禮來公司 (LLY) 2003 Q4 法說會逐字稿

Good morning and welcome to the ImClone Systems 2003 fourth quarter and year-end financial results teleconference.

At this time all parties have been placed on a listen-only mode and the floor will be open for your questions following the presentation.

It is now my pleasure to turn the call over to your host Ms. Andrea Rabney, Vice President of Corporate Communications.

Ma'am, you may begin.

Thank you, Operator.

Good morning and welcome to ImClone Systems first quarterly earnings conference call.

Today's call has been scheduled to discuss the Company's 2003 financial results which were announced earlier this morning, as well as to give you a preview of the Company's plans for 2004.

With me today are Dan Lynch, Chief Executive Officer, and Michael Howerton, Vice President and acting Chief Financial Officer.

Also joining us for the Q&A that will follow our prepared remarks, are Ronald Martell, Senior Vice President of Commercial Operations, and Dr. Larry Witte, Vice President of Research.

On a legal note, I must remind everyone that certain information discussed on this call may constitute forward-looking statements within the meaning of the Federal Securities laws.

Although we believe that expectations reflected in these statements are based on reasonable assumptions, we cannot give assurances that the expected results will be achieved.

We refer you to our press release and Exchange Act filings for factors that could impact the Company.

For forward-looking statements made during this call, the Company claims the protection of the Private Securities Litigation Reform Act of 1995 and assumes no obligation to update or supplement such statements.

I'd like to turn the call over to Dan Lynch, our Chief Executive Officer.

Thanks, Andrea and good morning, everyone.

The Company spent the better part of 2003 rebuilding shareholder value by working with our partners to get ERBITUX approved by the FDA and into the hands of treating physicians for their patients.

For 2004, the senior management team has identified several objectives that will enable the Company to build on our achievements, including; one, working with our partners to optimize the commercial value of ERBITUX in its approved indications while continuing research into the drug's utility in other indications.

Two, continuing to build out the Company's pipeline and advancing promising compounds into clinical evaluation.

Three, continuing to expand and enhance our organization so that it is ready to meet future challenges.

And four, leveraging our financial resources and our strategic assets to pursue appropriate business development opportunities.

Our strategy for moving the ERBITUX program forward is twofold.

First, we are supporting the ongoing efforts of our partner Bristol-Myers Squibb to ensure that the domestic launch of ERBITUX in its approved indications continues to build momentum.

The drug was successfully launched less than two weeks after FDA approval using ERBITUX inventory previously produced by Lanza [ph] Biologics, our contract manufacturer.

The FDA is currently reviewing our CMC supplemental BLA for our BB-36 manufacturing facility which we filed on February 12th of this year.

We anticipate the results of this review by mid-June consistent with FDA PDUFA guidelines.

Subject to licensure of BB-36 within the review timetable, we expect to continue to meet commercial demand for ERBITUX on an ongoing basis and expect that BB-36 will be central to our ERBITUX manufacturing operation in the United States.

The second component of our ERBITUX strategy is to continue the development of ERBITUX as a potential targeted therapy for earlier stages of colon cancer and, in additional tumor types, including head and neck, lung, and pancreatic cancer.

With respect to our continuing development efforts for ERBITUX in colorectal cancer, two randomized Phase III clinical trials of ERBITUX for the treatment of second line colorectal cancer are currently enrolling.

One trial is evaluating ERBITUX with or without irinotecan, and the other trial is evaluating ERBITUX with or without fullfox [ph].

In addition to these clinical trials, CALGB is sponsoring a randomized Phase III clinical trial of ERBITUX in a two by two design.

Fullfox [ph], plus or minus ERBITUX, and an IFL regimine, plus or minus ERBITUX, for the treatment of first-line colorectal cancer.

In addition, the National Cancer Institute is sponsoring a Phase II clinical study to explore the use of ERBITUX in combination with Evastin plus or minus irinotecan, in patients with refractory colorectal cancer.

Our most advanced ERBITUX clinical program beyond colorectal cancer is in head and neck cancer.

As many of you are aware, ImClone Systems has conducted several clinical trials in this disease, including a 424-patient randomized Phase III trial exploring the addition of ERBITUX to radiation therapy as a first-line treatment for patients with local, regional head and neck cancer.

This clinical trial is now complete and we expect the study data to be presented at this year's annual meeting of the American Society of Clinical Oncology.

If the study results warrant, we may be able to file a BLA for ERBITUX as a first-line treatment for patients with head and neck cancer.

We are also planning to further explore the utility of ERBITUX as a treatment for nonsmall cell lung cancer.

At last year's ASCO annual meeting, data were presented from several Phase II clinical studies of ERBITUX in combination with chemotherapy in patients with nonsmall cell lung cancer.

Among the presentations were data from a Merck KGaA sponsored trial of 61 evaluable patients with chemotherapy-naive lung cancer which showed that the addition of ERBITUX to cisplatin and venoraldene [ph] increased response rates to 53.3% versus 32.3% for patients treated with chemotherapy alone.

Based on our collective experience using ERBITUX in this disease, we intend to initiate a randomized Phase III clinical development program in the near term to further evaluate ERBITUX and combinations of chemotherapy in patients with nonsmall cell lung cancer across all stages of disease.

In addition to these development programs, we are planning to evaluate the potential of ERBITUX in a variety of other tumors, including ovarian, cervical, and esophageal cancers.

We expect to be able to give greater detail on our broader ERBITUX clinical development plans within the next quarter.

In addition to our ERBITUX clinical program, the Company is advancing its next generation of product candidates into the clinic.

I am pleased to tell you that over the next 18 months we plan to initiate clinical trials of three new investigational products.

I'd like to spend a few moments highlighting these programs for you.

Our most advanced clinical candidate is IMC-1121-B, a fully human monoclonal antibody that is designed to bind specifically to the vascular endothelial growth factor receptor 2, thereby preventing its growth factor from activating the receptors angiogenic signaling properties.

The Company and its academic partners have conducted extensive research into the VEG-FR signalling pathway which is believed to be one of the primary mediators of tumor angiogenesis.

We are very optimistic about the potential of this program given our own research, as well as the recent FDA approval of Evastin, which has provided clear evidence that interfering with this growth factor system can have a profound effect on tumor development and survival.

We expect to file an investigational new drug application, or IND, with the FDA this year to initiate clinical trials of IMC-11-21-B.

ImClone Systems has taken full advantage of its extensive research in the area of epidermal growth factor receptor inhibition and has used these resources to develop a fully human monoclonal antibody known as IMC-11-F-8, designed to bind specifically to EGFR in the same way ERBITUX does to inhibit tumor growth and cell survival.

The Company is planning to file a clinical trial exemption, or CTX, with European regulatory authorities this year to begin human clinical testing of IMC-11-F-8.

This candidate represents a potential business development opportunity in Europe.

Lastly, the Company is developing a fully human monoclonal antibody referred to as IMC-812, which is designed to target and neutralize insulin-like growth factor I receptor, also known as IGF-1R.

At last year's American Association for Cancer Research annual meeting in July, members of our scientific staff presented preclinical data showing that IMC-812 blocked the binding of IGF-1 to its receptor resulting in reduction of cancer cell proliferation and survival of human cancers in animal models.

We anticipate that an IND for IMC-812 will be filed in the first half of 2005.

I hope that the R&D overview I have just provided you gives you insight into the commitment that the senior management has made to building ImClone Systems into a premier research, development, and commercialization biotechnology organization.

To accomplish this we are investing heavily in the future by recruiting talented employees.

The Company continues to grow in size.

As of February 1 of this year, ImClone Systems had 582 full-time employees.

Among our most recent additions, we have added a Vice President of Field Operations, and a Chief Accounting Officer to the management team.

We have also built a group of scientific services liaisons to help support the exploration and definition of the scientific mechanisms of action of ERBITUX and future potential ImClone Systems products within the academic and scientific communities.

We have also continued to expand a technical and professional staff that will operate our new manufacturing facility, BB-50, currently under construction.

We are also expanding our laboratory staff to focus on the continued development of our clinical and pipeline programs, as well as the discovery and development of new biologic and chemical compounds.

The Company continues to build out of our BB-50 multiproduct manufacturing facility which will house up to three manufacturing suites each capable of manufacturing a separate product.

Two of these suites are currently being built.

The construction is progressing expeditiously with mechanical completion expected by the end of next year.

Once this facility is completed, and BB-36 becomes a licensed facility, ImClone Systems will be among those manufacturers with the largest volume of mamelion [ph] cell production of biologics.

While these are tremendous achievements to be sure, our overall manufacturing capabilities also represent a very valuable strategic asset through which additional business opportunities can be leveraged.

To conclude, I would like to express my optimism for the outlook for the Company.

I believe that we are entering into a period where we possess the right combination of talent and resources with which to grow the Company, broaden our development, and commercialization opportunities and continue to build value for our shareholders.

With that, I would like to turn the call over to Michael Howerton, who will review with you the financial results we announced this morning and give you an idea of what to expect from a financial statement perspective going forward.

Michael?

Thank you, Dan.

First, I'd like to provide a brief overview of 2003 financial results and then move to a discussion of 2004.

Our principal financial objectives in 2003 were geared toward preserving capital and managing operating expenses in a period marked by regulatory uncertainty in the early part of the year, while continuing to move forward with construction of our second manufacturing facility, BB-50, and continuing to bring a number of pipeline products closer to clinical development.

I am pleased to say that these objectives were achieved.

Revenues for the full year of $80.8 million were 35% over those achieved in 2002, principally reflecting an increase in the recognition of milestone payments.

Total operating expenses for the year were $189.7 million, a decrease of 12% from 2002, reflecting an increase in clinical and regulatory expenses offset by decreases in research and development and marketing, general, and administrative expenses.

It's important to remember that research and development expenses included the costs to manufacture ERBITUX during the year and that expenses incurred in clinical and regulatory that relate to registration activities for ERBITUX were reimbursed by BMS and reflected as revenue.

The 2003 net loss was $112.5 million, a 29% improvement versus 2002, resulting in a net loss per share of $1.52, compared with $2.15 last year, also an improvement of 29%, based on weighted average net shares outstanding of $74.3 million.

We ended the year with $106.3 million in cash and marketable securities, and as a reminder, received a milestone payment from BMS in the amount of $250 million last Friday, March 12th, 2004.

Now looking forward, as you've just heard, our business model is undergoing significant change in 2004 and that change will be reflected in a variety of positive ways in our financial statements.

My objective this morning is to preview the nature, magnitude, and duration of some of the most significant aspects of those changes.

The impact of our commercial agreements with Bristol-Myers Squibb and Merck KGaA will become visible immediately during the first quarter.

We will be reporting four components of revenue this year.

The first component, license fees and milestone revenue, will primarily reflect our recognition of the milestone payments from Bristol-Myers Squibb.

As you know, to date we have received aggregate milestones of $650 million from BMS.

These payments are initially recorded as deferred revenue and recognized over the term of our commercial agreement with BMS through 2017.

We recognize these payments based on the cumulative clinical development spending for ERBITUX as a percentage of total anticipated spending over the life of this agreement.

Although neither we nor BMS has disclosed this multiyear estimate, you should expect our revenue recognition to increase this year to the extent that milestones received now include the $250 million received on March 12th and further assuming that clinical development spending in support of ERBITUX, as described by Dan, will accelerate as well.

The second revenue component, royalty revenue will primarily reflect the contractual distribution fee from BMS which totals 39% of BMS's end market net sales of ERBITUX, as well as royalties received from Merck KGaA based on a percentage of gross profit on their sales of ERBITUX.

Although Merck's royalties are contractually defined in terms of gross profit, we have guided that these royalties will approximate a mid-single digit percentage of their net sales.

The third component of revenue, manufacturing revenue, will reflect our commercial sales of ERBITUX to our partners.

For BMS, who is obligated to purchase all of their ERBITUX from us, we will record revenues equal to our cost to supply ERBITUX whether manufactured by us or purchased from third parties, plus a 10% premium.

For Merck, who has the option to purchase ERBITUX from us, we will supply product at cost and record this amount as revenue accordingly.

The final component of revenue, collaborative agreement revenue, reflects reimbursement from BMS for those ERBITUX registration-related costs, both clinical and regulatory which have been incurred by ImClone.

Although both ImClone and BMS dedicate efforts to product development, BMS is responsible to fund all registration-related expenses up to a contractual maximum in any given year.

Now turning to expenses.

All inventory manufactured by us or purchased from a third party supplier through February 12th, 2004, the date of ERBITUX approval, will have been expensed as a component of research and development expenses.

Accordingly, as we sell such inventory to our partners we will not record corresponding cost of goods sold against the manufacturing revenue described earlier.

While we haven't disclosed the total amount of inventory on hand, we have stated that BB-36 has produced roughly 200 kilograms over the past two years.

Excluding the modest amount of these materials used for clinical trials, this inventory alone, excluding the supply of Lanza material, represents roughly 400,000 doses or an in-market sales value of almost 1 billion in the United States which would have to be sold by ImClone to its partners before cost of goods sold was reflected.

Additionally, as we expect to begin capitalizing the cost to manufacture ERBITUX inventory after February 12th, 2004, the date of approval, research and development expenses will no longer include such costs.

Finally, as we have disclosed in our 2003 10-K, the Company has net operating loss carry-forwards of over $500 million which will be utilized as we become profitable as quickly as possible.

With a greater understanding of these income statements attributes, accelerated revenue recognition of higher milestone payments, manufacturing revenue without corresponding cost of goods sold for a period of time, the initiation of royalties, and the utilization of our tax loss carry-forwards, we hope that investors will be better equipped to model the financial results and structure of the company.

While we are not prepared currently to give quantitative guidance, we do expect that as the year progresses we will begin to provide expense guidance, most likely when we file our first quarter 10-Q at which time we will have our next earnings conference call to provide a better understanding of our spending base.

If we choose to provide revenue and earnings guidance, we would not under any circumstances do so until we were confident in our ability to do so accurately based on a deeper understanding of revenue expectations for ERBITUX.

Andrea?

Thank you, Michael.

That concludes our prepared remarks.

I'd now like to open the call up for questions.

Operator?

Thank you.

The floor is now open for questions.

If you have a question, please press the number one followed by four on your touch-tone phone.

If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key.

Questions will be taken in the order they are received.

We do ask that while you pose your question that you pick up your handset to provide the best sound quality.

Please hold as we poll for questions.

Once again, it's one followed by four for any questions at this time.

Thank you.

Our first question is coming from Howard Liang of JMP Securities.

Can you comment on your experience with ERBITUX, where it's being used, whether it's exclusively for NOT kind of refractory setting, any [inaudible] for fractory use, and also whether you're finding that Evastin is being used in second line as well?

Thank you, Howard, this is Dan.

Let me just talk briefly about the indication that we received from the FDA on February 12th, and then what I'd like to do is turn it over to Ron Martell who is our Senior VP of Commercial Operations, just to give a sense to everybody about the launch thus far.

Our approval is utilizing ERBITUX in two ways.

One is in combination with irinotecan.

For those colorectal cancer patients who are EGFR positive metastatic patients who have become refractory to irinotecan.

That's one group.

The second is ERBITUX being used as a single agent, again EGFR positive metastatic colorectal patients who are intolerant to irinotecan.

So that is the label that we were granted by the FDA.

I'll ask Ron to just give a broad commentary about the launch thus far.

Good morning, Howard.

As Dan articulated, based upon our two indications, at this point the launch is progressing as we would expect.

There have been significant efforts placed in the field to assist in both educating physicians and prescribing community that supports them with nursing inservices, et cetera, to enable physicians and patients to make the most informed decision when evaluating integrating ERBITUX into their treatment automentarium.

At this point the launch is proceeding as we would expect.

Can you give us an update on the reimbursement status of ERBITUX, the progress you've made with both CMS and private payers?

Certainly.

Prior to the launch of ERBITUX, we met with both a significant number of the third party payers, the large groups that you would expect that we would spend the time with, and the CAC members and the groups driving reimbursement from the third-party payers.

In addition to that, we had a meeting with CMS all with the intention to assist those groups with understanding the data that supported the ERBITUX filing and the potential indications and to ensure that at the time of launch that there would be no impediment to reimbursement.

At this point in time we believe that that process is moving forward such that there are no major hurdles for reimbursement both in the private sector as well as through CMS.

Just to follow up, how are the payers handling off-label use?

Are they able to separate tumor type and tumor setting?

At this time we're not prepared to comment on anything off-label.

As you know our efforts are placed behind ERBITUX and its label indications.

Okay.

Thank you.

I'll go back in the queue.

Thank you.

Thank you.

Our next question is coming from David Witzke of SunTrust.

Thanks for taking my question.

Again, congrats on the approval and milestone payment.

First, Ron, on your comments, you get dailies, if I'm correct, on sales out of OTM, and as a result you would not -- there's no inventory really out in the channel because the transfer of title and you drop ship; is that accurate?

Correct.

The distribution mechanism that we're utilizing to service the oncology community for ERBITUX is one we refer to as a drop shipment.

Physicians, providing they order the drug before 5:00 p.m.

Pacific Standard time will receive drugs the following day.

So we will ship anyplace in the United States overnight.

Good.

So and you would get daily, so you probably have very good visibility on how the launch is going.

Can you comment if it exceeds your expectations or in line or below?

Correct, we do receive daily numbers, and we do have very good visibility on the market as it goes to where the drug is being utilized.

However, as a matter of policy, we do not provide that market information.

Great.

Understood.

And then I have a couple of clinical questions.

First, on the head and neck, we should see at ASCO, the trial was initiated in '98 and standard of care has changed from radiation-only to concurrent with chemo.

How does that change the way you look at this data and can you augment this with other chemo trials ERBITUX that you've had, smaller trials?

Dave this is Dan.

Obviously that trial was initiated in 1998.

Just to remind everyone, it's a Phase III randomized trial, international multicenter survival as the end point.

And clearly as standards change, that needs to be contemplated, but for those of you who are familiar with the history of ImClone, that was intended, back in 1998, to be the initial registrational study.

Obviously, given what was seen in colorectal, that strategy shifted, but at the time that we initiated it back in 1998, we met with the agency to discuss what the appropriate design would be at that time for registrational purposes.

So, clearly things change.

It's six years later.

We'll just have to, in our discussions with the FDA, talk about the implications of changes in standard of care, but certainly based upon the design at the time, that was the appropriate protocol and design.

And so the data is very robust, there's still a path forward in your view?

We think subject to, obviously, the results, given the size of 424 patients, given the design being a randomized Phase III trial, that, obviously, subject to the results of the trial, that, yes, it could form the basis of an application.

Great.

On the colorectal side the recent JCO publication with Dr. Lensalt as lead author, the author stated that preclinical data suggests that ERBITUX should work best in agivent or first-line settings.

Can you summarize what we know about the limited frontline data we have to date and also review the randomized Phase III trial design and comment on how difficult it would be to enroll this large trial?

Yes.

Let me, if I could, I think in my prepared remarks, I misspoke about the design of these two Phase III second-line trials.

One is for irinotecan with or without ERBITUX.

The other is for fullfox, plus or minus ERBITUX, and these are second-line trials.

These both open for enrollment in 2003.

Having received approval from the FDA, based upon a response rate and time to progression as the two key end points, we had an obligation to have confirmatory trials with survival end points up and running at the time of approval, and these two Phase III second-line trials serve that purpose.

Obviously, as things evolve in the colorectal landscape, particularly given the approval of ERBITUX and Evastin, the enrollment of these studies could shift in terms of the pace of enrollment, so we will certainly monitor that closely.

What I'd like to do, Dave, to your question, is ask Dr. Larry Witte just to talk for a minute about what you mentioned from a preclinical standpoint because I do think that's instructive when you look at our development program.

David, this is Larry Witte.

First I'd like to just clarify the question regarding the preclinical data that you have.

Could you just state that once more exactly?

Yeah, in the JCO publication, the author suggested that ERBITUX should work best in agivent, as well as first-line metastatic setting.

Just wondering what data we know in the first-line setting and I believe there's a large CALBG trial enrolling for first line as well, so what we know on preclinical and the status of enrollment there and how that should proceed.

I can answer some of the parts regarding the preclinical studies.

We've had a large number of studies regarding that and we've done also in conjunction with the combined therapy treatment with ERBITUX we did a white paper regarding that and how it best works together.

And regarding the KLG studies I think one of the other members might be able to best answer that.

But in the combined therapy we do find that ERBITUX has a role in being able to actually support that apoptotic events of the chemotherapy.

Okay.

And potential for use in first line?

What data that do we have to date to support that?

I don't think I'm the best to --.

Yeah, Dave this is Dan again.

Based upon that preclinical work, obviously we have the hypothesis that ERBITUX could work in different stages of colorectal cancer than we have approval for right now, which is why we wanted to initiate these large studies.

Both in second line and front line.

The CALGB trial which is a total of 2,200 patients with survival end point has really just opened for enrollment within the last quarter or so.

So, it's early stage now given the size of that trial and the fact that recently opened we'll have to monitor that and provide guidance as we see how it starts to enroll.

Okay.

Final question.

Any studies in agivent setting?

Are you looking at that?

Yes.

Yes.

Definitely looking to explore that in the agivent setting as well as the stages that I mentioned in my prepared remarks.

Great.

Thank you.

Thank you.

Our next question is coming from Brian Rye of Janney Montgomery.

Thank you and good morning.

Just a couple of quick questions.

First to follow on David's question regarding the two randomized Phase III trials in a second line colorectal setting.

Based on current enrollment expectations, Dan, can you talk about when we might get a first look at the data?

Secondly, just want to confirm that we're still expecting to see data from the Phase III trial involving BEC2 sometime towards the middle of this year.

Let me start with BEC2.

We do expect the results from BEC2 to be completed this year.

That's in a patient population of almost 570 in small cell lung cancer, that's our cancer vaccine, and we would expect that to be presented at ASCO of this year.

Based upon your first question, which is the timing around our two Phase III second-line trials, the first one, which is with irinotecan, which is a study 006, or epic, we expect that to complete enrollment the middle of next year, and then to have data available at the end of '06.

For the other trial which is study number 014, name is explore, we expect that to complete enrollment at the end of '06, then the third quarter of '08 for the actual data availability.

Okay.

Thank you very much.

That's helpful.

Thank you.

Thank you.

Our next question is coming from Larry Smith of BLS Research.

Hi.

Can you hear me okay?

Yes.

I have a little bit of concern that, although I realize that 006 and 014 are being done in second-line therapy that Evastin is really going to confound the ability to recruit patients.

I wonder if you could give us some insight into the degree of how many patients you have enrolled right now and how you powered the study, whether you can get any information out of it, whether the number of patients you have now or that you can enroll is truncated.

And then I also have a similar question on CALGB 802-03 as to whether it might not be better to add Evastin right off the bat.

Let me start with the CALGB trial, which, as I said, is a two by two design.

Fallfox plus or minus ERBITUX and salts plus or minus news ERBITUX.

Clearly, Evastin is approved and will be used in the front-line setting.

But I think it's premature to conclude, based upon the design of our trial, what those results will look like.

Obviously, this is a significant number of patients, but this was the design as it was preferred by the investigators across the cooperative group.

So I do believe there's still an interest in exploring given the results we've seen in the later stage setting, what the results will be, including ERBITUX when given with either irinotecan or oxysaly-platten in the frontline setting.

So we are anxious to see that data, recognizing the Evastin has been approved, but I think the investigators also when they looked at the protocol, recognizing the likelihood of Evastin being approved at the time it was finalized, and I think there remains an interest level to explore the efficacy in that stage of disease, and I think the concept also holds in the second-line trials.

Clearly, Evastin is approved, but I think we're anxious to see what the efficacy would be of ERBITUX in the second-line setting and, we've covered the gamut in terms of whether or not patients have taken oxysaly or irinotecan in the front line and given the other product in the second line plus or minus ERBITUX.

So we're well aware of the Evastin approval but I still think we and others in the oncology community have an interest in terms of exploring this efficacy.

This is Ron, as a point of clarification both of these second-line clinical trials the patients could have experienced Evastin in the first line, so Evastin in the first line should not minimize the enrollment in the clinical trials that the two second-line clinical trials.

Okay.

Thank you.

Dan, I always get confused on how capital spending and research and development are going to be handled in 2003 versus 2004.

Could you give me an idea of what the capital spend will be in 2004, 2005, and 2006, and had ERBITUX not been approved, how much of that would have gone into R&D?

This is Michael Howerton.

Maybe I can give you a little clarification.

First with respect to capital spending, which is distinct from our R&D as it relates to ERBITUX.

The only and most significant component of our capital spending relates to BB-50, the second manufacturing facility, and this facility, as we stated in our K's, has a total cost expectation of roughly $260 million.

There's roughly $100 to $110 million that remains to be spent on that facility over the next 18 months or so.

From an accounting perspective, there's absolutely no difference with respect to capital spending as it relates to the approval of ERBITUX.

The only difference from an accounting standpoint is that all of the inventory cost to manufacture or to purchase ERBITUX from Lanza has been previously expensed up through and including February 12th when ERBITUX was approved.

As we move forward beyond February 12th, all inventory costs to manufacture are going to be capitalized, so you will begin to see inventory on our balance sheet and our R&D expenses which formerly included the cost to manufacture ERBITUX will no longer include such costs.

Okay.

Thank you.

Before the next question, this is Dan, I do think Larry raises an important point, which is what has the delay in ERBITUX approval meant in terms of our plans, and I'm proud to say that the Company kept on moving forward on all fronts, whether that meant continuing our basic research efforts, but also significant expenditures in building our second facility.

That's a significant cash outlay to the Company as we've said, for fitting out two of the three suites, $260 million, because we still believed in ERBITUX and the ability for it to get approved, we continued moving forward in the construction of that facility to try and bring it on-line as quickly as possible and as we've said, expect mechanical completion at the end of 2005.

Thank you.

Our next question is coming from Michael Caster of Bernstein.

Hello.

Can you talk a little bit about what factors went into coming up with a price for ERBITUX?

Yes.

This is Dan.

As everyone knows, there are several factors that go into pricing of any pharmaceutical drug, and it's important to note that in doing so, we've obviously worked very closely with our partners at Bristol.

Just quick digression in terms of the governance of our arrangement with Bristol.

We have several committees governing all of the key activities of ERBITUX, from manufacturing, to product development to commercialization, and given the relative experience that each company brought to the table, each of the two companies ultimately drives the key decisions within each of those committees.

Within the commercialization committee of which Bristol ultimately controls pricing is one of those decisions.

Clearly, any type of decision like pricing of a drug like this carries with it factors such as the cost to develop it, the cost to market it, obviously it's also a factor of at what stage of disease this drug is being utilized.

It's important to note that if you look at the indications I referred to earlier, based upon how it can be used as either a single agent or a combination, based upon the clinical experience, the time to progression ranged from one and a half months, or six weeks, as a single agent, to 4.1 months, or roughly 16 weeks in combination.

So the weekly dose is 2,400.

If you extrapolate that it gets you a range of between $14,000 and $38,000 per patient.

That assumes that it's only used in this setting, hopefully this is something that will work in a frontline setting and that would be used for longer duration.

Do you anticipate, if that proves to be the case, if it ends up being used in more of a frontline setting that you would adjust the cost to make it in that same range on a per-patient basis?

I think if and when that situation occurs, we and our partner Bristol would explore alternatives at that point in time.

And when you were in discussion, talking about costs, was there some expectation that above a certain point you'd have some refusal by managed care companies to pay for the drug but it would be made up by the increased revenue you'd get from people who would pay for the drug?

Is there kind of a balance in play there that you analyzed?

No, I wouldn't say that was part of the equation.

I mean several factors, as I said, went into it, but I wouldn't say that was a driver, no.

Okay.

Then the last question on a different note.

Will there be any cost of goods this year, and where will it come from?

As we've said, the actual manufacturing costs of ERBITUX will not be reflected until at least our material's on hand, and I use that notional 200 kilos, has been sold through to our partners.

To the extent that there are any cost of goods it will be modest royalty amounts associated with intellectual property agreements.

Manufacturing costs that won't be recorded include depreciation of the plant and the variable cost of goods, is that correct?

That's correct.

Great.

Thanks.

Thank you.

Our next question is coming from Chris Bass of Apex Capital.

Couple of questions.

One on the head and neck survival study.

How was that powered to detect sort of mortality benefit and what was the assumption as far as the median survival on the control arm?

It's powered to show a 20% difference in survival. 424 patients, one to one randomization.

Okay.

And as far as the clinical publication schedule as far as getting other indications out there in the domain where physicians get reimbursed for off label, what do you guys expect as far as publications coming out in the next six to 18 months?

Certainly.

Good morning, Chris, this is Ron again.

We have, as Dan has articulate, and as you probably have noticed in our other releases, we have a variety of clinical trials that either have been concluded in the recent past, one of which was just noted here, the trial that was just published in JCO, we have a very aggressive publication strategy to get the either abstracts or completed articles into peer-reviewed journals as soon as possible and we would hope there's a variety of those that can meet that end point before the end of the year in a variety of tumor types.

Any sense as to what tumor types might be included in that or do you guys have any good sense as to what we might see by the end of the year?

I hesitate to put any timing around it because obviously publication time lines are often outside of our control, specifically those that are in the peer-reviewed journals, and we would like to have these published in the respected peer-reviewed journals, to support compendia strategy, I believe that's probably where you're going with this question.

Right.

Specifically to that end, there were three clinical trials that were presented at ASCO last year.

I would hope that in lung, and I would hope we can move all three of those forward.

There was a pancreatic clinical trial at ASCO years ago, I would hope we could move that one forward this year.

The original filing from the original application the 9923 study, sister study to the one that just was in JCO last week, I would hope that we can move that one forward.

So there are a variety of clinical trials and additional tumor types that we would like to aggressively move forward.

Right.

One other question just to get a sense of what the base level of R&D spend is.

What percent of R&D last year was sort of cost of making the product versus like the base residual R&D spend?

This is Michael.

We actually haven't given that guidance.

However, it should become clearer to reviewers of our financial statements beginning with the first quarter of this year when manufacturing costs are no longer included.

What we have said, though, is from a basic preclinical R standpoint we have 130 scientists who are working in research, and from a development standpoint, I mean, obviously all of our registration costs that we incur with respect to ERBITUX are reimbursed, but the additional costs with respect to our own clinical program that Dan mentioned we will be funding.

And I would just remind everybody from my original remarks that says we really expect to give much better expense guidance with the publication of our first quarter Q.

All right.

Thanks.

Thank you, Chris.

This is Dan.

Operator, we have time for one more question, please.

Thank you.

Our final question is a follow-up coming from Howard Liang of JMP Securities.

Question on 11-FA, the human version of ERBITUX.

I think you've mentioned in the past that you have unencumbered rights in Europe.

I'm just wondering if Merck KGaA agrees with that assessment and what does it mean for EMD [inaudible], the Merck version of humanized ERBITUX, so if they replace ERBITUX with EMD are you entitled to the same economics?

Yes, the situation with R-11-F-8 is outside of the scope of our arrangement with Merck.

So it is not contemplated in the Merck arrangement and I won't speak for Merck, but what I will say is that we think this product has efficacy and side effect profile similar to ERBITUX.

We think since it's unencumbered in Europe that it may have some potential value there.

Our primary focus on this product is a business development opportunity as opposed to commercialization ourselves.

Thank you.

Thank you.

I will now turn the call back over to Ms. Andrea Rabney for any further or closing comments.

This concludes our call.

Thank you for joining the call today.

If you have any further questions please don't hesitate to call the Investor Relations department at ImClone Systems.

Thank you.

Thank you.

This does conclude this morning's teleconference.

You may disconnect your lines, and enjoy your day.