, for 2016 and 2017. But the fundamentals for REVLIMID and POMALYST both are really exceptionally strong.

Mark J. Alles - Chief Executive Officer & Director

I would just add, Jackie, if I could. Recall that obviously we have never changed our view of 2020. In fact, despite the fact that the dollar has strengthened, the operational strength, the power of REVLIMID and POMALYST and OTEZLA and our outlook for that have driven right through that foreign exchange impact, so that's a little bit of the dynamic. So we feel very good about the operational performance of these drugs. More data coming through that's been great, so in no way, Cory, do we want you to think that we're not very bullish on these leading brands.

Peter N. Kellogg - Chief Financial Officer & Executive Vice President

I think some of those updates will come as we get more visibility into the market. But I think the other thing that we've already talked about today is we have a robust pipeline of myeloma drugs behind all of this that we still need to see when and how they segment and change the market. So a lot of dynacism, a lot of opportunity, and I think Jackie said it well. There's probably conservatism in the outlook simply because there are so many dynamic levers. So thank you.


Thank you. And our next question comes from the line of Ian Somaiya from BMO Capital Markets.

M. Ian Somaiya - BMO Capital Markets (United States)

Thanks for taking my question. I was excited to see CC-122 and CC-220 mentioned as part of your line extension strategy for myeloma. I was hoping you could speak to maybe the aspect of the REVLIMID profile these two drugs could potentially improve upon. And I know there are, at this point at least, no clinical trials in myeloma. Maybe if you could speak to the regulatory timelines and clinical timelines and what the strategy will be. Is there potential for in the future running head-to-head trials versus REVLIMID?

Jacqualyn A. Fouse - President, Chief Operating Officer & Director

Yes. So, Ian, as I spoke about with respect to the patients and the segmentation strategy and how we see this playing out over the next few years, we do think there is the potential to run head-to-head trials in certain patient segments. We think that what we have learned about effects, immune effects with these different compounds and the mix of immune effects versus antitumor effects is something that is informing how we view these molecules. You saw us add them to the pipeline for myeloma relatively recently, so I think that should tell you something about the insights that we have. It's not only myeloma. We're also learning things that would inform how we think about the future for NHL [Non-Hodgkin's Lymphoma] novel agents and CLL [Chronic Lymphocytic Leukemia] novel agents, and still unmet medical need patient segments in those categories too.

So I think one of the key aspects of this – there are probably two maybe. And again, those are the kinds of things that we would be able to address in a research type of day, are the molecules behave very differently. We know a lot about them now and are able to design them to fine-tune certain aspects of them to target certain patient segments. We're optimistic about that. And the second thing would be based on what we know about this class of drugs is our ability, once we see some proof-of-concept data, to jump faster to pivotal trials and accelerate the approval timelines for the drugs.

M. Ian Somaiya - BMO Capital Markets (United States)

What would those timelines be?

Jacqualyn A. Fouse - President, Chief Operating Officer & Director

We think that we have a good way to move forward with the portfolio of development programs for multiple novel agents and differentiated combinations that will allow us to bring those therapies to market for the 2026 timeframe for the REVLIMID patent.

Patrick E. Flanigan III - Corporate Vice President, Investor Relations

I want to be sensitive to all the other earnings calls that are going to happen today. So maybe, Karen, if we have time for just two more callers.


Certainly. Our next question comes from the line of Ying Huang from Bank of America Merrill Lynch.

Ying Huang - Bank of America Merrill Lynch

Hi, good morning. Thanks for taking my questions. First one is maybe for Scott. I guess you just reaffirmed the 2017 guidance for OTEZLA of $1.5 billion to $2 billion. We're probably running at $1 billion or so in 2016 levels. So what gives you the confidence that you will be able to meet that goal? And also do you see any impact at all from the newly launched, for example, COSENTYX from Novartis?

And then second question I want to ask to maybe Jackie, are you seeing pressure in terms of competitive pressure from the newly launched drugs, for example, DARZALEX, in the third-line setting in myeloma? And if so, what's your vision going into the next couple years for POMALYST in that setting? Thanks.

Scott Andrew Smith - President-Global Inflammation & Immunology

Thank you. Relative to OTEZLA and the confidence we have on the targets or our goals for 2016 and 2017 are the idea that the TRx's continue to grow. We're at the highest levels ever as of last week. We're seeing patient initiations at the highest levels possible. We're continuing to gain market share. There's a lot of momentum on demand, and we're seeing very good persistency of patients on the drug.

There was a paper just published last week showing very similar persistency, OTEZLA versus a biologic cohort, which is very encouraging. And then we've got a number of countries that are going to be launching as we go through 2016 into early 2017. We are still at this point in reimbursement discussions and not launched yet in the UK and France and Spain and Italy, so those are upside and growth drivers for late 2016 – 2017 and beyond.

And Japan we believe is going to be a strong growth driver as well. We filed in Japan. We had a very strong pivotal trial in PSOR-11. We filed in Japan. We expect an approval towards the end of this year and be launching with reimbursement early in 2017. We think there's a tremendous opportunity for the compound in Japan. They're very oral-oriented and very safety-oriented, and we think the product fits very, very well in there. So we have a nice growth opportunity in Japan.

The second part of the question was COSENTYX. What we've seen since the launch of COSENTYX, and if you look at the slides you can see the market share graphs, both from a new-to-brand patient initiation perspective and from a market share perspective and a TRx perspective, we've seen OTEZLA continue to grow at a similar rate before versus after the launch of COSENTYX. We believe that they are products which are competing in quite different parts of the market, COSENTYX mainly from the TNF failure portion. And if you remember some of the data that we presented on OTEZLA, 80% of patients who are coming to OTEZLA are coming from something other than a biologic therapy, whether that's lide [lidocaine] or topicals or oral DMARDs. So I think they're products that are in very different parts of the market and looking at different patient segments.

Jacqualyn A. Fouse - President, Chief Operating Officer & Director

Hi, Ying. So just on the dara [daratumumab] question, what we're seeing in the U.S. is that it's mostly staying in the fourth-line and greater setting in terms of usage. We are seeing some combination usage. This is actually a positive thing for POMALYST. We're seeing increasing usage of POM in second and third lines. It's moving up, I would say. The dynamic is actually quite good in terms of the overall relapsed refractory market. And we think as the combination data continues to emerge, this is going to be quite positive for POMALYST on a go-forward basis.

The other thing, as I mentioned in my comments, is we're seeing nice increases in duration of treatment for POMALYST, and we're seeing them quarter after quarter. We're still seeing double-digit growth in both new Rx's and almost double the new Rx level of growth in total Rx's for POM in the U.S., so it's quite positive. When you think about the environment outside the U.S., the one thing I would say is keep your eyes on reimbursement discussions as novel agents come to market, and keep in mind that POMALYST has an overall survival benefit in its label, and that's quite important when you think about reimbursement positioning.

Ying Huang - Bank of America Merrill Lynch

Thank you.


Thank you. And our final question for today comes from the line of Eric Schmidt from Cowen & Company.

Eric Schmidt - Cowen & Co. LLC

Thanks, just two real quick ones for Scott. Can you tell us what percent of a price increase you might actually capture on OTEZLA? I see there were a couple increases earlier in the year.

And then for Peter, the other income line is running well below the guidance you gave us last fall. Should we rethink that guidance?

Scott Andrew Smith - President-Global Inflammation & Immunology

Thank you, Eric, for the question. We have had a couple of price increases. If you take a look at the value proposition that we created for OTEZLA at launch, and that was to be at a significant discount to average biologic price, when we launched we were at about a 30% discount to average biologic price. Now, even though we've had a couple price increases, we've lost a little bit of ground to the market and we're at a 35% decrease or beneath our market competitors and where they're at.

So the market has been aggressive on price. We've been a little bit less aggressive than the market over the past couple of years. We want to maintain that position at a discount to biologic price because we think not only in the U.S., but around the world, it gives us the best opportunity to penetrate and to be used early and the encouragement for patients to be used in the pre-biologic space, so we're going to continue with that pricing strategy.

Peter N. Kellogg - Chief Financial Officer & Executive Vice President

Eric, this is Peter. Just on the OIE line, really quickly, if you look at just interest expense and interest income, we're right on track with the guidance we gave. But then always there's this other category where there's a lot of other things that come in. It tends to be a little bit noisy. You have some impairments, some gains on some of our equity holdings and so forth, and that nets out to be this quarter a little bit positive. But quite frankly, some of the gains were discrete items that pushed our tax rate up a little bit. So overall in the financial section, I'd say really not much benefit there.

And then overall, the net positive, probably we had a couple of positive items on our hedging relative to the recognition of positive impacts from the forward points as we roll forward. You may recall last fall we had a couple of quarters where we had some negative impact. This is just a volatile item that bounces back and forth. So net-net, though, I think I would retain my comment that the interest expense/interest income net-net should be in that high $400 million range on a full-year basis. In any given quarter, the other category can be positive or negative, and I wouldn't go one way or the other with that. And I would remind you that sometimes when there's a positive, it is offset by a higher discrete item on the tax line.

Peter N. Kellogg - Chief Financial Officer & Executive Vice President

So just to wrap things up, if I can just finish things up for the company, we're really thrilled with the first quarter. We feel like we have come into the year with great momentum, and it's allowed us to increase our guidance top line and bottom line. We have allowed that momentum to help us think through exactly where we're going with our financial targets out in the outer years for 2017 and 2020. We feel really good about that.

I think as Jackie and Scott and Mark all talked about, we have got a lot of exciting activity going on in the pipeline and a lot of late-stage report-out coming in the near term. So I think if you go through the balance of 2016 and into 2017, we have a lot of very positive stimulus items reporting out, and we'll see how that goes. But boy, we're excited to be running the business right now. Thank you very much for joining us on the call.


Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone, have a good day.

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