禮來公司 (LLY) 2006 Q3 法說會逐字稿

At this time I'd like to welcome everyone to the ImClone Systems 2006 third quarter earnings release conference call. [OPERATOR INSTRUCTIONS] Thank you.

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

Ma'am, the floor is yours.

Thank you.

Good morning and welcome to ImClone systems' quarterly earnings conference call.

Today's call has been scheduled to discuss the Company's financial results for the third quarter 2006 which we announced earlier this morning.

With me today are Alex Denner, Chairman of the Executive Committee of the Board;

Michael Bailey, Senior Vice President of Commercial Operations;

Eric Rowinsky, Senior Vice President and Chief Medical Officer;

Ana Stancic, Senior Vice President of Finance; and Daniel O'Connor, Vice President, interim General Counsel.

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

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

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

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

Also, today's press release includes a reconciliation of certain non-GAAP financial information to the most directly comparable measures under Generally Accepted Accounting Principals.

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

I'd now like to turn the call over to Alex Denner.

Alex.

Thank you, Andrea.

Thank you and welcome to the call.

This morning's announcement marks the beginning of a new ImClone, one that will be defined by decisiveness, execution, and accountability.

As we disclosed in the press release this morning the new Executive Committee of the Board will serve as the decision making body of the Company until a new CEO is appointed.

Finding the right CEO, one with meaningful biotechnology experience, is a top priority for the Board.

With this search ongoing, the Company will be led by the Executive Committee, which I Chair, and which includes Richard Mulligan, a highly regarded scientist, and Charles Woler, a seasoned pharmaceutical executive.

The Company is empowered to assess and address the issues facing the Company today.

The Committee is empowered.

First we will be evaluating the relationship between ImClone and its partner BMS and seeking ways to improve it.

We believe more can be done to optimize Erbitux in terms of carrying out key studies and executing commercial plans.

We look forward to working with our partners at BMS to focus on the clinical development and marketing of Erbitux.

Erbitux continues to hold tremendous potential.

As we enter a period where important Phase III data could take this therapy to the next level we need to ensure that nothing hampers its progress.

In addition, we would like to thank our employees that have worked hard and remained very dedicated through the many challenges at ImClone.

They can be confident that ImClone's leadership is now firmly committed to helping the Company grow into the biotechnology leader it deserves to be.

I would like to reiterate that this is the beginning of a new ImClone, one that will be defined by decisiveness, execution, and accountability.

We fervently believe in Erbitux in our pipeline.

With that I will turn the call over to Michael Bailey to talk about Erbitux in the marketplace.

In the third quarter U.S. in market net sales of Erbitux were 174.6 million, this compares to 172.8 million for the second quarter of 2006 and 107 million for the third quarter of 2005.

An increase of 1% and 63% respectively.

Sales trends in the third quarter have been driven by two distinct marketplace dynamics.

First is the continued share growth in the second and third line colorectal setting.

Of note is the fact that over the past four months Erbitux has exceeded the Avastin market share among patients where oxali and irinotecan have failed, and Erbitux is now the most frequently used agent within this strategic population.

This strength in colorectal cancer is notable as competition enters the market.

The second dynamic occurred in the head and neck marketplace.

Erbitux experienced a rapid adoption in this tumor type following launch with a significant increase in sales for the first quarter to the second quarter.

This increase was due to an influx of refractory head and neck cancer patients who previously had no treatment alternative.

It is a scenario that commonly occurs in a setting where there's great unmet medical need.

Many of the patients that represented this pent up demand both started and concluded Erbitux therapy in the second quarter, temporarily elevating the sales by approximately $15 million within this quarter.

If one were to eliminate the bolus we believe it would make the quarter over quarter sales more reflective of a positive organic growth within these indications.

Looking forward, we believe that Erbitux strength and leadership in clinical data, the product's established marketplace presence with approximately 50,000 patients treated in the U.S. alone, combined with our solid strategic plan will effectively position us to address panitumumab within the colorectal market place.

With the FDA review and approval of this IGG2 antibody, the hyperbole that defined panitumumab's preapproval phase has now been replaced with an FDA-defined label that we can effectively compete against.

Specifically, with no combination data in the refractory colorectal cancer setting, panitumumab did not prove equal efficacy to the gold standard treatment in irinotecan and oxali refractory colorectal cancer which is defined as combination therapy of Erbitux and irinotecan.

Nor did Amgen demonstrate a superior overall safety profile for panitumumab as compared to Erbitux.

Add to this that over the next two quarters we will have a significant body of Phase III registrational quality data which could further bolster the evidence-based leadership and differentiation of Erbitux in the EGFR MAB space.

Specifically in the fourth quarter, the Company expects to see results from epic and O 25 which are Phase III survival studies in the second and third line colorectal marketplace.

In the next quarter, we expect results from crystal, a Phase III progression-free survival study, in the first line colorectal cancer setting, as well as results from [SWAG], a Phase III survival study in first line pancreatic cancer.

These studies represent just the beginning of a series of data milestones from ten registrational quality clinical studies of Erbitux expected to mature through 2008.

As Erbitux delivers data in a larger population of patients, our commitment to patient financial support has grown to ensure maximum patient access.

To this end, both ImClone and BMS have made significant contributions to various copay assistance foundations for colorectal and head and neck cancers.

Additionally, ImClone has offered its own patient support program that provides physician assurances of reimbursement for on-label uses of Erbitux.

And shortly after the head and neck approval, ImClone and BMS launched destination access and access Erbitux which represent enhanced patient support programs that provide financial support for patients with household incomes of up to 1,000% of the federal poverty level, or, in other words, $200,000 per year for a four-person family.

We believe these contributions to copay foundations and enhancements to existing patient support programs significantly increase access to Erbitux for those most in need, and they further reinforce the Erbitux leadership within our target indication.

I'm now going to turn the call over to Ana to provide a more detailed financial update.

Ana.

Thanks Michael.

And good morning, everyone.

This morning I'll be providing a summary of our third quarter and nine months financial results, including in some cases comments with respect to guidance for the remainder of the year.

For the third quarter of 2006, the Company recorded total revenues of 150.7 million, operating income of 57.5 million, and net income of 57.3 million, resulting in diluted earnings per share of $0.65.

For the nine months ended September 30, 2006, the Company recorded total revenues of 545.7 million, operating income of 240.2 million, and net income of 324.1 million, resulting in diluted earnings per share of $3.58.

Earnings for the third quarter of 2006 amounted to 150.7 million compared with 106.5 million in the third quarter of 2005.

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

Royalty revenue for the third quarter of 2006 was 78.6 million compared with 46.6 million last year, an increase of 69%, reflecting growth in net sales of Erbitux in the U.S. of 63% and an increase of 64% in non-U.S. markets.

License fees and milestone revenues for the third quarter of 2006 were 34.9 million compared with 27.1 million in the third quarter of last year.

These revenues principally reflect recognition of the milestone payments now totaling 900 million received from BMS.

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

This cumulative percentage is approximately 56.3% through the end of the first quarter of 2006 or an increase of approximately 3.9% for the third quarter.

We expect amortization of license fees and milestones to approximate between 240 and 250 million for the full year 2006.

Manufacturing revenue for the third quarter of 2006 was 20.9 million compared with 10.7 million in the third quarter of last year.

These revenues consist of sales of Erbitux to our partners for a commercial distribution.

The increase in 2006 reflects higher volume purchases by BMS as well as sales to Merck of product intended for commercial use.

During the third quarter of 2006 purchases by BMS amounted to 20.3 million and purchases by Merck amounted to 600,000.

Collaborative agreement revenue for the third quarter of 2006 was 16.3 million compared with 22 million in the third quarter of last year.

The decrease principally reflects a decrease in clinical materials shipped to Merck versus the prior year.

The break down of collaborative agreement revenue for the third quarter of '06 is as follows.

Reimbursement for contractually defined clinical, regulatory, and marketing expenses of 3.6 million.

Erbitux supplied for use in clinical trials, also 3.6 million.

And reimbursement for royalty expense of 9.1 million.

For the quarter such reimbursements totaled 13.3 million from BMS and 2.9 million from Merck.

Now turning to expenses, total operating expenses for the third quarter of 2006 were 93.2 million including 1.9 million of stock option expense compared with 80.3 million in the third quarter of last year.

We expect total stock option expense for the full year to be approximately 9 million.

Research and development expenses for the third quarter of 2006 were 26.4 million including 400,000 in stock option expense, compared with 29 million in the third quarter of last year.

The decrease is -- in the quarter is principally due to a reduction in clinical materials sold to Merck.

We expect that research and development expenses for the full year 2006 will approximate 125 million, including approximately 2.7 million of stock option expense.

This full year figure is 5 million lower than our previous guidance reflecting greater productivity combined with selected cost cutting measures.

Clinical and regulatory expenses for the third quarter of '06 were 13.5 million including 300,000 of stock option expense, compared with 13.6 million in the third quarter of last year.

This decrease is principally attributable to a study that is enrolling lower than expected and two other studies that were initiated later than expected.

We expect these expenses to approximate between 65 to 70 million for the full year 2006 including approximately 1.3 million of stock option expense.

Marketing, general, and administrative expenses for the third quarter of 2006 were 16 million, including 1.2 million of stock option expense.

Compared with 19.5 million in the third quarter of last year.

The decrease is principally attributed to lower legal fees and professional services fees from the comparable period in 2005.

We estimate this cost to approximate 75 million for the full year 2006 including approximately 5 million of stock option expense.

Royalty expense amounted to 18.1 million in the third quarter of 2006 compared with 15.2 million in 2005.

Approximately 9.1 million of the expenses in 2006 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 million.

Costs and manufacturing revenue was 19.2 million as compared to 3.1 million in the third quarter of last year.

The 2006 cost represents fully absorbed manufacturing costs, as substantially all previously expensed inventory sold to our partners by the end of 2005.

The effective tax rate for the full year 2006 is estimated to be 14% which is 1% lower than the amount projected last quarter.

The effective tax rate for the third quarter of 2006 includes an adjustment of approximately 1.8 million resulting primarily from changes in certain state tax legislation.

Therefore, the resulting effective tax rate for the third quarter and nine months ending September 30, '06, including this adjustment is 12.6% and 14.4% respectively.

Basic and diluted shares outstanding used in the calculation of earnings per share for the third quarter of '06 were 84.3 million and 91.9 million respectively.

As a result of the [Inaudible] and as previously mentioned the Company achieved diluted earnings per share of $0.65 in the third quarter '06 compared with diluted earnings per share of $0.35 in the third quarter of 2005.

To provide investors with a clearer picture of the Company's growth versus last year we have also provided in our earnings release a pro forma non-GAAP earnings comparison which excludes for the third quarter of 2006 the effective stock option expense.

Accordingly, non-GAAP diluted earnings per share for the third quarter of '06 was $0.67.

Capital spending for the third quarter of 2006 was 8.7 million and it is still expected to approximate 50 million for the full year '06.

We ended the quarter with cash and marketable securities of approximately 991 million, an increase of 235.1 million from the end of 2005, and an increase of approximately 28 million from the end of the second quarter of 2006.

During the nine months ended September 30, '06 we invested 41.1 million in capital expenditures of which a significant portion went towards the commissioning and validation of our BB50 multiproduct manufacturing facility.

In the third quarter of 2006 we invested approximately $28 million of operating cash flow to manufacture Erbitux as BB50.

Such inventory is currently being classified in the Company's balance sheet as long-term inventory as we expect to obtain approval for BB50 at the end of 2007.

That concludes our prepared remarks.

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

Operator.

Thank you. [OPERATOR INSTRUCTIONS] And we'll take our first question from Mike King of Rodman & Renshaw.

Please go ahead.

Good morning.

Thank you.

Can you hear me?

Yes, we can.

Just a couple questions on the -- first on the income statement, then on the balance statement.

Both R&D and clinical and regulatory were quite a bit lower.

I know that there was part of the R&D expense was less clinical trial material sold to Merck, but I wonder if you consider these levels of investment to be appropriate given the existing and the future competitive environment.

Hi, Mike, it's Ana.

Let me start with R&D.

The previous guidance that we provided for R&D was basically 130 million, we're not waying that it's about 125 million.

Part of the decrease is a decrease in stock option expense, approximately, I think we took it down by about $0.5 million or so.

But also as I mentioned before, we have been able to generate significant efficiencies this year by very carefully looking at our expenses and making sure that we are spending our cash efficiently.

So the decrease is $5 million across the board, just based on efficiency.

Can you be more specific about what efficiencies you're referring to?

Well, for example, BB50, as I mentioned before, came on board this year in June, we started manufacturing on BB50, as a result -- previously we had calculated a certain amount of repair and maintenance for example, for that plan which we are not able to capitalize as part of inventory.

Our repair and maintenance expense for the past four months has been lower than anticipated.

We expect that to be lower for the next three months.

So that's just an example of some of the efficiencies that I'm referring to.

Thank you.

Then with regard to inventory, it was down about 18 million, if I do the math correctly, from second quarter, and wondering, is that to demand or lack of?

When you look at inventory, you're looking at short-term inventory?

Yes.

As I mentioned before, we do have $28 million of inventory that we have manufacturing in BB50.

That's classified in long term.

Was it a reclassification from the previous quarter?

Actually, no, we really had no inventory from BB50 last quarter, but if you look at other inventory for the second quarter, it has decreased slightly, and that's because our turnover actually is a lot faster than last year.

We are selling more inventory to BMS.

Thanks.

I'll get back in queue.

Thank you.

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

Yes, good morning.

I guess first for Alex, if I can, while it's good to hear your voice on the other end this time, since you're heading the CEO search, I guess, when can we expect to stop hearing your voice on these calls and really how far along are you in the search?

As soon as possible.

We would like to get a new CEO.

As I'm sure you appreciate, it's really hard to sort of put any time frame on -- kind of on that, but really we'll be working hard.

We do have a number of people identified, and we're going to be moving forward as quickly as possible, but we just can't give you a time frame right now.

Could you characterize it's still early in the search?

We're -- we're beyond the first stage of the search but that's -- I -- I would be okay with you saying it's early.

Then a question for Michael Bailey.

What percent of sales this quarter was colorectal versus head and neck cancer, and then the follow-up, I guess what are you seeing regarding panitumumab in the marketplace today, how broad would you characterize their roll out, and where might P-mab be getting traction?

Lots of questions there.

The first question was the ratio and the relative representation of colorectal versus head and neck.

Colorectal continues to represent the lion's share of sales and market opportunity for Erbitux.

Your second question was where is panitumumab gaining traction and what effect have they had to date?

They launched at the end of the third quarter.

So as far as their actual sales going into the fourth quarter we're not going to comment on that.

As far as specific areas of concern, we have had challenges in places that we have addressed, and we feel that we're well prepared to address any future challenges.

I guess finally, Michael, you mention in your comments, panitumumab has not demonstrated safety.

Can you really elaborate on that comparing the two levels?

Eric, if you can chime in, since I think you have patient experience with both drugs as well.

I'll start and then, Eric, please add in.

The focus has been on hypersensitivity reactions, and that's been Amgen's real intent, because they feel that they have a better profile there.

Now that we have the PI, and we compare those PIs, although there's all sorts of caveats that go into comparing a PI, there are a couple of things that really come to light.

One, the worst adverse event is death, and the drug related deaths for panitumumab are roughly 4 in 1467 patients.

For colorectal for Erbitux, is roughly 2 in 774 so arguably similar rates of drug related deaths.

HSRs, there's been a lot of hype about no infusion reactions, but if you look at the panitumumab labels they have 1% and a black box in their label.

So that compares to the overall 3% for Erbitux, but you can also consider that their experience is primarily monotherapy.

So if you looked at our monotherapy, it's only 2%.

So comparing 1% versus 2%, I'm not sure that that's clinically that big of a difference.

This is Eric, Dave.

Hi, how are you this morning?

I think just to -- as a corollary to what Michael was saying, when a physician is in their practice, and they're thinking about their -- what they have to do with regard to hypersensitivity reactions, that is major hypersensitivity reactions, that largely focuses in on monitoring.

Do I have to sit with the patient?

How many resources do I have to really expend?

Let's face it, it's not a quantitative consideration when you're talking about less than 1% versus less than 2%.

Your resources are going to have to be there regardless.

So there are severe hypersensitivity reactions with panitumumab, it's in the label and that's a consideration.

The other aspect of panitumumab is skin toxicity, which is quite profound and pervasive and occurs early on.

The other toxicities that we've noted, and have been reported, are particularly when the drug is actually used in combination, particularly the conjunctivitis and some of the mucositis which is the inflammation of the oral tissues.

So we really haven't really peeled back the onion, as far as what panitumumab has to offer toxicologically in combination, which is how these strokes are used..

Great.

Thank you.

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

Can you tell us whether you have further update on the timing, for the release of the data on EPIC and on Ultra 5?

Yes, hi, May-Kin.

This Eric, again.

We're in the fourth quarter, and we're going to be -- we will have our databases locked and reporting of top line data this quarter.

I think at this time I'm not going to get -- I don't think I'm going to get any more crystal with regard to dates but I will tell you that we're on target.

And, Michael, can you talk a bit about market share?

You mentioned that in the refractory patients, for the last four months, Erbitux is the major share.

Yes, I mean, we've seen growth in the second and third line market shares which obviously are our target markets, and also in the OIF of note, OIF we call oxali irinotecan failure population, of not is that we have exceeded Avastin's share in that population for four consecutive months now.

But can you actually give us rough numbers?

We're going to stick by the policy of not giving specific shares.

There are some public resources you can probably pull out.

We generally use intrinsic as our basis.

And a question for Alex.

In the first quarter, some of the existing Board members will not stand for reelection.

But how many Board members will there be in 2007?

I guess, what will it be six?

They will not be replaced?

Seven, I guess.

Well, okay, so the plan really is that these guys have agreed to sort of offer not to be on the proxy going forward, and we're going to -- we will evaluate -- the Board will evaluate, kind of how big the Board needs to be and how many of those people will be staying, how many -- how many new people we may or may not be getting on.

The key issue here, May-Kin as I'm sure you agree, is we've got to find a new CEO.

And he or she probably will end up being on the Board, and he or she may have some candidates to suggest to be on the Board as well.

So we're really not planning to kind of make any changes to the Board until we get -- until we get the new CEO.

Will you be very disappointed if you don't have a new CEO in the next three to four months?

Again, you know how these things go.

We're disappointed we don't have a new CEO right now, today, but it will take some time.

I don't know how long it will take, but we're working as hard as we can.

It is a top priority for all of us.

And what are you looking for in terms of experience?

I thinks it's important, the person have strong experience in biotechnology.

In terms of specifically the type of experience, I think we'd like to see somebody with maybe some drug development and commercialization experience, would like to see somebody with experience, sort of have operational control of a company or a big division of a company.

But we're not -- we wouldn't rule out a candidate because they lack any particular experience, but rather just looking for the best man or woman to take over ImClone.

As you know, we fervently believe in the promise of both Erbitux and ImClone's pipeline, and we have great assets.

We have a great group of employees, a wonderful manufacturing facility, and it just needs to be kind of put together strategically by a CEO, and with that I think we can really improve shareholder value.

Thank you.

Thank you.

Thank you.

Our next question is coming from Steve Harr of Morgan Stanley.

A couple of questions.

First off, you mentioned that several trials are not enrolling at the pace expected.

Could you give us the, actually which trials are having problems enrolling?

Steve this is Eric Rowinsky.

Hi.

Actually, we're not really having problems enrolling on any trial except one, and that was our second-line trial on lung cancer, which is called SELECT, which is an SPA trial, which is enrolling, but we really want to push this trial along.

We think one of the impediments in this trial was based upon the -- is really based upon the changing trends in clinical practice, that is the randomization -- the initial randomization steps between two chemotherapy agents, one being Pemetrexed, and one being Docetaxel, or Taxotere.

We think physicians and the standard of care has changed.

Now people are using Docetaxel at first line.

We don't really see the need for approval of Erbitux with both.

We see the need for approval and swiftly.

So we have -- we think we can augment accrual substantially by changing that protocol, and we're trying to do that now.

In fact, we're nearing final green lights with respect to regulatory purview, and that it will be physician's best choice.

So this has been a slight -- this has been a slight decrement in accrual, and we think that that adjustment will really ramp things up.

Now, there have been a delay in the initiation of two complex studies.

We felt earlier in the year that it was essential to really, again, readjust to the standards, and with Avastin approved in lung cancer, and first line recently, and we're glad we did that, we have a randomized Phase II trial in which chemotherapy, Avastin, and Erbitux are utilized in first line.

We think that's really a necessary trial to keep our -- really, keep our options covered with respect to nonsmall cell lung cancer.

We did the same thing in pancreas cancer, and we think that trial is icing on the cake.

Again two, biologic things chemotherapy.

There's been a delay in the initiation of that trial.

Those trials have been initiated and they're ready to go.

In fact, one is accruing very briskly but there were delays.

That's basically it it.

A couple other questions.

There's been a lot of change in top-level management and you're actually bringing down your employee stock option compensation expense guidance.

What kind of turnover are you seeing in the second and third level, and what can or will you do to ensure that in a time when you face a new competitor, a lot of commercial challenges, that you don't have a lot of turnover in your operating infrastructure?

Steve this is Alex.

Actually, of course there has been a little bit of turnover, but really not very much, and we don't expect much at all going forward.

I think that employees are by and large reinvigorated by the recent changes of the Company, and I frankly am getting overwhelmingly positive reaction from employees on this kind of latest news.

So I think it's a positive.

And then the last question.

There have been some pretty significant changes made in the way the cancer drugs are being priced in the marketplace with several caps put in place.

What are ImClone's plans to, or do you have plans yet to work with Bristol to think about similar caps as Erbitux potentially goes into earlier stage patients?

Yes.

Steve, this is Michael Bailey.

We're thinking about this stuff all the time and how we're going to manage ensuring the maximal access for patients moving forward.

I think the first hurdle is going to be getting the data.

Once that positive data is in our hands, then we will be faced with making some decisions there.

But there's an ongoing dialogue with us and BMS, and we see the capitation programs that Avastin has put in place as encouraging in that it can help pave the way, if you will, for alternatives to pricing.

Thank you.

Thank you.

Our next question is coming from Jim Reddoch of FBR.

Thanks.

Most of my questions have been answered, but in terms of the clinical products that you have been shipping to E-Merck, sounds like there had been a change on that, can you say what the trend had been in terms of the clinical product you were shipping to E-Merck and where that should be going?

Because it sounds like several of these trials are still ongoing.

Crystal is, you're probably still supplying it for Crystal as well.

Thanks.

I have one follow-up on that.

In terms of the trend are you referring to the decreases in the clinical shipments to Merck?

That's right.

Basically that's just a function of their demand.

And last year there was a significant amount of demand for clinical products because of where we were in terms of the clinical trials themselves.

As you know, we have--.

Aren't most of those trials still ongoing, though?

I don't believe that, not to the extent that they were last year.

Okay.

And then in terms of the $15 million bolus you were talking about that accounted for why this quarter didn't show a whole lot of growth sequentially from 2Q, I guess it's a little surprising to me that you would see people start and stop within the same three-month period since the benefit that you saw in survival, at least, was measured in years, rather than months.

Jim, that's a great question.

This is Michael Bailey.

The -- what usually defines that pent-up demand are patients who are -- they have gone through all the options, their next option is really death.

And so they have generally poor performance status, they don't do very well on drugs, and, therefore, the duration of therapy is relatively short.

Okay.

Thank you.

Thank you.

Our next question is coming from Geoff Meacham of JP Morgan.

Thanks for taking the call.

This is [Matt Ronin] for Geoff today.

Just a question on price to follow-up on Steve's question.

Aside from assistance programs that you would potentially put in place here for Erbitux in earlier lines of treatment, has any of your thinking changed in terms of unit pricing of Erbitux in light of competition?

Thanks.

Matt, that's a good question.

As far as the pricing of panitumumab, we were not surprised by that.

If I was put in their place where they didn't show efficacy equal to the gold standard and they didn't show superior safety I probably would have discounted the price also.

Okay, thanks.

Then a question on pancreatic cancer, if you don't mind.

With the trial data coming up, I was wondering if you could talk about your assumptions on the pancreatic cancer market in terms of what's the attainable penetration of your product in that market, what the duration of therapy could be, and what the filing time lines could be?

Thanks very much.

Eric, perhaps you could answer that.

I'll answer the -- we're anticipating -- the trial that you're referring to is the SWAG trial, which is an extremely well-powered study.

In fact, better powered in terms of patient numbers than the ability to discriminate differences in the major endpoint, which is survival.

We're anticipating that that trial will bear fruit middle of -- the middle of the first quarter, and we intend to present the data, of course, top-line data, immediately, and the principal investigator, Dr. Phillip Phillips, will be presenting and submitting an astra for ASCO.

We've always seen, with regard to activity of Erbitux, compared to small molecules, particularly Tarceva, we have always seen more robust activity in wild-type cells, meaning cells or tumors that really don't depend upon any GFR mutation.

So our expectations are relatively good as far as showing superior activity to that one particular regiment that is Tarceva and Erbitux, which largely is not even the standard of care.

So our expectations are good.

With regard to penetration, I don't know if you have those numbers, Michael.

Yes.

We're not going to comment on specific penetration, but I think a good place to look is if you want to get relative market size, the sear data the government incidence prevalence data is a good place to look.

And I'll say, generally speaking it's roughly the size of the head and neck market.

Thanks.

Actually, what I was really looking for is what percentage of that population do you think that you could reach with your drug?

Well, our indication is in the first line treatment, our study is in the first line treatment in combination with gemcitabine.

So first-line metastatic patients would be our target.

Thanks very much.

Our next question is coming from Eric Ende of Merrill Lynch.

These are actually two questions for Alex.

First of all, based on your comments today is it fair to say that the Company is not for sale you?

You'd rather build shareholder value by expanding sales of Erbitux and developing the pipeline?

That's right, Eric.

Obviously the Board has to listen to any kind of offers that are given, but we're not planning to sell the Company.

All right.

Second question is, can you talk a little bit about the compensation packages for the outgoing CEO as well as the Board members that have agreed not to be on the proxy?

Okay.

That will be coming out in an 8-K.

But basically, what we've done at the Board level is to -- is to stop all Board fees for six months, all Directors' fees and per meeting fees, retainer fees for six months, and we're going to address in that six-month period sort of how to compensate Board members going forward, probably at a lower level than they have been compensated in the past.

Also there will be stock options for one year for Board members.

Right.

But what about compensating Joe Fischer?

Joe Fischer received a severance package.

Basically, it's $650,000 compared to -- basically it's a different package relative to sort of what was last released in an 8-K.

He's receiving a significantly smaller amount of money than what the last thing that was released in an 8-K.

All right, great.

Also, Joe Fischer has agreed -- he had 100,000 options that were given to him when he took over the job as CEO, and he's agreed to cancel those options.

Thank you.

So he won't be receiving those.

Thank you.

Our next question is coming from Yaron Werber of Citigroup.

Good afternoon.

Alex, in the press release, it's mentioned today that one of the important goals for the new Board and new management team is to work to improve the relationship with Bristol-Myers Squibb.

I was wondering whether you can give us some insight as to in the opinion of the current Board what has not gone light with Bristol-Myers Squibb and what can be done to correct that?

We're really not trying to assign blame, but what we want to do, Yaron, and thank you for the question, is just to make sure that Erbitux is maximized.

And we're going to work with Bristol to do that.

Are you -- is the Board happy with the current expenditure level on sales and marketing on ImClone's part, or are there any parts to expand the actual -- ImClone's internal sales force, which is not being reimbursed by Bristol?

We really haven't even addressed those issues right now, Yaron, but it's Bristol's responsibility to sell the drug as you know, and from our standpoint, it's just about execution within ImClone.

It's just about getting things done.

Okay.

And then in the CEO search, what kind of -- how much ability or how much flexibility do you have to give the new CEO options?

Are you also facing a situation where you need to be prudent about the options that you're going to be allocating to a new person?

We will -- the new CEO will get a package that he or she sort of deserves.

We can definitely give options.

I would assume that most candidates for the CEO would kind of want some kind of equity participation, options, restricted stock, something like that and that will be part of the package.

The specifics on that would kind of depend on exactly who they are, and our current situation as well.

Finally, are you planning on continuing to pay the royalties to Sanofi, during the, for the Slesinger patent during the field proceedings, presumably, assuming that ultimately you will go to appeal?

Eric -- hi, this is Dan O'Connor.

We're currently evaluating this issue under our license with Aventis -- under our license agreement with Aventis.

But is it fair that -- is it fair to believe that if you will appeal it you will continue to pay those royalties?

Again, we're in the -- currently in the process of evaluating exactly what we're going to do in that regard.

Thank you.

Thank you.

Our next question comes from Eric Schmidt of Cowen & Company.

Thanks for taking my question.

Just to follow-up on the pricing issue in the marketplace, panitumumab versus Erbitux, Michael, did I interpret your answer to the previous question on this topic to mean that you have not in any way discounted Erbitux to match what the competitor may be offering and you don't intend to do that in any way?

Today we have not discounted the price and we're always evaluating what future market dynamics may demand.

Thanks.

We do believe we have a premium product.

Right, right.

And then just a question for Ana on the financials.

I know the prior management team was unwilling to talk about cash flows until the Q came out, but it sounds like you might be cash flow positive at the lower expense rate.

Is that true in Q3?

Cash flow positive from operations?

Well, we were cash flow positive from operations last quarter.

I think we were about 180 million or so.

Eric is saying net of the 250 million.

Net of the 250?

No, my comments before were in terms of total cash flow for the Company, not just specific operating cash flows for the Company.

We have generated more incremental positive cash flow this quarter versus last quarter, but we're definitely not going to be out over 250 million in terms of operating cash flow.

I meant even just for the Q3 period itself as opposed to the first half of the year when you were obviously burning more.

Absolutely.

We are positive for the Q3.

Cash flow positive from operations in Q3?

That's what you're saying, Ana?

We are cash flow positive in Q3.

We were cash flow positive in Q2.

Is your question are we cash flow positive in terms of more than 250 million?

Is that your question?

Well, you didn't receive anything from Bristol this quarter, as far as I'm aware.

But from a cash flow perspective our cash flow is done on a cumulative basis for nine months.

You're not going to see a cash flow statement for three months.

That was my question but I think you've answered it.

Yes, thank you.

Thank you.

We have our next question from Gene Mack of HSBC Securities.

Thanks for taking my questions.

Looking at this simplistically, a company that is headed into a marketing battle with a competitor, typically they have to start spending more money around the franchise of the drug.

I'm just wondering when we might get to see some guidance on the go-forward strategy, and does that first depend on what discussions you'll have with Bristol-Meyers?

Gene, this is Alex, Michael can chime in here, but as you know, Bristol is responsible for selling this drug.

That doesn't enter into influence cash flow statements -- influence income statement.

We do have a sales force, and we sort of co-promote with Bristol.

But, Michael, do you have any more color on that?

No.

I mean, I just want to add, even though our NG&A has decreased from last period, the actual expenses related to marketing this quarter have not decreased from last period, in fact, they have gone up.

So then are you sort of waiting for Bristol then -- it seems like we're getting the message that you're waiting for Bristol to step up and meet the challenge of Amgen.

Is that accurate?

I think jointly ImClone and Bristol will step up and meet the challenge of Amgen.

But how much of that jointly then will fall on your responsibility?

When will we get to know exactly on a -- from a P&L perspective what sort of impact that will have?

I think we have just reported the third quarter impact, and, I don't know, if Ana, you want to--?

Well, year to date for the nine months our marketing expenses have increased by approximately 1.2 million compared to last year.

I think what you'll be able to see when we release our guidance for next year we'll be talking about that in more specific terms.

Is there any -- can you tell when the contractual obligation for Bristol-Meyers to contribute to clinical trial expense ends?

Or what level of spend?

We have an agreement with Bristol-Meyers until 2017.

I know, but I thought -- my understanding was that there was a dollar level at which -- or a threshold at which Bristol no longer was responsible.

Is that still accurate or no?

No.

Based on the clinical budget that is included in this agreement, it goes all the way up to 2017.

Then just one final question.

The front line lung cancer data when might we -- can we get an update on how that trial is doing, the flex trial?

Certainly.

The flex trial has been fully enrolled now since early 2006.

And that is our principal trial.

A supportive trial, very large study, which is a Taxol/Carboplatin trial, plus or minus Erbitux, again, a Phase III label expansion study, has also fully accrued.

This is about 660 patients.

We're anticipating that very nicely both of the results, the top-line data are aligned early fourth quarter, fourth quarter next year, to be ready and to reach -- to reach data lock.

In addition, we ran a smaller study, which is the cisplatin gemcitabine study, which isn't really germane to the U.S. market, but certainly a very interesting study, a randomized trial, so plus or minus Erbitux and the data will be presented in November at the ISLAC meeting, a meeting in Italy, and again, will be updated at ASCO.

So we're very happy about that.

The data and lung cancer trial after trial -- this is a very difficult disease, certainly a disease with regard to up-front first-line treatment, that has really been a failure ground for the EGFR [terracing] kinase inhibitors, but all of our trail data have been suggestive of a favorability for Erbitux.

So we're quite -- we're quite excited about the fourth quarter of next year for our principal study, FLEX.

Thanks, Eric.

Two quick follow-up questions.

First, what might we expect in terms of total CapEx for the year?

I might have missed that, up front.

Secondly, what do you expect -- or how long do you think it will take to get head way with Bristol?

I guess we're getting an update from them on their CEO search tomorrow, but how long do you think it might take for you to get some decisions made on Bristol?

I'll answer the CapEx question.

It's about 50 million for the entire 2006.

Thanks.

And as far as Bristol, we're working with them now, and we'll be working with them as partners through 2017 and maybe even beyond that.

So I don't know of any specific issue that there's a time line on.

Thank you.

We actually have time for two more questions, please.

Thank you.

Our next question is a follow-up question coming from Mike King of Rodman & Renshaw.

Thanks.

I was just wondering if Michael might comment about this quarter's use in the frontline setting of Erbitux versus the prior.

The first-line setting of Erbitux versus the prior?

Yes.

Largely we have not seen major changes in the share numbers as you know, are relatively small.

A lot of the audits also capture clinical trials in there.

So we're not putting a whole lot of credence in, but what we're looking forward to is the Crystal data to really, in an evidence-based way, show how Erbitux performs in that population.

Right.

Then the second question is, can we get an update from Eric on head and neck?

Was there not a study under way with chemo radiation plus or minus Erbitux?

Yes.

Hi, Michael.

That's the RTOG study.

So the RTOG took on itself partially due to the fact that they have established for many years the treatment paradigm of chemotherapy and radiation.

I'm not really sure that that's felt to be the gold standard everywhere, but certainly the RTOG thinks it needs to be looked at as far as building, serving as a foundation for Erbitux development.

So they have actually initiated a study, and this is the study of chemotherapy radiation plus or minus Erbitux.

RTOG studies, and this study began in the second half of '05, largely the latter part of the year, that study is now just starting to gain steam.

Again, it really entails these large cooperative groups in terms of infrastructure and getting all the protocols through all the IRBs, but we're now seeing momentum for that study.

I think we'll be on target.

This is a survival study, so we're looking at 2008, late 2008 top-line data.

And you think you'll be enrolling throughout the remainder of '07?

Yes.

Great.

Thank you.

Thanks, Michael.

Thank you.

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

Thanks for the follow-up question.

Eric, can you discuss a little bit about the pending release of data on [tycarb] this quarter for first-line breast cancer and what if that might have any implication in terms of these multitarget or multikinase inhibitors versus antibodies?

I think that -- I think tycarb is very interesting.

It's sort of tangential from the subject today, but not really because we do have a pipeline drug that I think this is relevant to.

Tycarb interestingly is an EGFR, at least targets EGFR as well as ErbB2.

These dual kinase inhibitors have looked that way in vitro, but they haven't really lived the promise in terms of what they're supposed to do.

Tycarb appears to be a very good ErbB2 inhibitor, but not an EGFR inhibitor.

We haven't really seen positive data of significant interest or clinical relevance.

And this is actually very typical to some of the others, too.

It does -- it does actually give us some -- it's good to get clarity on Tycarb because we do have VEGFR-2 inhibitor as well as an insulin growth factor like inhibitor that can modify -- can modify her to new sensitivity and resistance so it actually -- it's nice to get this now because it gives us a foundation because we are going to be at really a robust pace second half of '06 in terms of finishing all of our Phase 1s of our pipeline and getting these pipeline products into some really very efficient clinical development plans.

So that's my spiel on it, May-Kin.

Thank you very much.

I'd like to thank everybody for joining us today.

That concludes our call.

As always, if anybody has additional questions, we can be reached at 646-638-5058.

It's the corporate communications department.

Thanks again.

Thank you.

This does conclude today's ImClone Systems conference call.

You may now disconnect your lines, and have a wonderful day.