禮來公司 (LLY) 2005 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the ImClone Systems second quarter financial results conference call.

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

It is now my pleasure to introduce Andrea Rabney.

Ma'am, you may begin.

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 second quarter and first six months 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 a legal note, I must remind everyone that certain information discussed on this call may constitute forward-looking statements within the meanings 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 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.

Also, today's press release includes a reconciliation of certain non-GAAP financial information to the most directly comparable measures under generally accepted accounting principles.

This is press release is posted on our Website at www.imclone.com.

I'd like to now 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 I would like to cover Erbitux's commercial progress, provide you with an update on its regulatory and clinical progress.

And then finish the prepared portion of the call with a discussion of the financial results for the quarter and an update on what to expect from a financial standpoint over the balance of the year.

We'll then be happy to take your questions.

For those who have not had a chance to review our numbers for the quarter, the period was very strong, thanks in large part to an acceleration in sales of Erbitux.

U.S. in-market sales for the second quarter, recorded by Bristol-Myers Squibb, reached $97.8 million, up 12% over first quarter in-market sales of 87.1 million and up 37% over second quarter 2004 in-market net sales of 71.4 million.

I attribute this performance to our efforts in commercial operations under Ron Martell.

Namely;

One, our sales force, trained and active in the field for its first full quarter after our national sales meeting in Q1.

Two, a powerful commercial strategy aimed at education and assistance regarding the need for EGFR expression testing, alleviating potential reimbursement concerns among physicians.

And three, a clear and concise marketing message.

Another aspect of this acceleration is the increased off-labelled commercial use of Erbitux.

Because we do not promote Erbitux off-label, one reason for growth in off-label areas may be the clinical results demonstrated to date in Erbitux trials.

Dr. Rowinsky has devoted considerable efforts in developing a clinical direction for Erbitux and our pipeline antibodies and working on the anticipated sBLA in head and neck cancer.

In the process, Eric continues to build an outstanding clinical development and regulatory affairs team, which we expect to broaden the spectrum of use of Erbitux and lead to the successful development of the unique antibodies in our pipeline.

As an organization, we remain focused on maximizing the potential of Erbitux, both commercially and clinically and to building a strong pipeline behind Erbitux to ensure that ImClone remains a leader in oncology treatment well into the future.

We continue to build resources around these goals with the expectation they will ultimately be reflected in the value of the Company.

With that, I'm going to turn the call over to Ron to give you more detail on our Erbitux sales numbers.

Ron?

Thank you, Dan.

Before starting, I'd like to remind you all that while I will discuss the broader colorectal cancer market and Erbitux used in other tumor types, 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 indication.

As Dan mentioned earlier, U.S. in-market net sales of Erbitux, both by Bristol-Myers Squibb for the quarter were $97.8 million compared to $87.1 million for the first quarter of 2005.

We attribute this growth primarily to maintaining our base in a third plus line of therapy and to increasing share in patients receiving Erbitux in earlier lines of therapy.

We have mentioned in past investor meetings and conference calls that a significant number of patients had yet to cycle off earlier stages of treatment with Avastin and onto Erbitux.

We now believe that recently this has begun to occur in a more predictable and consistent fashion.

Thus, a portion of sales increase may be attributed to patients progressing in lines of therapy.

We also believe that some of the increase may be a result of the recently-presented so-called BOND 2 data, showing the effects of adding Avastin to Erbitux in an irinotecan-refractory study population.

The last component of this increase is attributable to an increase in Erbitux usage in indications other than colorectal cancer during the quarter.

Second quarter penetrations in the first, second, and third-plus line populations were approximately 4%, 15%, and 29% respectively.

Compared to the first quarter penetration figures of approximately 4%, 11% in the second-line, and 29% in the third-plus line setting.

For the second quarter, usage of Erbitux in all lines of colorectal cancer represented 82% of total Erbitux commercial usage, compared to 92% in the first quarter.

As our data set matures and we gain additional insight into the off-label market for Erbitux, we believe that the off-label use in first quarter of 2005 may in fact have been greater than reported.

On average, Erbitux was used in combination at 87% of the metastatic colorectal cancer Erbitux-treated patients in the second quarter, compared to 84% in the first quarter.

A figure revised upwards from 80.7% based on a reconciliation of data for the first quarter.

This increased usage in combination therapy yields a longer duration of therapy due to the superior outcomes of using Erbitux in a combination regimen versus single-agent Erbitux.

As always, we believe there are other avenues we can pursue to increase Erbitux usage within its approved indication.

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

We initiated a new simplified marketing message for Erbitux designed to capture this third-line growing population.

Erbitux, the only drug approved for irinotecan and oxaliplatin failure of colorectal patients.

And we believe this will enable us to have a continued impact on the market.

ImClone Systems also rolled out a national ETFR testing, education and assistance program in the second quarter in centers where positive EGFR testing was consistently below that - - what is stated in our package insert.

The program offers such centers additional training in administering the DakoCytomation immunohistochemistry test through their field organization.

And where such efforts prove unsuccessful, we provide a simple and efficient centralized testing option through the Chicago-based lab, TMD.

Lastly in partnership with Bristol-Myers Squibb, we continue to improve our reimbursement assistance offerings to make them comparable to the best in class offerings of other competitive companies.

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

Eric?

Thank you Ron.

We continue to expect to submit the sBLA to the FDA to seek approval for the use of Erbitux in combination with radiation and as a single agent in head and neck cancer.

As stated previously, an analysis of study, ImClone 9815 by an independent clinical review committee or ICRC, confirmed the statistically significant improvement in the primary end-point local regional control when Erbitux was added to radiation in the first-line treatments of locally-advanced head and neck carcinoma.

Furthermore, it is quite remarkable that the addition of Erbitux to radiation resulted in a statistically significant improvement in both overall survival and progression-free survival, which were secondary end points of the study.

Not only are these results extraordinary for patients with head and neck cancer, a tumor-type devoid of such notable clinical trial results in at least several decades, but they are particularly impressive when one considers the negligible augmentation of toxicities associated with definitive radiotherapy.

There are few other clinical situations in oncology, if any, with the addition of any anti-tumor agent to radiotherapy increases local regional control without adding appreciable toxicity.

And yet in this situation, the clinical data suggests such an effect as well as a survival advantage.

It should also be noted that these impressive study results were achieved with the addition these impressive study results were achieved with the addition of Erbitux treatment during a rather short seven to eight week radiation therapy period.

We look forward to having our investigators present the ICRC data at the first opportunity, which we believe will be at the AACR-NCIEORTC International Conference in Philadelphia this coming November.

As I will discuss, we are supporting the Radiation Therapy Oncology Group, or RTOG and other National Cancer Institutes sponsored cooperative oncology groups in their efforts to extend these results with Erbitux beyond head and neck cancer to other tumor types.

For example, evaluating the addition of Erbitux to radiation plus chemotherapy in patients with stage 3 lung cancer as well as in locally-advanced esophageal and pancreatic cancers where radiation therapy is a component of standard therapy.

Which brings us to our clinical strategy going forward.

An examination of key ongoing and planned studies of Erbitux indicates that radiation strategies are broad, spanning many key cancers.

Along with our partners, Bristol-Myers Squibb and Merck KGaA, we expect to complete at least five to six randomized trials in 2006 and early 2007 that will support registration of Erbitux.

In the first, second, and third-line treatment of patients with metastatic colorectal cancer.

As well as in the first-line treatment of patients with advanced pancreatic and non-small-cell lung cancers.

These Phase III randomized trials include a Phase III study evaluating the addition of Erbitux to best supportive care in colorectal cancer patients who have received prior treatment with both irinotecan and oxaliplatin based regimen.

In addition, two Phase III randomized studies evaluating Erbitux in earlier stages of metastatic colorectal cancer.

The first of these studies, a second-line study known as EPIC, looks at the addition of Erbitux to irinotecan in patients who have failed first-line oxaliplatin based treatments to colorectal cancer.

The second, Erbitux oxaliplatin based study, a front-line study known as CRYSTAL looks at treatment with Erbitux, plus FOLFIRI, which is irinotecan plus infusional 5-FU or versus FOLFIRI alone.

Extraordinary activity, including an appreciable rate of patients being able to undergo definitive resection of metastatic disease has already been reported in non-randomized studies of both FOLFIRI plus Erbitux and FOLFOX plus Erbitux.

And we look forward to the results of EPIC and CRYSTAL, as well as two other randomized trials of FOLFOX plus Erbitux versus FOLFOX alone, called COIN and OPUS.

These aforementioned studies offer a comprehensive package supporting the regulatory approval of Erbitux with various chemotherapy regimens in the first and second-line treatment of metastatic colorectal carcinoma.

The next Phase III study, within 2006 reporting timeframe, is a randomized study of Erbitux with or without Gemcitabine in untreated patients with advanced pancreatic cancer, which is being conducted by the Southwest Oncology Group or SWOG.

In non-small-cell lung cancer, there are several pivotal trials ongoing that employ various chemotherapy foundation regimens with Erbitux in first-line treatment.

The most near term of the studies is the Flex study.

In this study, patients with metastatic non-small-cell lung cancer are being randomized to treatment with either cisplatin and vinorelbine with Erbitux or the chemotherapy regimen alone.

Supporting this first-line study in metastatic lung cancer are two other U.S. randomized studies evaluating the addition of Erbitux to two more common chemotherapy regimens in North America, that is Carboplatin and Paclitaxel and the regimen that cisplatin plus Gemcitabine.

We are also positioning Erbitux for a second-line indication in patients with lung cancer following failure of first-line treatment in a study know as Flex (ph).

In this Flex select study, which is performed under a special protocol assessment by the FDA, randomizes patients to treatment with either Pemetrexed or docetaxel.

Both approved for second-line treatments, then to either Erbitux or chemotherapy alone.

This second randomization is the real focus of the study.

As I alluded to earlier, the RTOG has just completed a successful pilot study of Erbitux in combination with chemoradiation therapy in patients with stage 3 non-small-cell lung cancer, which usually treated with chemotherapy plus radiation.

The specific details of the Phase III study, that will more definitively evaluate the role of Erbitux in this setting, are currently being designed by the RTOG and NCI.

Another important early stage study is the NCI Cooperative Group trial evaluating the addition of Erbitux to FOLFOX in the adjuvant setting in patients with a high likelihood of recurrence following definitive surgical resection for colorectal carcinoma and this study is briskly accruing.

A similar adjuvant trial is examining the addition of Erbitux to - - the chemotherapy region FOLFOX in the adjuvant setting is about to open in Europe.

If a drug is to make an impact in the treatment of colorectal carcinoma, the adjuvant setting really provides the best opportunity to increase long-term survival and cure rate.

In addition to these studies, our clinical objectives continue to be to design several highly visible, strategic, multi-center, disease directed studies in addition to those currently underway.

Some of these studies will not only examine the efficacy of administering combinations of Erbitux, Avastin and first-line chemotherapy to untreated cancer patients with lung, colon, ovarian, pancreatic cancers.

But will evaluate the therapeutic ramifications of administering combinations of targeted therapeutics without chemotherapy in untreated patients with various malignancies.

If early studies prove successful, these biological regimens will serve as experimental arms in subsequent trials directed at registration.

In addition to what we feel has a comprehensive clinical development program for Erbitux, our pipeline consisting of various human monoclonal antibodies to unique molecular targets is quite deep.

Along these lines we have recently filed an IND and expect to enroll the first patients in our Phase I clinical trial of ImClone A-12, our human monoclonal antibody targeting the insulin-like growth factor receptor.

And we are continuing to make success with our human monoclonal antibodies directed to both EGFR, that is the ImClone 11F8 and to KDR or ImClone 1121b, which are in Phase I trials.

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

Michael?

Thanks Eric.

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

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

During the second quarter of 2005, ImClone Systems reported revenues of $92.4 million with operating expenses of 71.3 million, resulting in diluted earnings per share of $0.30.

On a non-GAAP basis, excluding expenses associated with the discontinuation of the Company's small molecule research program, diluted earnings per share were $0.37.

We were very pleased with the quarter's results, which reflected significant growth in Erbitux sales and a continued emphasis on focused and disciplined investment spending.

Revenues for the second quarter of 2005 of $92.4 million compared with 73.8 million in the second quarter of last year.

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

License fees and milestone revenues for the second quarter of 2005 were $24.5 million, compared with 18.1 million in the second quarter of 2004.

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 by both BMS and ImClone as a percentage of total anticipated spending over the life of the agreement.

This cumulative percentage is approximately 38.1% through the end of the second quarter compared with 34.3% through the end of the first quarter, 2005.

Or an increment in the quarter of roughly 3.8 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 accumulative spending percentage will increase accordingly.

We continue to expect aminization 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 second quarter of 2005 was $7.9 million, compared with 14.8 million in the second quarter of last year.

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

Although volume purchases by BMS were higher in 2005 than in 2004, the fact that our 2005 selling price is roughly 1/2 of last year's price resulted in the year-to-year decline.

In 2004, we employed a weighted average selling price which reflected the actual costs of materials shipped, including Lonza manufactured product, as well as product manufactured at BB-36.

In 2005, only BB-36-manufactured materials are included.

Royalty revenue for the second quarter of 2005 was $41.8 million compared with $28.5 million last year.

The 2005 amount consists of 39% of Bristol-Myers' in-market net sales of approximately 97.8 million or 38.1 million of royalty revenue.

With the balance of 3.7 million attributable to Merck royalties.

Royalty revenue in 2005 will continue to reflect 39% of BMS' in-market net sales.

As mentioned on last quarter's call, Merck's contractual royalty rate is calculated to increase once in-market cumulative net sales reach a contractual minimum.

This minimum sales level was reached during the second quarter and so, we are beginning to see higher percentage royalties from Merck.

During the second quarter, Merck's royalty obligation was approximately 5.8% of sales, while in previous quarters it had ranged between 4% and 4.5%.

Beginning in the third quarter and thereafter, we would expect this rate to range between 6.5% and 7.5% of Merck's sales.

Collaborative agreement revenue for the second quarter of 2005 was $18.2 million compared with 12.4 million in the second quarter of last year.

These revenues reflect reimbursements from our partners for contractually defined clinical, regulatory, and marketing expenses, or approximately 4.3 million in the second quarter.

Erbitux supplied for use in clinical trials were approximately 8.9 million in the second quarter.

And reimbursement for royalty expenses, approximately 5 million in the second quarter.

For the quarter, such reimbursements totaled approximately 11.5 million from BMS and 6.7 million from Merck.

Now turning to expenses, total operating expenses for the second quarter of 2005 were $71.3 million, compared with 46.4 million in the second quarter of last year.

Excluding 6.2 million of expenses associated with the discontinuation of the Company's small-molecule research program, operating expenses for the second quarter of 2005 would have been $65.1 million.

Research and development expenses for the second quarter of 2005 were $24.4 million, compared with 18.8 million in the second quarter of last year.

With the increase principally reflecting higher expenses relating to clinical supplies of Erbitux sold to our partners.

As indicated on our first quarter earnings call, we continue to estimate that this category will approximate between $110 and $115 million for the full year of 2005, reflecting higher demand than originally anticipated of Erbitux for clinical use by Merck.

Of course, collaborative agreement revenue will increase proportionally as expense aedes for such supplies are reimbursed by our partners.

Clinical and regulatory expenses for the second quarter of 2005 were $8.4 million, compared with 6.2 million in the second quarter of last year.

The year-to-year increase reflects additional clinical efforts in support of Erbitux and three of our pipeline products currently in Phase I clinical development.

As well as expenses associated with preparation for filing the sBLA for head and neck cancer.

We now expect total clinical and regulatory expenses to approximate $45 million for the full year 2005.

Marketing, general, and administrative expenses for the second quarter of 2005 were $16.8 million, compared with 13.6 million in the second 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 services.

We continue to expect these expenses; marketing, general and administrative, to approximate $68 million for the full year 2005.

Royalty expenses on a gross basis were $14.3 million in the second quarter of 2005, compared with 7.6 million in 2004.

The year-to-year increase reflects increases in in-market sales and the fact that the Company did not have an expense as of June 30, 2004 for royalties related to the Centocor license.

Approximately $5 million of the expenses incurred in the second quarter of 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 $9.3 million.

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

As previously mentioned, the Company recorded $6.2 million of expensed in the second quarter of 2005 associated with the discontinuation of its small molecule research program.

These expenses included 2.3 million of severance and related costs and 3.9 million associated with the write-off of fixed assets, which could not be used in other aspects of the Company's research efforts.

For the second quarter of 2005, the Company recorded $1.1 million of cost of manufacturing revenue.

In addition to expenses associated with labeling and related packaging, these costs also included the recognition of certain previously capitalized manufacturing costs.

Beginning in the third quarter, we anticipate that additional costs to manufacture Erbitux will be reflected on the Company's income statement.

And that full manufacturing costs will be reflected in the fourth quarter.

The effective tax rate for the full year of 2005, assuming no $250 million milestone is earned from Bristol-Myers Squibb, is now estimated to be 1%, principally because of the utilization of deferred tax assets.

Mainly including the amortization of license fees and milestones, which were taxable in prior periods.

The Company's estimate of the full-year tax rate at the end of the first quarter of 2005 had been 1.3%.

As a result, the effective rate for the second quarter of 2005 is approximately 0.7%.

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

Of course, this 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 EPS, averaged 83.6 million in the second quarter of 2005, up from 77.4 million in the second quarter of last year, an increase of approximately 8%.

Reflecting in part the conversion of the Company's previously outstanding debt as well as the exercise of stock options.

Diluted shares of 92.1 million in the second quarter of 2005 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 these factors, and as previously mentioned, the Company achieved net earnings per diluted share of $0.30 for the second quarter of 2005.

Or $0.37 on a non-GAAP basis, compared with net earnings per diluted share in the second quarter of last year of $0.29.

Capital spending for the second quarter of 2005 was $27 million. $52 million for the first six months.

And is expected to range from 100 million to 120 million for the full-year 2005.

We ended the quarter with cash and marketable securities of approximately $812 million with the variance versus year-end 2004 cash and marketable securities of approximately 920 million, principally attributable to the payment in the first quarter of this year.

Of $50 million in partial settlement of the securities class action litigation, as well as payments to Genentech and Centocor of approximately $ 30 million for cumulative royalty expenses relating to 2004.

For the first six months of this year, the Company has achieved total revenues of $178.2 million, net income of $54.9 million, or 31% of total revenue.

And diluted EPS of $0.63 or $0.70 on a non-GAAP basis.

That concludes our prepared remarks.

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

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

Please go ahead.

Good morning, guys.

How are you?

I had a couple of questions just related to get a little more granularity on the sales results.

First off, where do the off-label - - where is the off-label use coming from?

What are the indications?

Second of all, maybe you could - - you've done this before, if you could break down the second and third-line penetration rates or what your estimates are?

And finally, a question that I get a lot is whether or not you're seeing any bull list patients who are coming off of Avastin they received about a year ago?

And let us know if that market is starting to develop as of right now.

Thanks.

Good morning, Steve.

This is Ron.

Specifically regarding off-label, while we have not previously listed by tumor type where the drug is being used, as the data become more mature and our data set has the ability for us to provide more granularity, I think we're becoming more comfortable that the drug is being used off-label in the settings where you might expect.

Where there's the most mature data.

So settings such as head and neck, lung, and pancreatic.

So paralleling the programs that that Eric had outlined, I think our data set becomes more mature over the coming quarters, we might be able to provide a little more information than that.

But I think at this point in time, those are the tumors that are really driving the off-label usage.

What percentage of overall sales is off-label?

Probably somewhere in the 18-ish percentage range, is coming from non-colorectal.

So let's just so we're clear on that.

First-line usage, we've observed about 4% use in the first-line and most of that use in the first-line setting is in combination.

So technically, that is off-label, but we don't include that in the 18% number.

The 18% number is non-colorectal.

Your next question about penetration, specifically in the second quarter, first-line penetration was about 4%.

Second-line about 15%.

And third-plus line about 29% in the second quarter.

In addition to that, your question regarding the bull list.

I'm now so certain that we would probably define it as a bull list.

And similar to my statement, that we believe that recently that the flow-through of Avastin patients or the progressive patients in lines of therapy, and that includes first or second-line, if you will; is beginning to happen in a more predictable and consistent fashion.

And I think we've begun to observe that over these last quarters.

Thank you.

Our next question is coming from David Witzke with Banc of America.

Please go ahead.

A question for Ron.

With adjuvant FOLFOX gaining momentum in colorectal, are you seeing a pickup of FOLFIRI use in first-line?

And is this translating to the pickup you're seeing of Erbitux in second?

Or if you can give more clarity where the gains in the second-line are deriving?

I think Dave - - yes, this is Ron, good morning.

I do believe that with the indication that Oxali received for adjuvant use last summer that we are seeing a significant increase in Oxali use in the adjuvant setting.

I think it's probably far too premature to translate that into a first-line usage as most those patients would not have progressed at this time.

Although I do believe that we expect that to happen at some point in the future.

Although what we are observing is yes, if when Erbitux is used in combination in the first-line setting, it is used predominantly with irinotecan.

But I think that that's probably not surprising for a couple of factors.

One, that's where we have the most data in combination with Erbitux, although it's not in the first-line setting.

Most of our data in the first-line setting come from Phase II studies in combination with Oxali.

But I think the other big market for us that's probably driving that is the predominant use with Avastin in the first-line is with Oxali.

And given that not all patients are applicable for either Oxali or Avastin, then a combination with irinotecan is probably a logical step to take.

Thanks, and Ron, are you seeing any more comfort with oncologists to use Erbitux with FOLFOX in second-line?

I think that we certainly see usage in that setting.

I'm not so certain that that's a significant increase, if you will, given that most of the patients are currently receiving Oxali in the first-line.

And so I think the majority of the patients being treated in the second-line setting are being treated with an irinotecan-based regimen.

Thanks.

And quick question for Eric.

If you can give us an update on the CRYSTAL first-line study and how that is enrolling in Europe and when we may expect to see results?

And then a comment on whether you believe this study can be used to support registration of - - in first-line in the U.S. and whether you think oncologists will view this as clinically meaningful without Avastin in the mix?

Thanks.

Well, yes.

The Merck study and the Merck KGaA study or CRYSTAL, which is as I discussed, the study of vinorelbine and cisplatin, plus or minus Erbitux is accruing rather briskly.

I think at this point Merck KGaA has not publicly disclosed the timing, but we're quite excited with regard to the accrual rate, which have ramped up very nicely.

And I think we really do expect data within the timeframe of late 2006, early 2007.

I think that this study can provide quite supportive results for registration in the United States.

Whether that's restrictive e to - - I'm sorry.

You're talking about CRYSTAL, the CRYSTAL study.

Yes, the colorectal study.

I was actually referring to the Flex study, which is the lung study.

Actually, the Flex study, which I was discussing in lung cancer - - sorry for the mixup - - is ramping up very well, and we - - actually the same questions really apply to that.

We are quite hopeful, and I think we project that that will vie for an indication - - a regulatory indication.

And that study is actually being supported with several other combination trials.

With regard to CRYSTAL, and CRYSTAL, again, is the FOLFIRI plus or minus Erbitux study.

I'm quite confident that that study will support a first-line indication with the Agency, irrespective of its inclusion of Avastin.

With regard to the uptake with respect to general oncologists, I think we'll really have to see the results.

But first-line data without Avastin, that is first-line non-randomized trials that have been reported, albeit with relatively small numbers, have shown that the combination of FOLFIRI plus Erbitux has been quite exciting with respect to prolonged survival.

Actually in one study greater than 33 months.

That study is actually very nicely accruing.

And again, I don't have the - - I can't give you a projection on the precise dates of when that study will actually be fully ready to be recorded.

But I think we are really talking about a rapid accrual with accrual finished possibly by early 2006.

Thanks.

Thank you.

Our next question is coming from Mark Augustine with CSFB please go ahead.

First, a quick one.

Just to give an update in the SWOG pancreatic cancer study, if you would?

Yes.

The SWOG pancreatic cancer study, which is a study of Gemcitabine plus and minus Erbitux is also ramping up extremely well.

It's beyond its halfway point.

Accruing at really maximal rates.

And we would anticipate that that trial those will be fully accrued in early 2006, perhaps and hopefully first quarter, perhaps second quarter.

With also results, unfortunately due to the rapid progression of this disease and the short survival, with results perhaps in the end of 2006.

So a lot of studies with results reporting at the end of 2006.

And then just with respect to a comment made earlier in the U.S. first-line non-small-cell lung cancer setting.

Talk about the challenges of enrolling the studies that you've described with the Carboplatin, Taxol or genesis as the chemotherapy add-ons and how you address those challenges?

Well, I think at the present time, we anticipated that the challenge would be greater with unravelling of the Avastin results with respect to the Ecox(ph) study finishing and reported at ASCO.

However, our study of Taxol and Carboplatin, which is the most common regimen in the United States is accruing extremely nicely.

And actually, accrual rates are increasing for that study.

So, it has not been an obstacle at the present time, or at least the Avastin results.

Thank you.

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

Please go ahead.

Good morning.

First just a question for Ron on uptake of Erbitux in EGFR-negative patients.

Sounds like you're pushing that paradigm of trying to get all patients tested.

And maybe that might improve the outlook for reimbursement amongst the positive patients.

But as we've been hearing about ASCO, there's hope at least that the negative patients get treated as well.

Can you tell us what you're doing now, or whether you're seeing any change in trends there?

Sure.

Good morning, Eric.

We actually have a three-prong strategy to deal with the EGFR issue.

The most near-term of that strategy is indeed the field strategy that we've just discussed.

And that specifically is to ensure that there's proper education around what centers should expect for levels of positivity, if you will, based upon the Dako immunohistochemistry test.

And if they're observing something below that, then we want to ensure that based upon the package insert that we at least get the levels up to those that are appropriate for treatment.

In addition to that, we have a compendia strategy to reinforce with the payers that patients who either have not tested positive, or that maybe don't have a test, that they could or should receive reimbursement for Erbitux therapy.

And then the last of this strategy is to ultimately remove or to change our label and sort of - - we see all these of three activities in parallel.

They're not in sequence.

So that the compendia is in development and we would hope to submit that soon.

And hopefully, with some of the on-going discussions we're having with the FDA on the other front, that we may be able to have a change in our label.

Or at least a label that more reflects how this drug could be applied to patients and not limited by the capabilities of a diagnostic.

So we see near-term activity in the marketplace from the activities that the field is deploying.

And ultimately, a much broader read on this from changing the label.

A follow-up question on the Merck KGaA royalties.

Mike, is this something where we're going to see each year the royalties in the early part of the year at a lower rate than in the latter quarters?

Since you have to kind of reset the bar on sales trends.

Or is this rate now gone forward into eternity at a higher royalty rate?

This is actually into eternity at a higher royalty rate.

This was a one-time adjustment based on achievement of a cumulative, contractual minimum.

And so now once we achieve that new sort of level of equilibrium of royalty rates, which we expect to see by the end of the third quarter, that's where the rate will remain.

Thanks a lot.

Thank you.

Our next question is comes from Geoffrey Meacham with J.P. Morgan.

Please go ahead.

Hi.

Just turning back to the lung program, could you talk a little bit about the flex enrollment and the other Phase II studies?

I know if I heard you correctly, you're expecting data in 2006 on some of these.

But I'm wondering if you expect to get the enrollment for these, for the flex and other Phase II's by year end?

Yes.

I think - - well, Flex is actually accruing extremely nicely.

That's primarily a European study.

Again, vinorelbine and cisplatin plus and minus Erbitux, which will be the principal study supporting registration in the United States.

Now, to round out the label, we are conducting two other trials, which are smaller trials.

The trial that we're most interested in, the Taxol-Carbo plus or minus Erbitux study, is primarily being done to round out the label, round out the indication to other regimens.

That study is accruing very nicely.

At the present time, when the results are finally in - - I can't make any projections with regards to that now.

And just as it relates to the combinations with Taxotere or Alimta, what's your sense as to the percent used - - the breakout between those two?

You're referring to second-line.

And we're seeing the increase in Pemetrexed use in second-line.

We're also Taxotere moving up, slowly but surely, to the first-line setting.

Nevertheless, our second-line study is starting to accrue quite nicely, actually ramping up over the last two to three months at a very nice speed.

This study is the SPA select trial, which actually randomizes patients between Taxotere and Pemetrexed.

Oncologists have liked that study as well as the second randomization between Erbitux versus no Erbitux.

And then just a quick follow-up for Michael as it relates to the cost of manufacturing revenue.

I know in the past you've said the third quarter could be a time frame to think of when the previously expensed Lonza material or the BB-36 is supposed to be used up.

So now you're thinking more of the fourth quarter?

And what's driving that process through?

Really, it's just a change in the relative mix between what was in work-in-process and what was finished goods and what had been capitalized.

So while we certainly expect to see an increase in the degree of the fullness of the manufacturing costs in the third quarter, consistent with our previous demand expectations, we wouldn't expect to see completely full manufacturing costs until the fourth quarter of this year.

Then you'd estimate the full manufacturing costs what, roughly what 10%, 15% of U.S. sales?

Is that something we should be - - view?

Jeff, we've never actually given specific guidance on gross margin.

What we have said in the past is that using other models in the 15% potential range of antibodies would be acceptable.

But we haven't been more specific than that.

Got it.

Thank you.

Thank you.

Our next question is coming from Jim Reddoch with Friedman Billings.

Please go ahead.

Good morning.

I apologize if I missed the comments on the access program to help reimbursement for Erbitux.

But just had a couple of questions, if you could expand on that a little bit.

Is there a cost to this program and where would those expenses go on your P&L?

Also, sort of what do you picture as being sort of the marginal group of doctors or percentage of doctors that you would - - that are now on the fence, I guess, for reasons of being concerned about reimbursement that you would then be able to catch with this sort of access program?

Thanks.

Good morning, Jim.

This is Ron.

Hi, Ron.

Our program as it is currently defined, is a program that is being managed and implemented by Bristol-Myers Squibb.

And so per their contract, from am expense standpoint, this is all part of the contract and activities and expenses that are borne by Bristol.

With that said, we've continued to look at the evolving reimbursement market and want to ensure that whatever programs we have in place or wherever the market is moving that we develop programs to assist both patients and healthcare providers to navigate these waters.

And ensure that all patients that could benefit from the drug receive therapy.

So, we're continuing to evolve our offering.

And I think it's probably been the best way to segueway to your last question.

So what do we think the marketing impact might be or what's happening out there that we might be able to capture?

Again, we don't think that there are any significant revenue or reimbursement hurdles.

The drug is being reimbursed nicely within indications.

I think the question is, when there is a question in a physician's mind, whether they would be reimbursed or if a patient is an appropriate patient or therapy, that we want to ensure that we have programs in place so that there's not a delay in therapy for a patient.

Or for physicians feeling that they're putting themselves or their practice at a financial risk.

So, we think that there's only upside in this potential.

But we don't have a number to quantify that at this time.

And how off-label can people get and still get reimbursed under this program?

Well, the interesting thing is, is that we certainly are aware that in most of the settings that I've previously discussed for other tumor types or off-label, if you will, even colorectal, that the drug is being reimbursed.

So I'm not so certain that the program would need to cover, if you will, off-label.

But maybe more of an informational standpoint to direct patients or physicians to their healthcare, their payer to ensure that the drug is covered.

Okay, that's great.

Thanks.

Thank you.

Our next question comes from Maneesh Jain with Thomas Weisel Partners.

Thanks for taking my questions.

When looking over your market share percentages, it looks like you grew mostly within the colorectal cancer in the second-line setting and probably a lot of that growth came in the combination colorectal cancer setting as well.

Given the fact that you grew almost 10% in off-label use, with you attribute your quarter-on-quarter growth mostly coming from increased utilization in the colorectal cancer setting or in the off-label use setting?

And sort of as a corollary to that question, could you give us an update on the head and neck cancer compendia listing efforts and/or any other off-label settings?

Good morning Maneesh.

As a point of clarification, indeed we stated that in the second quarter that colorectal use was about 82%, thus off-label, non-colorectal was about 18%.

Implied in the statement that as our data set matures that we think that the Delta between the 82 and 92 is probably not as billing big as what has previously been reported.

Meaning that the 92% number is probably actually lower for previous quarters.

But as our data matures to a higher degree, it enables us to peel out such things as, maybe pancreatic, that historically in our data set was captured under GI cancers and then was inappropriately captured as colorectal.

Where now where we have more granularity, we can actually capture that as pancreatic.

So that 92 number is more than certainly lower than 92.

So I don't think that the Delta was really a 10% increase quarter-over-quarter.

So that's a good question.

Unfortunately, I can't provide you any more data at this time as we continue to evaluate this and maybe on the next quarter we can provide more of visibility into that data.

You're absolutely correct that the second-line grew by at least 11% - - or 4%, rather, - - 15% over 11%.

It should also be noted that both the second-line and the third-line, as we've stated, continue to grow.

And as we say, one of our key objectives is to capture the growing third-line setting.

It's probably not a complete picture to say that the same market share for the first quarter in the third-plus line settings equals the same amount of patients, even though the percentage of penetration remains the same quarter to quarter.

Because that market continues to grow.

And I think once we have a better understanding of what that growth might look like quarter-over-quarter, or if finally the lines of therapies tend to settle into some more of a predictable pattern, that we'd be able to say definitively that you can compare the two percentage points.

So indeed, the second quarter grew by an absolute percentage point.

But the third-plus line also to market grew over the quarter.

And can you venture a guess as to what - - how you'd quantify the market growth?

I think at this point because the quarter really only gives us three data points and because most of the patients are treated with combination use, again, we've discussed this quarter we have 87%, that most of those patients were treated month over month in there.

And so without having additional data points to really tease out discrete patients, I think it's a bit premature for me to give an absolute number for a quarter or even a quarter-over-quarter growth.

Maybe we can do that on the next quarter call?

Sure, sure.

And how about the compendia listing?

On the compendia listing, the USPDI and AHFS have the compendia and we would hope that we could hear on that within this quarter.

And would you anticipate filing for other indications after you have more Phase III data or could you file on some of the Phase II data you have for lung cancer and/or colorectal cancer?

Not that it matters as much in colorectal cancer.

We certainly would like to submit on non-Phase III data.

We think that given the growing data set in a variety of tumor settings that we certainly, it would be beneficial to healthcare providers and patients to have that data available at the compendia level to support their usage of therapy.

But we would intend submit on non-Phase III data.

And do you think we'll see data from 1121b and 11S8(ph) in 2005?

Not in 2005, probably not.

In 2006, I think, yes.

Great.

Thank you for taking my questions.

Thank you.

Our next question is coming from Eric Genty(ph) Merrill Lynch.

Please go ahead.

Actually, my question was already asked.

Thanks.

Thank you.

Our next question is coming from Han Li with SunTrust Robinson Humphrey.

Please go ahead.

Yes.

Quick question for Ron.

You mentioned that the EGFR testing and education program and also the preclinical and clinical studies show a 70% to 80% EGFR for expression tumors.

I just wondered what kind of a top rate of testing kits are you seeing in practice?

I'm just trying to see what room you can grow by educating doctors.

Sure.

Good morning, Han.

Good morning.

I think it's a bit difficult for us to give a baseline number because we're really only focusing on the centers that are having a problem.

So, we have to make the assumption that when physicians or centers tell us that they're not having a problem, that they're seeing at least that number.

So I think what we can say is in the centers where a problem has been observed, that upon retest or after education, that we're seeing 70% to 80% positivity in those patients that previously had either been tested as negative or in centers that had given a number that was lower than a 70-ish% number for EGFR positivity.

So any number, whatever that baseline is, is certainly a lift over where they currently were.

So again, when we retest patients or when the central lab, TMD, retests the patients, they're seeing a 70% to 80% positivity in patients that were previously tested as "negative."

Okay.

But do you see patients after retest negative got refused Erbitux treatment or they have difficulty in getting reimbursed?

No.

Actually, it's interesting.

It's just kind of the opposite.

And one of the interesting education pieces that has come out of this is that, in physicians who thought they might have a reimbursement problem with patients that were "negative" or their first test came up negative, after discussion with the payers, the payers have provided payment for these patients.

So there's been an interesting education component of this on both sides.

Thank you.

Thank you.

Our next question is coming from Mike King with Rodman & Renshaw.

Please go ahead.

Can you hear me?

Sorry about that.

Thanks for taking my question.

Congratulations on a nice quarter.

Most of my questions were answered.

I just wanted to see if - - Eric was rattling off a lot of protocols fairly rapidly and I was wondering if you could expand upon I guess the acronyms for "COIN" and "OPEN?"

Okay, I'm sorry, Michael.

The COIN study is a study that's being undertaken by the medical research council in the United Kingdom, and it involves FOLFOX in first-line colorectal cancer patients.

It's actually a 4,000-patient study, which is also gone off to a very nice start.

There's a lot of volume on the study.

There are two Erbitux treatment arms, one basically the FOLFOX type, varies largely centered around the infusion type of 5-fluorouracil.

And the third arm in that trial is a FOLFOX alone arm.

That's a survival study.

The OPUS study is also a private study.

That's a large, randomized Phase II study that actually supports the CRYSTAL study, which is the Phase III study, of FOLFIRI plus or minus Erbitux.

The OPUS study is a smaller study of FOLFOX plus or minus Erbitux.

Again, rounding out the first-line indication to include a variety of regimens centering on a pivotal registration-type study.

In that case in colorectal carcinoma being the CRYSTAL study.

I'm sorry, are you saying Opus?

O-P-U-S.

Okay.

Sorry, I thought it was Open, my apologies.

Okay, and a then just a couple of quick financial questions for Michael.

You were saying I guess $50 million in cash was used in first half for - -?

For capital spending, yes. 52 million.

So that, yes, the Delta from first to second quarter was about 13.

Was that predominantly CapEx?

Yes, it's really just timing.

We - - as I said, we'll be slightly over $100 million in CapEx for the full year.

And that is principally related to completing, for mechanical completion of BB-50 as well as other validation and commissioning expenses.

Okay, and then just on the clinical and regulatory timeline, you actually declined slightly sequentially.

What should we expect that to look like going forward for the remainder of the year?

Well, I think I said - - previous guidance had been $50 million in clinical and regulatory spending for the full year.

We are - - I've reduced that to actually 45 million, as I said here.

So we would expect it to ramp up proportionally in the next two quarters in order to achieve that annual total.

Okay, and the reason it's dropping slightly is?

Well, the reason it's dropping slightly, frankly, is just that we had fairly aggressive goals with respect to, as Dan mentioned, Eric building his team.

And while we have in fact made significant progress in that area, a lot of fixed expenses associated with recruiting and compensation costs just haven't begun to get incurred yet.

But we expect them and the enrollment to continue and the other aspects of the costs so that we should hit the $45 million for the full year.

Okay.

That's it for now.

If I have any other questions, I'll follow up with you guys on-line.

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

Thank you.

Our final question is coming from Howard Lang with A. G. Edwards.

Please go ahead.

Thanks.

If I could ask Dan a question.

You have a pretty healthy cash position and also probably get more from BMS, and you have a sales force as well.

Can you talk about whether there's an interest in, at this point, in acquiring a product to leverage your sales force?

And maybe a related question.

You've been spear-heading the registration efforts in head and neck cancer, where you the lead sales efforts for this indication as well.

Yes.

Let me - - why don't I start with the second piece and then I'll come back to the business development question.

When we decided to build our own sales force, the most immediate reason for doing so was to leverage the opportunity in our labeled indication in colorectal.

And longer-term, it was for whether it was our own pipeline products or acquired or end-licensed product to have the capability to market them.

In between those two ock objectives, we foresaw the need for head and neck.

So when we look at that opportunity, which we expect would present itself at the beginning of next year, the combined efforts between Bristol and ImClone sales force led us to believe that we needed additional resources to tap into that head and neck market as well.

We are still in the process, to answer your question specifically, of defining roles between ourselves and Bristol.

But the same way that we coordinated our efforts in divying up the colorectal market, we will collaborate with Bristol in a similar way to figure out how to go after the head and neck market.

Recognizing that not only are we likely to approach oncologists but we'll also be approaching the radiation oncologists as well.

So it's a bit more complicated of a marketing approach.

To answer your first question, given our cash and our business development efforts, we have said all along that our strategy is three-prong.

First Erbitux; secondly our pipeline; and third is business development.

And the reason we had that third objective is because we believe we have both the financial resources, to your point, and the strategic resources, the capabilities internally to leverage other oncology opportunities.

So we continue to look.

We're not going to do a transaction just for the sake of completing it.

Rather, we will only do so if it's consistent with our oncology focus and makes good strategic and economic sense.

Thank you.

At this time I'd like to turn the floor back over to you for any further or closing remarks.

Thank you.

That concludes our call for today.

As always, if you have any additional questions, please don't hesitate to call the corporate communications department at 646-638-5058.

Thanks.

Thanks.

Thank you.

This does conclude today's teleconference.

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