Celgene (CELG) Presents at Robert W Baird Global Healthcare Broker Conference (Transcript)


Celgene Corp (NASDAQ:CELG)

Robert W Baird Global Healthcare Broker Conference

September 07, 2017, 15:45 ET

Executives

Peter Kellogg – CFO, CAO & Executive VP

Analysts

Brian Skorney – Robert W. Baird & Co.

Brian Skorney

Okay. Good afternoon, everyone. Welcome. I’m Brian Skorney, one of the 2 senior biotech analysts here at Robert Baird. With me, I have the management team of Celgene. Celgene is one of the large-cap names in the biotech space, has had a tremendous success in the development of numerous oncology product. That’s been their historical focus. But of late, they’ve been diversifying into numerous other areas. They have a very deep and diverse pipeline, a number of partnerships. There’s way too much to discuss in just a 0.5 hour-setting, but we’ll try to do as much as we can.

So Peter, maybe, if you don’t mind, maybe you can start by just giving us a brief background on the company and touch on the different franchises you’re involved in.

Peter Kellogg

Sure. Thanks. So I’m going to go through a couple of slides really quickly to kind of recap where we are. And obviously, this is all under the safe harbor clause. The one thing about Celgene, if I can emphasize for you today, is that we are a company that has really phenomenal commercial portfolio of drugs on the market today. They’re doing very well, they’re long-lived assets, which is really nice, really strong performance and position in the marketplace. But we’ve also spent the last 5 or 6 years really building, I think, a tremendous pipeline of innovative therapies going after really strong areas of high unmet need and in areas where science is really opening up, Hem/Onc, hematology, oncology; as well as immunology. And increasingly, some of the assets that we have in our pipeline begin to bring us into some of the neuroscience areas as well. So all areas with a significant unmet need and where I think the science opening up has been tremendous in the last 5 or 10 years.

This is a quick snapshot of Celgene globally, where we operate in 60 countries, have sales in 70 countries and manufacturing in different spots. We have very focused research sites in New Jersey, California, Massachusetts, Washington and Spain. We’re a pretty good-sized company in terms of revenue and market cap, but we operate very leanly. We’re about 7,000 employees globally, which I think, Brian, you’d agree is pretty small for a company that’s to our size.

The middle part shows the major products we have. The REV, REVLIMID, POMALYST/IMNOVID are the big therapies in multiple myeloma. ABRAXANE in solid tumors. OTEZLA recently in the last couple of years has really established a strong position in psoriasis and psoriatic arthritis. Good news, just recently, we have launched IDHIFA, which is a product that we developed jointly with Agios. Very interesting oncology product for AML. And we really have a tremendous pipeline, as I mentioned. I’ll talk a little bit more about that, but we feel that our expertise in hematology, oncology, inflammation and immunology is really great.

These are the 4 drugs. I think we’ll talk a little bit about them today, so I’ll skip through these slides. But obviously, REV and POM continue to grow extremely well. OTEZLA, launching and ramping up in psoriasis. ABRAXANE, a real strong therapy in pancreatic cancer, the market leader as well as it’s used in breast cancer and lung cancer. And there’s some very interesting late-stage trials going on with Roche at the moment in both of those areas. So it’s in combination with FPD-L1.

This is a snapshot of the pipeline. I think the whole purpose of the slide is not to go through them all but rather to say we have a lot of pipeline assets in multiple myeloma, in lymphoma and leukemia, in solid tumors, in myeloid disease and in inflammation and immunology. A number of these assets have come from our collaboration partners where we work very closely with them. In many cases, we’ve opted in on them. But many others actually have come from our own internal pipeline, and you’ll notice some of the programs actually are what we call CELMoDs. These are very much like REV and POM, only they have been reengineered with different substrates and different characteristics to have different therapeutic benefits. So you’ll hear more and more about next-generation CELMoDs coming through our pipeline, which really are unique. And I think it’s an area of expertise that Celgene is very strong in the industry.

This is a shot that we put together to highlight that as you go from today through 2020, a lot of our revenue base is from the products that are currently on the market, and there are a couple of pipeline assets. But most of the assets we have are quite long-lived, have patent lives well into the next decade and will become very important assets to think about for our revenue story beyond 2020 as we go through the 2020 through 2030. And you can see a lot of them right now, 19 of them are in late-stage trials at the moment, and we’ll be providing data readouts in the next year or 2. So we’re actually in hot period right now, about 24 months where we’re going to get quite a few late-stage Phase III data report out to give you a strong position of where we’re going as a company.

Just to give you a sense, this is a chart we developed earlier this year to give you a sense of when some of the approvals, some of these late-stage assets might come through and what the peak revenue financial might be. Of course, this is the best guess at the moment in commercial assessment. But the point is to say that we have quite a few assets in late-stage that have nice commercial potential. And as you can see this legend, which looks a little bit like a cell phone reception bar, takes you whether or not it’s $1 billion or $2 billion, but those are all sizable assets. Very importantly, we believe we’re getting to an inflection point as a company. There’s no question that our commercial assets have done really well, and we believe we’ll continue to do quite well. We’re extremely well positioned in the marketplace. We have a lot of pipeline assets that we just pointed to in terms of — in the next two years where Phase III data will come out. And beyond that, as that bar chart show, we have an enormous pipeline of innovative assets coming through. And so we’ve done a lot of BD in the last 3 to 4 years. We continue to be maintaining that pace with BD. We’re strong financially, and we feel like we can continue to really drive this company forward. So we’ll focus on the future and very excited about what the science is bringing to us.

So with that, all questions are welcome, Brian.

Brian Skorney

Great, and if anyone has any questions from the audience, please feel free to shoot up your hand, and I will give you priority over my questions.

Question-and-Answer Session

Q – Brian Skorney

So maybe just starting to focus a little bit on the oncology side of the portfolio, I mean, REVLIMID has just been an incredibly successful drug. When we think about the next few years for REVLIMID, what are the key drivers here to see growth in revenue both in myeloma and expansion and upstream in myeloma and in geographies as well as other indications?

Peter Kellogg

Sure, be glad to. So let’s start with the heartland business, the U.S. multiple myeloma, we have a very good position there from a market share standpoint in newly diagnosed as well as other uses. REVLIMID has established itself very nicely, if you will, almost as a backbone therapy. A lot of the new therapies coming into the market are being used in combination with REVLIMID in the clinical trials to show efficacy, but that’s great for REVLIMID. Secondly, while we have a very strong market share, the duration of use at this point over the first 4 years of treatment is about 23 or 24 months. From first dose, consecutive treatment is about 18 months, and that’s much less than some of our clinical data would say is appropriate. In fact, we did a combination trial a couple of years ago. It was reported out in 2015 called SWOG 777, which showed the benefit of using REVLIMID, Velcade and dex in combination, and that showed the duration of benefit to be 43 months. So you can see from where we are today, we’ve got a lot of room to grow for more duration of use of the drug as patients are newly diagnosed. In addition, we recently have gotten data to show that it’s very appropriate to use REVLIMID to duration post-transplant as a maintenance therapy. And in the U.S., that’s being used for about half of the post-transplant patients. But for the other half, they’re either on fixed dose amounts or not being used at all. So there’s a very nice growth opportunity there as well. So I think that in the U.S., we’re going to see continued strong performance and growth with REVLIMID both in combinations with other drugs and continuing to drive duration in the first line as well as post-transplant. So it’s very strong. In Europe, the newly diagnosed indications were recently approved as well as the post-transplant indication. So there is a combination of market share growth as we expand the usage of our drug in frontline as well as in with coming with that will be a strong duration. So I think it’s a pretty bright story. The other thing that’s very interesting that you pointed out was that we do have a number of trials right now of using REVLIMID in lymphoma, and we have 5 different trials that we started a couple of years ago. One of which is already reported out, but we have 2 others that we’ll see Phase III data in, in the fourth quarter this year, and they’re called AUGMENT and RELEVANCE.

So I think that’s going to be kind of an interesting opportunity for us, is to see whether or not in combination with RITUXAN, REVLIMID doesn’t improve the outcomes in lymphoma. And in one case, in the RELEVANCE study, actually reduced the need to use chemo. And since a lot of these follicular lymphoma patients are a little frail and elderly, very often, the opportunity to use R2, REVLIMID plus RITUXAN, as opposed to RITUXAN plus the chemo combination might really be attractive. So our fingers are crossed, and we’ll see that data in the fourth quarter. So I think, overall, a very bright future for REVLIMID going forward.

Brian Skorney

Great. All right. One of the things I got a lot of questions on — for a lot of large-cap commercial companies, and maybe you have some thoughts on just kind of health care legislation in general. Obviously, the ACA keeps coming up for potential repeal. I think they’re now talking about meeting again next week with a new proposal. What have been the benefits and detriments to Celgene franchise from ACA? And do you see any risks to the company or benefits from its repeal?

Peter Kellogg

Well, we’re obviously very interested in being involved, and we have a lot of our senior executives maintaining a presence in Washington and making sure our voice is heard. Our focus has primarily been to focus on the value aspect of the drugs that we develop and to make sure they’re really being priced appropriately to the value and that they’re made available to patients on an appropriate basis and being able to use — be used on label as they’re prescribed. Obviously, anything that kind of restricts the access to our drugs, we see, is not necessarily beneficial to the health care system overall. And so the main themes that we would have is we want to make sure that our drugs are reimbursed and priced according to the value that they bring and that they’re made available to people. I think for the most part, what we’ve seen so far in the U.S. health care system is that the benefit of our drugs has been — has shine through in a sense. It has made our drugs available.

And so as we focus on the future while we may or may not be particularly advocating any one particular solution, what we really want to make sure of is that we’re being reimbursed properly from a value standpoint and actually getting full — that patients and doctors are able to have full access to our drugs. That is probably the high bar that we shoot for.

Brian Skorney

Do you think that the ACA has benefited you guys in terms of the elimination of lifetime maxes and would draw a proposal to reinstitute lifetime max be?

Peter Kellogg

Yes. So I think probably what we would hope is that the scientific evidence of use — for use of our drugs is what ends up being the practice, not artificial barriers. Because in fact, we’re dealing with very serious diseases in multiple myeloma with ABRAXANE, in breast and lung cancer and so forth, in the Hem/Onc franchise. And then also in the I&I franchise, we’re getting into a lot of areas like multiple sclerosis, ulcerative colitis, Crohn’s disease in the future, which are very serious conditions and where good therapies are needed, but they really need to be used as the science would dictate. So I think when you artificially constrain the use of drugs or restrict access, you’re really hurting the patients’ outcome. And so we would be — try to make sure that people understand that if they’re priced properly and the value is there to support that pricing, they really ought to get full access. And I think that’s what we tend to focus on the most when we talk to our counterparts in Washington to make sure they’ve got good policy that’s appropriate for the health care providers as well as for the patients.

Brian Skorney

When we think about kind of some of the next stages of development in oncology, in particular, immuno-oncology has been a very hot area. The CAR-T side of that has picked up a ton of new press with the Kite acquisition the other week. So I guess, you guys have 2 partnerships in the CAR-T space, Juno and Bluebird. So maybe you can just kind of run us through your high-level thoughts of the impact of CAR-T and the prospects for CAR-T beyond sort of the — what we’re seeing in very kind of niche relapsed/refractory indications potential for expansion and beyond.

Peter Kellogg

Yes. Listen, first of all, we are very excited about the whole cellular immunotherapy approach, and I think our 2 collaborations with Juno and with Bluebird are just phenomenal. And there’s been data reported in both those areas. The Bluebird collaboration right now is focused on the BCMA CAR-T approach, which data was produced and shown at ASCO, which I think really was in a sense, I would say from my perspective, was the darling of ASCO this year. It was very late-stage patients who had been through, on average, 7 prior therapies, course of the therapy, and it failed and really were in a bad spot. And the complete response rate was extremely high, and they actually did MRD testing on 4 of the patients and found them all to be MRD negative. So unheard-of results from that. And obviously, that’s just kind of the proof of concept. And from there, now we’ll start to develop that BCMA CAR-T program in earlier lines and other areas.

We have enjoyed working with Bluebird on that tremendously, and we think that’s an area of enormous potential going forward. Quite frankly, I think that’s probably the furthest along at this point. Juno also has been a phenomenal relationship. They have a CD19 program, which is competitive with Novartis and Kite, which have been in the news a lot lately. We actually think that their JCAR017 program has got a tremendous amount of potential. They have done very thorough work on the manufacturing and on the science behind that JCAR017 program. So again, we’re very excited about that collaboration. And that’s a very broad collaboration, which, at the moment, is working on that CD19 asset. But we have got a relationship design that will last for at least 10 years in which as other programs come through, each of us can opt in. If it’s coming out of the CAR-T side from Juno, then we can opt in at certain points. And if we bring some other assets in — through BD, we can then expose them to Juno as well, and they can opt in. So it’s a long-term relationship really built on the foundation of technology of CAR-T and cellular immunotherapy. So I think while — as you said earlier, we’ve got a very broad pipeline. Clearly, these are areas that we think are very exciting have high potential. And I would really caution investors not to read too much into data they see today from any one company or another but recognize what has been accomplished with this approach and to think about how the engineering of these processes can improve. And as you say as you think about moving from where we are today to maybe having dual imaging, T-cell engineering and the other approaches, this can really move to some very exciting areas. So I think it’s something to watch for the future. I’m not at all surprised that a company like Gilead has jumped into that space, and I think it will be an exciting part of all of our business features going forward.

Brian Skorney

Great. On the other side of the immuno-oncology side is more classical targeting of antibodies with — or of antigens with an antibody approach. PD-1, PD-L1 being kind of the most notable. You also have 2 partnerships on PD-1, PD-L1 access. Tell us a little about what you find attractive from those 2 partnerships and what your thoughts are in terms of combination approaches for PD-1 and PD-L1 mechanisms in oncology.

Peter Kellogg

Sure. So first on the hematology side, we’ve had a collaboration now for some time with AstraZeneca, where we’re working with their PD-L1 asset in combination with various products that we have in our pipeline or commercialized as we have. And it’s all focused in various areas of hematology, multiple myeloma, myeloid disease, lymphoma. And so I think that’s an area that is all kind of leading up to proof of concept, so it’ll be really interesting to see some of those results this fall. We’re getting close to actually seeing some of the report outs. And so that’ll be, fingers crossed, an interesting area. And then recently, this summer, we just did a deal with a company that was actually here earlier today, BeiGene, where we got rights to their PD-1, which is a little bit earlier in development, but yet we think is a very high-quality PD-1 asset that we’ll be able to use with various assets in our pipeline that we have both internally as well as some of our collaboration partners. And that will probably bring us much more into the — some of the key cell tumor spaces, where we see significant unmet need. That was important transaction for us because we — I think it’s becoming clear to everybody that for the PD-1 and PD-L1 assets, it’s not really going to be that much of a mono therapy game. It’s going to be a combo therapy game. And so it’s — makes a lot of sense for us to have our own asset to work with in combination with our other assets. I think when you get to the point where you have success and you start to commercialize, that will make a lot more sense to have control over both assets in the pricing of that. So we’re excited about that. Conversely, I think it was a very nice deal for BeiGene as well. They will take over the commercial activities for our products in China. And having a local company that does local manufacturing in China working with our assets, I think, will be a nice advantage for us, plus it jumps them into a commercial footprint. So to me, that transaction was a real win-win, and it gives us access to an exciting PD-1 program.

Brian Skorney

Got you. Do you guys have any opinion on the debate of PD-1 versus PD-L1 and the relative narrative of the 2 approaches?

Peter Kellogg

It’s interesting. I think these are more debates at this point. I don’t know that we’ve seen the data to support it one way or the other, and I could repeat all the philosophical, scientific or hypothetical scientific arguments. But at this point, I think we feel good about the assets we have, and I’m not sure there’s — we’ll see. We’ll see whether there’s any strong differentiation there.

Brian Skorney

I think one of the other recent news items on the PD-1 side of things in myeloma was Merck’s 2 studies I think were put on [indiscernible] safety issues. Just given your expertise in myeloma and your development programs in myeloma with PD-L1, any thoughts on what was driving that? I mean, we’ve seen a lot of mixed data in PD-1 depending on clinical.

Peter Kellogg

Yes. No, Brian, I’m the CFO, first of all. So we’re getting into some scientific discussion, so I’ll pull out my CFO card here in a minute. But I would say that, listen, we take everything very, very seriously. And so we really have been taking time to take a look at what we saw there and talk to regulatory agencies. So we take those — all those scientific findings and safety findings very seriously, and we’re obviously looking at that very closely.

Brian Skorney

So when you think about the next stages of partnerships, acquisitions, I mean, you guys have been very proactive on that approach on the oncology side. I mean, where do you think the next move for Celgene is? Is there any direction that you think is really exciting? Obviously, immuno-oncology has been an area you’ve been active in as sort of a next burgeoning field of development out there.

Peter Kellogg

So this is always a dangerous question, Brian, because if I don’t mention every area that we’re focused in, I’m going to go home and get a little feedback from my teams here. But clearly, as you say, we have been focusing strongly and broadly on immuno-oncology. We think it’s a lot of potential. It’s not just PD-1s. Although we’re there in PD-L1s. But it’s also all of the different immuno-oncology approaches. We also have a very strong program that’s kind of our heartland in protein homeostasis. And I think about a year ago, we had a protein homeostasis deep-dive session for investors. I think it’s, Patrick, still available on our website with the slides. It’s very interesting science. Rupert Vessey and his team with Rob Hershberg led the charge there. Every time I go see those slides, I learn something new. So it’s very rich science. We have — and obviously, the CELMoDs with REVLIMID and POMALYST have been our lead programs. But we have a very rich library of assets coming through the pipeline in early development, where they’ve been designed to take on certain tasks in focused subsets of multiple myeloma as well as other diseases.

And the two, there in the pipeline that are most noteworthy are CC-122 as well as CC-220. And just to show the flexibility of these assets and how important and fundamental they are, CC-220 is being developed both in hematology as well as in lupus, which speaks a lot to how broadly based the efficacy and benefit of these drugs can be. Behind that, there’s a lot of other CELMoDs coming through our pipeline, some of which we’ve discussed and many of which we haven’t really disclosed. So I do think that the reason we did that deep dive was to prepare investors to be aware that, hey, there’s quite a bit coming. Some of them will be going into multiple myeloma. Some will be going to other hematology areas. And some, quite frankly, may be going to some areas of immunology and perhaps even neuroscience. So that’s all to be determined. What is clear is there’s still a tremendous amount of unmet need beyond REV and POM. As well as they’ve done, there are still segments in the market for multiple myeloma as well as other areas in hematology, where there’s tremendous unmet need with the patients. And so we’re targeting those very serious unmet need areas, and we think actually there’s tremendous potential there. So that’s protein homeostasis. Then if you move beyond that, you start to move into some of the areas of immunology that we’ve been working on. Some of the late-stage assets we have such as ozanimod and GED-0301 and I forget a few, luspatercept and so on. All are, in a sense, very novel, innovative drugs that I think have tremendous potential. A highlight will be this fall at ECTRIMS, you’ll see data of our Phase III results in MS for ozanimod. And I would say that’s going to be very interesting for investors because it will allow you to see the efficacy, but very importantly, the safety profile of ozanimod, which the combination of efficacy, safety and tolerability is really kind of the remaining unmet need in multiple sclerosis. There’s a reason why the ABCRs continue to do very well and have over 50% of the market because they’re very safe. While the efficacy may not be the same as other drugs, this is a long-term chronic disease. People are diagnosed in their late teens, in their 20s. So you really don’t want to be introducing additional toxicities to patients in their journey with MS. And so having a very clean safety profile will be important. And I would encourage everybody to look closely at that, that they’ll be coming up at ECTRIMS in October.

Brian Skorney

Great. And so I guess, that’s a good segue to start talking more deeply about the late-stage I&I franchise program. So with ozanimod going before the FDA, hopefully seeing approval on MS next year, how are you guys thinking about sales force build-out there? I mean, this is obviously a much different indication and therapeutic area than Celgene has been classically targeting. When I talk to investors, people wonder always, may they partner out the MS side of things and save money and focus their internal sales force on ulcerative colitis. How do you guys think about investing in the commercial infrastructure to launch ozanimod in MS?

Peter Kellogg

So I think for a long time after we first brought in the ozanimod asset, I think we, in fact, had said we are going to see what the data looks like before we make any commercialization plans going forward. We internally have now seen the data. We’ve only given a top line release, and it will be shown in its full glory at ECTRIMS. And I think it’s convinced us that we will be going forward for the most part on the commercialization ourselves. The footprint of MS actually is not that large. First of all, MS is a disease that most of the patients in the world are captured probably in 10, 12 markets around the world. Secondly, it’s a very highly-specialized market. The top 100 MS prescribers actually drive majority of MS prescriptions in the U.S. So there’s a very strong MS-centric kind of a structure in the U.S., and patients tend to go to those focused MS centers. It’s also a very much of a data-driven market. I mean, these are very high-end neurologists, leaders in their field, who studied the science in the clinical trials and the labels of these drugs very, very closely. And so we actually feel like it’s a kind of area very much like we’ve been exposed to it and developed an expertise in hematology where we could do extremely well. The third thing I’d say is if you’ve got an innovative drug that has a lot of high potential, you’ll find it’s very easy to bring in very top talent in the commercialization side. And in fact, we already have brought in a very strong commercialization team into our franchise as well as we’ve started hiring the medical science liaisons from other companies who have very strong MS experience. And so I think already at the headquarters and the marketing level, we’ve got a tremendous talent pool. I think building out the sales force in the U.S. and Europe and Japan won’t be that challenging. So we’re going to be powering ahead ourselves in the major markets. I actually think that the MS market still has tremendous unmet need. It’s a sophisticated market. There are older drugs like the ABCRs. There’s a whole set of oral drugs that have different profile, and then there’s other biologics later that are kind of positioned for more serious cases as well as some new entrants just recently that have gotten, for the first time, a label in secondary progressive as well as relapsed remitting. So it’s very competitive, but quite frankly, a very large market. It’s over $20 billion in sales worldwide and growing. So we don’t really — our sales projections don’t call for us taking over a huge portion of the market. But we think we’ll be able to be very competitive, and we’re hoping we can hit that sweet spot of great efficacy but also a great safety. If we can get that combination right, I think we have a tremendous value proposition.

Brian Skorney

So ozanimod is also in Phase III development for ulcerative colitis. I understand it’s way too early to talk about specific pricing for either of the indications. But it strikes me if you look at MS and you look at ulcerative colitis, the price points for therapies are very different. How do you think about approaching ozanimod from a price perspective given that you’ll be targeting very different one?

Peter Kellogg

Well, I have to quote my friend, Scott Smith, who ran the franchise. He’s now our Chief Operating Officer. And he always says you’ll hear about pricing the day we launch the product. But in fact, we are very well aware of that. There’s a couple of different scenarios that we could pursue. In fact, to some degree, the MS world with a gross to net pricing in the managed care activity, probably the pricing differential isn’t quite as profound as you might think on a net pricing basis. But secondly, we’re well aware of kind of the different dynamics in each of these markets and where we think the markets will go. And so we’re factoring that in into our strategy, but we’re not ready to kind of declare until we actually get out and launch at this point.

Brian Skorney

Great. So as I said, you’re in Phase III development for ulcerative colitis. That’s a good segue to start talking about OTEZLA and success that you had there. Tell us about how some of the changes in terms of formulary discussions occurred this year. I think there’s a little bit of a miss on OTEZLA in the first quarter. You guys said that’s a result of some of the pricing discussions to potentially open up more volume. How is that progressing so far this year? Should we expect an inflection point at some point this year beyond kind of the single-digit quarter-over-quarter growth?

Peter Kellogg

Yes. No, listen, I think, first of all, just to start off, OTEZLA I think has been a phenomenal success in its first couple of years launching. It’s been launching in the psoriasis and psoriatic arthritis markets, where there’s a lot of patients that are not on therapy, particularly in psoriasis. And there are a number of biologics that are used for more severe cases, but the majority of patients aren’t on any therapy at all. They might be on light therapy or ointments, but they’re not into it. Now this is an oral drug, OTEZLA. It has a very good efficacy profile and a very nice safety profile. And of course, it’s oral, so very convenient to use. And so our thinking as we launched that into psoriasis to take that first was to make sure that the drug was positioned before biologics. In other words, we don’t want to have patients who have failed on biologics. We prefer to get in and have doctors think about using OTEZLA first. And if the patient does well on that, it’s oral, it’s very safe, convenient to use, they’re set for a very long period of time, and they can live with the OTEZLA story for a long time. We’ve been very successful with that positioning. And actually, it’s worked quite well. So we’re not really exactly competing head to head with the biologics in the market. If a patient progresses and goes through, they may go from OTEZLA to a biologic later. But generally, what we’ve seen is the biologics market has been captured by a number of different biologics. Some of them are newer entrants. They’ve good efficacy profiles but are a little more complex to use, and they tend to be used for patients who failed all the therapies or who have got more severe cases. We’re trying to maintain that position. But the one thing that we — as you first launch in that space, this is an area that managed care plays a very strong role in. And so in the first 1.5 years or so of launch, we didn’t have the volume and the scale to really go in and contract with managed care. As a result, we are facing the volumes that we’ve got. And the performance we’ve got was overcoming step-edits that were based on managed care contracts that our competitors have established. And so very often, our patients and doctors can see prescriptions rejected once, twice or even 3 times before they finally got the drug. And eventually, that wears out the physician community, and the patients get discouraged. And so eventually, you do have to face up to the — you need to, as your volume gets bigger and your revenue base gets bigger, you’ve got the economic clout that go in the managed care organizations and contract with them. We did that at the beginning of this year with the 3 largest managed care organizations, and they are large, Brian. These 3 players constitute 60% of the psoriasis market therapeutics. So it’s a very important market. And in our Q1 earnings call, we actually had a very interesting graphic that I think Scott showed or maybe Terrie showed that highlight the fact that we, even without any contracting through the end of last year, had gotten to a point where our market share was in the 20s. It’s something like 22%, 23% roughly. But in those three managed care contracts, we really were actually high single-digit on average. And so really, we were being held back in those accounts, and so we kind of got open access. By contracting with them, we did start to get a discount gross-to-net, which did have a short-term impact on us. But we now, in all 3 of those accounts, have in a sense unrestricted use opportunity where there is no step-editing to another drug when they first get the prescription. So in a sense, they now have free access to the drug, and so we’re now ramping up the volume to overcome those discounts. That is part of the reason why you saw a softer number in Q1. Because now in those accounts, the volume is being discounted more, and the volume hadn’t yet picked up. In Q2, I think you saw the volume pick up very nicely. Now as you go through the summer — of course, we’re in the summer season, and psoriasis is always a much slower season in the summer because patients tend to not initiate new therapy in the summer because they’re out in the sun, that helps the skin a lot. But then as you come into the fall, you see the market pick up a lot.

So we’re really looking to see an inflection and a pick-up in the volume growth as we come into the fall and head into the winter season, which is where it really is the strong market for psoriasis. So really, it’s all systems go. We’re excited about it. We think OTEZLA is really well positioned. In fact, if anything, the portion of our patients that are prebiologic just continues to grow, so our positioning is working well. I think the team has executed really well, and we’re just now — these contracts with managed care are 3-year contracts. So in a sense, the first year is just the year where you hit volume lifting and you start to build your market share. You don’t really end up in an economic win in the first year. But as you get to year 2 and year 3, you start to see the returns come in hopefully. So we’re looking forward to that.

Brian Skorney

Great. I won’t steal the last question here if there’s a question in the audience. Otherwise, I will steal the last question. So I think one of the things you alluded to a little bit earlier was potentially expanding or at least looking in more and more into kind of the CNS space. I know I’ve heard Mark talk pretty adamantly about that in the past. So your thoughts beyond the kind of oncology BD activities. I mean, how focused is CNS versus kind of oncology or more of the classic immunology inflammatory programs right now? And what size deal would you guys think about even doing on the CNS space?

Peter Kellogg

Yes. No, first of all, a couple of our programs take us into neurology naturally. So as you say, ozanimod taking us to the MS, we’re going to be a player in that space. We hope to be a big player in that space. But number two, a number of our assets on our pipeline do take us into inflammation and neuro inflammation, and so that does create some nice opportunities. And with that, we’ve actually brought in a very top-notch team to begin to drive the neuroscience focus. And in fact, I would say that at this point, we’re kind of on the cusp of looking at a lot of these different deals. They’ll be good opportunities. It’d be hard for me to size them. Quite frankly, we’d probably, as always for Celgene style, we probably bias ourselves towards emerging science and breakthrough science that can make a big difference.

So that often tends to be slightly earlier deals that may be a little bit smaller. But we have absolutely full interest in finding tremendous innovation that has great therapeutic benefit in areas of significant unmet need. And we’re naturally being drawn into those areas anyway, so I think we’ve got a very active effort in that front. I think more to come. Stay tuned, but I think we’re excited about what we can do there. And in no way does that take us away from Hem/Onc or take us away from the I&I franchise, but I think it creates a nice next chapter that you’ll start to see developing as we go forward.

Brian Skorney

Great. Well, thanks so much. Always great to have you here.

Peter Kellogg

Thank you to the audience.

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