禮來公司 (LLY) 2007 Q3 法說會逐字稿

Good morning, everyone, and welcome to ImClone Systems' third-quarter 2007 conference call.

I'm Dan O'Connor, Senior Vice President and General Counsel for the Company.

With me today are John Johnson, ImClone's Chief Executive Officer; Michael Bailey, Senior Vice President of Commercial Operations; Eric Rowinsky, Senior Vice President of Clinical Development and Chief Medical Officer; Peter Borzilleri, interim Vice President of Finance; and Richard Crowley, Senior Vice President of Biopharmaceutical Operations.

John will begin today's call with the top-level review of our most recent achievements.

Michael will then discuss the commercial aspects of Erbitux, followed by Eric, who will highlight the clinical development of Erbitux in our pipeline antibodies.

Peter will conclude with a discussion of our third quarter financial results.

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 the expectations reflected in these statements are based upon 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.

I'll now turn the call over to John Johnson, our new CEO.

John?

Good morning, and thank for you joining our call.

It is a pleasure to speak to you today as ImClone's chief executive officer.

It is truly an exciting time at ImClone, and I look forward to sharing our progress today.

As we look forward, there's a renewed sense of enthusiasm and energy at ImClone.

While we have challenges and significant work ahead of us, looking back, what a difference a year makes.

A year ago, the company was facing a very uncertain future, and experienced significant leadership challenges in a strategic direction not clearly charted, but subject to public questioning and criticism.

A new cancer therapy entered the market in the third quarter of 2006, posing a significant competitive threat.

These problems were compounded by a weakened partnership with Bristol-Myers Squibb, an interesting pipeline that was not advancing as rapidly as it should, and patent litigation.

In short, ImClone was facing serious issues.

A year ago, coincidentally to the day, Carl Icahn was appointed as our chairman.

This event marked the beginning of a new era for ImClone.

Carl shortly thereafter appointed Alex Denner and Richard Mulligan to the executive committee to run ImClone during the CEO search.

Over the course of the last year, we have made steady progress in addressing not only the issues I just highlighted, but numerous others.

A top priority for the board and the executive committee was to improve our relationship with Bristol-Myers Squibb in a way that would be more beneficial to ImClone and maximize the potential of Erbitux.

We successfully achieved that with the amendment of our existing agreement with BMS, which significantly expands BMS's investment in and commitment to Erbitux, while providing for the continued exploration of Erbitux in the tumor types, which have not been adequately investigated.

Commercially, we have effectively defended our key strategic markets for Erbitux over the past year, while taking action to capture new markets and gain additional indications for the product.

In parallel, we began to vigorously advance our deep clinical and preclinical pipeline of promising, unique, IgG1 antibodies.

Our recent litigation settlement with MIT and Repligen was a key achievement towards our efforts to effectively address business risk.

The significant progress ImClone has made in just the last year alone has demonstrated our ability to execute and move the company forward.

In short, ImClone is now in a vastly improved position for future growth, and I would like to thank ImClone's new board, and especially Richard Mulligan and Alex Denner, for their significant contributions as members of the executive committee, as well as for their support and mentorship in making my transition as CEO a seamless one.

Today we're building on that momentum and moving rapidly ahead as a nimble, fully integrated global biopharmaceutical company.

We have three overarching goals.

Number one, accelerate Erbitux sales.

Number two, accelerate our internal pipeline of novel antibodies, and number three, build on our capabilities to enable execution of our strategies.

Let me speak to each of these areas.

With respect to accelerating Erbitux sales, we achieved strong sequential sales growth.

Michael will provide more detail on the third quarter performance of Erbitux in just a moment, but I would like to highlight four key accomplishments that will help us accelerate Erbitux sales going forward.

First, through our recent amended BMS agreement, we now have a clear path and firm mutual commitment to evaluate additional indications for Erbitux, with the end goal of registrational opportunities being paramount.

The second driver, which is our key to our established Erbitux franchise in colorectal cancer will be the FDA approval we received earlier this month.

Erbitux is now the only approved biologic therapy to demonstrate improved overall survival as a single agent in patients with metastatic colorectal cancel.

The third area I would like to highlight is the very exciting news related to the FLEX study results where Erbitux showed an improved survival in patients with advanced nonsmall-cell lung cancer.

These are important results, as there have been few treatment advances for lung cancer in recent years.

This is a very large market, with significant unmet need, which has significant patient populations that are not currently served by targeted biologic therapy.

Eric will discuss these results in a bit more detail in a few moments as part of his full update on the several Erbitux and other clinical trials we have ongoing.

Finally, we continue to pursue global expansion with Erbitux, and we recently announced that we established a co-development and co-commercialization agreement with BMS and Merck in Japan.

If approved in Japan, Erbitux would be the only EGFR antibody available in this large market.

Moving to our second overarching goal of accelerating our pipeline of novel antibodies, we made significant progress in this key component of our long-term growth strategy.

We moved three of our internal antibodies into Phase II clinical trials.

We initiated five new disease-directed trials of these antibodies since the start of the third quarter, and we anticipate that one of these antibodies, 1121B, to move into Phase III trials by the end of the first half of 2008.

Eric will speak to these in more detail, but let me make a key point.

These are proprietary antibodies, which ImClone alone fully owns.

We have taken them from the bench to the clinic, and we entirely control the commercial rights to them.

We will fully leverage the value of these antibodies, including their potential use outside targeted cancer therapy, and perhaps some selective partnerships.

Significant progress was also made towards our third goal of building our capabilities.

First, a very important achievement that occurred during the third quarter was the FDA approval of our BB50 manufacturing facility.

The approval of this state-of-the-art facility more than doubles our total available production volume capacity for Erbitux, providing ImClone with one of the largest antibody manufacturing capacities in the world.

I want to personally congratulate our operations team on this significant accomplishment.

On the corporate front, we continue to further strengthen our board of directors with the appointment of Dr.

Tom Deuel, a preeminent scientist with a strong background in oncology.

We also strengthened our scientific base with the recruitment of Dr.

Larry Witte back to the research team at ImClone.

Larry co-chairs our new research and development review committee with Eric.

Under Larry and Eric's leadership, this group is charged with accelerating our overall pipeline.

Finally, a key legal achievement during the third quarter was the settlement of litigation with MIT and Repligen in September.

Importantly, as part of this settlement, ImClone was granted a sublicense for the future use of other technology, including a patent, which is a subject of an infringement lawsuit brought about by Abbott against ImClone.

While the case involving Abbott's litigation claims against us remains pending and in the early phases of discovery, we are now a sublicensee to that patent through the settlement agreement with Repligen.

I look forward to working with the board and the rest of the team here at ImClone to take the company to the next level.

ImClone's employees are the critical component to the company's recent progress and our future success.

Their dedication, hard work and loyalty are highly valued.

I would like to take this opportunity to recognize and thank them for their contributions.

In closing, I believe that this is a very exciting time to be with ImClone, and I believe our future holds tremendous potential.

The past year has been critical for ImClone, and what a difference a year can make.

We successfully addressed a number of major hurdles, and we are now in much better position to capture the numerous opportunities that lie ahead of us.

The third quarter was a solid quarter on many important fronts, and I look forward to reporting on our continued progress over the coming quarters.

I would now like to turn the floor over to Michael to provide a review of our commercial operations.

Thank you, John.

The third quarter U.S.

in-market net sales for Erbitux increased to $184.5 million from $162.1 million in the second quarter of 2007, an increase of 14%.

This quarter-over-quarter increase in sales, we believe, is the result of three key factors.

First, we believe the sales and share increases reflect the U.S.

oncology community's confidence that Erbitux is unique among therapeutic antibodies and that Erbitux is the backbone of the standard of care treatment in refractory colorectal and head and neck cancers.

Second, we believe this growth in sales is the result of the initial impact of our expanded ImClone sales force, which was fully implemented as of July 1.

Finally, the increase in sales for the quarter is in part reflective of a change in the Erbitux distribution model resulting in wholesaler inventory buildup during the quarter we estimate to be roughly $9 million.

During the quarter, our dominant share of EGFR market sales further increased from the second quarter of 2007 to over 80%.

This increase in share of sales in the EGFR market was accompanied by share increases in our strategic promotional targets of second and third-plus line colorectal cancer, as well as increases in our indicated head and neck patient populations of local, regional and second-line metastatic disease.

As mentioned on our last quarterly earnings call, the expanded sales organization is fully implemented.

This quarter, we have seen an initial positive impact of this aggressive strategic move, and we continue to be optimistic about the positive near and long-term impact of our expanded commercial organization.

During the third quarter, we had several significant regulatory and clinical developments, which may favorably impact the long-term opportunity for Erbitux.

On the regulatory front, Erbitux was granted a full approval in overall survival claim for single agent colorectal cancer in patients who have failed Oxaliplatin and Irinotecan.

This is important, as this claim establishes Erbitux as the first and only therapeutic antibody to convey a survival benefit in colorectal cancer as a single agent, making it distinct from both Bevacizumab and Panitumumab, which have failed to demonstrate such a benefit.

We believe the primary impact of this label change will not be a significant share increase, but rather this claim will make Erbitux more resistant to competitive erosion.

On the clinical front, at the recent ACO meeting, the final results of the extreme study were presented, which arguably set a new standard for first-line head and neck cancer therapy.

Additionally, at ACO, topline safety results for CAIRO II, a pace-like study, were presented, demonstrating the feasibility of combining Erbitux, Bevacizumab and chemotherapy in the first-line colorectal cancer setting.

These data will serve to further differentiate the therapeutic potential of Erbitux as compared to Panitumumab.

Additionally, Dr.

Len Saltz and colleagues published the BOND-2 study in JCO, providing further documented support for this therapeutic triplet.

Last, but certainly not least, during the quarter, Erbitux became the only biologic to demonstrate an overall survival benefit in a first-line nonsmall-cell lung population that was not restrictive with regard to histology, and the only EGFR-targeted agent to demonstrate the ability to improve survival when added to a chemotherapy doublet in this challenging population.

Eric will share the details of these studies during his section.

Suffice it to say, these outcomes, in combination with the existing body of clinical evidence, place Erbitux in a classified self among antibody therapies.

Another accomplishment of note for the quarter was the inclusion of Erbitux Q2 weekly dosing as an acceptable schedule in the updated NCCN colorectal cancer guidelines.

These guidelines are widely recognized as defining clinical practice in the United States.

As mentioned on the last quarter's earnings call, we have submitted for Compendia listings for early-line use in colon and head and neck cancers.

We hope to have a response from these organizations sometime in the first half of 2008.

Additionally, in the future we hope to expand our FDA-approved label using the significant body of positive Erbitux data from CRYSTAL, EPIC, FLEX and EXTREME.

However, until these events occur, which will enable reimbursement and allow for sales force promotion respectively, we do not anticipate to realize significant commercial impact from these data.

To conclude, we have built on the positive sales trend with increased promotional efforts to establish Erbitux as a standard of care in refractory colorectal and head and neck cancers.

With our expanded field force, we hope to increase share in markets where Erbitux has proven to provide significant clinical benefit and has received FDA approvals.

Overall, we are encouraged by the performance of Erbitux and optimistic about our prospects for the future.

Eric will now discuss the details of our recently presented clinical data for Erbitux, as well as the promise of our unique pipeline.

Eric?

Thank you, Michael, and good morning.

The third quarter was very productive in terms of ImClone's clinical development efforts, with the achievement of several important milestones for Erbitux, as well as steady progress in the advancement of our pipeline.

I will first review our progress with Erbitux and then I will move on to our early clinical pipeline.

Since the beginning of this year, ImClone, along with its partners, have announced topline results of five Phase III trials of Erbitux, which will serve as pivotal studies for regulatory filings in new and highly relevant indications.

That is, in early-stage colorectal, head and neck and lung cancers over the next one to two years.

These include evaluations of Erbitux in patients with advanced colorectal cancer in the first line, second line and refractory settings, and the extreme study in which Erbitux was evaluated in the first-line treatment of patients with metastatic and recurrent head and neck cancer.

With specific regard to extreme topline survival results initially presented at the past ASCOM meeting showed that patients receiving Erbitux plus chemotherapy had a median survival of 10.1 months compared to 7.4 months with chemotherapy alone.

At the recent ACO meeting last month, additional information was presented.

Consistent with Erbitux conferring a robust survival benefit, patients receiving Erbitux had a near 50% reduced risk of tumor progression and a near doubling of the response rate compared to those receiving chemotherapy alone.

To put this into perspective, there have been no comparable therapeutic advances in this setting in the modern era of cancer treatment.

Now, to top this off, more recently, we announced that the FLEX study, which evaluated the merits of adding Erbitux to chemotherapy in the treatment of advanced nonsmall-cell lung cancer, met its primary endpoint of increasing overall survival.

I would like to try to put the FLEX study into perspective, from both historical and clinical standpoints.

First, Erbitux is now the only agent in the EGFR inhibitor class that improves survival in the frontline setting.

In FLEX, survival would significantly increase in the EGFR-expressing lung cancer patients treated with Erbitux plus Cisplatin-vinorelbine chemotherapy compared to those receiving chemotherapy alone.

It is important to recognize that in contrast to the only other clinical trial in advanced nonsmall-cell lung cancer in which a biological agent that is Bevacizumab when added to platinum-containing regimens increased survival, the patients participating in FLEX resembled a cross-section of a typical lung cancer patient population.

To be more specific, FLEX included patients with the full range of performance capabilities.

Patients with both good and not-so-good performance capabilities participated, including ECOG-0s, 1s, as well as 2s.

Patients were not excluded if they had prior histories of certain bleeding or cardiovascular disorders, and finally, FLEX-enrolled patients, irrespective of tumor histology, meaning, that patients with squamous cell subtypes which constituted anywhere from 25% to 35% of all lung cancer patients participated.

In fact, approximately half of all patients with advanced nonsmall-cell lung cancer are not eligible to receive Bevacizumab largely because they have either squamous cell histology or relevant cardiovascular or bleeding disorders that increase the risk of serious treatment-related side effects.

And another modest fraction of patients are not felt to be ideal candidates to receive Bevacizumab largely due to poor performance capabilities.

Our partners, Merck Serono, who sponsored the FLEX study, is currently validating all secondary endpoints and preparing to present the FLEX results at a major medical meeting in the future.

The presentation will include the survival curves in their entirety, as well as information about secondary endpoints and prespecified subset analysis.

We also look forward to discussing the FLEX results with the FDA in the near future, and we are currently formulating regulatory strategies to register Erbitux in early-stage lung, head and neck and colorectal cancers.

We anticipate disclosing our specific registrational plans as they become clear following discussions with the FDA over the next several months.

However, it is clear that our planned regulatory submissions for head and neck and lung cancers will be centered primarily on the improved survival demonstrated for patients receiving Erbitux in the EXTREME and FLEX studies respectively.

With specific regard to colorectal cancer, the recent granting of full regulatory approval for Erbitux monotherapy based on its survival advantage in refractory patients will form the cornerstone for registrational efforts in early-stage disease, which will center on the significant improvement in progression-free survival demonstrated in the first-line CRYSTAL study, further supported by the second-line EPIC study.

Nevertheless, drug approval in early-stage colorectal cancer in the United States has traditionally been based on meeting a survival endpoint.

However, we are at an opportune juncture of flux in the regulatory environment which is currently involving to enable drug approval based on alternate endpoints, like progression-free survival, particularly in early-stage colorectal and breast cancers, since study patients are living longer and will have ample opportunities to receive meaningful treatments like Erbitux, which may improve survival after first-line treatment, thereby potentially confounding the interpretation of a primary survival endpoint.

This changing regulatory environment is perhaps illustrated by the Oncology Advisory Committee meeting planned for this December, in which the panel will likely discuss progression-free survival as a primary endpoint in the first-line breast cancer setting largely driven by the ECOG, Bevacizumab, breast cancer study in which approval is being sought based on progression-free survival.

With this in mind, we will file an sBLA for early-stage colorectal cancer, following availability of mature survival data from the FLEX study, which we expect by mid-2008.

Although survival, a secondary endpoint of the CRYSTAL study may indeed be impacted by the post-treatment use of Erbitux and other therapies, the submission of a complete set of data to the FDA represents the most sensible strategy to enable an optimal assessment of the CRYSTAL results given the current regulatory environment.

Based on rather provocative evidence from CRYSTAL, in which Erbitux significantly increased the proportion of patients who underwent a potentially curative resection, studies are currently being implemented by both Merck Serono and ImClone-BMS to evaluate different ways in which Erbitux can be used to increase the rate of curative surgery, which is perhaps the only way in which long cancer-free remission and cure can be achieved.

Cooperative group studies have just begun in Europe and are under development in the United States.

With regard to Erbitux in the adjuvant colorectal cancer setting, a setting in which new activations can really make an impact on survival, studies are also strongly accruing patients in both Europe and the North America, and they're on track.

To wind up this discussion on Erbitux studies in colorectal cancer, we expect the efficacy results of CAIRO II, a Northern European Phase III first-line study in which patients receive treatment with Xelox, plus Bevacizumab with or without Erbitux to be available in the first half of 2008.

The ACO meeting last month provided a first glance at CAIRO II, at which time the preliminary safety results were presented.

As expected, the incidences of hypersensitivity reactions and skin rash were higher on the Erbitux-containing arm.

The patients who received Erbitux combined with Bevacizumab and Xelox did not experience higher rates of other toxicities and a higher rate of treatment discontinuation for toxicity compared to those treated with Bevacizumab and Xelox without Erbitux.

We remain encouraged by the preliminary safety results of this pace-like study, which confirms prior results indicating that Erbitux is generally well-tolerated when combined with both Bevacizumab and chemotherapy, and we look forward to the presentation of CAIRO II's efficacy results, which are expected in the first half of 2008.

We certainly have a lot of work ahead of us, not only in terms of seeking regulatory approval and continuing to evaluate Erbitux in early-stage colorectal lung and head and neck cancers, but to expand the use of Erbitux in other indications.

The recent amendment to the agreement between Bristol-Myers Squibb and ImClone provides a road map for new evaluations of Erbitux in cancers of the stomach, esophagus, prostate, breast, brain, and bladder cancers, with these efforts intended to ultimately register Erbitux in these indications.

The amendment also delineates expanded trials in both early and late-stage nonsmall-cell lung cancer based on a positive FLEX study which has indeed come to pass.

Lastly, I would like to turn to our clinical stage pipeline beyond Erbitux.

In the third quarter, three ImClone fully-human IgG1 antibodies entered Phase II trials, and two candidates continue to make progress towards Phase I completion.

In contrast to most other new agents targeting the VEGF receptor ligand axis, our lead clinical pipeline candidate, 1121B blocks all signaling through the VEGF-2 receptor.

And we continued to be excited by its preliminary clinical activity as a single agent.

Based on its unique mechanism, robust preclinical activity and notable clinical activity to date, ImClone is not only in the process of opening Phase II studies, but the Breast Cancer International Research Group, known as the BCIRG, will be initiating a global Phase III breast cancer study in the first quarter of 2008, and we are planning a second Phase III study, another indication with a more abbreviated time line in the second half of 2008.

Additionally, Phase II studies including studies in melanoma and kidney cancers have begun.

Over the next two quarters, we also plan to initiate evaluation of the antibody as monotherapy in ovarian cancer and as part of standard first-line regimens in patients with lung, colorectal, prostate and liver cancers.

During the third quarter, we also opened several Phase II studies of IMC-A12 which targets the insulin-growth-factor-like receptor.

Our strategy for the initial stage of disease-directed studies of A12 is broad, generally randomized and in indications directed at registration.

Since our preclinical results indicate that targeting both the epidermal and insulin-like growth factor receptors is synergistic, combinations of A12 and Erbitux are being evaluated in several disease settings.

We are also in the process of enacting Phase II trials of A12 in pediatric cancers, sarcoma, breast and prostate cancers.

In addition to eight ImClone-sponsored Phase II studies, the National Cancer Institute is opening 10 studies in indications that do not overlap with those selected by ImClone.

Six of these trials could potentially serve as foundations for future registrational efforts, including several U.S.

cooperative group randomized studies in many tumor types including pancreatic and breast cancers.

In the last quarter, we also began enrollment of the Phase II trial of IMC-11F8, ImClone's fully-human IgG1 anti-EGFR therapeutic, combined with chemotherapy in colorectal cancer patients in Europe.

Lastly, progress continues to be made in our Phase I studies of IMC-18F1, which targets VEGF-R1 expressed by both malignant blood vessels and tumors alike, and IMC-3G3, which targets the tumor growth and survival factor platelet-derived growth factor receptor alpha.

And we anticipate completing these studies in the next two quarters with disease-directed evaluations planned for 2008.

Peter will now discuss the details of our third quarter financial results.

Peter?

Thank you, Eric.

I will briefly highlight our financial results for the third quarter with a focus on the financial impact of the BMS amendment.

I will also address our guidance on certain expense line items for the full year of 2007.

During the quarter, we achieved total revenues of $147.5 million, compared to $150.7 million for the same period last year.

This decrease is due to lower license fee and milestone revenue, partially offset by increases in the other revenue line items.

As a result of the amendment with BMS, recognition of license fees and milestone revenue has decreased by $15.7 million from the $34.9 million reported for the third quarter of 2006.

Effective August 1, 2007, under the terms of the amendment, the future clinical development program for Erbitux has been modified and expanded.

This has resulted in changes in the cost estimates we use to calculate the recognition of license fee and milestone revenue.

Collaborative agreement revenue for the quarter was $18.5 million, or $2.2 million higher than the same period last year.

This revenue line was also affected by the BMS amendment because of changes to the Erbitux cost sharing arrangement.

The amendment specifies that each year BMS will fund nearly all of the annual Erbitux development costs up to a specified threshold value.

Costs in excess of this value are shared by both companies according to a predetermined ratio.

This change is effective retroactive to January 1, 2007, which resulted in an increase in collaborative agreement revenue of $2.3 million to recover costs incurred by ImClone the effective date of the amendment because they are now reimbursable from BMS.

An additional $0.5 million increase over 2006 represents the impact for August and September's activity.

This total increase of $2.8 million is partially offset by the decrease in the reimbursement rate for royalty expenses from BMS for third party royalties from 4.5% to 2.5%, which became effective January 1 of this year.

Now a few comments on our operating expenses.

As we mentioned during our call last quarter, effective July 1, we transitioned our efforts in our BB50 manufacturing plant from Erbitux to producing pipeline products for our clinical development program.

Pipeline product costs are expensed as incurred, rather than capitalized into inventory, as with Erbitux.

This is the primary reason for the increase in our research and development expenses to $43.6 million, which is $17.2 million higher than the third quarter of 2006.

This production plan will continue through the end of the year, and we are projecting research and development expenses to be in the range of $155 million to $160 million for the year.

Clinical and regulatory expenses is the final income statement line item that is impacted by the amendment with BMS, which is the primary reason for the low expense amount of $4.8 million this quarter, as compared to $13.5 million for the same period last year.

Similar to the impact on collaborative agreement revenue, an adjustment of $7.6 million was recorded during the quarter to reverse previously expensed Erbitux clinical development costs for the period January 1 to July 31.

This represented our share of costs incurred by BMS that we were previously obligated to reimburse, which now fall into the threshold and therefore are the sole responsibility of BMS.

Our expectation is that clinical and regulatory expenses will be in the range of $50 million to $55 million for the year.

Selling, general and administrative expenses were $20.7 million for the quarter, an increase of $4.8 million over 2006.

This increase is primarily due to the expansion of our sales force, and an increase in legal expenses related to patent litigation matters.

For the full year we expect SG&A to be in the range of $75 million to $80 million.

Included in the cost of manufacturing revenue for the third quarter of 2007 is $2.1 million of costs for damaged batches of Erbitux.

Excluding these costs, gross margin of manufacturing revenue was 8% for the quarter.

As announced last month, we entered into a settlement agreement with MIT and Repligen, which resulted in a $50 million charge for the quarter.

The company's estimated annual operating effective tax rate for 2007 is approximately 41.5%.

Additionally through the nine months ended September 30, the company has recognized a net discreet charge of approximately $4 million, primarily related to certain tax returns method changes filed during the year.

Total cash tax payments for 2007 are expected to be approximately $4 million.

Our financial position remains very strong, with $[1.0] billion in cash, cash equivalents and marketable securities.

I would now like to turn the call back to John to conclude our prepared remarks.

John?

Thank you, Peter.

I thank you all for joining our call today.

I believe this is a truly exciting time for ImClone, and I look forward to reporting on our continued progress.

I would like to note that we are planning to host an R&D day for the investment community in the coming months to allow us to more fully showcase the many clinical and preclinical development activities we have ongoing.

I look forward to meeting many of you at that event.

We will publicly announce the details of that event when they are finalized.

We will now open the floor for questions.

Operator?

(OPERATOR INSTRUCTIONS) We'll pause for just a moment to compile the Q&A roster.

(OPERATOR INSTRUCTIONS) Your first question comes from May-Kin Ho of Goldman Sachs.

Hi.

I wanted to ask a question about, really, how your payment from Bristol would be recognized and how we should, going forward, project out the recognition fraction?

May-Kin, this is Peter Borzilleri.

So you're referring to the clinical and regulatory expense line?

Yes, as well as the license fee line.

Okay.

On the license fee line, with the expanded and modified clinical production plan, this resulted in, in addition to an increase in clinical spend projections, also an increase in the amount of dollars being spent in the later years.

So with the way we recognize revenue, this ended up effectively delaying, or deferring the recognition of some of the license fees and milestone revenue.

Does that--

In the past, it somewhat depended on how much you have received to date, and then it's amortized, et cetera.

So, going forward, is that how -- the way that it will be done as well?

(multiple speakers) different?

No, the approach is the same, just the amounts used in the calculation have changed.

So, for example, for the next year, how should we think about that?

I would say at this point we're not really prepared to give guidance for next year.

Okay, and then for the actual spending then, it sounded like in the past, it would depend on whether it was a Phase I, 2, 3 trial versus a Phase 4 trial.

Now it's changed to a threshold.

Is that the right way to think about that?

That is correct, but it encompasses essentially the same trials, but there's just a defined threshold value in place that until that threshold value is reached, the obligation falls entirely with BMS.

So under the old agreement, the Phase 4 studies were shared equally.

So now it doesn't matter what phase they are.

BMS will pay for a certain amount and then above that, you would split about equal, or what is the percentage split?

We're not at liberty to disclose the percentage, but what you said is correct, that it includes the Phase 4 studies.

And is the threshold a different one every year?

Is it a cumulative threshold?

It is a year-by-year threshold, but the amount, we're not at liberty to disclose.

All right.

I guess, maybe Michael, you can talk a little about the market dynamics at this point.

You indicated that you have increased share for EGFR market.

Yes, May-Kin, thanks for the question.

The share of the EGFR market has now topped over 80%.

Remember, we've spoken in previous earnings calls about what that 20% Panitumumab share of the EGFR market is, roughly half of that coming after Erbitux, half of it coming probably at the expense of Erbitux, but in the past we were below 80%, we were going down around 75%.

Now we're above 80%, so we're very pleased with that.

And have you seen any impact from some of the recent announcements, or until we actually have data presented probably, not tremendously.

Which specific announcements are you referring to?

For example, CRYSTAL.

Yes, I think there's a general sentiment.

We have not necessarily seen major share increases in the first-line setting, if that's what you're referring to.

Yes.

And at this point, what is your penetration in the various lines of therapy?

Yes, in the second line, we've grown to roughly 15% share in second-line colorectal cancer.

Third line, third line plus is at around 30% share.

In the head and neck market, I'm a little less confident with these numbers, just based on the various market audits that seem to conflict somewhat, but we've got a dominant share, as we mentioned in the refractory, the bottom refractory population, up in the range of 45% and then roughly about 20% in the local regional.

And what about duration of therapy in the various lines?

The duration of therapy has been relatively stable from quarter to quarter.

So, May-Kin, if you don't mind, we can move on to the next questioner.

Thank you very much.

All right.

Thank you, May-Kin.

Thank you.

The next question comes from Gene Mack of HSBC Securities.

Hi, thanks for taking the question.

I guess first is when do you think the -- it gets kind of hard to sort of project some of the expenses of that from meaningful guidance on your totals.

When do you think you might be in a position to be able to do that with the agreement that you have in place with [BNY], or at least get us some comfort on what will be delivered on a net income basis going to 2008?

Gene, you were coming in a little bit low there in the volume, but your question was about guidance for 2008?

Yes.

At this point, we're not in a position to provide any guidance.

I would say, in our end-of-the-year call, in the first quarter of 2008, we'll be able to do that.

Okay.

And I'm sorry if I missed this, but did you talk about where FLEX might be presented, or is there any update on when and where that might be presented?

Gene, hi, this is Eric, good morning.

At this time, we have not made that decision, and it will be a decision made in the near future.

Okay, and has there been any off-label use of the drug since the announcement?

In lung cancer?

Yes.

We've not seen an appreciable change in that share.

Okay, thank you.

Thank you.

Thank you.

Your next question comes from Yaron Werber of Citigroup.

Yes.

Hi, good morning.

Eric, I wanted to ask a question on FLEX.

The study was designed to increase survival from eight months to ten months.

Can you give us a sense -- is that the absolute -- should we think of this as a two-month difference as to what you had to show to reach your endpoint, or if the curves are pretty consistent throughout, does that mean you can actually make your endpoint successfully without showing a two-month difference?

And then, I had a follow-up, as well.

I think, Yaron, we've discussed this in the past.

The eight to ten months are relative assumptions for patient number projections that would be necessary in the study.

Obviously, how the curves will basically turn out will depend on many factors, depend upon the coefficient of variability around the numbers, and as well as the numbers themselves.

And I think at this time, we would really like to present all the FLEX data in its entirety, both the primary endpoint, the secondary endpoint and the subset analysis and hopefully that will be presented real soon.

What about -- what can we -- one of the things we hear from docs is it's going to be a point to try to handicap or translate the differences in the chemo regimen to the U.S.

type regimens where -- the U.S.

regimen now, you can typically see nine to ten months just from the chemo arm alone.

What would you expect, or what should we expect from this data in terms of how competitive this regimen would be, just chemo alone, relative to the U.S.

regimen?

Well, Yaron, I'll just start out, and I think I'll allow Michael to join in.

But I think the Cisplatin and vinorelbine regimen has performed very well in clinical trials, and the range of its performance encompasses the range of performances of other regimens, other modern-day platinum-based regimens, and I think that you'll just have to look at how this particular regimen performs.

But as far as the relevance of the regimen, Michael, do you want to--

Yes.

I think that we've got to remind ourselves of a couple key points.

One is, this data represents the first time an EGFR antibody has shown a survival benefit in this setting in combination with a chemotherapy doublet.

In addition, as John had pointed out, it's the only antibody to show overall survival in a patient population that's not restricted by histology.

So I think that's going to be one of the most important points going forward.

In addition, though, we've got clinical studies and significant clinical experience in combination with the predominant chemotherapy regimens with such as Carbotax and Gemcis, but not restricted to those.

What the regulatory agencies are going to say at the end of the day is anybody's guess, but our goal is to ensure maximum access to all patients for this regimen, for this therapy.

In your view, is there a certain number of absolute weeks of overall survival difference that you have to show for this to be considered clinically meaningful?

What's the magic number here?

Is it two weeks, is it four weeks?

I think, Yaron, I don't really have the answer to that, and obviously there is a point in which difference is not going to be clinically relevant.

I think that that is something that we all know.

Obviously we're going to have to see the data.

You're going to have to see it for yourself, and you're going to have to look at what -- Currently, Bevacizumab is not indicated for approximately half the patients with this disease, and another significant proportion of patients, it's really not prescribed for.

These patients are not felt to be good candidates for it.

I think you're going to have to take really the whole data set, take a look at it, take a look at the subset analysis, but I'm not going to -- Obviously there is a cutpoint at which any significance, statistical significance, is not clinically relevant.

I really can't answer that question for this particular trial, but, again, you also can't look at medians.

You have to look at all the data, and we intend to show you all the data.

Fair enough.

I'm just going ask pricing-wise --

Actually, if you don't mind--

I'll hop back in the queue.

Oh, that'll be great.

Thanks so much, Yaron.

Thank you, sir.

Thank you.

Your next question comes from Geoffrey Meacham of JPMorgan.

Hi, guys, this is actually Terry calling in for Geoff today.

Just real quickly, now that you guys have the FLEX data in house, do you think that this trial alone could be enough to file on?

And also, is there a potential that you could file before presenting the data?

This is Eric.

Hi.

This study is, by all means, defined as a pivotal trial, and it's our intention.

And obviously I will hope to be able to clarify precisely our filing strategy, but the FLEX study can be filed as a pivotal single study to support this indication.

And particularly because the endpoint is -- The best endpoint you can get in terms of clinical benefit, and that's overall survival.

In addition, we feel the same way about EXTREME.

Single-study filing, and we intend to do that.

Now, obviously, in the lung cancer filing, we will be filing several other studies, as well, including BMS 99 and 100 in the package, but FLEX as a single study, we view as a supportive study to support the indication.

Okay, and just a quick follow-up.

Did the percentage of the lung population that are EGFR-expressing patients, do you guys have an idea there?

It's been quite difficult in the past, and obviously you'll also have to see the data.

But I will say that in the past when you look at the historic -- in the literature.

If you look in the textbook per se, often you'll see a range that ranges anywhere from 40% up to 90%, and I think that really is a function of the various methodologies that have been used over the years.

If you look at the recent JCO test, what actually defines EGFR positivity is any positive staining.

And we're seeing currently at the present time in lung and colon, the majority, the overwhelming majority of patients stain positive.

As far as the specifics in the FLEX study, I would love to be able to give you those data now.

We're compiling all that data, and we will present it in full in the near future.

So do you think that it would be limited to EGFR-expressing patients based on the FLEX study, or would that not be the case?

I think we haven't really completed our discussions with the FDA.

Obviously it may depend upon the propensity, predominance, or the number of EGFR-positive patients in the study.

I mean, the proportion.

But we have not completed our due diligence with the agency at this point.

Okay, thanks a lot.

Thank you.

Your next question comes from Michael King of Rodman and Renshaw.

Thanks for taking my question.

I was -- commercial question about KRAS.

Your competitors at Amgen, yesterday on their call were making a fair bit of noise about how KRAS mutants are going to be excluded, and that's going to help Vectibix.

I wonder if you could -- And you guys had at ACO regarding KRAS response in KRAS mutants, as well.

I'm just wondering how you see that playing out commercially, also what available kits there are to test for KRAS mutations.

Hi, Mike.

It's Michael Bailey.

Hi, Michael.

Good question.

Obviously the data that was presented at ACO for Panitumumab was pretty convincing, especially for the European authorities, but I do want to make sure that people understand that that's for monotherapy.

So, what that may answer is that KRAS is predictive of therapeutic intervention, but it doesn't necessarily apply to a chemo combination or any kind of combination.

So, I think we've got a hold on our assessment of this ultimately until we get that data that compares Erbitux and chemotherapy versus the chemotherapy looking at KRAS.

And obviously we've got an interest in looking at that from CRYSTAL and EPIC and all the other combination data.

So it's enticing data, but I think it's early days to be applying that to combination therapy, and I think we learned that lesson with pace.

Michael, this is Eric.

I just want to add another facet of this story.

KRAS, until -- I agree with what Michael said that KRAS looks pretty nicely predictive to monotherapy in the refractory setting in the Panitumumab study, but KRAS has always been a prognostic factor.

It's a factor that really marks bad disease.

I think we have to really be careful, particularly in the combination setting, in the upfront patients, because now we start to select patients out on the basis of KRAS.

Certainly patients with good prognostic disease always do better with any therapy generically, but then we're going to say, you patients who have bad disease, who can also benefit, but yet less, will not actually be selected for these therapies.

So we're really looking at KRAS, but we're also looking at other biomarkers that may be more predictive.

And I think we have to be careful about KRAS and prognostic markers.

We don't want to exclude patients who still would benefit from therapy, but not as much.

So we shouldn't expect any prospectively designed trials looking at response or PFS in the KRAS-positive population?

No, I think that that is -- we're really going to be -- before doing that, we want to make certain, based upon the data that we have and the study data that we have.

And we're actually looking in our early-stage studies, if KRAS is really predictive, and we'll have patients who did not get Erbitux and who did get Erbitux, for benefit.

Because it may just predict for chemotherapy benefit, as well, and we want to look at other markers, and we're doing that now.

Okay, right.

And then is there a commercially available test as far as you know?

I believe that -- I don't have the answer to that, but I believe that you can run KRAS in many labs, including Genzyme.

If I may, just one more on the commercial front again.

Michael, can you help us understand what your target inventory level is going to be for Erbitux going forward?

Is it the $9 million still going to be adequate, or should we see subsequent quarters with some kind of inventory accumulation?

Well, we've moved to the open distribution model for about 50% of our sales, so there might be some additional inventory, if you will, buildup over the course of the next year as we go more fully to this open distribution model.

But we'll try to keep you as informed as possible with regard to this.

And any goals to how much inventory you would want to have in the channel, or is it going to be a function of weekly sales or--

Yes, now, that's a good question.

Generally speaking, we're shooting, and it seems like the wholesalers are leaning towards keeping an inventory of about 0.3 months.

Thank you.

A little over a week-and-a-half.

Perfect.

Thanks a lot.

Yes.

Thank you.

Your next question comes from Han Li of Stanford Group Company.

Yes, just quick questions on the regulatory pathways for Erbitux.

Merck KgA mentioned yesterday because they filed for first-line colorectal last quarter, and they may have to wait until '08 to file for lung cancer and head and neck.

What's the -- because there's no parallel regulatory pathways in Europe.

What's the situation here in the States, and what should we expect regarding the sBLA filing of the three additional indications?

Hi, Han, this is Eric again.

You can imagine, with all the data that's come into our laps recently from these pivotal trials, there's a lot of dynamics going on, dynamics in terms of data flowing from our partner, Merck KgA, to us.

Three sets of data from three major clinical trials.

Certainly the data needs that we have are very different from what Merck KgA faces with the AMEA in Europe, meaning that when you file in the United States, it's a bottom-up filing.

The FDA sees all data -- all data, all algorithms -- and actually puts them together and does the analysis.

It's very different in Europe.

In addition, we have three parallel discussions going on with the FDA, or that will go on with regard to lung, head and neck and colorectal carcinoma, and then there's the filing.

Now, obviously as I have stated, I think, in reference to Michael's question that -- or the prior question that we have two files based upon very robust survival data, and I think that those will obviously be somewhat clear-cut.

That's the EXTREME study for head and neck, and the lung cancer FLEX.

And we will -- when we complete our negotiations with FDA and discussions with FDA and determine precisely what needs to be in the filing, I envision that those will be rather easy filings and will go in relatively soon.

With regard to colorectal carcinoma, we've actually taken a different route.

And let me say that CRYSTAL met its primary endpoint of progression for survival solidly with an IRC, and we're quite proud of those data.

But we feel that we want to really pursue a very sensible, comprehensive strategy in view of what we've observed at the FDA over the last couple of years.

And we feel that there's tremendous evolution that's occurring, and I think that this is an opportune time for us, but we've elected certainly with all the other business going on, with lung, and with head and neck cancer, that we will prepare those files first, and we will wait for survival data, mature survival data, which will occur in mid-2008.

Can we file before in colorectal cancer?

Certainly we can do that, but we think that it's wise to get our other files out of the way and send in a comprehensive package to the FDA.

And in view of what's going on with progression-free survival now with the agency, we think that that's the best strategy to pursue.

And also, along that line, a follow-up is what is the time line for the survival data for CRYSTAL in colorectal cancer, and also the survival data for the lung cancer study, BMS 99?

We anticipate that CRYSTAL will have survival data by mid-2008.

That will allow us to put the package together.

Certainly we'll be working on that package in the interim.

With regard to BMS 099, it will be in the first half of 2008.

However, remember, with regard to survival on the BMS 099 study, that was not the primary endpoint.

I understand.

Thank you.

You're welcome.

Thank you.

Your next question comes from Eric Schmidt of Cowen and Company.

Yes.

Thanks for taking my question.

Most of them have been answered.

Maybe a bookkeeping question on Japanese revenue, how that might flow through your P&L once you get approval in Japan.

And maybe you could update us on your thoughts of timing for approval?

Yes, this is Michael Bailey.

I can comment on our estimates for timing of approval.

We're -- as was stated in the press release back in January, we're looking at the end of '07, the beginning of '08 as our hopes.

As far as booking sales, I can defer to Peter on how those sales will be booked in Japan.

Right.

As when we announced the execution of the agreement, there's a 50% share profit and loss, with Merck getting 50% and BMS sharing the remaining 50%, or 25% each, and then the -- We would also be getting a 4.75% royalty from Merck for the sales to Japan.

The sharing of profit and loss reflects the coexclusive rights to Erbitux in Japan, as previously granted by ImClone to Merck.

And, Eric, this is Dan O'Connor.

Just to follow-up a little bit.

The Merck-Japan entity is just going to actually be booking the sales in Japan.

And as Peter just said, there will be a profit loss split 50/50 between the Merck-Japan entity and the Bristol-Japanese entity.

And then thereafter, the 50% that goes to the Bristol's Japanese entity, BMKK, will be further split between ImClone and Bristol.

And also, as we noted in our press release, ImClone receives its 4.75 net sales royalty paid by Merck.

And that's on the Japanese sales.

So you'll book royalties on Japanese sales, I assume on your royalty line and then you'll book a separate line for your interest in that Bristol-ImClone-Japanese JV?

Correct.

Okay.

Thanks.

And one follow-up on the FLEX data for Eric.

I think the comment was made that Merck KgA is validating some of the secondary endpoints of analyses.

Can you speak at least to, in the first blush, whether there's some consistency to this data set, or is that being questioned by these analyses.

I didn't know how to interpret that statement.

No, Eric.

Merck KgA worked primarily to get out that primary endpoint, and when the last event occurred, that triggered the analysis.

And you can imagine, progression-free survival on response rates are much more difficult, and Merck has a very solid validation process, and they are working on those endpoints.

There is really nothing to knock here, and we're just basically waiting for their validation processes to come to an end.

Eric, do you think you need consistent response rate in TFS data from this trial to file?

Well, that's a good question.

I think that you'll have -- survival really trumps all.

It's always nice to have consistency.

Thanks.

Thank you.

Your next question comes from William Sargent of Banc of America.

Thanks for taking my question.

Eric, I guess first part of the question, if you based on waiting until officially mid-'08 to get the CRYSTAL overall survival data and filing, could you talk about what next steps would be once the CAIRO II data is available?

And if it's positive, if you would wait to make that more of a comprehensive package, or make that potentially two filings?

Well, at this point, our intention is to not make it two filings, so that can always change, but we feel very confident about the CRYSTAL PFS data, and its supportive data from EPIC.

We're not going to wait for CAIRO II.

CAIRO II is a Northern European cooperative group trial.

The way data was actually, was actually -- will be assessed will be quite different from our routines in company-sponsored trials that were really aimed at filing.

So that is not our intention at this time.

Could we file a supplement based on CAIRO II?

You bet you, we can do that.

Just to clarify quickly -- is CAIRO II, is it a centralized review?

At this point, I do not have those information.

The centralized review is basically going to be somewhat delayed.

The data that will initially be reported will not be a centralized review.

That can always be-- (inaudible).

Sure.

And then I guess looking towards the future with FLEX and with the CRYSTAL filing going into first line, I guess more of a question for Michael, what are your thoughts about any pricing changes moving forward, in earlier lines of therapy.

Yes.

Hi, Will.

I think as we've said in the past, we're evaluating all that, as certainly the FLEX data rolls in.

That's a whole another piece of information that is going to be critical in that decision, but, again, you know, our aim is to ensure maximum access to patients, and we will define a price that will do that.

Would you expect guidance before inclusion around any pricing or potentially more—(multiple speakers)

My personal opinion would be we'd probably be pretty closely linked to an indication, any new indication.

Thanks a lot.

Congratulations on the quarter.

Thanks.

Thanks.

Thanks, Will.

Thank you.

Your next question comes from Steve Harr of Morgan Stanley.

Hi, guys.

It's actually [Marshall Urest] in for Steve.

I have two questions.

The first one is, are you guys committed to also presenting the lung data from the BMS study to help us put these chemotherapy differences in some perspective?

That's a great question, and we are intending to look at all our trials and to analyze all the data and potentially look at subset analysis across the studies, particularly in the underserved patient population, or also to look if there are any general themes that are emerging.

But at the present time, FLEX is our major trial.

There are some interesting subset analysis that will be conducted.

Obviously we're going to be focusing on histology and some strategic subsets across all studies.

So just to be clear, at this point you guys have no plans to present the BMS data?

We did present the BMS data at the [ISLAC] meeting just two months ago.

All right.

Then on Yeda, can you guys give us some kind of update on where that is and when we can expect to get some visibility?

Sure.

This is Dan, Marshall.

So we've got basically two court actions occurring in parallel.

One is the appeal from the district court's decision to the federal circuit.

That appeal has been fully briefed and is now moving on to the oral argument phase.

The second is the declaratory judgment action.

That action is in discovery, and is, as I said, they are both continuing in parallel.

All right, thanks.

Sure.

Thank you.

Your next question comes from Eric Ende of Merrill Lynch.

Thanks.

I'm still trying to understand with respect to the FLEX study what the label might look like.

Would the label specifically mention the chemo regimen used in FLEX, or might it be all Cisplatin-based chemo regimens?

How might that look?

You know, Eric, this is Mike Bailey.

I'm asking the same question, looking forward to the regulatory authority giving us some guidance on that.

Okay, thanks.

Your final question comes from Jim Reddoch of FBR.

Good morning.

I think all my questions have been answered except for two modeling kind of things.

One is the gross royalty expense has jumped up a little bit over the past three quarters.

I think it was 10%, 12% and 10%.

Is 10% what we should use going forward?

And secondly, is it fair to think about -- question on the license fee as just previously the collaboration with Bristol had an earlier ending date, so all the amortized, the balance of the amortized revenue had to fit within that date and now that's just stretched out, so we're just stretching out the amount that gets amortized each year.

Thanks.

Hi, Jim, this is Peter.

That's not entirely correct.

The -- with the amendment, the spend has been effectively increased, and the period is not necessarily extended, but just larger dollars being spent in later years than the original program.

I see.

Okay.

And then the royalty fee expense?

Yes.

Repeat that question, I'm sorry, on the royalties.

Which one should we use for the fourth quarter?

10% or 12% or something else?

Well---

I think I calculated, but it was 10% in 3Q, and 12% in 2Q, if I calculated that right.

Is there any particular reason why that gross royalty expense would move around?

We, we had a -- let's see.

So--

This is Dan.

Sorry.

Are you referring to the third party royalty that the company is paying out, so the royalty cap on Erbitux?

Yes.

Maybe you don't call it gross royalty expense.

I just assumed you guys were looking at my model.

Just kidding.

Sure.

So it's the royalty expense.

So the gross royalty expense?

So it's, it's -- historically it's been a 9.75% royalty for Erbitux, and recently it's gone down a bit, and I think Peter can follow up and give you the exact number on that.

Okay.

Fair enough.

Thanks.

Okay.

Thank you.

Well, up front, we had a little bit of technical problems, which I would like to thank you for your patience in holding on, and as I mentioned at the end of the prepared remarks, we have an upcoming R&D day.

We're excited about sharing the progress of our pipeline with you, both preclinical, as well as clinical, and on a personal note, I look forward to meeting many of you at that time.

Thanks for your patience, and I look forward to seeing you there.

Thank you.

This concludes today's ImClone Systems 2007 third quarter earnings conference call.

You may now disconnect.