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Inspire Pharmaceuticals, Inc. (NASDAQ:ISPH)

Q3 2008 Earnings Call

October 31, 2008 10:00 am


Dr. Christy L. Shaffer, Ph.D. - President and CEO

Thomas R. Staab II, CPA - Chief Financial Officer and Treasurer


Eric Varma - Leerink Swann

Liana Moussatos - Pacific Growth Equities

[Dave] - Morgan Stanley

Ian Sanderson - Cowen And Company

David Steinberg - Deutsche Bank Securities


Good morning. My name is Rachel and I will be your conference operator today. At this time, I would like to welcome everyone to the Inspire Pharmaceutical’s third quarter 2008 financial results conference call. (Operator Instructions)

This call is being recorded today, Friday, October 31, 2008. Thank you.

I would now like to introduce Mr. Tom Staab, Chief Financial Officer and Treasurer.

Thomas R. Staab

Thank you, Rachel. Good morning, everyone and thank you for joining Inspire Pharmaceutical’s third quarter 2008 financial results conference call. As Rachel mentioned, my name is Tom Staab, Inspire’s CFO and Treasurer.

I will be introducing our call this morning as Jenny Coban, our Vice President of Investor Relations, is in San Francisco at the Bio Investor Forum as our Denufosol project leader is participating in a CF panel today.

I will begin by reminding you that our forward-looking statements in this conference call are based on preliminary information and management assumptions. These forward-looking statements are subject to a wide range of risks and uncertainties that could cause results to differ in material respects including those relating to product commercialization, product development, revenue, expense, earnings and cash utilization expectations, competitive products, adverse litigation and regulatory developments, results of clinical trials, the need for additional research and testing, funding and the timing and content of decisions made by regulatory authorities including the U.S. Food and Drug Administration.

Further information regarding factors that could affect our results is include our press releases and filings with the Securities and Exchange Commission including our most recent 10-K, 10-Q, and 8-K. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements.

I would now like to review our third quarter 2008 financial results and then turn the call over to Dr. Dr. Christy L. Shaffer, Ph.D., President and CEO, who will provide an update on recent developments in our clinical and commercial programs.

In summary, we were pleased with our third quarter results and have closed another successful quarter. Specifically some highlights of the quarter were; number one we continued our double digit revenue growth seen throughout 2008 with aggregate revenue increasing 63% over the third quarter of 2007.

Specifically AzaSite continues to make consistent gains with prescriptions increasing approximately 20% as compared to the second quarter of 2008. Co-promotion revenue has increased with Restasis revenue of 21% and Elestat revenue up 60% over the third quarter of 2007.

Two, after considerable effort devoting to gaining IP protection for Elestat beyond the 5-year exclusivity period under Hatch-Waxman legislation, we are pleased that a method of treatment patent with an expiration date of November 2020 has been issued. Thereby providing IP protection for this important revenue stream.

Three, we maintained tight management of our operating expenses and cash utilization. In difficult economic times especially for smaller companies, we are cognizant of our challenging operating environment and have been successful in holding our operating expenses and cash utilization at constant levels over the last two quarters.

As you review our third quarter 2008 results, you will notice that our second and third quarter six month cash utilization represents the same cash usage level as the first quarter three month utilization. So we have been successful in our cutting burn rate 50% from the first quarter and maintaining a burn of $5 million per month for the last two quarters.

For the quarter ended September 30, 2008, we incurred a net loss of $9.6 million or $0.17 per share as compared to a net loss of $13.7 million or $0.32 per share for the third quarter of 2007 representing a 30% decrease in our net loss for the quarter. Total revenue for the third quarter of 2008 was $20 million compared to $12.2 million for the third quarter of 2007 representing a 63% increase in aggregate revenue as I mentioned earlier.

When breaking down revenue into its individual components, AzaSite had strong quarterly performance with revenues increasing 16% and prescriptions increasing 20%. Both measures as compared to the second quarter 2008 levels. During the third quarter of 2008, we recorded $4.7 million in AzaSite revenue as compared to $1.1 million in the third quarter of 2007.

Based upon weekly IMS data for the week ending September 26, 2008, AzaSite had approximately 3% aggregate revenue share of all branded and generic ocular antiinfective prescriptions. And importantly, has achieved 6% market share in eye care specialists where ophthalmologists and optometrists, the audience where we focus the majority of our promotion efforts.

We are pleased to see the continued increase in prescriptions and will strive to expand AzaSite access to patients and fuel continued prescription growth. In regards to co-promotion revenue, our aggregate co-promotion revenue increased over 37% to $15.2 million as compared to $11.1 million for the third quarter of 2007. We recorded $7.8 million of revenue from sales of Restasis and $7.4 million of revenue from sales of Elestat in the third quarter of 2008.

We were pleased with the growth of Restasis with prescriptions continuing grow quarter over quarter and increasing approximately 10% in 2008 as compared to the third quarter of 2007. In the third quarter of 2008, Allergan reported a $107 million of revenue from Restasis reflecting a 21% increase over the third quarter of 2007. Importantly Allergan has raised their 2008 guidance for Restasis with the expectation that that product will have revenue of $440 to $450 million.

In regards to Elestat, we are pleased to have achieved our 2008 annual contractual minimum in the third quarter, which allowed us to recognize $2.6 million of previously deferred revenue. Although Elestat is considered a mature product in terms of product life cycle, we consider it to be a reliable contributor to our co-promotion revenue based upon its historical success and attractive product profile. As you can appreciate from our release, Elestat has year to date co-promotion revenue of $15.2 million for the nine months to date in 2008.

Now let’s move down the income statement for a discussion of our operating expenses. In the third quarter of 2008, operating expenses increased slightly to $29 million from $26.6 million in the third quarter of 2007. As mentioned in our press release, this increase was primarily attributable to an increase in our R&D expense relating to advancement of our programs and an increase in cost of sales attributable to the increase in AzaSite sales.

The slight increase in operating expenses was offset entirely by the increase in revenues and resulted in a significant decrease in our net loss and loss per share for the third quarter of 2008 as compared to 2007.

In regards to our development spending, the third quarter of 2008 was heavily focused on our Denufosol and glaucoma programs resulting in the completion of the open labeled component of TIGER-1, healthy enrollment of patients in TIGER-2 and the filing of an I&D in Phase One clinical trial initiation for our INS117548 glaucoma compound.

As mentioned earlier, Christy will give a more detailed R&D update shortly.

Finally, we are pleased to have resolved our SEC investigation which had been ongoing since 2005. Resolution of this matter allows us to avoid spending additional time and resources in response to this investigation. Focusing on the balance sheet, we ended the quarter with $79 million in cash and investments and working capital of $62 million.

As I mentioned at the beginning of our call, our net cash earned for the third quarter of 2008 was approximately $15 million. As mentioned earlier, we have reduced our cash burn in the last six months and have averaged a burn of $5 million per month in the last two quarters.

Finally, we would like to reaffirm our 2008 financial outlook, which is detailed in our press release and remains the same as the guidance originally presented in February of this year. In summary, we look forward to finishing 2008 in strong fashion despite challenging economic times and continuing the momentum achieved in the first nine months of the year.

Now, I’d like to turn the call over to Christy.

Dr. Christy L. Shaffer, Ph.D.

Thank you, Tom and good morning, everyone. As you heard from Tom, we delivered strong financial results this quarter. Since the end of last quarter we achieved a series of important accomplishments that we believe will drive long-term value.

First we unveiled compelling new data on the Denufosol at the recent North American CF Conference in Orlando. Second, a new patent had been issued relating to Elestat which provides IP protection.

Third, we achieved continued growth of prescriptions and market share for AzaSite. And fourth, we expanded our ophthalmic pipeline with the initiation of Phase One clinical trials for a novel compound for glaucoma.

I would now like to provide you with some additional details on these four accomplishments. Beginning with the Denufosol, an innovative potential new treatment for CF lung disease.

We were pleased to have presented additional information from our first pivotal trial, TIGER-1, at the North American CF Conference. Inspire and Denufosol were front and center at this annual conference which is the preeminent global meeting of the CF community with record attendance this year of nearly 4,000 participants.

The new data on Denufosol was highlighted in a plenary session on new therapies given by Dr. Campbell of the CF Foundation and detailed TIGER-1 results were provided orally in a presentation by Dr. Frank Accurso, a leading pediatric pulmonologist and director of the CF Center at Children’s Hospital in Denver and a lead principal investigator of TIGER-1. I would encourage all of you who are interested in Denufosol to review the in-depth data contained in Dr. Accurso’s slide presentation which is now available on Inspire’s web site.

In addition, in the Investor Relations section of our web site, you can access an audio replay and slide from the investor meeting we hosted following Dr. Accurso’s presentation on Saturday. During this session, there were several key data slides highlighted followed by an extensive Q&A period led by the principal investigators of both TIGER-1 and TIGER-2, Drs. Accurso and Ratchet respectively.

As a reminder from a study design perspective, TIGER-1 included a 24-week placebo controlled portion with 60 mg of Denufosol administered three times daily in 352 CF patients who had baseline FEV1 of greater than or equal to 75%. This was followed by a 24-week open label Denufosol only extension which was recently completed.

As you may recall in June of this year, we announced the top line results of the placebo controlled portion of the trial which showed statistical significance for the primary efficacy end point using the prespecified statistical analysis. The primary efficacy end point was a change in FEV1 from baseline at the trial end point of 24 weeks.

Our last observation carry forward for patients who discontinued. The prespecified statistical analysis for the primary end point was based on an analysis of covariance model that included baseline as a covariant and provided adjusted mean value.

Results from this analysis show that patients treated with Denufosol had a statistical significant improvement in FEV1 compared to placebo with a between group difference of 45 mL which was 48 mL on the Denufosol group versus only 3 mL in the placebo group with a P value of 0.047.

The open label extension has now been completed and thus the results for lung function throughout the 48 week period were presented at the North American CF conference.

For simplicity the 48 week values reported were mean observed values at each time point without adjustment for discontinuations or covariance. The new data in Dr. Accurso’s conference presentation included several key findings that I would like to highlight now.

First, patients who received Denufosol experienced a progressive improvement in FEV1 that continued over time without abatement. The patients who received Denufosol for 48 weeks during TIGER-1 experienced a mean change from baseline FEV1 of 115 mL. Almost a two and a half fold increase when compared to a 48 mL increase at the end of the 24 weeks placebo controlled portion of the trial.

The patients who crossed over from placebo to Denufosol at week 24 also experienced improvement in their FEV1 when receiving Denufosol during the open label extension. In terms of observed means, these patients had a 78 mL increase from baseline compared to a 16 mL increase at the end of the 24 week placebo controlled portion of the trial previously.

Similar to the effect on FEV1, Denufosol also appeared to have a positive effect on another key lung function parameter called FEV2575, a measurement of small airway function which is very important because that is where CF lung disease begins.

From our lead PI’s perspective, these lung function changes were considered remarkable in a patient population with mild lung disease who are being treated with other cocombinant therapies such as inhaled antibiotics and Pulmozyme.

This suggested to several key opinion leaders that Denufosol may represent a disease modifying approach by potentially changing slope of natural decline in CF patient’s lung function by addressing the basic underlying IM channel defects through the activation of an alternative chloride channel. Importantly this approach differs from any other therapies currently targeted for CF lung disease.

As you probably know, the commercially available product largely addresses the symptoms and other downstream complications of CF lung disease. Other product candidates in development target the replacement or repair of the broken CFTR channel and currently appear to address a small subset of patients with certain genetic mutation. It is worth noting that Denufosol was designed to address CF lung disease more broadly and independent of specific gene mutation.

Second, based on Denufosol’s unique mechanism of action we targeted it as a potential early intervention therapy and thus included a patient population in the TIGER-1 trial who had mild lung disease with no upper limit on baseline FEV1. In the trial, there was a small group of patients with very high lung function at baseline over 110% predicted.

A reasonable hypothesis is that the group of patients with very high lung function may not respond to treatment over the course of 24 weeks. Indeed in a post talk subgroup analysis, we excluded the 23 patients with FEV1s greater than 110% predicted from the ITT population and in this subgroup analysis, the data were analyzed in the same manner as for the primary efficacy end point. And we demonstrated a 56 mL treatment difference rather than a 45 mL treatment difference with a more significant key value of 0.015.

Likewise, the effect on staph or FEV2575, a small airway function measure, also became more evident in this subgroup analysis and in fact became statistical significant with a P value of 0.025. As a reminder the P value for staph in the ITT population did not quite reach statistical significance at study end point with a P value of 0.072. This particular co-tox subgroup analysis was important in that this information was used to modify the design of TIGER-2 several months ago.

Third, from a safety perspective, Denufosol had an adverse event profile that was generally comparable to placebo in terms of occurrence of adverse events. There were very high patient retention rates throughout the entire course of this 48 week trial with approximately 90% of the patients completing the 24 week placebo controlled portion. And discontinuation rates were consistent between the placebo and Denufosol arm.

Of that group, 99% elected to continue in the open labeled Denufosol only extension. And further we had a very low drop rate in the open label extension phase with only 5% of the patients discontinuing prior to week 48. In addition we were very pleased with the strong compliance results throughout the 24 week placebo controlled portion with the TID dosing regimen given the average daily dosage administered was 2.7.

The detailed results from the open label extension phase of TIGER-1 are expected to be available in the first quarter of 2009. I would like to mention a comment made from Dr. Accurso regarding an interesting observation in comparing the adverse events of the 24 week placebo controlled portion of the trial.

Patients receiving Denufosol actually reported lower incidences of headaches, sinusitis and rhinorrhea. All three of which were statistically significant when compared to placebo in favor of Denufosol. This was interesting and encouraging given that sinusitis is a very common, painful and often difficult condition to treat in the CF population.

Based on this extensive data set from TIGER-1, we appropriately modified and we believe enhanced the design of TIGER-2. Specifically we increased the length of the trial to 48 weeks and we excluded patients who had baseline FEV1s greater than 110% of predicted.

We plan to utilize the current enthusiasm from the conference to drive enrollment in TIGER-2 which will enroll up to 450 patients and we are very pleased to have over 133 patients randomized in TIGER-2 at 41 clinical sites which is twice the number from our last update provided to you in late July.

We expect to involve up to 100 clinical sites in the United States, Canada, Australia and New Zealand. And expect to complete enrollment in 2009 with results to follow after completion of 48 weeks of treatment.

Overall, we were pleased with the visibility of the program NACF Conference and the strong interest spawned in medical community. In addition, the availability of this data has been helpful in our discussions with multiple interested potential partners regarding licensing, (inaudible) American rights to Denufosol.

Now moving on, we were pleased recently to report success regarding the issuance of a new patent for the alternate use of Epinastine for conjunctivitis. This U.S. patent owned by Boehringer Ingelheim is now listed in the orange book. As you may recall Elestat originally had only 5 years of exclusivity under Hatch-Waxman when we began promoting the product based on an agreement with Allergan in early 2004.

Based on persistent work with a team of patent attorneys from Inspire, Allergan and BI, Elestat is now covered under a method of treatment patents which does not expire until November 2020. This provides a mechanism that could delay or prevent generics from entering the market for a number of years and this is obviously important in terms of protecting our future revenue and cash flow.

At this time, I would now like to move on to AzaSite. As you know our ophthalmic R&D has been pursuing clinical work that will expand the scientific knowledge base and data on AzaSite through a series of focused Phase 4 studies. These trials are aimed at further evaluating the profile of azithromycin molecule in the eyes as well as the safety and efficacy of AzaSite in other ocular indications such as lid margin disease.

We have received positive results from several small open label Phase 4 clinical trials and considering conducting additional trials including placebo controlled studies in the future. We have worked hard to increase the awareness of AzaSite in the medical community through a variety of publications in trade and peer review journals.

For example, to date in 2008, AzaSite has been mentioned in more than 20 trade journal articles or supplements such as the Ophthalmology Times, Eye World and The Review of Ophthalmology.

However, perhaps more importantly two AzaSite studies have been published in peer review journals; The American Journal of Ophthalmology and Advance of New Therapy and two other Phase 4 studies have been accepted for publication in peer review journal. There have also been several independent studies conducted by ophthalmologists included one that was presented by Dr. Thomas John at a European Eye Care meeting this summer.

And I also want to mention that there will be two AzaSite related poster presentations at the upcoming American Academy of Ophthalmology meeting in Atlanta from November 8 through 11. I will now conclude with a brief update on our two ophthalmic pipeline programs in the areas of dry eye and glaucoma.

As previously announced, we had submitted a clinical protocol and a special protocol assessment request with the FDA for a pivotal Phase Three environmental trial with Prolacria for the treatment of dry eye disease. We believe requesting an SPA is a prudence that forward and advancing the development of Prolacria. As you well know, the FDA process is one that can take several months to reach agreement with the agency.

Therefore we look forward to providing you with a more specific update once we have reached agreement and at that time, we’ll be providing more details about the trial. In the meantime, we have been proactive in identifying the necessary clinical sites to participate in this trial to be ready to initiate it as quickly as possible once we have concluded the SPA process.

There remains a high level of enthusiasm among clinical investigators to continuing studying Prolacria and potentially having additional new treatments for dry eye for their patients suffering from this chronic condition.

The final accomplishment I want to highlight today relates to the recent I&D filing and initiation of a Phase One clinical trial in our glaucoma program. This is the second compound we have moved into the clinics for glaucoma.

The new trial is testing a Rho kinase inhibitor and we expect to have data from our glaucoma trials in 2009. And as you are probably aware glaucoma represents the largest overall market in ophthalmology to date.

So in summary, we believe we are making substantial progress across all parts of our business. We are in a good position with a growing revenue stream and important late stage programs which will address high end unmet medical needs to be substantial value. We believe we are in a unique position with these assets to weather the challenges of the current market and that concludes our formal remarks this morning.

At this time, we will open the call for questions.

Question-and-Answer Session


At this time, (Operator Instructions). Your first question comes from the line of Eric Varma with Leerink Swann.

Eric Varma - Leerink Swann

Hi, great job on earnings this morning. This is Eric Varma in place of Joe Schwartz. My first question is can you kind of give us a little bit more details on the rest of the world partnership for Denufosol?

Dr. Christy L. Schaffer, Ph.D.

Sure, Eric. Good morning. How are you?

Eric Varma - Leerink Swann

Very well, thanks.

Dr. Christy L. Schaffer, Ph.D.

The question relates to our ongoing potential partnering discussions regarding Denufosol. I want to mention and be clear again that we believe this is a very important asset for Inspire and therefore, we fully expect to retain rights in North America, both U.S. and Canada, in terms of commercialization of this product.

We have been in ongoing discussions with multiple potential partners that are interested in gaining access to life outside of North America. And the update this morning is simply that those talks are ongoing. We’re very actively talking to a number of parties at this time.

Eric Varma - Leerink Swann

Okay, that’s helpful. And then I was also wondering for TIGER-2, why did you decide to enroll outside of the U.S. considering that there’s already a lot of excitement among doctors and patients within the U.S.?

Dr. Christy L. Shaffer, Ph.D.

Well, actually we had included Canadian sites in TIGER-1 and you probably know that Dr. Felix Ratjen, who is the PI for TIGER-2, is actually a very important Canadian investigator at Children’s Sick Hospital in Toronto. There’s been a lot of enthusiasm across the world for the new facility.

In fact there are many, many European investigators who are interested in participating. At this point we have limited it to, as you heard this morning, North America, Australia, New Zealand, but we could have obviously included a larger number of sites. At this point we’re thinking that we’re going to wait until we have the partner in place to determine what we might do more broadly across Europe.

In Europe there’re about 250 CF treatment centers that have about 35,000 patients that are treated across the continent of Europe.

Eric Varma - Leerink Swann

Okay, that makes sense. And then lastly, what more cuts can we expect in the TIGER-1 data? Are there any more subgroup analyses to be expected?

Dr. Christy L. Shaffer, Ph.D.

Well, we’ve obviously done a whole variety of subgroup analyses in preparing for the North American CF conference as well as preparing for TIGER-2. And we are in the process of working with Dr. Accurso to publish these results as part of our work with the CF foundation and under the Offices of the Therapeutic Development Network Center.

These investigators like to publish in very top journals and to do so as quickly as possible after a study has been concluded. So a manuscript is preparation.

Eric Varma - Leerink Swann

Okay, thank you so much Christy and great job again.

Dr. Christy L. Shaffer, Ph.D.

Thank you.


Your next question comes from the line of Liana Moussatos with Pacific Growth.

Liana Moussatos - Pacific Growth Equities

Is there any more deferred revenue to add into Elestat in Q4 and can you talk about the impact on R&D in 2009 of the focus phase for AzaSite trial, potential Phase Three startup for Prolacria and the glaucoma program?

Thomas Staab

Good morning Liana and thank you for the question. In regards to your first question about deferred revenue, we have recognized all the deferred revenue as of Q3, so we will not be in a deferred revenue situation in the fourth quarter. However, this situation will perpetuate itself again in 2009 and we would have deferred revenue. But it wouldn’t occur again until Q1 2009.

And in regards to your question about sort of expenses and the programs that we have ongoing, I’d prefer to do what we historically have done, which is we usually give that guidance in February of next year and give complete revenue and expense guidance. And I think that would be the appropriate time to do so.

Liana Moussatos - Pacific Growth Equities

Alright, thank you very much.


Your next question comes from the line of Sapna Srivastava with Morgan Stanley.

[Dave] - Morgan Stanley

Hi, it’s Dave calling in for Sapna. Just have a question, in the press release it says you have cash through the end of next year, which means that you’ll probably need to raise some cash during next year.

What are your thoughts on how you might try to do that given sort of where the capital markets are? And what about the Warburg state either helps or hurts your ability to raise funding? Are there any sort of restrictions or ways that they could possibly help in the process?

Thomas Staab

Thanks for your question David. And I guess my first statement on a capital raise is that our capital position and our liquidity is what was expected. Now, the one thing that has changed over the last six months is the economic environment, which we’ve mentioned. So we’ve been exploring what we need to do to bring in capital and we have various alternatives that avail themselves to us, both dilutive and non-dilutive.

And as Christy mentioned before, obviously we’ve been talking to potential partners on Ex North American Denufosol partnership although I can’t promise that the timing of the deal or whether we’ll in fact do a deal. That’s one particular way that we can bring in non-dilutive capital. And there are others.

I would also mention that with the TIGER-1 results, and specifically the 48-week data that obviously that data puts us in a much better position with conversations with partners.

In regards to the Warburg, obviously there’s some contractual things that are in the Warburg agreement, I don’t think that that would really impact our future capital raises in regards to limitations.

Have I answered all your questions?

[Dave] - Morgan Stanley

Yes, you did. Thank you.


(Operator Instructions) Your next question come from the line of Ian Sanderson with Cowen.

Ian Sanderson - Cowen and Company

Hi, good morning. Thanks for taking the question. First, on the TIGER-2 enrollment process, what would be a reasonable enrollment completion target? And I realize it’s only been less than a week after the North American CF Conference, but have you sensed any sort of increase in the pace of enrollment?

Dr. Christy L. Shaffer, Ph.D.

Thank you, Ian. It’s Christy. Good morning. I think that we are very pleased with enrollment today when we’ve mentioned over 133 patients enrolled today. And as a reminder, we started a study and then we actually a couple months later amended the protocol, which meant that the sites had to go back through IRB approval to gain the ability to enroll the patients that have slightly different criteria based on what I described and also to allow them to receive the program out through 48 weeks.

So that took us a little more time, so we’re really through all of that now. And there’s just a tremendous amount of enthusiasm coming off the North American meeting. So yes, we do expect an uptick.

Furthermore, as mentioned, we’re only enrolling currently at 41 clinical centers out of 100. So there are a lot of other sites that are getting up to speed and/or already up to speed and are actively screening patients. In terms of a target, we of course have an internal target.

We haven’t released that specific time, but obviously it’s very important to us to enroll as quickly as possible because it is a 48-week placebo controlled trial. And obviously all the patients have to finish that out through 48-weeks before we would have results.

So our goal is to be as aggressive as possible on enrollment and we certainly expect it to be done next year in terms of which month, we can’t decide. But we will be providing, at least on a quarterly basis, an update in terms of enrollment.

Ian Sanderson - Cowen and Company

Okay, and given that you’ve got 48 weeks of placebo arm, what is the assumption in terms of a drop-out rate? I know it was 5% on the extension study but without a placebo group.

Dr. Christy L. Shaffer, Ph.D.

Well, we thought a lot about the whole concept of extending from 24 to 48 weeks and what that might do in terms of patients wanting to be in the trial for one thing, and the good news is that we have agreed and we felt it was important to allow patients that complete the full 48 weeks of the placebo control portion to enter another protocol which will be another one-year protocol of 48 weeks rather to receive the Denufosol.

So that means that the patients who’ve received the Denufosol for 48 weeks can receive it for another 48 weeks and the patients who received placebo for 48 weeks can now have an opportunity to receive the drug for 48 weeks.

And so based on that, there’s a lot of enthusiasm. And we actually spent quite a bit of time when preparing and thinking about the protocol amendment to make sure that we would not have a considerably higher dropout rate or simply not have as many people want to participate because of the longer lengths of the randomized portion.

And I would just say that obviously the statisticians have put in some sort of a estimate on discontinuations but we haven’t revealed that. But I think, in general, based on the compliance we’ve seen to date with three times a day dosing and the enthusiasm that we’ve seen in the fact that if they finish they get to enroll in this additional study that we’re not too concerned about it.

Ian Sanderson - Cowen and Company

Okay, and on the glaucoma program, you mentioned that this is the second compound to go into the clinic. Could you give us any update on the status of the first compound and when we might see some data from that trial?

Dr. Christy L. Shaffer, Ph.D.

Sure, so the first compound is one from a natural product. And it’s technology that we licensed from WARF, the Wisconsin Alumni Research Foundation, from Dr. Paul Coughlin, a noted leader in glaucoma. We have completed three dosing cohorts. In the study there is a fourth cohort that we may do depending on the data and the review by the safety committee.

So we expect actually to have data from both the first compound and the second compound, which has recently entered the clinic some time in 2009, and we’ll be looking at both sets of data to determine how we’re going to proceed with that program.

Ian Sanderson - Cowen and Company

Okay, and then finally, given the Elestat patent issuance, has there been any change or do you anticipate any change in the promotional investment behind Elestat?

Dr. Christy L. Shaffer, Ph.D.

Well, what I would say generally is that we had a couple of scientific studies that we were interested in doing with Elestat which largely emanate from our R&D group. They’re fairly inexpensive but they’re powerful from a scientific perspective.

Some chronological advantages, for example, of Elestat over other products, we had put those on hold given that we thought there was going to be a loss of exclusivity. So we will have some sort of modest additional spend to continue to expand the science around the molecule for commercialization purposes.

Ian Sanderson - Cowen and Company

Thank you.

Dr. Christy L. Shaffer, Ph.D.

Thank you.


Your next question comes from the line of David Steinberg with Deutsche Bank.

David Steinberg - Deutsche Bank

Thanks, couple questions. First, just continuing on Ian’s question, now that you’re going to get another three years or maybe more on Elestat and given the pretty strong growth from the other products, do you think your sales force is right-sized for the current revenue growth rate or do you expect to hire some more reps in the near future?

And then the second question is, on your relationship with Santen for Prolacria, could you just update us on where the dossier stands on the timing of possible approval and launch?

Dr. Christy L. Shaffer, Ph.D.

Okay, that’s great. Dave, it’s good to hear from you. In terms of Elestat and how it relates to the commercial infrastructure that we have, I think we think that we’re right-sized at the moment for our commercial infrastructure and we don’t have any immediate plans to expand that.

We were able to sell Elestat initially with 64 sales reps. And we now have over 90. But we are certainly very interested in continuing that revenue string. As you know, that one really heats up in allergy season, so we’re able to kind of rotate things in and out in terms of various positioning during allergy season.

Regarding Santen, we’ve just been extremely pleased with their aggressive approach to their filling. They filed for regulatory approval in Japan, I believe in May of this year. And I believe that we think that—what is the specifics? Karen would you just go over the specifics of Santen.

Unidentified Company Representative

Sure, they expect that they would be able to launch the product in their fiscal year 2010, which is between April 2010 and March 2011.

Dr. Christy L. Shaffer, Ph.D.

And just as a reminder, we haven’t specifically disclosed the royalties that we will receive from Santen due to confidentiality but we believe it could be a meaningful revenue stream for us. But they certainly would have plans beyond just Japan.

They have rights to a number of other Asian countries including India and China, et cetera. So that would just be step one, gaining approval in Japan and then they would move as quickly as possible to other territories.

David Steinberg - Deutsche Bank

Okay, thanks.


Your next question comes from the line of Angela Larson with Susquehanna.

Serge Belanger - Susquehanna Financial Group

Morning guys, this is actually Serge Belanger for Angela. I just had a quick question on Elestat. Have you guys completed recognizing all of the deferred revenues this quarter?

Thomas Staab

Hi Serge, it’s Tom. Thanks for the question. And yes, we have. All the deferred revenue for 2008 has been recognized as of the third quarter. So we wouldn’t expect to have any deferred revenue in the fourth quarter.

Serge Belanger - Susquehanna Financial Group

Alright, perfect, thank you.


Your next question comes from the line of Eric Varma with Leerink Swann.

Eric Varma - Leerink Swann

Hi, I just had one quick follow up. You said that you expect, when you’re talking about TIGER-2 enrollment that you expect it to be done next year. Is that the actual trial to be done or the enrollment to be done next year?

Dr. Christy L. Shaffer, Ph.D.

Thank you, Eric. I appreciate you asking that question because that’s a very important clarification. So, we expect to complete enrollment of all 450 patients next year. Obviously the last patient has to get through the 48-week treatment period before we can launch the database and look at the data. So it would not be correct to assume we could file an NDA in 2009.

Eric Varma - Leerink Swann

Okay, perfect, thank you so much.


(Operator Instructions) At this time, there are no further questions. I will turn the call back over to Dr. Shaffer for any concluding remarks.

Dr. Christy L. Shaffer, Ph.D.

Thank you very much for your continued interest in the company and your participation on the call today. Again, we believe we’re well positioned to leverage the opportunities in our portfolio both in the near term and over a longer term horizon.

And we look forward to providing you with meaningful updates when they become available. Happy Halloween.


This concludes Inspire Pharmaceuticals third quarter 2008 financials conference call. (Operator Instructions)

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