禮來公司 (LLY) 2005 Q3 法說會逐字稿

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

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

It is now my pleasure to introduce Ms. Andrea Rabney.

Ma'am, the floor is yours.

Thank you.

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

This call has been scheduled to discuss the Company's financial results for the third quarter and first 9 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, and Michael Howerton, Senior Vice President and Chief Financial Officer.

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

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

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

We refer you to our Exchange on Filing for Factors that could Impact the Company.

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

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

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

I'm pleased to report that this past quarter, we made substantial progress toward the achievement of a number of the value of building goals outlined to you at the beginning of the year, including maximizing ERBITUX, advancing our pipeline, completing economically and strategically compelling business development transactions, and enabling the organization to meet a growing list of objectives.

The most significant of these goals in the near term is the advancement of ERBITUX.

We've achieved meaningful and consistent sales growth over the past two quarters, moving past the $100 million mark for quarterly sales during the third quarter to record 107 million in U.S. end market ERBITUX sales.

This compares to 97.8 million for the second quarter of 2005, and 84.1 million for the third quarter of 2004, an increase of 9% and 27%, respectively.

Several important factors contributed to third quarter sales growth, which Ron will outline in detail shortly.

But key to maintaining this projectry is the expansion of ERBITUX's use.

Our efforts in doing so are multi-pronged.

First, we secured U.S.

PDI compendia in the third quarter for use of ERBITUX in squimacell carcinoma of the head and neck, facilitating reimbursement in a number of settings in this disease.

Next, as many of you know, we applied for FDA marking approving for use of ERBITUX in combination with radiation for locally or regionally advanced head and neck cancer, and as mono therapy in patients with recurrent or metastatic disease.

We requested priority review for this application, and we expect to hear about its acceptance and the notification of review status by next Monday.

Also during the quarter, a submission was made for compendia listing of ERBITUX in EGFR undetectable patients.

As we have discussed in the past, there is a growing evidence demonstrating the lack of correlation between EGF receptor expression levels, and response to ERBITUX.

Compendia listing is one of several measures that could allow patients with EGFR undetectable expression levels who may benefit from use of ERBITUX to gain access to reimbursement.

Lastly, Health Canada approved the use of ERBITUX as a single agent and in combination with Irinotecan in certain patients with metastatic colorectal cancer.

Plans for additional expansion of ERBITUX's use are set on our clinical development efforts.

We believe that further demonstrating ERBITUX's versatility is key, not only to future sales growth, but to maintaining the drug's competitive advantage in a market that includes an increasing number of targeted therapies.

Among pivotal ERBITUX clinical studies are 9 registration directive studies which are actively accruing patients with colorectal cancer in the activist, first line, second line and refractory setting.

The most recent of these studies to enroll patients is what is referred to as the enter group study, which is a randomized multi center Phase III clinical trial and first line metastatic colorectal cancer designed to determine whether the addition of ERBITUX to chemotherapy, or to chemotherapy and Avastin, prolong survival compared to chemotherapy with Avastin.

In lung cancer, we count five pivotal studies in the locally advanced first and second line.

In pancreatic cancer, there is an ongoing pivotal study in the first line, and in head and neck cancer, four studies are or will soon be examining ERBITUX in the first line and refractory setting.

We expect results from a number of registration directive studies over the course of the next 18 months, including five potential indications.

First line, pancreas, first line second line in refractory colorectal, and first line lung.

Depending upon their outcome, we hope to seek label expansion with these studies.

Beyond these studies, we have longer term plans for ERBITUX in a number of other tumor types, including breast, ovarian, and gastric cancers.

In addition, we are adapting to new changes in treatment by combining ERBITUX with veg out inhibitors and pancreatic and non-small cell lung cancers.

We are also dedicating significant resources and attention toward ensuring that ERBITUX is followed by other novel oncology therapies.

This quarter, we began Phase 1 testing of IMCA-12, which targets the IGF-1 receptor, and continued making progress in Phase 1 trials with two other human monoclinal antibodies, IMC 11-8 against EGFR, and IMC 11-21D against KDR or the veg out receptor 2.

In addition to advancing our own pipeline, we announced the addition of a new product candidate to our development efforts through our world wild strategic partnership with UCB.

Together, we plan to develop and commercialize a novel investigational antibody targeting KDR, known as CDP 791.

CDP 791 is a pegalated, die fab antibody currently in Phase 2 testing, and ImClone and UCB will share equally all agreed upon development costs as well as word wide profits derived from the antibody's commercialization in addition to our receiving an incremental royalty.

Finally, in terms of enabling the organization to achieve its goals, we continue to expand our capabilities as a fully integrated bio pharmaceutical company, including our medical affairs, clinical development, and manufacturing capability to ensure that our growth and value building efforts continue.

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

Ron?

Thank you, Dan.

Today, I will provide you with some observations regarding ERBITUX's commercial activity.

Before starting, however, I would like to remind you all that while I will discuss ERBITUX in colorectal cancer, and other tumor types, our field professionals do not promote it in any way other than for its labeled indications.

rom a commercial operations standpoint, we have delivered strong results on the commitments we communicated to our investors, beginning early this year, including training and deploying a sales force, capturing share in key market segment, and maximizing access to ERBITUX through EGFR testing education, a centralized EGFR testing program, as well as a best in class reimbursement assistance program.

Thanks to these efforts, and our clinical initiatives, the ERBITUX franchise is building significant momentum which we believe will carry over into next year.

Our 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.

To achieve this, we built a sales force and had our commercial operations team develop a simple and effective marketing campaign with FDA review to position ERBITUX as the only therapy to demonstrate effectiveness and EGFR expressing metastatic colorectal cancer patients who have failed Oxaliplatin and Irinotecan.

To ensure that eligible patients not be excluded from receiving ERBITUX, we strengthened our education training efforts around the administration of the EGFR immunohistochemistry test, and encouraged use of an experienced centralized EGFR testing lab in areas where EGFR positivity was consistently below what was seen in controlled clinical trials.

The central lab was initially launched as a pilot program, has since been expanded to a national program, and is today improving access to ERBITUX for many patients.

The most recent addition to our commercial strategy comes as part of our efforts to build a best-in-class reimbursement program.

We recently initiated the ImClone Systems product support program that provides replacement product in the unlikely event that an appropriately billed claim for a registered case continues to be denied following an appeals process involving two levels of denial.

This program applies to FDA labeled use of commercially available ImClone products.

The results of these and other efforts is that ERBITUX revenues continue to grow.

As Dan mentioned earlier, U.S. in-market net sales of ERBITUX for the third quarter were $107 million, compared to 97.8 million for the second quarter of 2005, and 84.1 million for the third quarter of 2004, an increase of 9% and 27%, respectively.

We attribute this sales growth primarily to the continued growth of the second and third line therapy and to our ability to maintain share within these lines.

To put this into perspective, since the launch of ERBITUX, the second line has increased approximately a fifth to approximately 30,000 patients, and the third line has doubled in size to approximately 28,000 patients.

In addition, a more consistent and predictable number of patients have begun to cycle off of earlier stages of treatment with Avastin and on to ERBITUX, or cycle on to treatment with ERBITUX and Avastin concurrently.

As we indicated on our last quarter call, we believe the results of the BOND 2 data showing the effect of adding Avastin to ERBITUX in Irinotecan refractory studies of the population, is leading to a growing number of patients receiving such combination use.

In fact, the combination of ERBITUX and Avastin now represents 17% of ERBITUX use in colorectal cancer.

The last component of our increased sales is increased ERBITUX usage indications other than colorectal cancer during the quarter.

For the third quarter, usage of ERBITUX in all lines of colorectal cancer represented 79% of total ERBITUX use, compared to 82% in the second quarter.

The third quarter penetration in the first, second and third plus line populations were approximately 4, 14, and 30%, respectively, compared to second quarter 2005 penetration figures of approximately 4, 15, and 29 in the third line setting.

On average, ERBITUX was used in combination in 85% of metastatic colorectal cancer, ERBITUX treated patients in the third quarter, compared with 87% in the second quarter.

We continue to believe that there is significant room for growth in our approved indication and the commercial operations group will continue its efforts to raise awareness of ERBITUX and relevant support programs as well as prepare for potential label expansions in an effort to realize the drug's full potential.

With that, I will turn the call over to Michael Howerton.

Michael?

Thanks, Ron.

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

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

During the third quarter of 2005, ImClone Systems recorded revenues of 106.5 million, with operating expenses of 80.3 million resulting in diluted EPS of $0.35.

Third quarter 2005 revenues of 106.5 million compared with 97.5 million in the third quarter of 2004.

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

License fees and milestone revenues for the third quarter of 2005 were 27.1 million, compared to 23 million in the third quarter of last year.

These revenues principally reflect recognition of the milestone payments of 650 million receive 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 42.2% through the end of the third quarter compared with 38.1% through the end of the second quarter 2005, for an increment in the quarter of roughly 4.1 percentage points in the third quarter, compared with an increment of approximately 3.8 percentage points in the second quarter.

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

We now expect amortization of license fees and milestones to slightly exceed $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 third quarter of 2005 was $10.7 million, compared with 30 million in the third quarter of last year.

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

The reduction reflects volume purchases by BMS, which were lower in 2005 than in 2004, and the fact that the 2005 selling price to BMS was less than half of last year's price for the quarter.

Recall that in 2004, we employed a weighted average selling price which reflected the actual costs of materials shipped, including longer manufactured product as well as product manufactured at BB-36, our facility.

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

No product intended for commercial use was sold to Merck during the third quarter.

Royalty revenue for the third quarter of 2005 was 46.6 million, compared with 34.1 million for the third quarter of 2004.

The 2005 amount consists of 39% of Bristol Myers in market net sales of approximately 107 million, or 41.7 million, with the balance of 4.9 million attributable to Merck royalties.

Royalty revenue in 2005 will continue to reflect 39% of BMS's end market net sale.

As mentioned on last quarter's call, Merck's contractual royalty rate increased during the second quarter as end market cumulative net sales reached a contractual minimum.

As a result, we are continuing to see higher percent royalties from Merck.

During the third quarter, Merck's royalty obligation was approximately 6.8% of its sales compared with 5.8% of sales in the second quarter, while in previous quarters, it had ranged between 4 and 4.5%.

In the subsequent quarters, we would expect this rate from Merck to continue to range between 6.5 and 7.5% of sales.

Collaborative agreement revenue for the third quarter of 2005 was 22 million compared with 10.4 million in the third quarter of last year.

These revenues reflect reimbursements from our partners for contractually defined clinical regulatory and marketing expenses, for approximately 3.8 million in the third quarter.

They include ERBITUX supplied for use in clinical trials, approximately 12.7 million in the third quarter, and reimbursement for royalty expenses, approximately 5.5 million in the second quarter.

For the quarter, such reimbursements totaled approximately 10.8 million from BMS, and 11.2 million from Merck.

Now, turning to expenses.

Total operating expenses for the third quarter of 2005 were 80.3 million, compared with 49.9 million in the third quarter of last year.

Research and development expenses for the third quarter of '05 were 29 million, compared with 17.6 million in the third 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 second quarter earnings call, we continue to estimate that this category of expense will approximate between 110 and $115 million for the full year of '05.

Clinical and regulatory expenses for the third quarter of 2005 were 13.6 million compared with 7.6 million in the third 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 1 clinical development.

As previously indicated, we continue to expect these expenses to approximate 48 to $50 million for the full year 2005.

Marketing, general and administrative expenses for the third quarter of 2005 were 19.5 million, compared with 14.8 million in the third quarter of last year.

The change versus the prior year reflects costs associated with legal fee indemnification expenses, related to a former Chief Executive Officer, Samuel Wexel, higher compensation expenses associated with increased head count, principally in sales and marketing, which is attributable to the field force, and higher professional fees.

We are currently engaged in settlement discussions that would involve our obtaining judgments in both actions against our former CEO.

We felt the need to accrue for potential legal fee indemnification expenses because we think settlement is probable.

That said, exact terms of the settlement are not yet finalized, so it would be inappropriate to comment further but no further expenses are expected beyond the legal fee indemnification expense currently reflected.

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

Royalty expenses on a gross basis were 15.2 million in the third quarter of 2005, compared with 9.7 million in 2004.

The year to year increase reflects increases in end market sales.

Approximately 5.5 million of the expenses in the third quarter were reimbursed in the quarter and are reflected as a component of collaborative agreement revenue yielding a net royalty expense to the Company of $9.7 million.

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

Beginning in the third quarter of this year, growth royalty expense has decreased as a percentage of net sales in North America, from 12.75% to 12.25% as the result of a reduction in the royalty obligation due under one of our patent licenses.

Net royalty obligations in North America, including reimbursement for Bristol-Myers Squibb, are now 7.75%.

For the third quarter of 2005, the Company recorded 3.1 million of cost of manufacturing revenue.

These expenses continue to reflect lended costs, as the Company continues to deplete its supply of previously expensed inventories.

Specifically, some batches approximate full manufacturing costs while others include only packaging and labeling costs.

Based on the current clinical and commercial demand schedules from our partners, we expect that the cost of manufacturing revenue in the fourth quarter will reflect a higher incremental cost associated with the continuing depletion of partially expensed inventory, but not the full cost of manufacturing revenue as previously guided.

The estimate of the effective tax rate for the full year of 2005, assuming no milestone is earned from Bristol-Myers Squibb, remains unchanged at 1%, excluding the effect of an adjustment reported in the third quarter of 2005 of approximately $440,000, resulting from the reconciliation of the prior year's tax provision to our recently filed tax returns for 2004.

The resulting tax rate for the third quarter and first 9 months of 2005, including this adjustment, 2.4% and 1.5%, respectively.

We continue to 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 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 EPS averaged 83.8 million in the third quarter of this year, up from 82.5 million in the third quarter of last year, an increase of approximately 1.6%.

Diluted share of 92.1 million in the third quarter of this year 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 EPS on a diluted basis of $0.35 for the third quarter of this year, compared with net EPS on a diluted basis in the third quarter of last year of $0.44, with the decrease principally reflecting the decline in manufacturing revenue discussed earlier among other things.

Capital spending for the third quarter of this year was $17.7 million, and is expected to range from 90 to 105 million for the full year of 2005.

We ended the quarter with cash and marketable securities of 789.5 million, with the variance versus year end 2004 cash in marketable securities of approximately 920 million, principally attributable to ongoing capital expenditures, the payment in the first quarter of 2005 of 50 million in partial settlement of the shareholder's litigation, as well as payment to Genentec and Centocor of approximately $30 million for cumulative royalty expense relating to 2004.

For the first 9 months of this year, the Company has achieved total revenues of almost $285 million, net income of 85.8 million, or 30% of total revenue, and diluted EPS of $0.98.

As a reminder, we would expect to give 2006 guidance on key expenses as we have in the past, on our fourth quarter earnings call in January of next year.

That concludes our prepared remarks.

I I would now like to open the call up for questions.

India?

Thank you, the floor is now open for questions.

If you would like to ask a question, please press star and then 1 on your telephone keypad.

If at any point your question is answered, and you would like to remove yourself from the queue, you may do so by pressing the pound key.

Again, to queue up for a question, please press star and then 1 on your touch tone telephone.

Our first question is coming from Steve Harr from Morgan Stanley.

A couple of questions.

First off, Michael, would you give us an idea of how big the liability could be around the ongoing litigation with a previous CEO?

Number 2, Ron, can you maybe just answer two questions?

First off, how much off will you use, and by off [inaudible] -- I mean you see from ERBITUX, and second, it looks to me from your numbers like really you've been relying upon market growth more than market penetration increases to drive ERBITUX growth.

What do you think is necessary to see market growth actually in this drug?

Steve.

Market share growth, sorry.

Steve, it's Michael, I'll go first.

To be clear, there is no liability incremental or otherwise associated with the settlement.

The amount that we've accrued of approximately $1.9 million represents indemnifying forms for certain legal fees which we would be obligated to do under Delaware law with respect to this former affiliation with the Company.

So whether there would be any other obligations, we would have had to approve them and we didn't so there won't be any further liabilities under this settlement.

So the 50 million we saw early this year, that's the end of it all, likely?

I'm not sure which --

The 50 million that you spent for shareholder lawsuits.

Those shareholder lawsuits are completely unrelated to any actions against Sam.

Okay.

I'll turn it over to Ron to answer your other question.

Good morning, Steve.

Regarding end market use and off label use in the market.

Specifically, we've stated that colorectal cancer, and so recognizing that some of the colorectal cancer may be off label, given our indication and it's difficult for us to specifically say like the first line use that it may be off label or not, given the fact that there is the possibility some of it could be used there.

However, with that said, 79% of all ERBITUX usage lies within colorectal cancer, so if you will, then, 21% of our use comes from use outside of colorectal or where we don't have an indication, and that's compared to 82% for the second quarter or an increase of 3% in the potential off label setting.

And with regard to your question about market growth and market potential, we, as we stated on the second quarter, we indeed continue to enjoy the increase in market growth from all lines of therapy, and most specifically in the third line setting.

However, I would also suggest that the size of that market growth continues to be in large part due to our efforts to grow that market.

We are assisting physicians with identifying patients that previously, before ERBITUX's approval, didn't have a therapeutic option and we're continuing to push them into the market to grow this market.

In addition to that, it's important to note what the FDA granted us the ability to claim within the quarter and that is that ERBITUX is the only therapy that has proven to be safe and efficacious for patients who have failed both irinotecan and oxaliplatin, and that is significant for two reasons.

It gives us a therapeutic claim to make in this third line and growing market, as well as it's probably important to note the changes that the FDA requested of the Avastin package insert, specifically that they, that they do not have efficacy in this patient population, so as we stated for a while, we believe there's a lot of head room in the use of a biologic and a third plus line setting.

We think we are positioned appropriately to capture and more than just maintain, but capture this growing market as well as move ourself forward into the second and third line, and as I'm certain we will get to some discussions with Eric in a moment regarding the clinical trials that are coming, we see that there's potential with the positive outcome of those trials for movement in the second and ultimately in the first line setting.

If you were, Ron, if I look at this, you've grown 5% sequentially in colorectal cancer.

It's about 80 million last quarter, it's now 84 million.

What do you need to see?

Do you need more data from Eric to see this drug grow?

I think it's a combination of a number of events.

Certainly, clinical data is what drives the oncology market base, and we think that's the most appropriate way in which prescribing should take place.

With that said, we think that based upon the data we have, and again, the current actions by the FDA make us positioned to maximize our current indications, and we have a number of programs like the marketing message I discussed as well as the potential upside opportunity regarding EGFR expression.

We certainly know that the efforts that we have initiated around education and centralized testing have enabled hundreds of additional patients to become eligible for ERBITUX use, and should we gain Compendia approval, that certainly would help facilitate that as well as ultimately removing that requirement from our package insert.

In addition to that, absolutely clinical data, and I will turn it over to Erik for a moment to talk about what some of that clinical data is that really could change and move this market forward.

I think, Steve, good morning, I think the, in the near term, the most important study which really should give very firm data with respect to the merits of ERBITUX in colorectal carcinoma in earlier lines is the effic study and just to update you.

This study, we're way ahead of schedule.

It's a worldwide study, and really in real life, meaning patients who have had previously Avastin or who haven't been the first line setting and Oxaliplatin based therapy in the first line setting.

We've accrued, actually over 1,200 patients with the final accrual of 1,300, happened to be completely accrued by the end of this year.

We should have TFS data and survival towards the last, toward the second half of next year.

We think that will really give a significant trajectory to ERBITUX placement in at least the second line for now.

Thanks.

Our next question is coming from May-Kin Ho of Goldman Sachs.

Hi, can you talk a bit about the CRYSTAL study, and some of the other first line studies?

Any update on when we might see results there?

Hi, Nakin.

We have a variety of first line studies with ERBITUX.

The most recent study that has accrued is, and has started, certainly has been the study that Dan has spoken about that we've all been waiting for, and that's the U.S.

Inter Group study, very, very large study with the majority of the cooperative groups and all their sites including C-cup participating, and of course, that looks at a variety of biologic regimens in concert with either FOLFIRI or FOLFOX in first line, and I think that's going to be a very important study for the U.S. market because we've actually seen in U.S. and in European studies, particularly in European studies, very robust and exciting data with ERBITUX in concert with a variety of chemotherapy regimens.

And I think this will really allow us to look at ERBITUX in concert with chemotherapy , versus Avastin in concert with chemotherapy, but giving us, but actually having a very strong worldwide partner, that is Merck, allows us to actually evaluate ERBITUX on its own merits in first line, and one study is the CRYSTAL study as you mentioned.

That is, the nearest term study to completion.

That study we expect to be completed by the first quarter, as far as patient enrollment, of 2006.

Now, that study is a study in which FOLFIRI, which contains irinotecan, again, irinotecan has been the drug that has consistently demonstrated favorable interactions with ERBITUX in which patients are either randomized treatment with either FOLFIRI, with or without ERBITUX, and PFS, or progression free survival, which is in the first line, a relevant and approval end point in the adjuvant study and in the first line.

I'm not sure about the refractory setting.

It is also powered for overall survival, and we anticipate PFS data to be available in the second half of '06, and overall survival subsequent to that.

There are two other European studies which will support the CRYSTAL study.

One is the COIN study and the other is the opus study, and these studies are the first large randomized Phase III study, which is accruing patients on the UK, and the Opus study, which is a world wide study.

Both of these are utilizing a FOLFOX based regimen, plus or minus ERBITUX, with the survival end point in the COIN study.

We were also initiating a variety of other smaller studies utilizing an Avastin chemotherapy base in the U.S., including a randomized Phase 2 study of FOLFOX and Avastin, plus or minus ERBITUX, as well as smaller studies, non-randomized studies of a variety of other chemotherapy backbones such as Z-Lock, Avastin, plus ERBITUX, and other chemotherapy backbones.

So a variety of trials with the majority of the results coming to, which would likely come to fruition last half of 2006, first half of 2007.

Thank you. [indiscernible] Hello?

I know -- Can you comment on the use of ERBITUX, what you see in the marketplace.

Is it most mostly in the second line setting?

Good morning, this is Ron.

The 17% that we observed, combination of ERBITUX and Avastin, is about equally distributed between the second and third line settings.

And it's an interesting proposition and one that, again, to the comment about being data driven, and decisions made based upon data, it also goes to the point about desirability to expand and grow this market.

We have never viewed Avastin as competition, although the market has certainly put us into that position, but this is an example of the ultimate philosophy regarding ERBITUX is that we would like to do clinical trials in combination with all therapeutic regimens, or modalities that are currently available and then let the physicians make their best prescribing decision, and we think that, in part, that's what's taking place here, and maybe this is another market for us that can help grow the overall market for ERBITUX as well as colorectal cancer patients.

Generally, when this occurs, do the physicians keep the first chemo regimen, or do they take that off?

How are they using it?

It appears, this is, these are some early days we really just within the quarter have started to have a meaningful enough amount of patients that we can make a comment here, but it appears that the chemotherapy regiment is being changed and then the addition of the combination of ERBITUX and Avastin.

I think in the second line setting, it appears as if some of these patients are continued with Avastin in the first line setting, and third line setting it appears as if it, a conscious decision to add the combination of ERBITUX and Avastin.

I see, and lastly, you have samples being tested by the centralized lab.

How many percent of those then turn out to have increase in expression?

The level of expression doesn't necessarily appear to be changing, although that's a bit of a, that's a difficult comment to make, because mostly patients for EGFR undetectable.

The difficult issue is that, as you know, immunohistochemistry is a bit of an antiquated technology that has a lot of reader variability, so it's difficult to say whether it was just under observed in the first time or with better centralized control that there now is an observed rate, but the real issue is that there is an increased awareness around EGFR testing, and when we are re-testing the patients that were first undetectable, we're seeing rates similar to the clinical trials after re-test.

Around, very interestingly, and what we would expect given the lack of performance of immunohistochemistry, approximately anywhere from 35 to 50%, around in the 40% range, of samples that were read as immunohistochemistry EGFR negative are being, when re-tested centrally, are being read as positive.

So it's just, it really confirms the problems with this aspect.

Thank you.

Our next question is coming from Mike King of Rodman and Renshaw.

Good morning, guys, and congratulations on a great number for the quarter.

I had a question for Ron and question for Michael.

Ron, do you have duration data?

Can you update us on what duration you are seeing in the second line, and third line, because we are noticing a lot more use in the third line setting with irinotecan, which as per your previous comment suggests longer duration of therapy, but I don't know if you've had an update.

Good morning, Mike, and thank you.

No, at this point in time, it's interesting that the data and maybe this is a continued reflection of ERBITUX's ability to work equally well in patients who are refractory to a chemotherapy, but it does not appear at this time that whether it's a re-treatment with irinotecan or first time treatment with irinotecan, that there's a diminution of effect and so the third line setting.

So duration of therapy appears to be about the same in the first line and the second line setting, and that's still approximately what is observed in the package insert.

Did you break it down for us?

I don't think you did, but just as far as proportion of sales?

Can you get that fine of, as far as what proportion of sales came from the second line versus the third?

You did get the numbers, never mind.

Can I ask Michael a quick question?

Can you help us understand manufacturing revenue a little bit better?

I know it's, it's tough to get at, but trying to figure out how the Company plans to go through the previous manufactured ERBITUX -- How we should forecast that in the models going forward?

Sure.

Just to remind everyone, that our manufacturing revenue selling price is based on our costs, and last year's cost was much higher than this year's cost because we were selling runs of material as well as our own material.

So that -- you are still selling a blend, right?

Through the third quarter, we're no longer Lorhan material, but we are selling a blend of previously expensed BB-36 material as well as currently manufactured and currently expensed BB-36 material.

So the Lorhan material is all gone, so the selling price is not going to vary prospectively in subsequent quarters, but what is actually happening is I think your question is well, how much previously expensed material do you still have left?

It's all BB-36 material, and I think, the remarks in the script were that we would hope that would be depleted by the end of the fourth quarter.

The fourth quarter we'll still have a blend, but we think it will all be gone by the end of this year, such that in 2006, we should be on a, sort of a real-time cost standard for our manufacturing revenue.

Presumably, as you make more and get better at making it, and introduce [indiscernible] your costs will go down?

Theoretically, we are obviously looking for cost reductions as a matter of scale and just objectives we have.

A certain threshold maximum that we need to meet in order to supply Bristol Myers and continue to get reimbursed, but certainly, we are continuing to look for cost advantages.

Right, thank you.

Our next question comes from David Witzke of Banc of America Securities.

Good morning.

A question first for Eric.

Just latest thoughts on dosing, related to correlation of rash with benefits seen across EGFR inhibitor, and across indications.

I guess, what trials do you have ongoing looking at this and do you feel there's an opportunity to optimize dosing and increased benefits?

Hi, David.

Good morning.

This is, I think that more and more we're recognizing that this is a real phenomena, and I'm personally pretty convinced that it is, meaning that there is a true association between rash and benefits.

The question is, is it truly what kind of effect is it?

And I think that it's also clear that it's probably a pharmaco dynamic effect, that tissues and tumors are reacting similarly to the dose or the concentration of ERBITUX, so we are hitting a tumor, we're hitting, there really isn't a big discrepancy between tumor tissues than normal tissues.

The normal tissues expressing the rash for a variety of reasons.

I think the very interesting aspect of ERBITUX is that rash does occur in most patients.

Now obviously, the rash peaks after about 4 to 6 weeks, and then subsides into a stable state, but the overwhelming majority of patients get rash.

The question is how much rash do they need to get or how much rash really correlates with the maximum anti-tumor effect, and David, that's being addressed in a very nice study called the Everest study, and I would anticipate we will have efficacy data from this study at Asco, maybe at the Asco GI meeting, but Asco 2006.

It's a well approved study, and in that study, patients with metastatic colorectal carcinoma are randomized to the conventional dose, the verba test, versus an individual dose escalation to really the maximum tolerance of rash, and we'll be able to really determine at least, the study is well powered, we'll be able to determine if efficacy improves with regard to, really hitting the outer edge of the envelope.

And I think that that's probably the nicest study that could be done and it's well in progress right now, and actually nearing closure.

Follow up on what you think [indiscernible] is that what, and it looks like it's the grade 2 or higher that do substantially better.

Is that well tolerated?

You know, I think it's the grading and tolerance is, there's definitely a discrepancy, and you know, the studies that are currently being done are actually tie traiting to rash to the point when the patient says no more.

A diffuse rash is called a grade 3 rash.

Often a diffuse rash is tolerable, where some patients don't tolerate a grade 2 rash, but usually it is the borderline of grade 2 and 3.

So we could push to grade 2, but sometimes the grade 3 rashes recede, but I think it's really a point where the patient says I don't want it anymore.

This is too much for me.

Its' very hard to actually pinpoint that.

But I think you are probably right if you are going to pinpoint it, it's that grade 2, 3 borderline.

And Eric, an update on the pancreatic first line study.

When we should expect to see results as well as the timing of Phase III studies and head and neck, with chemo radiation in ERBITUX, which could help drive use in patients currently getting chemo and radiation.

Just timing update.

David, your first question, the study that you spoke about is the Swog study in first line pancreatic cancer patients who are being randomized between treatment with either gem site alone, or gem site and ERBITUX, and based upon our earlier non-randomized, Phase 1-2 studies, in which the response rate was really ranged in the 12-15% range, which is much higher than one sees in the tarceba Gem site as being combination.

We've, we are enthusiastic about that particular study, and that indication.

The accrual on the Swog study has been really fantastic, reaching anywhere from 45 to 50 patients a month, and actually, the news with Tarsteva, first, its initial report at Asco and then the recent Odak meeting, where is received the thumbs up by Odak, waiting for FDA to make a decision, has actually increased accrual on that trial, and we anticipate that that trial will be fully approved either in December or January, so December 2006, I mean, December of 2005, January of 2006.

Now that is a Swog trial.

We have an agreement with Swog with regard to sharing the data and using the data for filing.

We are working out a way that we can transfer the data now, and we're, we've entered into discussions with Swog.

Being a very terrible disease, we anticipate that the survival end point may be met in the second half of 2006, and of course, reporting will, of the data will have to be done in concert with SWOG and with the PI's and the SWOG group itself.

As far as our next indication, we're actually very enthusiastic about pancreas and filing an SBLI as soon as possible.

With regard to head and neck, David, just to address your question, the RTOG is just about to begin a first line study of chemotherapy radiation plus or minus ERBITUX, and that will be their next study.

Very ready to go in patients with local regional advanced head and neck cancer, similar to the population that benefited from ERBITUX and radiation in 98-15.

And we're just ready to go with that trial.

They are dotting the I's and crossing the T's now.

Has your question been answered, sir?

Yes, thank you.

Thank you.

The next question is coming from Jim Reddoch of FBR.

Thanks, modeling question first.

How do we predict Bristol's ordering patterns?

It's pretty volatile, and I guess it's not all that important since most of it is netted out on the cost of goods line, but just, if you were to say what the units have done over the last few quarters, maybe that would be helpful, because it sounds like the price is changing.

It might be helpful, Jim, this is Michael, but we haven't really given any guidance specifically.

Unfortunately, Bristol times their purchases frankly to meet their own safety stock and forecast need, and quarterly blips in volume are not necessarily indicative of what they expect to sell in the subsequent quarter.

The good news, though, is that as, from a manufacturing revenue standpoint now, with the prospective quarters with our selling price to them remaining relatively constant, I think it's going to be easier to just look at end market sales and relate that historically to purchases or reflected as our manufacturing revenue for year, but to predict beyond that is difficult, but as you've rightly said, beginning in 2006, as I indicated earlier, as COGS begins to be reflective on its full basis, from a profitability standpoint, it's just that 10% COGS premium, that is going to hit our profit line so there is pretty much of a wash.

Okay.

Got you.

That's great.

As far as head and neck goes, I had a follow up question there.

Now that you do have Compendium listing in head and neck with chemotherapy and also without chemotherapy, what would you guess the proportional uses of it in practice are right now?

I know it's not approved yet, but it sounds like it's a decent amount of the total sales number.

What would you guess your market penetration is in head and neck cancer right now?

Good morning, Jim, this is Ron.

Jim, as you might expect, given that the Compendia listing wasn't received until the end of August, it would be very difficult and probably inappropriate to try to make any sort of statements off of one month's worth of observation in this area.

In addition to that, it is something that we're trying to gain more understanding or a breakdown of where the drug is used outside of the current approved indications.

Although as you might expect, the bulk of the use is driven where the majority of the data are, and that includes head and neck, lungs, pancreatic, and obviously, since we received the Compendia in head and neck, that that certainly would drive additional usage, but that's about, unfortunately, all I can speak to now.

Okay.

That's helpful.

Thank you.

Our next question is coming from Mark Augustine of CSFB.

Thanks.

Two for you on the intergroup study.

Tell us where enrollment stands and when might we expect that to fully accrue.

Enrollment just started on the intergroup colon study two to three weeks ago, so I do not have accrual figures for that.

And I think, you know, as far as making projections, it's really going to depend upon the accrual.

We would anticipate, however, that based upon the number of sites that are participating in that study, but given the fact that the study does contain, does consist of approximately 2,300 patients, we are talking about 2007 perhaps for full accrual, but this is subject to tremendous variability obviously.

We'll have to see what the accrual looks like.

There's obviously going to be a lag initially as there are with all studies.

Okay.

One follow up quickly.

Combo use of [inaudible] data [inaudible] as as percentage of total, isn't it lower?

It keeps moving down a bit.

What do you think is behind that?

Well, one, and this is a note that that's a good question.

One additional piece on that is depending on which data set you are using for that observation may be an artifact of the way they are capturing data specifically.

A number of the data sets out there capture the combination with radiation as a single agent.

As with most databases only capture chemotherapies for combinations.

So one caution, I would check the database you are using to ensure that if radiation is actually captured it's combo and not as mono.

I think the only other thing I would add, this is Dan, is that a 2 percentage point change quarter to quarter, I wouldn't view as a significant change, and nor do we see any underlying reason why we would expect the mono combo usage to change dramatically given the current level, obviously based upon what Eric said are open desire is as we get approval and usage in earlier and earlier settings, we would expect that if anything to go up.

Okay.

Thank you.

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

Please go ahead.

Good morning.

Two questions for Ron.

First I was wondering, if you could just remind us, how ImClone, either through Bristol or elsewhere, is going to address the Canadian market opportunity that now sits in front of you?

I just can't recall whether that fits under the Bristol relationship, and if so, whether you will also be supporting Canada with your own reps.

And two, could you address the electrolyte monitoring requirement change that occurred in September?

Specifically have you seen any kind of impact on trends following that change and what does this mean practically, if anything, to the physician?

Sure.

Good morning, Eric.

Regarding Canada, under the agreement with Bristol, we have the opportunity to co-promote in that market space.

However, at this time, we at ImClone are not going to extend our commercial operations to Canada.

We will leave that up to Bristol.

They have an operation currently on the ground in Canada and we think that they're sufficiently staffed to address that market space.

Regarding the electrolyte specifically, the hypo mag question, if you will, we launched a significant educational effort at the time that our package insert was changed, and we feel very good about that effort that took place as well as ongoing support in the literature that we have to appropriately educate and inform the oncology community about the implication.

I guess the short answer is from a sales perspective, we do not believe there's anything, any dimunition to ERBITUX's use based upon that issue, as this is a very manageable safety issue and one that really just requires some additional monitoring, if even necessary.

Eric, this is Eric.

Great name, by the way.

We, physicians commonly monitor magnesium in that setting, and patients with cancer generally have low magnesiums, even those who are not treated with chemotherapy, because this is essentially indicative of body wasting, and loss of intracellular fluids, and in addition, throw upsell platinum on top of that, one does increase that probability of having low magnesium and calcium and potassium, and physicians commonly are obtaining electrolyte studies on patients throughout the course of irinotecan, if patients receive oxaliplatin previously.

The overwhelming majority of these cases have been asymptomatic, almost all of them, and magnesium replacement is very common in the clinic, either done orally or intravenously, so this is really routine practice for oncologists.

Very helpful.

Thanks.

Mr. Schmidt, do you have any further questions?

I'm all set, thank you.

Thank you.

Our next question is coming from Han Li of Sun Trust.

Yes.

A quick question for Eric.

You comment on a [indiscernible] Canadian study in 025.

Are we talking refractory colorectal cancer?

When should we expect the results and are we going to see it in '06?

This is the study, and good morning, the study in which ERBITUX in patients who have been previously treated and have been demonstrated to be refractory to irinotecan and oxaliplatin and -- Our randomized treatment with either best supported care or best supported care in ERBITUX.

Now ERBITUX is given as mono therapy in this study.

In my opinion, that's really not the way to give ERBITUX, but nevertheless, the study will look at pure --.

The study also does not involve a cross-over, so when patients progress, they do not get crossed over, and I have to add that the end point of that trial, the primary end point is survival.

Other end points could definitely be affected if a study is not blinded such as progression free survival, meaning that if a patient knows what they are getting and the physician knows what the patient is getting, the desire is for those patients to get the study drug and that could buy us for physicians and patients towards symptoms in getting early cross over, so this study really looks at survival.

That study has been fully accrued in September, and we anticipate that we'll have data for that study, survival data, towards the end of the first half of '06.

I think we, unfortunately, will miss the Asco deadline for that trial, but we will report data at the next meeting.

It could be Asco '07, it might be Asco '06.

I also think that the, I'm more enthusiastic, however, about the EPIC study which I spoke to before, because I think that's the true way in which physicians are using the drug and that's in combination with other chemotherapeutics, and we've seen the greatest augmentation of effectiveness of chemotherapy as well as ERBITUX, in combination.

So that's really what we would anticipate with that trial as far as time line.

Hi, Han.

This is Ron.

Just to put that into perspective and summarize all of the clinical development that Eric has spoken about, the 025 study, the EPIC study, the CRYSTAL study and others really position ERBITUX for Phase III randomized clinical trials that will be fully enrolled either currently as you just heard or later this year or very early next year, and ultimately providing pertinent clinical data to impact prescribing habits in all three lines, the third line setting, second line, and ultimately the first line, should these studies be successful and give us survival data in all three of these settings.

But the 025 study could be the potential registry, registration study for currents on label use, right?

For approval?

That's possible.

It could be that trial.

It could also be the EPIC study, but that trial is well suited with the end point that one could not refute as being tantamount to clinical benefit and that's overall survival.

Or said another way, Han, that study was part of our post-marketing commitment to the FDA.

Right, thank you.

Operator, we have time for one more question please.

Thank you.

The last question is coming from Maneesh Jain of Thomas Whitesell Partners.

Thanks for taking my question.

Just to explore the ERBITUX growth opportunity further.

I know it's early days, but maybe based on the data that you've collected in the lower hand registry, can you give us an idea of what kind of duration you are seeing, what you expect in the head and neck cancer indication?

Good morning.

This is Ron.

Indeed, while we very excited about the Lorhan and the collaboration with the radiation oncology community and the medical oncology community relating to head and neck, that initiative was really just launched at ASTRO two weeks ago.

We're very excited that we have a number of centers ahead of our initial accrual plan to ramp up.

I think it will take us a little bit of time until we have some meaningful enough data where we can gain some observations but we certainly look forward to that effort and based upon the response at launching this at ASTRO, I think both the medical oncology community and the radiation oncology community are really looking forward to finally having a collaborative effort between the two groups as they relate to head and neck cancer.

Thank you.

This concludes our call for today.

We will be in the corporate communications office, that's 646-638-5058, to answer any follow-up calls, and I want to thank you all for joining the call today.

Thank you.

Thank you, this does conclude today's teleconference.

You may now disconnect your line and have a wonderful day.