禮來公司 (LLY) 2004 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen and welcome to your ImClone Systems third quarter 2004 conference call.

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

It is now my pleasure to turn the floor over to your host, Andrea Rabney.

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

Today's call has been scheduled to discuss the company's financial results for third quarter of 2004 which we announced earlier this morning.

With me today are Dan Lynch, CEO, Ronald Martell, SVP of Commercial Operations, Michael Howerton, SVP and CFO.

Also joining us for the Q&A that will follow our prepared remarks are Dr. Lilly Lee SVP of Regulatory Affairs, Biostatistics and Quality Assurance and Dr. Larry Witte, VP of Research.

On the legal note I must remind everyone that certain information discussed in the 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 insurances that our expected results will be achieved.

We refer you to our exchange act filing for factors that could impact the company.

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

I'd now like to turn the call over to Dan Lynch, our CEO.

Thank you Andrea and thank you all for joining us today.

Before starting the call this morning, I'd like to express our condolences to the family and friends of Dr. James Palmer who passed away earlier this week.

He served as a valuable member of the Bristol-Myers Squibb team as their Chief Scientific Officer and will be missed by all.

We'll now move on to the quarterly call.

The third quarter was a strong quarter for Imclone systems and Erbitux.

We reported net income of $39.8 million on revenues of $94.8 million which translates into diluted earnings per share of 45 cents.

Royalty revenue, a key component of the income statement was $34.1 million up over 20% from the previous quarter.

In part reflecting an increase in Erbitux U.S. inmarket sales from $71.4 million in the second quarter to $84.1 million this quarter.

This brings total year to date Erbitux U.S. inmarket sales to $173 million and world wide inmarket sales to $223.5 million.

Figures we are pleased with in the ramp-up of this product.

Year to date the company has recorded net income of 126.8 million on revenues of $276 million resulting in basic EPS of $1.62 and fully diluted earnings per share of $1.47.

I'd now like to say a quick work word about Erbitux sales since launch.

Sales which are still in a launch phase have increased every month on an average daily basis since launch and have only declined on a total month-to-month basis once between June and July which may be attributable to a bolus effect in demand from launch.

We continue to ask that you use caution in relying upon any third party sources until a more established trend is available because they have not been an accurate reflection of Erbitux monthly sales to date.

That said we understand your desire for as much information as possible to make informed investment decisions.

With that in mind starting today we'll be providing a greater level of detail regarding current and past sales metrics for Eurbitux including for a limited time U.S. inmarket monthly sales figures.

As you read in the press release this morning, we have made the strategic decision to put together a sales force that will work side by side with our partner Bristol-Myers Squibb sales force to maximize potential commercial opportunities for Erbitux.

We also believe this move has long-term strategic value which Ron will touch on in his remarks.

He'll also provide you with the greater level of clarity on the sales metrics I discussed a minute ago.

I'm pleased to say that we have also made progress on the clinical front during the quarter.

As we noted from our press release a few weeks ago, the clinical develop program for Erbitux in non-small cell lung cancer is taking a big step forward.

This program is being advanced based on clinical results from the phase II program covering both first and second line lung cancer including the Lucas study in the first line setting and the Kim second line study that was presented at ASCO 2003.

The first of these studies is an ImClone Systems and Bristol-Myers Squibb sponsored 800 patient randomized phase III clinical trial in second line non-small cell lung cancer known as IMCL 0452 or Select that has four arms, Docetaxel plus or minus Erbitux and Pemetrexed plus or minus Erbitux.

This study design which has response rate as its primary end point was reviewed and agreed upon by the FDA in a special protocol assessment and could serve as accelerated approval of Eurbitux in second line non-small cell lung cancer.

In addition, in September our European partner Merck KGaA opened a randomized phase III clinical study in Europe, Latin America and Asia known as EMR 046 or Flex, which will look at platinum based chemotherapy with Vinerolbine plus or minus Erbitux in 1100 patients with first line non-small cell lung cancer.

This study will be supplemented by two smaller supportive first line studies which we will conduct with Bristle using chemotherapy regimens more commonly used by U.S. physicians including a Taxane with platinum based chemotherapy and gensitomene (ph) platinum chemotherapy plus or minus Erbitux.

Pending their outcome, these three clinical trials could allow the companies to seek a broad indication of Erbitux in combination with platinum-based therapy in first line treatment of non-small cell lung cancer.

Additionally a study sponsored by the Southwest oncology group or SWOG, that was open this summer will evaluate the efficacy of concurrent chemotherapy plus Erbitux and Chemotherapy followed by Erbitux in 180 patients with non-small cell lung cancer.

We are also currently enrolling patients in a study of Erbitux in patients with EGFR undetectable, previously referred to as EGFR negative, with metastatic colorectal cancer who have progressed after receiving at least one standard chemotherapeutic regimen.

Target enrollment for this study is 60 evaluable patients.

As you know this study is one of our post marketing commitments to the FDA and will serve as an important indicator of whether EGFR testing is a relevant screening criteria for patients who could potentially benefit from Erbitux treatment.

As we stated on our second quarter call, the head and neck program remains ontrack and we continue to expect to be able to file an SBLA in the second quarter of 2005.

In addition to Erbitux, two new antibodies developed by ImClone are now moving toward phase I enrollment.

These are IMC 11F8 and IMC 1121B.

IMC 11F8, a fully human monoclonal antibody targeting the epidermal growth factor receptor will be tested in the Netherlands in patients with solid tumors.

As you are all aware, EGFR is a signal pathway with a well established role in the growth and repair of solid tumors and one with which we have substantial experience.

IMC 1121B, which will be studied here in the U.S. is a fully human monoclonal antibody that is designed to bind to the vascular endothelial growth factor receptor 2, found on tumor vascular thereby inhibiting certain loggins from binding to and activating the receptor.

This action blocks the signaling pathway key to new blood vessel formation in growing tumors which has been shown to starve tumors of their nutrient supply and result in significant tumor growth inhibition in preclinical models. 1121B blocks this important angiogenesis pathway by targeting the receptor that receives the growth single from the ligans (ph), rather than the ligans themselves.

We believe our approach has significant potential in the effective treatment of various human malignant diseases for pathological angiogenesis is involved.

I'm now going to turn the call over to Ron after whom Michael will conclude the call with a more in-depth discussion of our financials and address certain key trends and assumptions for the fourth quarter of 2004 and full year 2005 and after that we'll go into Q&A.

U.S. inmarket sales of Erbitux booked by Bristol-Meyers Squibb for the quarter were $84.1 million.

These reflect - - these inmarket sales reflect a drop shift distribution methodology and therefore, Erbitux shipment to end user accounts only with no wholesaler stocking.

To give you a greater perspective on Erbitux sales trends to date, to allow you to validate your own model assumptions and to better illustrate the importance of not relying too heavily on third party sources for intra quarter sales trends, I will now provide you with monthly U.S. inmarket Erbitux sales figures from launch.

Please be aware that while I'm providing monthly figures on this call, we only plan to do so on the fourth quarter conference call.

After which we plan to provide only quarterly sales numbers.

Since the launch in February when we saw only one week of sales, these monthly figures were as follows, I will pause for a moment to allow you to make sure you are prepared to catch these numbers.

We have also made these figures available on our website under the Investor Relations tab.

End market sales were, February, 2.5 million over four business days.

March, 15 million over 23 business days bringing the first quarter total to $17.5 million.

April, $20.7 million over 22 business days.

May, 23 million over 20 business days.

June, $27.7 million over 22 business days bringing the second quarter total to $71.4 million.

July, 26.7 million over 21 business days.

August, 28.5 million over 22 business days.

September, 28.9 million over 21 business days bringing the third quarter to 84.1 million.

As you all know Erbitux is approved in two settings, in combination with Irinotecan in patients with metastatic colorectal cancer refractory to Irinotecan based chemotherapy and as a single agent in patients with metastatic colorectal cancer intolerant to Irinotecan based chemotherapy.

We continue to see predominant use of Erbitux in these two indications which, in practice means patients are receiving Erbitux in the second or third plus line of therapy.

Based on Erbitux usage in the third quarter, penetration in the second line is approximately 11% and 28% in the third plus line setting.

This contrasts with the second quarter penetration figures which were approximately 8% in the second line and 24% in the third line.

For the third quarter second and third line colorectal usage represented 95% of total Erbitux usage.

During the quarter we received orders from substantially all major client accounts in the first, second and third tiers and therefore believe that from a physician target perspective, we have effectively reached the key colorectal accounts in both the academic setting and in the community oncology practices.

Given that time to progression can be significantly different within the two FDA approved indications, 1.5 months for patients receiving Erbitux mono therapy and 4.1 months for those patients receiving it in combination with Irinotecan according to the package insert.

It is also important to note that on average from launch to the end of the third quarter, approximately 92% of patients are receiving combination therapy in the second line and 73% are receiving combination in the third line.

The balance of the both percentages being mono therapy usage.

These averages through the second quarter were 95% in the second line and 66% in the third line.

For those of you interested in projecting trends based on these figures until such time we can give you greater clarity on what we are seeing in the commercial setting, I would recommend that you use duration of therapy consistent with the time to progression data and the package insert.

Many of you have asked about off label use.

While we do not promote the use of Erbitux in any setting other than the two indications approved by the FDA, we have seen some use in offlabel settings, although this usage is not significant in quantity.

As far as reimbursement for Erbitux is concerned, we continue to see a positive reimbursement environment with no unresolved issues with respect to reimbursement and approved indications.

As Dan mentioned earlier, during the quarter the company established a sales force of oncology sales professionals to increase the company's presence and prominence within the oncology community and to help maximize the market potential for Erbitux within its approved indications.

This field force was launched from 13 redeployed science service liaisons or SSLs.

As it was it was launched from our existing personnel, the formation of the sales force did not materially increase marketing, general, and administrative expenses for the quarter.

It is our expectation that by the end of the year, ImClone will have 43 sales professionals and 6 SSLs.

The incremental annualized cost associated with this structure should approximate $10 million excluding related support costs.

It is our belief that a sales force will not only increase our potential marketing opportunities for Erbitux but will serve as a foundation for future products derived from either internally or through business development.

This effort is being carried out in close coordination with ImClone Systems partner Bristol-Myers Squibb pursuant to the commercial agreement with Erbitux under which the company has copromotion rights.

I'll now turn the call over to Michael Howerton.

Our remarks today, our prepared remarks today are a bit longer than usual so we appreciate your patience in an attempt to provide investors with as much information as we can.

We assure you there will be ample time for question and answer following the prepared remarks.

During the third quarter of 2004, ImClone Systems recorded revenues of $94.8 million with operating expenses of $47.3 million resulting in basic EPS of 48 cents and diluted EPS of 45 cents.

For the nine months year to date the company recorded revenues of $276 million with operating expenses of 130.2 million resulting in basic EPS of $1.62 and diluted EPS of $1.47.

As mentioned revenues for the third quarter of 2004 were $94.8 million compared with $23.6 million in the third quarter of 2003 and $71.5 million in the second quarter of this year.

I'll address each of the four principle components of revenue separately.

First license fees and milestone revenues.

License fees for the third quarter of 2004 were $23 million compared with $13.9 million in the third quarter of 2003 and $18.1 million in the second quarter of this year.

These revenues principally reflect amortization of cash milestone payments received from Bristol-Myers Squibb.

These milestone payments are now $650 million in aggregate and are recognized over the term of our commercial agreement with Bristol-Myers Squibb through 2017.

These payments are recognized based on the accumulative clinical development spending for Erbitux by both DMS and ImClone as a percentage of total anticipated spending over the life of the agreement.

This accumulative percentage is approximately 27.5% through the end of the third quarter compared with 24.1% through the end of the second quarter or an increment in the quarter of roughly 3.5 percentage points, and 17% at the end of last year.

As the clinical development program for Erbitux continues to expand to other tumor types and earlier use in colorectal cancer, we expect that the quarterly increment in accumulative clinical spending percentage will increase accordingly.

Now manufacturing revenue.

Manufacturing revenues for the third quarter of 2004 were $30 million compared with 14.8 million in the second quarter of this year.

No manufacturing revenues were recorded in the third quarter of 2003.

These revenues consist of sales of Erbitux to our partners for commercial as opposed to clinical use.

The quarter to quarter increase principally reflects incremental volume purchases by BMS.

As you know, we employ a weighted average selling price which reflects the source and associated cost of material shipped.

In 2004 these materials include lanza (ph) manufactured product as well as product manufactured at BB 36.

Royalty revenue for the third quarter of 2004 was $34.1 million.

This amount consists of 39% of Bristol-Myers inmarket sales of approximately 84.1 million or $32.8 million with the balance of $1.3 million attributable to Merck royalties or roughly 4.3% of Merck's inmarket sales of $30.5 million.

Collaborative agreement revenues for the third quarter of 2004 were $7.8 million compared with 9.5 million in the third quarter of last year and 10.1 million in the second quarter of this year.

These revenues reflect reimbursements from our partners for contractly defined clinical and regulatory expenses and certain marketing expenses.

Approximately $4.2 million in the third quarter.

Erbitux supplied for use in clinical trials, approximately 2.0 million in the third quarter, reimbursement for royalty expenses approximately $1.6 million in the third quarter.

For the quarter such reimbursements totalled approximately 6.9 million from Bristol-Myers Squibb and 0.9 million from Merck.

Now turning to expenses.

Total operating expenses for the third quarter of 2004 were $47.3 million compared with $39.1 million in the third quarter of last year and $44.1 million in the second quarter of this year.

Research and development expenses for the third quarter of 2004 were $17.6 million compared with 21.2 million in the third quarter of last year and 18.8 million in the second quarter of this year.

The principle reason for the year to year decline is that subsequent to February 12, 2004, the costs to manufacture or purchase Erbitux are no longer included as a component of operating expenses as they had been in prior periods.

These costs are now capitalized as inventory.

In 2004 third quarter expenses were lower than second quarter expenses principally because the second quarter included compensation expenses related to the issuance of stock options to the company's scientific advisory board.

Clinical and regulatory expenses for the third quarters of both 2004 and 2003 were $7.6 million compared with 6.2 million in the second quarter of this year.

These expenses consist of cost to conduct clinical studies and associated regulatory activities.

Marketing, general and administrative expenses for the third quarter of 2004 were $14.8 million compared with $13.8 million in the third quarter of last year and $13.6 million in the second quarter of this year.

The increases versus the prior year and previous quarter principally reflect incremental costs associated with the company's marketing programs and higher consulting fees related to the company's financial planning and financial controls and documentation compliance with respect to section 404 of the Sarbanes Oxley Act.

With respect to royalty expenses as was the case last quarter, we are continuing to negotiate certain licenses and so these expenses reflect our best current estimate of what the ultimate obligations will be for the periods in question.

As additional details become available we will share them with investors within the limits imposed by the negotiated agreements.

Royalty expenses on a gross basis were $7 million in the third quarter of 2004.

Approximately 1.6 million of these expenses were reimbursed in the quarter and are reflected as mentioned as a component of collaborative agreement revenue yielding a net royalty expense to the company of $5.4 million.

These expenses reflect obligations which relocate to certain Erbitux license agreements with respect to intellectual property.

For the third quarter of 2004, the company reported $223,000 of cost of manufacturing revenue.

Such costs principally representing expenses associated with labeling and related packaging.

No other costs to manufacture or purchase Erbitux will be reflected as cost of manufacturing revenue on the company's income statement until such time as all inventory manufactured or purchased prior to February 12, 2004 has been sold through to our partners for commercial or clinical use since such costs have been previously expensed.

The effective tax rate for the full fiscal year 2004 is now estimated to be 14% compared with an estimate of 10% for the full year which had been utilized in the two previous quarters of 2004.

This revised annual rate results in an effective tax rate in the third quarter of 2004 of 21.6%.

This change is due to an increase in the company's estimate of full year 2004 profits which now are greater than the portion of net operating losses that may be utilized for financial reporting purposes in 2004.

Additional available net operating losses will be utilized in subsequent years which will benefit the tax rate as well as equity.

We expect to give additional details with respect to our tax position on our fourth quarter call.

Basic shares outstanding used in the calculation of EPS averaged 82.5 million in the third quarter of 2004 up from 77.4 million in the second quarter of 2004, an increase of approximately 6.6%.

This increase is exclusively attributable to the issuance of assures as a result of stock option exercises.

As a result of all these factors and as previously mentioned, the company achieved net EPS of 48 cents basic and 45 cents diluted for the third quarter of 2004 compared with a net loss per share in the third quarter of 2003 of 22 cents both basic and diluted.

And EPS of 31 cents basic and 29 cents diluted in the second quarter of this year.

Now given our intentions to better equip investors to anticipate and model the company's financial results, we will continue our practice of providing guidance on certain variables.

With respect to revenues we are not prepared to provide specific guidance at this time.

We will continue to assess the appropriateness of providing such guidance in the future as well as our ability to do so.

We will however continue to provide sales metrics such as those discussed on this call previously to provide clarity in understanding the growth potential for Erbitux.

For research and development expenses we expect that fourth quarter amount will approximate $20 million.

The third quarter expense figure for clinical and regulatory of 7.6 million is expected to increase in the fourth quarter of the year as we continue clinical development of our non-Erbitux pipeline as well as the further development of Erbitux in indications beyond colorectal cancer especially in nonsmall cell lung cancer.

For marketing, general and administrative expenses, third quarter expenses of 14.8 million are expected to increase in the fourth quarter to reflect the costs associated with the previously described sales force.

Now with respect to 2005.

As investors are aware, our income statement is relatively complicated in that it encompasses multiple components which are difficult to model.

In addition only limited historical data are available with which to construct a sound platform to forecast the inmarket potential of Erbitux.

Given this situation it is not surprising that there is a wide disparity among sale side analysts with respect to assumptions employed and related estimates for ImClone Systems in 2005.

Given the continued development of our business model and the growth that we anticipate in 2005, we believe it is appropriate to provide what guidance we can in an attempt to ensure consistent view with respect to certain key variables which may have a significant impact on the company's reported performance in 2005.

The four key components I'll be addressing in this regard as they relate to 2005 are manufacturing revenue, license fees and milestone revenue, cost of manufacturing revenue or cost of goods and the tax rate.

While I will not provide specific expense guidance for 2005 until the fourth quarter earnings call, as Ron mentioned earlier we expect that the addition of a sales force will add approximately 10 million to our fixed costs excluding marketing support programs.

As investors know, manufacturing revenue reflects Erbitux ship to our partners BMS and Merck for commercial use.

The price charged to BMS reflects our actual cost to manufacture or purchase such material plus a 10% markup and the price charged to Merck reflects our actual cost without any markup.

To date in 2004, no commercial material has been supplied to Merck.

BMS however has purchased more than $70 million of such material since launch.

This includes Lanza as well as BB 36 product.

The per vile price charged for finished product reflects the proratta blended cost of product from each source.

While we have not given specific manufacturing of purchase cost guidance, we have stated that the cost of Lanza material is significantly higher than that of BB 36 material.

In 2005, no Lanza material will be shipped as a result of having depleted all previously produced inventory and accordingly the selling price per vile to our partners is expected to be approximately one half of 2004 prices.

We would therefore expect that reported manufacturing revenue would reflect these lower selling prices despite the potential for increasing volumes sold to our partners.

Now, for license fees and milestone revenue.

The most significant factor in influencing license fees and milestone revenue in 2005 is the assumed date of the receipt of a potential $250 million milestone payment from BMS upon receipt of FDA approval for the next Erbitux indication, presumably head and neck cancer.

In 2004, the receipt of the $250 million milestone in the first quarter resulted in an immediate recognition of approximately $42 million as a catch-up, the same catch-up effect, if this final $250 million milestone is received in the fourth quarter of 2005 would approximate more than $100 million if clinical development spending levels continue at recent quarterly rates.

With respect to cost of goods or cost of manufacturing revenue.

As we have stated such costs will not be reflected on our income statement until such time as all previously expensed Erbitux has been sold through to our partners.

We have previously guided that such on hand material approximated 200 kilograms, or roughly 400,000 doses at approval.

Investors should be aware that in addition to commercial use, significant quantities of previously expensed Erbitux have been and will continue to be provided to our partners for clinical and noncommercial uses.

As a result and reflective of our expectations of inmarket performance and partner purchases, potentially including Merck, we expect to begin to reflect cost of manufacturing as early as the second half of 2005 which will be reflective of BB 36 produced product only.

Finally, with respect to the tax rate, the single most important determinant of an estimated tax rate for 2005 is the assumption made with respect to the potential receipt of the $250 million milestone payment within the calendar year.

If one assumes that is no milestone payment will be received, the resulting tax rate should approximate 2004 levels.

Conversely if the assumption is made that the milestone payment is received, then we would expect the 2005 tax rate to approximate statutory levels.

Accordingly the potential of receiving a total of 500 million in milestone payments between the years 2004 and 2005 along with significant taxable income from other sources for example our royalties, would more than consume the company's available net operating loss carry forwards that would benefit the effective tax rate of the company.

Hopefully this additional clarity will help investors and analysts to develop a more consistent view of our business performance over the coming year and we look forward to providing additional clarity as available.

Andrea?

Thank you, Michael.

That concludes our prepared remarks and I'd like to open the call up for questions.

Ashley, would you do that for me?

(OPERATOR INSTRUCTIONS) Our first question is coming from Yaron Werber of Smith Barney.

Good morning.

Thanks very much for providing all this clarity.

It's very useful.

First question, I have two questions.

First question just looking at your sales on a monthly basis, and there's an up tick between July and August.

Can you give us an explanation as to what prompted that increase and certainly that increase between August and September?

And can you give us also, are you seeing patients failing (technical difficulties) coming on to Erbitux and is that predominantly second line or is there also first line failures?

First, this is Michael.

Let me just give a little mathematical clarity because I know there were a lot of numbers read out very quickly.

As we gave our inmarket monthly U.S. sales and the number of business days in any given month, maybe not each of you had time to do the division and calculated sales per day.

So let me just tell you first of all that with respect to average daily sales if you do the math, you will see an increase in every month since launch.

Perhaps more importantly over the three months of the quarter, the rate of increase has accelerated in each of the month July, August and September.

So for example average daily sales increased by 1% in July, by 2% in August and by 6% in September so I will let Ron talk about the potential behind these trends.

But we just wanted to make it obvious that certainly through the end of the third quarter we see no evidence of the deacceleration of the sales trend.

Yes, and Michael that was what I was referring to the per day sales.

Okay, Ron will you handle the - -

Sure.

Some patients that are progressing on Avastin my indeed be eligible for Erbitux therapy and we certainly believe that for some of these patients that Erbitux provides a viable treatment option, I think it's a bit early to tell not knowing what the real clinical efficacy should there be any of Avastin beyond the approved indication.

What that will mean for the timing of progression or the number of patients that may progress on Avastin, but we certainly are aware at this time of patients that have progresses on Avastin and that have went on Erbitux for treatment.

Can you give us a sense as to what percentage of that of the total usage of Erbitux?

I think it's a bit premature at this point in time to do that so I guess inferring that means the percentage is still fairly low in the overall total number of patients that are on Erbitux in the second or third line.

And a following question, how many patients do you think there are in newly diagnosed colorectal on second line and third line in the U.S.?

Sure, I think it depends on which models you are using but in broad brush strokes, first line setting is probably in the 50,000 to 60,000 patient range and the second line is probably about 50% of that so 25 to 30%.

The interesting data that we have observed since launch and it was a phenomenon we thought might materialize is in the third and beyond line setting that the number of patients that are now making up that set of patients that are eligible for treatment has grown significantly and that's probably due to an under counting prior to approval and now an available therapy that makes patients eligible for treatment in the third and beyond line setting.

Do you think that number is on par with the second line or lower than that?

I think that there are databases that suggest it could be on par with the second line setting.

I think the interesting question will be will this be a mixture of incidents and prevalence so it's a one time opportunity or will as we also believe might be possible with the introduction of new therapies like Erbitux and Nasally and Avastin, that we may be making the entire pie larger.

Thanks very much.

Next question coming from David Witzke with SunTrust, please go ahead.

Thanks for taking my call and congrats on the strong earnings growth and solid sales ramp and the increased clarity helps.

First question for Ron.

It appear to be if you look at published timed to progression curve, if you look at the first patients on drug in the first month maybe 90% or so should have worked off drug by now, the so-called bolus effective.

And based on the acceleration of sales on a daily basis, do you think we are past that period?

I think it's still a bit premature to say that we are past that period.

It has a lot to do with the number of patients that came on in that early time period as well as the type of patient that came on.

Some data would suggest if you look at the single agent versus the combination data would suggest that the patients that came on in the earliest days were potentially a different type of patient than what's on therapy now.

I think we need another couple of months under our belt to really give some accurate direction there and certainly at the time we are able to do that, we will provide that information.

And then based on your patient size comments and your market share estimate is 11% second line, I think 28% third line, it suggests you are very early in the penetration of the indicated market.

I wonder how much of this you can attribute to the fact that Avastin was approved at the same time and a lot of patients actually went, second line patients went and Avastin and do you think that is a big opportunity going forward as they come off in your estimates?

Sure.

First with regard to the penetration numbers, I think if we would have modeled it at the beginning of the year that our exit share for Erbitux use was in the 11% to 30% range and second and third line setting that those are certainly appropriate and reflect a successful product launch.

Having said that, though, I think one of the interesting factors we have observed is the total share attributable to antibodies in the second and third line and I think that's a larger number than what we would have anticipated and I think that's sort of the heart of your question we certainly believe that there is near term upside for Erbitux within its indication in addition to the longer term upside within the total potential for Erbitux.

Okay.

And finally if I can, Ron, given that it has been a solid ramp and looks like your early in the penetration of the market, why, more granularity on the decision to add another 30 sales people and is it in any way indicative of you not viewing BMS aggressively promoting Erbitux or anything along those lines?

No.

I would not read anything from a negative standpoint whether it's regarding Erbitux or our partner into that statement.

It has always been ImClone's objective to have a sales organization and we believe it just helps us achieve that goal.

Dave this is Dan.

I just want to reiterate that if we were to look at this stage which is still relatively early in the launch, I think if you look at those aggregate sale that is we mentioned which is over 170 million in U.S. inmarket and over 220 million world wide with barely a launch in Europe thus far.

I think by any standards that is deemed to be at this point a very successful launch so we are pleased with it.

Having said that and based upon what Ron just said and the penetration numbers and what we think the potential of Erbitux could be, that was the trigger to our decision.

And, you know, certainly in the short-term it's driven by trying to maximize the potential of Erbitux, and as we stated our goal in addition to doing that is to become a fully integrated company and to the extent we down the road be it through internal or externally sourced product, have a need to commercialize them then we will have the infrastructure on which to build.

So we think for several reasons at this juncture it made a lot of sense to take that action.

That's helpful.

Thank you.

Our next question is coming from Mark Augustine of Credit Suisse First Boston.

Please go ahead.

Thank you.

For the guidance, that's terrific.

Very helpful and very thorough.

I did want to ask one or two things.

First question would be if you can give us an update on the Schwab pancreatic cancer study?

Hi Mark this is Lily Lee.

The Schwab study is ongoing and enrolling patients and we do not give out ongoing guidance on the call.

The study is open for enrollment and it's going forward .

And then I simply just wanted to ask if you would be able to provide an estimate or number of patients that are actually currently on Erbitux therapy in the U.S.?

No, we do not and this is also a Schwab study.

No, I'm sorry.

Back to the commercial side.

Maybe it's a question for Ron.

The actual estimate that you have of patients currently on Erbitux therapy in the U.S., Ron, commercially?

Good morning, Mark.

Yes, at this time for a variety of competitive reasons we are choosing not to provide specific patient numbers but I think if you utilized the overall market therapy numbers I referred to as well as our penetration numbers, you can probably get into the ballpark of numbers I would actually provide you.

Our next question from Jason Kantor WR Hambrecht, please go ahead.

Please go ahead.

Thanks, and also thanks for the monthly break out.

I think that cleared some things up.

The royalty, I just want to understand this better a little bit better.

The 1.6 million royalty reimbursement, is this something that we should expect on an ongoing basis.

Your gross royalty, does that include any royalties you have to pay on your European sales or is that all covered by Merck and in your, I assume you're booking estimated royalties in certain cases.

Have you been hyper-conservative there?

That is when you finally do do these, sign these deals, is there a chance that you may be able to credit some of that back?

Or obviously the worst scenario would be you would have to pay up more and that number might come up at a later date?

Can you comment?

This is Michael.

I'll answer your third question first.

These are estimates of what we believe are our obligations given the state of our negotiations on those licenses which have yet to be executed and the actual obligations with respect to those licenses that have been executed.

So I would not attempt to define them sort of with any adjectives or adverbs.

They are managements best estimates of our total obligations with respect to royalties.

However as you know those expenses include fees which relate to licenses which exist and those negotiating.

I wanted to address the reimbursement portion.

What I have done is there are gross royalties and a reimbursement piece for those licenses which have already been executed.

So we record both a gross and a net amount.

For those licenses which are still under negotiation, royalty expenses include what we believe and estimate as the appropriate net cost to ImClone so we have not accrued reimbursement revenue with respect to those licenses.

When in fact these licenses are ultimately signed, we expect sort of the the geography of the income statement to change a bit because our gross royalty expense will go up as however our collaborative agreement revenue reflecting an appropriate portion of reimbursement for the new licenses but the net effect to ImClone will remain the same.

So your current net royalty as it shows now as a percent of U.S. sale is unlikely to change?

I won't say that.

What I will say is first of all our net current royalty relates to certain non-U.S. sales as well for existing licenses and may in fact relates to other sales, non-U.S. sales in the future should in fact those sales be sourced from U.S. manufactured products.

But beyond that, all I can reiterate is that the net numbers that we show are estimates of what we believe are appropriate for the periods in question.

Let me get to that - - ask you this one more time.

So you're booking just over 4% royalty on x-U.S. sales and some of that royalty has to be used to pay the outgoing royalty?

Is that right?

So the four point something is a gross royalty for Merck out of which you owe royalties?

There are a portion of our licenses which relate to non-U.S. sales.

There is also a portion of those which are reimbursed by Merck.

I can't give you too much more clarity than that except to say that to the extent we pay royalties on non-U.S. sales, a contractual portion of those royalties is reimbursed by Merck.

Thank you.

Thank you.

Our next question is coming from Andrew Hock (ph) of Banc of America.

Please go ahead.

Thank you for taking my question.

Following the previous question about the build up of the sales force, one interpretation of this is you are optimistic about near term business development opportunities.

So I'm wondering whether or not you can comment on the status of your business development efforts and what you see on the horizon going forward there?

This is Dan.

I would not comment nor do we ever comment about status on business development.

The reason we mentioned that is because if and when something were to occur in that regard, then this newly formed field force would be an important asset in assessing and leveraging that which we might bring in.

I think as I mentioned earlier in the short-term, I think the focus of adding this field force is really centered on our goal of maximizing the commercial opportunity of Erbitux.

But as I said it has the added benefit of strategically helping us if and when we go down the BD route.

Thank you.

Thank you.

Our next question is coming from Gordon Cohen of Merrill Lynch.

Please go ahead.

Thank you for taking my questions.

I had two quick questions.

First have there been any price increases in Erbitux?

And second with the final reimbursement rules expected to be published soon from CMS, what is the current calculated ASP for Erbitux in 2005?

Hi Gordon, this is Ron.

No, there have been no price increases for Erbitux and there no intended price increases in the future for Erbitux.

Regarding the current reimbursement environment and the ever changing landscape for Erbitux, the ASP has not been established for Erbitux for '05 as you know and recurring to we're in a positive reimbursement environment for both '04 and '05 because in '05 we convert to ASP plus 6%.

Why is that good for Erbitux when other products don't believe it's good for them?

It's because we're not discounting it all this year.

So our ASP should be as close as possible to the price that's being paid right now.

Having said that, we have provided the data to CMS to establish our ASP for '05 but that data has not been released at this time.

Thank you.

Our next question is coming from Eric Schmidt of SG Cowen.

Please go ahead.

Thanks very much for providing the detailed information.

Ron, I was wondering if you could help us with your methodologies for estimating the percent penetration in second and third line.

Do you like Genentech do sort of spot survey checks on the market or how did you arrive at the 11% and 28% in Q3.

Sure, we used a variety of data sources and those include proprietary data sources as well as third party data sources that are generally used to triangulate or to validate the assumptions for the data we have in house.

And then while you've shown some growth as you suggest on a sales per month - - days per month basis, it does look like sales have been a little bit sluggish in the last couple of months and I'm wondering if you have any explanation for that given the very low penetration rates you have.

Are people pretty much staying to label and not using this drug in renateacan (ph) nonfailures, CGFR testing still cutting out some of your market?

Just any more information you have on who is and who isn't a candidate for therapy?

Sure.

To revisit the sales growth information, while the ramp-up from the numbers may not seem as large, indeed, the growth acceleration month over month is consistent across the quarter and from a percent - - penetration standpoint, again, we are pleased with the share both as an average share across the quarter as well as an exit share for each quarter.

And are more than consistent with modeling that we did prior to approval .

Specifically with regard to utilization of the drug, as you might assume and I think probably are, at this point in the launch, the predominant use is as the package insert would indicate and that means that patients are receiving it in the second or third line as we would expect.

We would expect that as physicians become more comfortable with the prescribing information and the reimbursement process that that will also translate into additional patients being treated.

And a question then on expense guidance, sorry, the 2005 guidance, in an effort to try to get on the same page here, if you were to try and guess, it seems that a lot of the 2005 estimates have been hinged on whether this big milestone payment falls in the fourth quarter or early in '06.

I guess I am asking anyone who would like to answer.

But do you think it's more likely that they fall into '05 versus '06, if it's going to be 55, 45 or 45, 50?

Just trying to get some guidance on what you think analysts should be projecting for that big expense milestone - - big reimbursement milestone.

Eric, it's Dan.

I think it's just too hard to do that with any kind of accuracy at this point.

I know people are searching for that.

But I guess the only thing I can come back to is our intention to file our SPLA in the second quarter.

What happens from that point in terms of FDA timing is certainly if and when we file in the second quarter which is our current PLA, it's something that we just can't foresee or control, and therefore, I wouldn't even put forth a handicap percentage because it's just something we can't foresee or control.

Fair enough, Dan.

If we do assume a six month review and the (technical difficulties) payment in Q4, could you help us with your statutory tax rate?

By saying statutory tax rate, I would assume it would be somewhere in the 40% to 50% next year given the federal and state requirements and the fact that we will have limited credits or tax availabilities to us then.

Okay.

Thank you.

Operator, we have time for two more questions, please.

Thank you.

Our next question from Jim Reddoch of Friedman Billings.

Please go ahead.

Cost of goods on your 2005 guidance, it sounds like maybe as much or close to 100,000 of the 400,000 doses that you had made may now be used for clinical use as opposed to commercial use, did I hear that accurately?

And the second question is, what is the time on therapy in second line versus third line for Erbitux in your estimates so far.

I think the number you gave before, I'm asking for combination, the number you gave before from the clinical experience has been 4.1 months.

Is it different in second line than third line?

Thanks.

Hi, this is Michael.

We didn't actually give the difference in terms of exactly how many of the doses were used clinical versus commercial but certainly the ratio that you used is reasonable given the where your own model of sales through to our partner could in fact take.

Thanks.

I was actually projecting from my own model which did have that 400,000 doses lasting about eight quarters or so in terms of time until you start recognizing cost of goods so that is how I backed into that and you you're saying that would at least be logical?

Yes, I would also say it's certainly the use of the amount of clinical supplies is certainly consistent with the lung program we recently announced and the numbers of patients whom we tend to enroll.

This is Dan.

One other point on this because I've seen in discussions with many investors, a lot of people are gauging that expense inventory relative to the inmarket demand.

I think it's important for people to recognize as has been the case year to date that purchases from our partners don't necessarily equal what the end market demand is.

So if you were to actually look obviously one can't do it precisely but suffice it to say that purchases from Bristol year to date in terms on number of vials has been greater than the number of vials that have been sold through in the market so that delta is another factor in the equation of depleting those four hundred odd thousand doeses.

We deplete them as we sell product through to commercial or clinical not as our partner sells into the market.

Ron I guess can address your second question.

This is Ron.

Regarding your question and duration of therapy second line third line, again I would suggest that you utilize the data from the package insert and that data at this point in the product launch and from our experience is applicable to the second or third line.

Again the data that was from the clinical trial that was the 4.1 month and 1.5 months.

Two-thirds of those patients had failed both the Irinotecan and oxidilly (ph) platinum so would lead you to suggest that those patients are a third line type of patients and that was the information we observed I think as we get further into the launch and we have better data to guide you we certainly will provide that to you.

Thanks.

Thank you.

Our last question will be coming from Carmen Tang (ph) from Secretarial Asset Management.

Please go ahead.

I'd like to know if the company has any plans to initiate another study in head and neck cancer utilizing Erbitux in combination with chemotherapy and radiation therapy?

There are plans under way and we are discussing with our partners at Bristol-Myers Squibb as well as other cooperative groups and when we get to the stage of disclosure we will give more guidance on that.

Can you provide us some insight as to why off label usage of Erbitux head and neck cancer has been minimal to date?

Obviously at this point in the product launch, the company is focusing completely on its approved indications and compliance with regulations around promotion of this product within labeled indications.

So that's why the vast majority of the product is being used in colorectal.

Having said that we certainly are aware of physician that have an interest in using the product in head and neck as well as other indications and would expect with additional clinical data that that would grow.

But at this point in time we certainly are not promoting it in that area and usage usually follows promotional activity.

Thank you.

Operator.

That concludes our call for today.

I'd like to take the opportunity to thank everybody for joining us.

As always if you have any other questions we'll be in the office at 646- 638-5058 and please don't hesitate to call.

Thank you.

Thank you.

That does conclude today's teleconference.

You may disconnect your lines at this time and have a wonderful day.