禮來公司 (LLY) 2005 Q1 法說會逐字稿

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

Ma'am, the floor is yours.

Thank you, 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 the first quarter of 2005 which we announced earlier this morning.

With me today are Dan Lynch, Chief Executive Officer, Ronald Martell, Senior Vice President of Commercial Operations, Dr. Eric Rowinsky, Senior Vice President and Chief Medical Officer, and Michael Howerton, Senior Vice President and Chief Financial Officer.

Also joining us for the Q&A that will follow our prepared remarks is Dr. Phil Frost, Executive Vice President and Chief Scientific Officer.

On the legal note, I must remind everybody, 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 assurance that the expected results will be achieved.

We refer you to our exchange out 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 now like to turn the call over to Dan Lynch, our Chief Executive Officer.

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

On today's call, we would like to begin with a brief summary of our financial results for the first quarter, follow that up with an update on our commercial, clinical, and regulatory strategy for ERBITUX, and a progress update for our pipeline compounds, then finish with the prepared portion of the call with a summary of what to expect from us from a financial standpoint over the balance of the year.

After that, we'll open up the call for Q&A.

For the quarter, we recorded a total of 28.8 million in net income on revenues of 85.8 million, translating into earnings per diluted share of $0.33.

Royalty revenues for the quarter reached $36.4 million, based primarily on U.S. in-market ERBITUX net sales of $87.1 million.

I'm now going to turn the call over to Ron to go over the ERBITUX commercial update.

Ron?

Thank you, Dan.

Today I will address the evolving colorectal cancer market and provide you with some some of our observations regarding ERBITUX's position within this market.

Before starting, however, I'd like to remind you all that while I will discuss the broader colorectal cancer market, as we interpret it from internal and third-party market data, our field professionals do not promote ERBITUX in any way other than for its labeled indications.

Our ERBITUX commercial strategy continues to be to expand our base in the second-line setting, and to capture the growing third line of our oxaliplatin and irinotecan failure patient populations.

As Dan mentioned earlier, U.S. in-market net sales of ERBITUX booked by Bristol-Myers Squibb for the quarter were $87.1 million.

This compares to 87.8 million for the fourth quarter of 2004.

Although sales were roughly flat during the quarter, we did see an increase in penetration in the second and third-plus lines of therapy.

We attribute the flat sales to slight increased penetration primarily to increased use of ERBITUX as monotherapy, which, as you know, is of a shorter duration of therapy.

First quarter penetration in the second and third plus line were approximately 11% and 29% respectively, compared to the fourth quarter of 2004 penetration figures of approximately 8% in the second line, and 25% in the third-plus line setting.

For the first quarter, usage of ERBITUX in all lines of colorectal cancer represented approximately 92% of total ERBITUX commercial usage.

Which indicates an increase in usage and reimbursement in other tumor types, including head and neck.

ERBITUX usage in the first line colorectal cancer was 4%, consistent with the usage we reported in the prior quarter.

As we discussed a moment ago, although we saw an increase in penetration, we also saw a greater usage of ERBITUX as a monotherapy.

On average, ERBITUX was used in combination in 81% of patients in the second and third plus lines, in the first quarter of 2005, compared with 87% in the fourth quarter of 2004.

The impact on sales may be attributable to the shift, although our data at this time does not indicate whether this is a trend or an anomaly.

Data to date indicate that duration of therapy for patients receiving ERBITUX is similar in the commercial setting and the clinical setting, six weeks for patients receiving ERBITUX monotherapy, and sixteen weeks for those receiving it in combination with chemotherapy.

Although this may continue to evolve.

As we have mentioned in past investor meetings and conference calls, we continue to believe that a significant number of patients have yet to cycle off of earlier stages of treatment with Avastin and on to ERBITUX.

We believe that this could occur in a more predictable and consistent fashion over the course of the next six months.

That said, we believe there are other avenues we can pursue to increase ERBITUX usage within its approved indication.

Our efforts to do so are twofold.

First, our data indicates that there are rates -- that the rate in which issue patients are testing for EGFR positive expression levels, using the immunohistochemistry test is inconsistent across the market.

To address this issue, ImClone launched a pilot program in select centers where positive EGFR testing was consistently below what was observed in controlled clinical trials.

The program offers such centers additional training and administering the test through the dochocytomatoin (ph) field organization, and were such efforts to prove unsuccessful, we've provided simple and efficient centralized testing options through the Chicago-based lab TMD.

The pilot program has been successful and as such we are in the process of rolling it out at the national level.

While we expect this program to show positive near-term benefit it remains our ultimate goal to eliminate the need for testing altogether due to what appears to be limited predictive value of available EGFR testing methodologies, immunohistochemistry, or IHC. undetectable or negative by IHC A recent study published in the JCO demonstrated that patients who were deemed undetectable or negative by IHC benefited at the similar rate as those patients seen in our colorectal cancer pivotal trial.

Secondly, although we have no unresolved reimbursement issues to date, we feel that it's critical that we facilitate across the ERBITUX for all patients who might benefit from its use.

As such, in partnership with Bristol-Myers, we will increase our frequency and effectiveness of the message around what we consider to be a best in class reimbursement program, in order to ensure maximum awareness and use of the program.

I'd now like to turn the call over to Dr. Rowinsky.

Eric?

Thank you, Ron.

I'd like to start my remarks by briefly recapping the announcement we made two weeks ago regarding a delay in the filing of our supplemental biologic license application, or sBLA, in head and neck cancer.

As we announced, we revised the time line for the filing of our SBLA for ERBITUX in head and neck cancer.

We previously intended to submit in the second quarter, we now intend to make the submission before the end of the year.

A Phase III randomized study, study 9815 was presented at ASCO 2004 with statistically significant local regional control and survival data.

The primary and secondary end points of the study.

After the ASCO presentation of study 9815 in 2004, ImClone met with the FDA and agreed to assemble an independent clinical review committee or ICRC, to independently assess the local regional control endpoint, or the primary endpoint.

The company discussed this process during its second quarter 2004 conference call shortly after meeting with the FDA.

The original charter for the ICRC called for the review of each patient profile from either one radiation oncologist or one medical oncologist on the ICRC.

However, several cases that were supposed to have been reviewed by one reviewer were reviewed by two reviewers.

The use of two reviewers for some cases and one reviewer for others inherently resulted in two different review processes.

As a result, we have amended the process to ensure uniformity.

And it has been submitted to and reviewed by the FDA and it is now ongoing.

We remain confident in the ultimate fileability of this application because of the following reasons: One, the original investigative data supports both the primary and secondary end points of local regional control and survival in study 9815.

Two, a blinded review of the study was conducted by a group of seven physicians independent of the Company prior to the ASCO presentation, and was the basis for the statistical significance of the data presented at the ASCO meeting.

And finally, the survival endpoint, which is a secondary endpoint of the study, is unaffected by this independent review process as is study 016, a nonrandomized Phase II study of ERBITUX in patients with refractory head and neck cancer which will also be submitted as part of the application.

The primary endpoint of study 016 was response rate, which has already been reviewed by an independent radiological review committee.

I'd like to emphasize that this SBLA remains the top priority for this company in the near term, and that we are focusing a significant amount of our efforts and those of our partner, Merck, towards completing and submitting a quality application as soon as possible before the end of the year.

On the clinical front, I'd like to first discuss what you can expect as this year's ASCO meetings.

In total, we and our partners expect to see 16 ERBITUX-related posters and/or discussions, including 10 in colorectal cancer, 3 in head and neck cancer, 2 in lung cancer, and 1 in ovarian cancer.

In keeping with our commitment to provide updates on our ASCO abstract, we have posted the abstract titles and presentation times on the Investor Relations section of our website for your reference.

Onto our clinical strategy going forward.

We will be initiating several high visibility, strategic, multicentered, disease-directed studies of ERBITUX.

The objective of these investigations are multifactoral.

One objective is to broaden the utility of ERBITUX in many types of important cancers in which the target EGFR is know to play an important role in tumor growth.

These may include cancers of the pancreas, ovary, prostate, and breast.

Another important goal is to evaluate the activity and feasibility of administering ERBITUX in Avastin together with our without chemotherapy in disease settings in which Avastin may play a role such as in chemo naive -- or chemotherapy naive patients with advanced non-small cell lung cancer, as well as in other tumors in which intriguing preliminary data and the scientific rationale exists for combining ERBITUX with Avastin such as pancreatic and ovarian cancers.

We also anticipate further evaluations of this biologic regimen in various types of patients with advanced colorectal cancers, including chemotherapy naive patients.

The investigator community at large is expressing considerable interest in these trials, and we anticipate several new trials which we expect to initiate within the next 12 months.

To facilitate these plans, we're currently building a more robust clinical development team that will not rely as heavily on our partners in developing and managing larger trials.

Developing such capabilities in-house will also prove particularly valuable for the future clinical direction of our pipeline compounds.

Turning to our pipelines, we filed an IMD in the first quarter, for IMC-A12, a fully humanized monoclonal antibody targeting insulin-like growth factor one receptor.

We expect that during the summer, A12 will enter the clinic, bringing the total number of nonERBITUX antibodies in the clinic -- or in clinical valuations, to three.

The key factor in my decision to join ImClone Systems beyond what I saw as the potential of ERBITUX, is what I believe the potential of this pipeline to be.

With the addition of these compounds to the clinic, and two additional antibodies by this time next year as well, ImClone Systems will have one of the most exciting oncology therapy pipelines in the industry.

While a significant level of attention is currently being placed on ERBITUX, both within the Company and externally, we have been steadily adding resources in project management, clinical and manufacturing departments to allow us to develop these compounds quickly and effectively.

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

Michael?

Thanks, Eric.

This morning, I'll be providing a brief summary of our first quarter financial results.

As I review the income statement for the quarter, I'll address full-year guidance on a line-by-line basis as appropriate.

During the first quarter of 2005, ImClone Systems recorded revenues of $85.8 million with operating expenses of 61.5 million, resulting in diluted earnings per share of $0.33.

Revenues for the first quarter of 2005 of $85.8 million compared with $110.2 million in the first quarter of 2004.

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

License fees and milestone revenues for the first quarter of 2005 were $24.5 million, compared with 67.5 million in the first quarter of last year.

The year-to-year decline reflects the fact that a $250 million milestone payment was received in the first quarter of last year, resulting in a catch-up amortization effect of approximately $43 million.

These revenues principally reflect recognition of the milestone payments of 650 million, received from Bristol-Myers Squibb to date.

As we've discussed in the past, these payments are recognized based on the cumulative clinical development spending for ERBITUX, both by BMS and ImClone, as a percentage of total anticipated spending over the life of the agreement.

This cumulative percentage is approximately 34.3% through the end of the first quarter compared with 30.7% through the end of 2004, or an increment in the quarter of roughly 3.6 percentage points.

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

As indicated on our fourth quarter earnings call, we continue to expect amortization of license fees and milestones to approximate $100 million for the full year 2005, in the absence of receiving an additional milestone of 250 million from BMS this year.

Manufacturing revenue for the first quarter of 2005 was $11 million, compared with 25.5 million in the first quarter of last year.

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

The decline in 2005 reflects the absence of last year's initial stocking purchases by BMS and the fact that the 2005 selling price is roughly one half of last year's price.

In 2004, we employed a weighted average selling price which reflected the actual costs of materials shipped, including Lanza manufactured product as well as product manufactured at BB36.

In 2005 only BB36 manufactured materials are included.

Royalty revenue for the first quarter of 2005 was $36.4 million, compared with 7.1 million last year.

The 2005 results reflect three full month of sales, while 2004 results include only slightly more than one month since ERBITUX was first sold commercially in the U.S. in late February of last year.

The 2005 amount consists of 39% of Bristol-Myers in-market net sales of approximately 87.1 million, or $34 million, with the balance of $2.4 million attributable to Merck royalties.

As previously disclosed, royalty revenue in 2005 will continue to reflect 39% of BMS's in-market net sales, and a range of 4 to 4.5% for Merck KGaA's in-market net sales, until such time as a contractual minimum of cumulative sales has been reached.

Thereafter, the Merck royalty rate will increase.

Specifically, by the second half of 2005, we would expect this rate to increase to approximately 7% to 7.5% of Merck's in-market net sales.

Collaborative agreement revenue for the first quarter of 2005 was $13.8 million, compared with 10 million in the first quarter of last year.

These revenues reflect reimbursements from our partners for contractually defined clinical, regulatory, and marketing expenses, approximately $4.7 million in the first quarter, ERBITUX supplied for use in clinical trials, approximately 4.6 million in the first quarter, and reimbursement for royalty expenses, approximately 4.5 million in the first quarter.

For the quarter, such reimbursements totaled approximately 9.6 million from Bristol-Myers Squibb, and 4.3 million for Merck.

Now, turning to expenses.

Total operating expenses for the first quarter of 2005 were 61.5 million compared with 39.3 million in the first quarter of last year.

Research and development expenses for the first quarter of 2005 were $21.2 million, compared with 20.2 million in the first quarter of last year.

As indicated on our fourth quarter earnings call, we previously estimated that these expenses would approximate $100 million for the full year 2005.

However, we now estimate that this category may approximate 110 to 115 million for the full year of 2005, due to higher than anticipated demand for ERBITUX for clinical use by Merck, based on their most recent inventory supply demand.

Of course, collaborative agreement revenue will increase proportionately as these expenses are reimbursed by Merck.

Clinical and regulatory expenses for the first quarter of 2005 were $9.4 million compared with 7.1 million in the first quarter of last year.

This year-to-year increase reflects additional clinical efforts in support of ERBITUX, as well as two of our pipeline products, in Phase I clinical development.

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

As indicated on our fourth quarter earnings call, we continue to expect these expenses to approximate $50 million for the full year 2005.

Marketing, general and administrative expenses for the first quarter of this year were $17.6 million, compared with $11.6 million in the first quarter of last year.

The change versus the prior year reflects higher personnel-related costs associated with the field force, and higher professional fees for legal, accounting, and tax services.

We continue to expect these expenses to approximate $68 million for the full year 2005.

Royalty expenses on a gross basis were $12.6 million in the first quarter of 2005, compared with 2 million in 2004.

The year-to-year increase reflects higher quarterly sales.

Approximately 4.5 million of the expenses in 2005 were reimbursed in the quarter and are reflected as a component of collaborative agreement revenue, yielding a net royalty expense to the Company of $8.1 million.

These expenses reflect obligations which relate to certain license agreements with respect to intellectual property applicable to ERBITUX.

For the first quarter of 2005, the Company recorded $743,000 of cost of manufacturing revenue, such costs principally representing expenses associated with labeling and related packaging.

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

Consistent with the guidance provided on our fourth quarter earnings call, we continue to expect that such costs of manufacturing revenue will begin to be reflected in the third quarter of this year.

The effective tax rate for the full fiscal year 2005 and consequently for the first quarter, is now estimated to be 1.3%, under the assumption that the $250 million milestone payment will not be earned this year.

We would estimate the 2006 tax rate to be between 30 and 40% assuming that the $250 million milestone is earned in 2006 and that the Company maintains its valuation allowance.

Of course, this 2006 estimate reflects a number of assumptions about 2006 performance, and will be refined as those assumptions become clearer.

Basic shares outstanding used in the calculation of earnings per share averaged 83.3 million in the first quarter of 2005, up from 75.3 million in the first quarter of last year, an increase of approximately 10.6%, an increase which is primarily attributable to the conversion of last year of our $240 million debt into equity.

Diluted shares, include approximately 6.3 million shares underlying the Company's $600 million of outstanding convertible debt, as well as in the money stock options.

As a result of all these factors, and as previously mentioned, the Company achieved net earnings per diluted share of $0.33 for the first quarter of this year, compared with net earnings per diluted share in the first quarter of last year of $0.76.

Capital spending for the first quarter of 2005 was $25 million, and is expected to range from 100 million to 120 million for the year, including the capitalization of certain validation and commissioning costs associated with BB50, of approximately $30 million.

To be clear, these are not additional construction costs.

The cost to construct the facility remains at the previously disclosed level of $260 million.

These validation and commissioning costs consist primarily of capitalized internal labor costs for employees that are dedicated to the commissioning and validation phases of this project.

We ended the quarter with cash and marketable securities of $824.4 million, with the variance versus year-end 2004 cash and marketable securities of 919.8 million, principally attributable to the payment of $50 million in partial settlement of the shareholders litigation, as well as payments to Genentech and Senticore of approximately $30 million for cumulative royalty expense relating to 2004.

That concludes our prepared remarks.

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

Operator?

Thank you. [OPERATOR INSTRUCTIONS] Your first question is coming from Steve Harr of Morgan Stanley.

Please go ahead.

Yes, I apologize if you guys went through this earlier.

I had a very difficult time getting on the call, but maybe Ron and Dan, if you could just walk through what your penetration rates are in the different lines of colorectal cancer right now, and then maybe you can give us a brief discussion on why you think the drug was modestly down sequentially.

Sure, good morning, Steve.

This is Ron.

For penetration for the second line in the first quarter it was approximately 11%, and 29% for the third-plus line setting, that compares to the fourth quarter of approximately 8% in the second line setting, and 25% in the third-plus line setting.

So in both the second and the third-plus line setting, we saw an increase in penetration, which is encouraging to us.

Obviously, though, the question then is, so how does that equate or what's that mean for sale, then as we have noted, that sales were basically flat for the first quarter, and we believe that's attributable to the increase in monotherapy used in the first quarter over the fourth quarter of approximately 6% or so increase in single-agent use.

And as you know, single-agent use is on average about 6 weeks of therapy versus 16 weeks for combination therapy.

So even though we did also see an increase in combination therapy in the quarter, the total end, because of penetration, went up, meant, though, that there were additional patients on single-agent therapy, which also meant that they initiated therapy and came off of therapy within the quarter.

What about front line, Ron?

Before you said 4% previously, is that number still sticking?

Yes, I'm sorry, 4% also in the first line setting which was the same number that we observed in the fourth quarter of 2004.

And on compendia deal listing, where do we stand there?

Is the article that was recently published in the JCO, the basis for your HER2, I'm sorry, you know where my head as been, your ETF receptor negative population?

That is certainly one of the significant pieces of the equation for EGFR undetectable patients.

We have not made a compendia application for EGFR undetectable at this time, we have made an application to the compendia in head and neck, and we're waiting the outcome of that decision in head and neck.

But specifically in EGFR undetectable, we have not.

However, the JCO article we do believe gives additional clinical validity to the concept that the current testing methodologies are probably insufficient for accurately identifying patients that ERBITUX could be beneficial in.

And based upon that, as well as additional data from Memorial Sloan-Kettering, as well as additional data from our own study 144, we believe there's a growing body of data to suggest that the current methodologies and -- suggesting that EGFR screening is necessary, is probably insufficient, and is inappropriately ruling out patients that could benefit from therapy.

Do we then look to get compendia listing later this year, or you're not receiving a lot of push back from reimbursers on giving the drug regardless of EGFR receptor status?

We certainly are aware that there are physicians that are treating without even testing, and reimbursement has not been an issue to some of those, as well as we certainly are aware of patients that originally were tested to be, quote, negative and were submitted for treatment, and those patients were approved then for reimbursement of therapy.

So I think it's an evolving situation, and it's one that, again, we're being very proactive in from all fronts, and that includes a program to educate physicians to increase the patients that are being tested, and to ensure that when testing is employed, that it's employed appropriately, and that potentially results will be consistent with the clinical trials.

Additionally, the compendia and payor strategy that we've already discussed, and also as one of our Phase IV commitments with the FDA, we are conducting a study in patients that are specifically EGFR undetectable by the Doncho (ph) kit.

We believe we have a multiprong strategy here that could yield near term results and longer term with the ultimate goal of removing this from the package insert.

One last quick question.

This is relating to the first answer you gave me, the breakdown between combo and monotherapies currently in the marketplace?

When we look both in the second and third lines together, we observed that 81% of the patients to receive combination therapy in the first quarter, and that compares to 87ish% that were observed in the fourth quarter.

Great, thanks.

Thank you.

Your next question is coming from Jim Reddoch of FBR.

Please go ahead.

Thanks, just a couple more questions on potential first line use of ERBITUX.

First of all, you don't have to tell me the results but could you at least describe the -- what study this was that will have first line data of ERBITUX plus FOLFOX that will be presented at ASCO?

Secondly, what is the type of patient that would be receiving ERBITUX and FOLFOX right now, is that also with a chemo regimen?

Thanks.

Jim, this is Ron, as a clarification, the data that you were suggesting for the first line setting, I think there's two separate studies that you may be referring to.

One is in the second-line setting, that's the study that's referred to as the explorer study, and the first-line data was from the original CALGB study.

The Rubio trial -- or Rubio is the presenter this year?

I'm not certain who's been identified as the presenter on that.

Not important, but if you could just talk about in a go forward sense, what is the type of patient that's receiving this right now?

Is this a patient for whom Avastin is somehow not appropriate?

In the first line setting?

Yes.

In the first line setting, we certainly are aware of a variety of patients that are being treated.

I think that the first patient population, as you might expect, are the patients that were the type of patients that were in the original CALGB design trials.

So ERBITUX in combination with a FOLFOX regimen, or ERBITUX in combination with an irinotecan based regimen.

In addition to that, we are also aware of patients that are being treated with Avastin in the first-line setting.

So I'm not so certain we can make a generalized statement as so it's patients that Avastin is not appropriate for.

But that may be one of the drivers in the ERBITUX in combination with either FOLFOX or irinotecan.

Is it possible that, I'm sorry, the decrease in combination use and second line and third line, can you just explain why someone would do that?

Because if it's a second-line patient, for example, wouldn't they have just been exposed to either FOLFOX or IFL, in first line, and why wouldn't that just be added on to ERBITUX in second line?

That's a great question.

And I think one of the answers to that could be that -- this is sort of a phenomena that we discussed prior to launch, is that in any line of therapy, even first line to second line, there's approximately 15 to 20% of the patients that cannot tolerate additional chemotherapy.

And that -- we may be finding this patient population that may actually be slightly larger in the second line setting than we had originally thought it might be, because they're staying on Avastin and oxali-based regimen longer in the first line setting and then thus may not be able to tolerate chemotherapy even to a larger degree than patients previously have been exposed to chemotherapy in the first line.

But that's just a hypothesis at this point, and we certainly want to explore that more.

Okay, great.

I'll get back in the queue.

Thanks.

Thank you.

Our next question is coming from Mike King of Banc of America Securities.

Please go ahead.

Thanks for taking the question.

I just wanted to see if -- could you break down in dollars what the sales were in colon versus other for the quarter?

And I don't know if you have a comparison for the fourth quarter.

Well, percentage-wise in the fourth quarter, we stated that it was approximately 5% of all of sales that were in the off-label setting, and this increased to approximately 8% in the first quarter of this year.

So --.

Mike, this is Michael Howerton.

That translates growing from $4.4 million in the quarter, to $7 million in the first quarter of this year.

Got you.

Great.

Thank you very much.

And just wondering if Eric could answer sort of what next steps, since the last call, I know it hasn't been a long time, but since the call, to update the SBLA for head and neck, what things have been done, what things remain to be done before the ICRC can complete its mandate?

Well, I think we've made great progress in getting our -- on to our second reviews, and as I described in the last call, Mike, our steps were to complete our second reviews, which is well underway, and making great progress, followed by consensus for any reviews that might be discordant between the two reviewers, and adjudication, if necessary.

And we anticipate that we will work -- we're certainly working as quickly as possible.

There's been no change whatsoever in our plans, and we will file by the end of the year.

Yes, thank you.

Thank you.

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

Please go ahead.

Good morning.

Question for Ron, I assume Ron that when you do your market research on the trends in colorectal cancer, that you also survey physicians on their use of Avastin.

I'm just wondering your research suggested Avastin's increasing or decreasing in the second-line penetration rates?

At this point in time, we have not observed any real change in the pattern of Avastin use in the second line, and we have observed what appears to be a decrease of use in Avastin, though, in the third-plus line settings.

And then a second question, on how you measure the impact of your newly launched sales force, I'm just wondering what paradigm or what controls or what sort of measures, metrics, I guess is the word I'm looking for, management uses to gauge the effectiveness of the sales force?

Well, certainly we have a number of internal metrics by which we evaluate the performance of our organization.

I think one of the quickest ones to identify, though, is the correlation in the increase in penetration that there certainly is a correlation in increase in penetration in the first quarter since we've launched our organization, compared to the previous year.

Additionally, that may be part of the answer to the additional single-agent use as well, is that our organization may be reaching some individuals that prior had not been exposed to ERBITUX, and one of the first things that physicians do is to try a dug as a single agent, become comfortable with it, and then use it more in combination.

That may be one of the answers to why we've seen a corresponding increase in single agent in the first quarter as well.

So we will keep an eye on that, and maybe in previous quarters give you an additional update on that.

Thanks.

Just last question for Michael, the other income line has trended over the last couple quarters a little higher than at least I was modeling.

Is there anything else other than interest income,and interest expense to that?

No, there isn't, Eric, it's really just that we've been fortunate with respect to the overall interest income level on our portfolio of investments.

But it's just interest income on the cash and cash equivalents, and a reasonably static interest expense number associated only with the interest on the convertible debt.

Remind me to give you some money to manage.

Thanks a lot.

Thank you.

Your next question is coming from Han Li of SunTrust.

Please go ahead.

Yes, quick question for Ron.

Can you give us an update on the suspended NCI CALGB trial in the front line colorectal cancer, is existing patients still on ERBITUX?

Indeed there are patients from the suspended original design CALGB study that are still on therapy.

I think as you would expect, these are first line patients, and they're patients that continue to benefit from therapy.

From what I remember, there may be close to 200 patients in the trial, and when could we see the data and in what kind of format?

Unfortunately, Han, I don't have an answer for you at this time, that's up no CALGB.

Okay.

One more question, this is more general, maybe for Dan or for Dr. Rowinsky, given the recent like positive clinical data from Avastin, many large cancer indications and increasingly competitive marketplace for target therapy, what do you see as a better clinical development strategy for ERBITUX to quickly expand labels and indications to better compete with Avastin and other target agents?

Well, I think in addition to going up against Avastin in some indications, certainly others, particularly first line lung cancer, and potentially breast cancer, at least in the first line metastatic setting, these, with the recent results with respect to ERBITUX particularly having an effect on survival on non-small cell lung cancer, one strategic plan would be to utilize both in combination in that particular malignancy, and also to set up trials in other malignancies in which Avastin studies may look intriguing, such as in pancreatic cancer.

I think what we'd like to do with our new strategy is cover the gamut of possibilities, both in a competitive aspect in some lines but also with Avastin in others.

The trial presented by Len Solace and his group at the GI ASCO meetings in Florida, which will be updated this year at ASCO, where patients received -- in one of the arms, patients with colorectal carcinoma failed FOLFOX and irinotecan just to the two biologic agents, Avastin and ERBITUX quite intriguing data with approximately 25% of patients having a major response.

I think it's food for thought and certainly will serve as the foundation for other regimens.

So I think we really want to cover the gamut of possibilities with these trials.

I see.

All right, thank you.

Thank you.

Your next question is coming from Geoffrey Meacham of JP Morgan.

Please go ahead.

Good morning.

There was a recent review in The Oncologist that discussed possible dose adjustments as actually adjustments to both dosing and schedule for downstream agents in colorectal.

Just wondering if you had seen any modifications to ERBITUX usage in this setting in the field?

I'm not aware of any at this time.

Okay.

And my second question really relates to as a follow-up from a previous question about off label use.

In light of this quarter's number, does the increase in off label use, does it change at all your outlook regarding the adoption curve in colorectal?

No.

I wouldn't think so at all.

I think once again we're encouraged by the potential impact that our field organization is making, the additional increase in penetration within colorectal and, I think it means that there potentially is other upside in other tumor types.

Good, thanks.

Thank you.

Your next question is coming from Maneesh Jain of Thomas Weisel Partners.

Can you give us an update on the ongoing studies looking at the expanded indications for ERBITUX and in particular, what the enrollment status is like for the Phase III first line, and second line, non-small cell lung cancer trials?

The first line's non-small cell lung cancer trials, particularly the study being conducted by our partner, Merck, is really vamping up accrual, and that's a study where ERBITUX is being added to vinorelbine and cisplatin.

And this is a randomized Phase III trial.

I don't have the precise accrual numbers, but I believe that we're dealing with approximately 200 patients.

And there are two studies that are being conducted, principally by our partner, Bristol-Myers Squibb, dealing with ERBITUX and other platinum-based regimens in the United States.

I'm also do not have the precise numbers for those trials, but they're accruing very nicely at this time, particularly the carboplatin taxol study with and without ERBITUX.

Would you expect data from that this year or we're looking at next we're probably?

We're most likely looking at next year, although accrual is increasing in now what I think is an exponential fashion.

So it depends on many factors, but I would anticipate it would be safe to say next year.

A question for Michael, regarding fully diluted EPS, do we need to make an adjustment to the interest expense coming from the convert in order to calculate the fully diluted EPS?

Yes, you'd have to adjust the numerator by increasing the reported net income.

I'll give you the number, it's roughly $1.8 million, which is the after-tax effect of the interest.

So if you add the 1.8 to the reported net income, and you divide that by the fully diluted shares, you get $0.33.

Great.

Thank you very much.

You're welcome.

Thank you.

Your next question is coming from Lindsay Beeger of Credit Suisse First Boston.

Please go ahead.

Can you hear me?

Yes, we can.

Great.

My question relate to the Blog study in metastatic pancreatic cancer.

What is the enrollment status on that study?

This is Eric.

I really can't say what the numbers are, but they have been increasing, actually very briskly at about -- at about 40 patients per month.

And I believe that the study is nearly 50% accrued at this point.

But that study's actually been vamping up in a somewhat exponential fashion.

So we think we're going to be fully enrolled with regard to that study in the first quarter of 2006 with regard to pancreatic cancer.

Unfortunately, the endpoint survivals a rather short one, so it's very possible that we could have data and results soon after the closure of that trial.

That's what we would hope.

Okay, thank you very much.

We have time for one more question, Operator.

Thank you.

Your last question will be coming from Yaron Werber of Smith Barney.

Hi.

Good morning.

Quick question, Michael, in terms of the royalty expense, if I calculate correctly, the net royalty expense was roughly 9.3% during the quarter?

$8.1 million, but you don't just divide that by the U.S. number Yaron.

So would that be -- so it's about eight and a quarter on a worldwide basis then?

Well, yes, the royalties on the both the gross and net bases apply to both U.S. and non-U.S. sales.

Okay.

Quick question for Dr. Rowinsky, in terms of as you commented -- it sounds like the use of ERBITUX as a monotherapy is increasing, what can you do to counteract any potential competitor in the market, that might have a label for monotherapy use?

Well, I think that we really will try to perform more studies in first-line and in second-line, and with chemotherapy.

And I really think that earlier therapy with this particular drug, particularly with regard to chemotherapy and other biological agents, such as Avastin are really going to be the driver here, and certainly synergize with this particular agent.

So I think that the major thrust will be earlier and earlier studies.

Yaron, this is Dan.

I mean, the aggregate percentage is 81%.

So while it's down from 87%, it's still predominantly combination usage, and that's in a refractory setting.

Obviously, as we explore it in earlier stages of colorectal, and other tumor types, the expectation is that you'd see a higher combination usage in those earlier stages.

So the ultimate usage of ERBITUX, we still believe, across all tumor types, the combination will play a critical role.

What is the earliest, Dan, that you think you might have data from the front line studies?

Is '07 reasonable?

Are you talking about colorectal?

Yes, exactly, the colorectal studies.

I think it's premature, as that's just now within reach weeks, probably going to get off the ground.

So we think the design of that trial is absolutely the appropriate design.

It's answering the antibody question of ERBITUX alone versus Avastin alone versus the combination of the two, all with chemotherapy, and I think there's excitement about the trial.

But until it's up and running and we see how it goes, I think it will be premature for us to pick a date on that.

Okay.

I'd like to thank everybody for joining the call.

I just want to make sure that you all know that we're available for any follow-up questions in the corporate communications department, and again the number is (646)638-5058.

Thanks for joining us today.

Thank you.

That does conclude today's teleconference.

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