CV Therapeutics, Inc. Q3 2008 Earnings Call Transcript

CV Therapeutics, Inc. (CVTX)

Q3 2008 Earnings Call Transcript

November 6, 2008, 5:00 pm ET

Executives

John Bluth – Senior Director, Corporate Communications and IR

Louis Lange – Chairman, CEO and Chief Scientific Officer

Daniel Spiegelman – CFO and SVP

Analysts

Jim Birchenough – Barclays Capital

Mark Monane – Needham & Company

Thomas Wei – Piper Jaffray

Steven Harr – Morgan Stanley

Eric Schmidt – Cowen & Co.

Joseph Schwartz – Leerink Swann

Sam Connor [ph]

Christopher James [ph]

Yaron Werber – Citigroup

Presentation

Operator

Good morning. My name is Natalia and I will be your conference operator today. At this time, I would like to welcome everyone to the CV Therapeutics conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator instructions) Thank you. Mr. John Bluth, you may begin your conference.

John Bluth

Thank you, welcome to our conference call today to discuss CV Therapeutics third quarter 2008 financial results and the formal action taken by the FDA to approve significantly expanded and improved product labeling for Ranexa. I'm joined today by Dr. Louis Lange, our Chairman and Chief Executive Officer, and Dan Spiegelman our Chief Financial Officer.

Let me remind everyone that some of the following remarks may include forward-looking statements. These statements include those relating to our future product development, regulatory review and approval of our products, clinical programs, commercialization efforts and financial performance.

The Company's actual results may differ materially from those suggested here. I encourage you to review the cautionary statements contained under the heading “Risk Factors” in our annual report on Form 10-K and other documents that we have filed with the SEC for additional information concerning factors that could cause differences. We disclaim any intent or obligation to update these forward-looking statements.

Ranexa has been approved in the United States by the FDA and in the European Union by the EMEA for its specified indications. Lexiscan has been approved in the United States by the FDA for its specified indication.

Our other pipeline product candidates have not been approved by the FDA or regulatory authorities outside the United States. CV Therapeutics pipeline product candidates have not been determined to be safer or effective in humans for any uses.

Because we received formal approval from the FDA on our expanded labeling late yesterday, we thought it made sense to issue our earnings release and we plan to review the financial quarter with you today on this call also. We are in the process of getting the new Ranexa labeling posted on line and we expect to have it available shortly on cvt.com and ranexa.com.

Now I'd like to turn the call over to Lou for some comments on the expanded Ranexa labeling and our third quarter financial performance, and then Dan will review the quarterly financial details.

Louis Lange

John, thanks and thanks to all of you for joining. I can tell you that today is a very happy day at CVT. Late yesterday, we received an approval letter from the FDA for new Ranexa labeling that includes, first of all, a clean first line indication, substantially reduced cautionary language, elimination of the contraindications for diltiazem and verapamil and promotable claims for reduction in ventricular tachycardia, bradycardia, that is slow heart rate, SVT and importantly, new onset atrial fibrillation and reduction in hemoglobin A1C.

But before getting to a description of the label in detail, I want to report on another very strong quarter of financial performance. Top line Ranexa revenues grew 19% from last quarter to an all-time record high of $30.3 million. This represents our tenth consecutive quarter of Ranexa revenue growth and is especially noteworthy since the third quarter for pharma product sales is often slow due to summer holidays for patients and physicians.

Also in the third quarter, Ranexa was approved in Europe and we entered into a very significant license arrangement with Menarini for 68 countries, including the European Union, for which we received $70 million upfront that is reflected in our Q3 quarter cash end position of over $300 million.

We have continued to maintain expense control and Ranexa, Lexiscan and other royalty revenues are growing while at the same time we've been reducing our convertible debt so we feel very good about the direction of our balance sheet.

Now, turning to the new FDA labeling for Ranexa, which is mostly based on the new data from the MERLIN-TIMI 36 outcome study in 6,500 patients showing safety in high risk coronary patients. I would like to point out that the product profile for Ranexa now allows us to target all of the 9 million patients with Amgen in the U.S.. The new indication simply says, and “Ranexa is indicated for the treatment of chronic angina. Ranexa may be used with beta blockers, nitrates, calcium channel blockers, anti platelet therapy, lipid lowering therapy, ace inhibitors, and ORs.” As you can see the tone of this revised label has markedly changed with removal of cautionary language and removal of contraindications for patients taking diltiazem or verapamil, commonly used calcium channel blockers.

With a clean straightforward first line chronic indication, substantially enhanced safety information, and significant reduction in multiple important arrhythmias and A1C lowering effects, now referenced in the labeling, we believe that as physicians begin to learn about this new product profile, we have the opportunity to strongly differentiate Ranexa from all existing classes of anti anginas.

For example, the three main classes of traditional anti anginal therapy have significant tolerability and treatment limitations that provide significant potential for Ranexa to become the first anti anginal drug suitable for many patients.

Beta blockers, for example, are problematic to use in patients with diabetes, since they raise hemoglobin A1c. They're also problematic because they cause bradyarrhythmias, especially in elderly patients. By contrast, Ranexa reduces bradycardia and lowers hemoglobin A1c and we can now say thus far to our sales reps and physicians we estimate that over 40% of all angina patients fall into these two patient segments.

Many calcium channel blockers, which, of course, lack outcomes data, also slow heart rate. And this problem allows us to target their replacement as well. Long acting nitrates which also lack outcomes data cause severe headaches in nearly 40% of patients, tolerance is frequently a problem and perhaps most importantly, patients on long-acting nitrates cannot use the ED drugs like Viagra and Cialis.

Because Ranexa doesn't produce the undesirable hemoglobinic effect, seen with long acting nitrates, ED drugs can be prescribed for patients taking Ranexa and there is no tolerance issue. Based on these dynamics, our commercial team will be engaging physicians about more prominent role for Ranexa in angina therapy and we would expect that practice guidelines will be updated over time to reflect this enhanced profile of Ranexa.

Another important area for increased potential use of Ranexa is in optimal medical therapy and management of patients before intervention. The intense debate and discussion in the medical community stemming from the COURAGE trial about the increasingly important and preferred role of optimum medical therapy for chronic angina patients has created an exceptionally favorable environment for new labeling changes, and I would assume that's going to be even more true going forwards with the new administration.

Our 170 sales reps will quickly dig in calling on their cardiology customers to discuss the new labeling. The entire commercial organization has been planning for this labeling change and the team is very excited to begin sharing the new Ranexa story.

The timing of this FDA approval, just ahead of the American Heart Association sessions next week in New Orleans provides us with an outstanding high profile opportunity to showcase new labeling. We have been planning for this potential best case outcome and will unveil a new exhibit booth that highlights our new labeling and upcoming promotional launch campaign.

In addition, in some of the major medical and cardiology journals, over the past month, you may have seen a prominent coming-soon advertising campaign which shadows some of the new branding and positioning of Ranexa.

These are the first journal ads we've ever run for Ranexa, but there will be more. Overall, we are planning many new commercial initiatives in areas of great opportunity, including healthcare efficacy, promotion to new physicians and first time E-marketing activities, such as development of patient-oriented Web sites and a comprehensive integrated marketing campaign with WebMD to target both cardiologists and other health care providers such as internists.

We are extremely proud of our commercial organizations accomplishments to-date, despite our old highly restricted label which was full of daunting contraindications, warnings and cautionary language, even in an indication statement, we grew Ranexa to an annualized run rate of over $120 million net product revenues on the back of 19% quarter-over-quarter growth Q2 to Q3.

But this is a new day for Ranexa, and CVT's promotional efforts given the rapid strengthening of our balance sheet over the last two quarters on our two product approvals and two partnerships providing over $250 million in non-dilutive cash.

With our new safety information and the increased focus of optimum medical therapy for angina, along with our clean first line indication, combined with reduction of bradycardia and diabetes friendly language in the new labeling, we believe there is a significant opportunity for Ranexa with primary care physicians and internists, especially amongst the top decile of the most highly concentrated primary care angina prescribers. Some of whom are already writing Ranexa. Indeed, over 30% of Ranexa scripts are now from internists and primary care physicians, and this business is growing fast even though we're not directly detailing to them.

We therefore plan to add a commercial focus on the top decile primary care physicians, concentrated in the northeast, from New York City to Washington by deploying 40 new reps who will be 100% focused on establishing the new identity of Ranexa with these top decile primary care docs.

These reps already been hired by a CSO, Inventive, and have completed training in CVT. Following final training of the new label, they should be seeing customers for CVT by the middle of next week, i.e., right after the AHA. Northeast is our fastest growing region with some of the best reimbursement. The sooner these reps are deployed, the sooner to begin generating revenue.

From a strategic viewpoint, these reps will mirror territories with our cardiology reps giving us more leverage in a large population base and in some sense, we think about this as the pilot program, but with high class variable outcomes. We get data over the coming quarters that will help guide future investments, whether they be in maintaining or growing this experiment, providing potential partners with real world numbers or converting these reps to cardiology reps.

Results will begin to define sales force responsiveness in the unfettered angina marketplace and tell us much about the various multi-year revenue models that we have constructed, some of which reached $700 million annually or more and hence will guide us in making future commercial decisions.

Given that we currently have less than 1% market share of the highly restricted label, I don't believe that multiples of current sales are out of the question with the sales force of this size and in our new unique label. This strategy keeps our options open to garner all or most of the upside of Ranexa sales in the U.S. without committing to large infrastructure build.

With our existing assets, declining debt and multiple revenue streams at the beginning of the life cycles, we are in a very strong position to make strategic decisions that will maximize the upside for our shareholders and we have created the balance sheet flexibility to make these decisions independent of the tumultuous financial markets.

This new day for Ranexa is a triumph of the data and particularly, the MERLIN study. As you can tell from the content of the labeling, the data from MERLIN was highly regarded by the FDA and as we noted during our updates throughout the approval process, we had extremely productive ongoing dialog with the agency and we're very pleased with today's approval.

With the approvals of Lexiscan in the U.S., Ranexa in the EU, over $185 million transaction with TPG, in the first half of Lexiscan royalty, the Menarini deal, the first clinical trials for 3619, the commencement of Adentri in the Phase III by Biogen which also by the way triggered a milestone out in the third quarter, we had an exceptional year already and we believe that the growth we've seen in so many areas of business is potentially just in the early stages.

Now, I'd like to turn the call over to Dan for a review of the outstanding financial quarter.

Daniel Spiegelman

Thank you, Lou. Earlier today we issued our third quarter financial results press release which continuing with our 2008 trend was another record breaking quarter for Ranexa sales. Complete details are available in the press release, so I encourage you to refer to that document for further information.

Starting with revenues, for the quarter-ended September 30, 2008, we recorded total revenues of $38.1 million and total net product sales of Ranexa at $30.3 million. The $30.3 million of net Ranexa product sales represents an increase of 19% compared to the $25.4 million recorded in the prior quarter and the 55% increase compared to the $18.4 million of net product sales the same quarter, a year ago. With $30.3 million in quarterly net Ranexa sales, we are generating Ranexa sales at an annual run rate of approximately $120 million per year.

Total revenues for this quarter included royalty and license revenue of $4.7 million, which included $1.3 million of royalty revenue earned under our collaboration with Astellas. As low as $3.1 million from the amortization of the $175 million upfront payment we received from TPG-Axon Capital for 50% of our royalty in North American sales of Lexiscan and $0.3 million of amortization of our $70 million upfront license payments from Menarini.

The $3.2 million of collaboration milestone and other revenue consists primarily of a $3 million milestone payment from Biogen Idec received upon commencement of the Phase III program for Adentri. We also received an additional $2.5 million equity investment from Biogen Idec in Q3 as part of the Phase III milestone under that agreement.

The 19% quarter-over-quarter increase in net product sales was driven by increases in wholesaler orders in conjunction with continuing increases in end-user demand as measured by total prescriptions reported by IMS and orders from pharmacies. In the third quarter, IMS reported an 80% increase in total Ranexa prescriptions and an increase of 11% in total shipments from wholesalers to pharmacies and their customers.

While growth in shipments to wholesalers did achieve growth in prescription and pharmacy demand during the quarter, inventory levels at wholesalers at the end of the quarter as measured by weeks of anticipated demand, remains solidly in the same two week to four week range that it has been in since shortly after launch.

Turning now to total costs and expenses, for the quarter, costs and expenses were $57.2 million for the quarter-ended September 30, 2008. This compares to total costs and expenses of $56.8 million for the prior quarter and $53.7 million for the same quarter in 2007. Netting revenues and expenses for the quarter just ended we reported a net loss of $25.4 million or $0.41 a share. This compares to a net loss of $4.3 million or $0.07 per share for the prior quarter-ended June 30 and $34.2 million or $0.58 per share for the same quarter in 2007.

It is important to recall that the second quarter of 2008 included one-time milestone payments from Astellas and TPG-Axon Capital totaling $22 million, and that our second quarter loss would have been $26.3 million without these one-time milestones.

Included in our net results for the quarter and year-to-date periods, its $5.2 million and $6.9 million respectively of tax expense, primarily due to the recognition for tax purposes of income from the upfront payments from Menarini and TPG-Axon of $70 million and $185 million respectively.

For accounting purposes, these revenues are deferred and will be recognized over several years. However, these revenues are to be recognized in full for tax purposes and will create taxable income in 2008. We have estimated the tax expense to be $6.9 million for the nine months ended September 30, 2008, consisting of $3.4 million of federal alternative minimum tax and $3.5 million primarily of California state income tax, due to a new rule this year eliminating the use of net operating loss carry forwards for California tax purposes in 2008 and 2009.

In terms of our balance sheet, at September 30, 2008, the Company had cash, cash equivalents, and marketable securities of $301.9 million, compared to cash, cash equivalents, marketable securities, and as previously reported, restricted cash of $274.7 million at June 30, 2008.

Considering the turmoil in the markets, we are very pleased to have brought in more than $250 million in non-dilutive financing plus $100 million in product revenues and milestones for the Company in the first three quarters of the year.

Our cash position and the four revenue streams we expect to begin in 2009 with leave us in a strong position independent of the market. As we did in Q2 we continue to take advantage of favorable market conditions in Q3 to buyback an additional $14.9 million of our convertible debt at a discount to face value. After the end of this quarter, only $43.6 million of the 2% notes puttable in 2010 remain outstanding.

In terms of guidance for 2008, we remain firmly on track for the financial goals we set for ourselves earlier this year. With the sales growth in Ranexa we've seen to-date, we are on track to exceed $100 million in total Ranexa product sales for 2008. And we'll have additional royalty license collaboration and milestone income on top of that.

We anticipate ending the year with at least $250 million in cash, cash equivalents and marketable securities, not including the possible effect of any potential future bond repurchases, if any. Moreover, we reiterate our guidance that we expect total costs and expenses not including costs of goods sold will be approximately $220 million for 2008.

Looking forward to 2009, we are focused on leveraging our new label into increased sales and acceptance of Ranexa and intend to invest a portion of the proceeds from the $255 million we received from TPG-Axon and Menarini into these efforts.

While we are still finalizing our budgets for 2009, we expect to invest roughly 15% to 20% more in 2009 compared to 2008 in costs and expenses, not including cost of goods sold. This increase will be primarily in sales and marketing and will cover the increase of 40 sales representatives and the other marketing programs that Lou mentioned in his earlier remarks.

Notwithstanding this increase in operating expenses, we expect to be able to continue to improve our overall net results in 2009 and will target a net loss for the year of less than $75 million. With 300 million in the bank at the end of the third quarter, growing Ranexa sales even before the new label and other sources of revenue from Lexiscan and Ranexa EU royalties, we believe this is a prudent investment that even in these challenging financial times we are in an excellent position to make.

In summary, in the third quarter, we reached new all-time highs of Ranexa revenues and Ranexa prescriptions and we are well-positioned to enter 2009 with four growing revenue sources

US Ranexa sales with a new label to promote, European Ranexa sales, Lexiscan royalties, and royalties from another Astellas product.

Now, I will turn the call over to the operator for Q&A. Operator?

Question-and-Answer Session

Operator

(Operator instructions) Your first question is from the line of Jim Birchenough.

Jim Birchenough – Barclays Capital

Hi, guys, congratulations on the label expansion.

Louis Lange

Thank you.

Jim Birchenough – Barclays Capital

So, just a few questions. Number one, just wondering how you're going to position Ranexa with the new label? Are you going after the nitrate switch business or going after new patients? Just trying to understand that. And secondarily, in terms of the opportunity that you talked about just wondering if you could discuss the different options you have in terms of going it alone, expanding the contract sales force or partnering and what you think is really going to be the best way to maximize shareholder value?

Louis Lange

Great questions. So in terms of positioning, as you know, angina is a highly symptomatic disease, and so, we know, for example, when physicians use long-acting nitrates that they're seeing a lot of angina patients whether they're primary care docs or cardiologists, because essentially that all they're used for. So we will be targeting nitrates because we've got a far, far superior drug and just in the ED category alone, this is terrific. But, as you know, most angina patients are on two drugs or three drugs and really with the bradycardia reduction that we have, we have a club to be calcium channel blockers with, a big club, and we no longer contraindicated with diltiazem and verapamil, so that's going to be a direct target. And beta blockers is interesting. Of course, as people have said before, anyone see reductions are smaller than you see with other drugs, but the baseline is also smaller. The fact that beta blockers raise LDL and they raise A1c. So for diabetics, which is a third of the population, we have a club to hit beta blockers with. So depending on what the physician wants to get into, and what patients are on, we can actually go after all three categories. Remember, these are really old drugs. Most of them have never been studied over standard of care. We have a modern outcome study that nitrates lack and calcium channel blockers lack.

So, given our market share less than 1%, we feel very good about the growth here. And, we have been very, very cautious of not going off label, so we've carefully trained our sales reps, they've been very compliant, we basically have been promoting a QT prolonging drug. That's gone. We have never been able to say the things that we knew we're in the data. We can now say them. And we can now hand out the MERLIN papers. We can hand out other papers as they become available. And this will be just terrific education opportunity for us.

In terms of the commercial strategy, our business is growing really well, and it's particularly growing well in the Northeast. So we want to make an investment now with new sales reps and the overlap with the highest decile of internists that are ready to (inaudible) is terrific. And especially with optimum medical therapy in the current study being so much in the face of internists now. Remember, they're the gate keepers. They're the ones sending or now not sending patients for intervention. So there is a big opportunity there. This gives us about 210 sales reps which is really less than we launched with, but highly focused and better trained now. There is no decision about what we do going forward. It's a new day for partnering discussions. I think pharma will be fascinated by this label.

The fact that it indicates there is a reduction in atrial fibrillation really exceeded the expectations of most people out there I would say. And the CSO data will give us terrific information as well as more upside for CVT shareholders with respect to how we might want to structure a deal. I wouldn't be surprised if we did something with a highly innovative structure but this gives us more data, more control, more money, and keeps the option open while we get past the revenue from Lexiscan in the U.S., Astellas and Menarini in Europe. And our balance sheet is pretty good. So that's what we're thinking about today, Jim.

Jim Birchenough – Barclays Capital

And just the follow-up on that real quickly, where are you at in terms of partnership discussions?

Louis Lange

Well, I would say that they got knocked into a top hat today. And so it completely resets the discussions, expectations. Market models, I don't think there is a single pharma company out there that had reduction of bradyarrhythmias and atrial fib in their models. So it will be an interesting set of discussions. It's always nice to have a strong hand to play and we have one.

Jim Birchenough – Barclays Capital

Great. Well, thanks for taking the questions.

Louis Lange

Yes.

Operator

Your next question is from the line of Mark Monane.

Mark Monane – Needham & Company

Morning, and congratulations on events from the FDA in a challenging FDA environment that we live in today.

Louis Lange

Thank you.

Mark Monane – Needham & Company

Can you talk about first-line versus second-line angina? It seems to me that this is the best possible label that you could have gotten considering the other agents out there. But were you disappointed that it didn't specifically say first-line?

Louis Lange

What are you talking about? This is the first-line label. I mean, indicated for chronic angina is the way FDA speed goes. So we will use this to go after all three categories of drugs, as I said, Mark. Beta blockers are vulnerable in diabetes. And in fact, there are all – if you go through the guidelines of multiple organizations, and PDR, it has real cautionary warning language on the use of beta blockers in diabetics. We go right after that, assertive market. It has Merafin [ph] the label now, it can be used as monotherapy. It will be a terrific drug instead of calcium channel blockers because it proves bradycardia and negative antitropy. And as I said, nitrates are really problematic in a lot of patients now, because everybody wants to think about taking ED drugs and they can't with nitrates. So this is a great label and it is the first-line indication.

Mark Monane – Needham & Company

Okay. Thanks for the clarification on that. How about the 500 milligram versus the 1,000 milligram dose? Do you have feedback from the committee about the patient acceptance and patient outcomes with these two different doses?

Louis Lange

Yes, the 1000 milligrams is growing, it's I think 14% of our business, it's been increasing. There are patients that clearly benefit more from that. The safety language is fantastic in the new label, and it's a great drug. Patients love it. The return rate is extremely high for Ranexa. It's into the top decile of the drugs we track in heart disease, and I think you'll see continued growth of it.

Mark Monane – Needham & Company

And in terms of Adentri, we had confidence in that drug but we haven't heard from – about it in a long time. Now, Biogen started Phase III trial. Maybe you can talk about any input you have why it's now moved into the front line or into the radar screen for Biogen? What about Ranexa in heart failure?

Louis Lange

Well, good question, Mark. Biogen has obviously taken their time in development of Adentri, but it is a great molecule, great set of physiological principles that we discovered in the mid-90s. I think Biogen needs pipeline help and I think they made the rational decision to finally move it ahead. So it's in Phase III, it will do well I suspect. It's a great principle of a GFR (inaudible) diuretic, it will be extremely helpful in heart care patients and especially heart care patients that are more complicated.

In terms of Ranexa, in heart failure – now that we have this label we are looking at what would be next for clinical development. We haven't made any decisions. One of the great advantages of having the MERLIN database is that million hours of ultra tests the FDA did a very nice job in staring at those ultra tests for hours and hours on end. I think was very confident that the drug is safe and the data is very good. I think it helped the process a lot. And I think they now are very interested in working with us to see what's next and I think the (inaudible) there could well be one of them or it's not that hard to embed echo end points in other studies, so most of these clinical syndromes overlap. I mean, diabetics have a lot of disock failure, atrial fib patients have a lot disock failure and so forth so we may end up, doing a twofer down the road, but we have not yet decided.

Mark Monane – Needham & Company

And how about Ranexa in heart failure? Do we have any more data?

Louis Lange

We have some terrific preclinical data supporting the hypothesis more and more so. We have some outstanding clinical anecdotal evidence, but we have not started any formal heart failure studies at this point, but I think everybody feels that it, it's got – remind you that in Europe we have the lusitrophy claim where it produces disock relaxation so that can be promoted in Europe. Whether we do further studies all at here, I don't know.

Mark Monane – Needham & Company

Thanks for the added information. Congratulations on the new label.

Louis Lange

Mark, thanks.

Operator

Your next question is from the line of Thomas Wei.

Thomas Wei – Piper Jaffray

Hi, thanks. I just wanted to ask a question on the sales and then also a question on the label. Just a little bit confused on reconciling the Ranexa sales with the IMS data. (inaudible) 8% growth in IMS prescription demand and 19% growth in reported sales. Do you think that 8% is the right way of looking at underlying demand? Is that –

Louis Lange

Well, yes, Thomas, I think that IMS is just one source of data. And honestly, if I was looking at it from the outside world, I'd try to get as many sources as you can. Because IMS clearly under reports what's out there in the marketplace. So we don't – and there is no magic formula here. I just would say that's the way it's been for the last few quarters going forward to the new label. I honestly have no comment on what it might be, so I would just leave it at that.

Thomas Wei – Piper Jaffray

It might be helpful if this is the second quarter where you've seen some increase in the – in the inventory levels. Can you give us a sense, maybe little bit tighter within the range where you fall? Are you at the very high end of your typical inventory range? And it came from the low end of the range in the first quarter?

Daniel Spiegelman

Yes, so, Thomas, in terms of the inventory, right, inventory, the inventory we can see is the inventory at wholesalers. Right? The inventory we can't see is – is whatever is out in pharmacies and hospitals and pharmacy chain warehouses. We have no visibility to that information. With respect to the inventory at the wholesale level, it's been – it has not changed much. It was sort of in the middle of the range. It was at about three weeks. I think it's moved up to 3.3 or 3.4, but it essentially hasn't moved. So in terms – so while we observed the same discrepancy, we are not, if you will, worried by it in the sense that it's not getting built up at wholesalers.

Louis Lange

And also, the number of internists and primary care docs writing Ranexa is growing four-fold faster in cardiology. And so – this drug is getting widely out there. It's a chronic symptomatic disease and I suspect there are places that IMS doesn't track where this drug is getting used and I think it's going to continue to grow. So exactly how you quantitate it is a good question. I would begin to think about other sources as well.

Daniel Spiegelman

And maybe just one final point. We refer, of course, that the IMS as data. It's not really data, of course, right? It's information. They do surveys, they have a black box that fills in for the pharmacies that don't report, they only report. They only claim to have 70% of the pharmacies, they estimate long-term care, and all of the other channels. All that being said, there's no – there's no reason to expect the systematic bias in how they create the information, and so we all sort of likely use the numbers as truth. But – but it's not a literal count.

Louis Lange

Thomas, for example, they don't track hospital pharmacies. We're on formulary, more and more, hospitals. So there's all kinds of places where drug can be calling that they may not track. So anyway, (inaudible) of that.

Thomas Wei – Piper Jaffray

That's helpful and maybe I'll ask one last question on Ranexa sales trends. Can you elaborate a little bit more on the dynamics of what you see in the growth in the number of physicians prescribing versus growth in the number of patients per subscriber?

Louis Lange

Yes, I would say that this continues to add docs, I'm not sure the latter has changed very much. That may change with the new label. We'll see.

Thomas Wei – Piper Jaffray

Okay. Thank you.

Louis Lange

Thanks.

Operator

Your next question is from the line of Steve Harr.

Steve Harr – Morgan Stanley

Good morning, guys. I have a question on the Northeast where you said there's been a very significant differential in the rate of uptick. Is there something different about the reimbursement dynamic, the types of hospitals, the sales forces. Do you see there – is this something you think will ultimately be localized and you think can be maybe more geographically diverse?

Louis Lange

Well, that's a good question, Steve. When we started off with the launch of brand in the Northeast was pretty slow. But the Northeast is known to be conservative. And so we spend more time there with CME, few advisory boards, and over time our reimbursement group did an outstanding job in the Northeast. So all those circumstances have turned the Northeast from probably year ago to being at the bottom to being at the top now. And I think as the outcomes data is out and the label reimbursement has been really good, but we'll do better. The prior off and restrictions will begin to go away. We already have some great reimbursement in New York City, for example. So it's a terrific opportunity to grow the base and we'll take it from there and see what the data show.

Steve Harr – Morgan Stanley

Just given the number of angina patients with diabetes, especially number where refractory angina patients I presume there were some micro vascular disease not amenable to PCI, what exactly can you say with this new label around diabetes?

Louis Lange

Well, what we can say is that for your angina patient you can expect to see a reduction in hemoglobin A1c. And the reason that that's important is because beta blockers raise A1c. And so it gives us some real opportunity to use this in diabetic patients, that's a third of the marketplace. In fact, if you add metabolic syndrome in, it's probably half of the marketplace.

Steve Harr – Morgan Stanley

Thank you.

Louis Lange

Sure.

Operator

(Operator instructions) Your next question is from the line of Eric Schmidt.

Eric Schmidt – Cowen & Co.

Hi, guys, congratulations. We're not privy to the label itself, so could you talk a little bit more about the reduced cautionary language and specifically – ?

Louis Lange

The label is up on our Web site. So it should be -(inaudible) but anyway, well, most important thing is that it doesn't talk about QT, in the indication statement, it doesn't say it should be reserved. So it goes right from there to better and better and better. So, it's a very clean label. There's no contraindication for diltiazem and verapamil and in particular, diltiazem is (inaudible) along because lot of patients still won't do. So we're exceptionally happy about it. And when you actually look at various aspects of the label, time and time again it says even though the MERLIN study didn't work for the primary end point, it demonstrated that the drug was safe, there was reduction in arrhythmia. So it's a vastly different label. It's a different compound. We almost look at it as a different compound. The label is so completely changed.

Eric Schmidt – Cowen & Co.

Bear with me, because I didn't check the Web site and I don't see the old label. So with regard to QT –

Louis Lange

Well, so, it says, I mean, I have the note that it went up about 20 minutes, 30 minutes ago, and it says CVT.com.

John Bluth

On the product page.

Louis Lange

On the product page.

Eric Schmidt – Cowen & Co.

And there's no warning against QT anymore?

Louis Lange

No. I mean it says it can – that it's actually interesting, the warning statement is – it may cause QT, but it reduces arrhythmias. It's almost a promotional claim.

Eric Schmidt – Cowen & Co.

Okay. And how do you expect the new label might help, if at all, with formulary status?

Louis Lange

This will help at every level, Eric. We have 56% or 58% on Tier II, but there is a lot of prior-off and restrictions. Those will begin to go away and it will expand beyond the 56%, 58%. It will begin to make inroads into other organizations, for example, there is some managed care organizations were not on formulary, they're quite large. It will help with the VA, it will help with Part D, it will have a very significant impact. I can tell you, traveling around the country, still talking to physicians, they are cautious because of the language in the label. They've all said the label changes. We expect to do more of it.

Eric Schmidt – Cowen and Company

And last question maybe for Dan with regard to this difference between reported sales and the IMS data, not to beat the dead horse here, but have you seen any increase in the size, the average size of prescription that might explain the growth?

Daniel Spiegelman

No.

Eric Schmidt – Cowen & Co.

Thanks.

Daniel Spiegelman

Thanks.

Operator

Your next question is from the line of Joseph Schwartz.

Joseph Schwartz – Leerink Swann

Hi, thank you. I was wondering if you could explain the increase in the R&D this quarter and the decrease in SG&A. How shall we think about these line items going forward?

Louis Lange

I think you can think about it as pretty stable, is taking a quick look at the numbers. But going forward, we expect to make some commercial investments, as I said, but we expect R&D to be essentially where it is now and same with SG&A.

Daniel Spiegelman

I mean, R&D was up, I don't know, 5%, 6%, and SG&A was down a couple of million dollars. I would say most of that's keeping the powder dry for the label approval that we got this quarter. We would – as I mentioned in my remarks, we expect to see, 15% to 20% increase going forward from here in overall cost of sales primarily in sales and marketing line as we – as we drive this new label forward.

Joseph Schwartz – Leerink Swann

Okay. And was there a payment to Roche this quarter? I'm just wondering.

Daniel Spiegelman

Yes, there was. That's out of the balance sheet. It wasn't expensed. It will run through cost of sales for the next 10 years.

Joseph Schwartz – Leerink Swann

Okay. And how do you think about the price of Ranexa? Do you – have you contemplated taking the price increase with the expanded label?

Louis Lange

We're not contemplating a substantial, sort of rechange in the way we price the product. Over the years, we've taken small CPI-ish price increases and we'll certainly contemplate that moving forward, but nothing substantive.

Joseph Schwartz – Leerink Swann

Okay. And then lastly, what about the EU, how – how should we think about that launch there taking shape? When does that–?

Louis Lange

Yes, well, we are working very actively with Menarini, we are extremely pleased with the people there in the partnership. I think they're going to do a great job. We would expect to launch in the UK and in Germany, in the first quarter. And then they will roll it out from there. So UK and Germany, of course, you don't need pricing approval, it is free pricing, but it's like this country you got few constraints in terms of the way gets paid. But we'll start getting some money after the first quarter, so, we're very pleased they're going to do a great job.

Joseph Schwartz – Leerink Swann

Alright. Thank you.

Louis Lange

Sure.

Operator

Your next question is from the line of Sam Connor [ph].

Sam Connor

Hello. Good morning. Can you hear me?

Louis Lange

Yes, hi.

Sam Connor

Yes, is there any possibility of breakeven next year?

Louis Lange

Well, we have not given the guidance, and of course, we don't really know where our sales are going to go with the new label, but we don't need any money from Wall Street, that's the good news, is that we've got enough cash to get to wherever we want to get if things go as we think. And, if sales go well, there is always – there is always a chance. But it is not something that we're guiding to at this point.

Sam Connor

Okay. And will you be doing any direct consumer advertising or marketing or is that not on – not permitted yet?

Louis Lange

No, actually, we could do. I don't think you'll ever see TV ads from CV Therapeutics. We have some patient Web sites that will go up with the new label. We didn't want to do that before with the old label. But – we have a great new marketing group. And there is so much available now that you can do on the web that is extremely cost-effective, it's easy to track. So we're going to be doing that not only with patients, but with organizations and physicians and the like.

Sam Connor

Okay. Thank you. Congratulations.

Louis Lange

Thanks.

Operator

Your next question is from the line of Christopher James [ph].

Christopher James

Hi, guys, good morning and thanks for squeezing me in. Congratulations on securing such a great label. Just given the arrhythmia claim, particularly in atrial fibrillation, how do you think Ranexa compares to both Sanofi's Moltac [ph] and Cardiomes Vernacular?

Louis Lange

That is a good question. Of course, we haven't done any head to head comparisons so I can't really answer that, they're not approved yet so, we have to see how they do in the marketplace. But what I can tell you is that we already have physicians using this atrial fib, especially during the bypass surgery. There's probably 0.5 million bypass operations a year. They're almost all for patients with angina and coronary disease. The incidence rate of nuance and atrial fib post op is 30% and if you have got a valve disease it's higher. We have some centers that have had extremely good experience with Ranexa preoperatively, because it's not in dynamically active. Whether you try to control AF with beta blockers or amiodarone the kinds they're all negative inotropes and/or slow the heart rate which is really problematic when you are trying to get patients off the pump. And so I think physicians have really figured it out for themselves, but now with this new claim, we can tell them, and of course, there are a lot of cardiologists that have to manage patients going for pre-op checks and post-op, they get into trouble. So this is a really golden opportunity with the drug already in the market to directly talk about this opportunity.

Christopher James

Thanks, guys.

Louis Lange

Sure.

Operator

Your next question is from the line of Yaron Werber.

Yaron Werber – Citigroup

Yes, hi, thanks for taking my question.

Louis Lange

Sure.

Yaron Werber – Citigroup

I'm – I wasn't able to pull up the label and as far as I can tell right in the beginning on the upper right side it says QT interval prolongation can occur with ranolazine and then when you go to the warning section, it's pretty much the first one out there, ranolazine blocks (inaudible) belong with the QTC interval in a dose dependent manner. And specifically in diabetes you mentioned there is a small increase in A1c. And you're right there is no arrhythmic effect, but it specifically says that there is really no clinical benefit over the comparison arm in anyway in which they looked. I'm just kind of curious as to why do you think this makes such a huge difference?

Louis Lange

Well, of course, there were no attempts to do this as an arrhythmia study, so you don't have the prevention of sudden death because it wasn't designed as that, but you have to understand that there are no drugs that do that. And so compared to other drugs like amiodarone that have demonstrated toxicity on while they reduce arrhythmias, we reduced arrhythmias without the toxicity. So I think that you'll see some very interesting use against amiodarone. The amiodarone has a very significant withdrawal rate, probably half of the people stop taking in six months. It causes severe and often irreversible pulmonary fibrosis, it causes thyroid disease, it causes liver disease, it causes skin disease and causes eye disease. And I think amiodarone, frankly should be relegated to refractory therapy. So it's an enormous advantage for Ranexa.

In terms of A1c, I think you're going to see a new day at the FDA with respect to approvals of diabetic drugs. And if you went to the cardiovascular safety panel a few months back, that's what the FDA was saying, the experts were saying. I think we may have the only anti-diabetic claim that has cardio renal approved safety out there in the world. And that's a big deal, and it's a very big deal against beta blockers where beta blockers caused the hemoglobin A1c to come up, and the beta blocker angina data is 25 years or 30 years old. They have no outcomes data at all. And I suspect that even if you reran the B Hat study in myocardial infarction, it might not work. We work on top of patients taking statins and ace inhibitors, and so these are enormous opportunities to differentiate ranolazine from other anti-angina and they'll provide significant clinical benefits.

Yaron Werber – Citigroup

Yes, great. And then, Dan, I had a question for you. The $9 million payment to Roche, where is that – which occurred this quarter, where is that appear in the P&L? And then can you give us a little bit of a sense, you mentioned there might still be a little bit of taxes to pay in Q4 and maybe into next year, can you give us a sense there, also?

Daniel Spiegelman

Sure, so with respect to the $9 million, I mentioned on the last call – on the last – answer to the last question that it will – it's on the balance sheet and it will get amortized through cost to sales going forward, consistent with the milestone original US milestone approval. With respect to taxes, actually I made no such comment about the fourth quarter or next year.

Yaron Werber – Citigroup

Okay. So I mean from now on is it safe to assume you're not going to be paying taxes until – ?

Daniel Spiegelman

Well, safe to assume that – it's safe to assume that some day we hope to pay taxes.

Yaron Werber – Citigroup

Right.

Daniel Spiegelman

And it's the American thing to do, and that should be our goal. But in general, we need to be profitable and we're not expecting to be profitable next quarter.

Yaron Werber – Citigroup

Okay. And then the – I had a question also, can you – I don't know if you can give us a little bit of a flavor next year, I mean, when we look at your guidance, let's say, extrapolating if you take out the COGS, you look at, you mentioned spending too much in employees if you take another 15% or 20% increase, you are going to be somewhere in the $260 million, $270 million loss on expenses and then to get before interest income, which is negative right now, given the (inaudible) interest rate. And to get to your guidance, long story short, we're looking at revenues of about – up 50% roughly from this year. Is this – can you give us – what I'm trying to get it to, give us a little bit of break if you can between where is that related to the Ranexa in the US versus Ranexa ex-U.S. and regadenoson royalties?

Daniel Spiegelman

Yes, you've done the appropriate overall math and we're not in a position to give revenue guidance sort of in different, sort of U.S. or European territories yet. The new label was just approved today and we're going to need to get some history with that, and we've got – we've got big expectations certainly for what Menarini will do in Europe, but it hasn't launched there yet. So we're not in a position to do that sort of breakout.

Louis Lange

Yaron, I think the sales of Ranexa are growing in double-digits, they're going to probably grow that much going forwards, our guess is. The new label is great. Our loss is going to be coming down, as Dan said. So we're heading towards breakeven. When we get there is another question. But we got the money in the bank and sales are going well, even with the old label. So we expect great things. Europe obviously is a baby. It's just getting launched.

Yaron Werber – Citigroup

And then just final question. Then just to clarify you said the remaining convert in 2010 is now $46 million?

Daniel Spiegelman

I think actually what I said was 43.6 million.

Yaron Werber – Citigroup

43.6. Okay. Can I just ask a final question on the patent –

Louis Lange

Sure.

Yaron Werber – Citigroup

– for Ranexa? Can you give us a sense – when does the first patent on composition of matter expire in the U.S.?

Louis Lange

Well, as you know, Yaron, that expired long ago. The thicket of patents that we have start to expire in 2019. I think we have 10 listed in the orange book, there will be more, there is over 100 claims. And certainly in our estimation and in outside the many partners' estimations, they're not breakable.

Yaron Werber – Citigroup

I'm sorry, because we were talking about the long-acting release version older patent – formulation?

Louis Lange

Yes, well, it's more than formulation, as you know, it's bio-equivalency, it's drug concentration, it's formulation, it's uses and it's other formulation. So there is five different approaches to the patents today.

Yaron Werber – Citigroup

Thank you.

Louis Lange

Sure.

Operator

(Operator instructions) You have a follow-up from the line of Jim Birchenough.

Jim Birchenough – Barclays Capital

Hi, guys, just trying to get at perhaps long-term guidance somehow, and that is if I look at your guidance for '09, you could end '09 with $175 million in cash and a lot more debt than that going into 2010. So I'm not going to ask when you expect to breakeven or be profitable, but what – what commitment do you have to the balance sheet, and what level of cash won't you go below, I guess is the question?

Louis Lange

Well, I think, we're in a great position today with $300 million and revenue streams from Lexiscan and EU that haven't even partly started yet, Jim. So it depends on where that goes. And it depends on where revenue goes with the new label. So – so we have no plans to raise money at this point and in fact, as Dan said, we've been buying back convert and we may well continue to do that. So we have all the choices on our side, and that includes flexibility. And we always will be looking for other opportunities in licensing and partnering and so forth. So there's a lot – a lot that will go on, this is not a static company.

Jim Birchenough – Barclays Capital

But I guess the question is, where do you want to keep the balance sheet in terms of cash relative to debt? Do you want to go much below $175 million in cash as you get to the end of '09?

Louis Lange

We don't have a target there. I think the 175 is just a, it's a – it's not even a guesstimate. It's got lot of Kentucky vintage there. And so – there is a lot of things that are going to change and that includes the EU launch, the Lexiscan growth, the growth of new label, partnership opportunities – and the pipeline, don't forget, partnership opportunities there. Don't forget, we own Japan still for Ranexa and Lexiscan, and there will be partners for opportunity there. So I wouldn't assume that there is anything real, but that 175.

Jim Birchenough – Barclays Capital

And then just finally just on the pipeline, could you give us an update on the late sodium channel inhibitor, the next generation product, when that might move into the clinic?

Louis Lange

Yes, that's actually moving along really nicely. I'm not sure when we'll publicly update the Street, but we have second generation and third generation compounds that are extremely interesting, and I think we'll be very high profile. And I would remind you of 3619, 3619 is in Phase I on preclinical models, it lowers fatty acid and triglycerides very significantly, it is an insulin sensitizer, raises HDL. So it's going to be a great molecule, we think because of the nature of those end points even the Phase I-d data can give us efficacy data which we will probably get sometime next year and that is in inherited marketplace, it's highly unique, it's one of a kind, it's oral, it's once a day, mega markets and many people think that the link between diabetes and atherosclerosis is true, fatty acid and this drug directly (inaudible) so there is lots and lots of opportunities.

Jim Birchenough – Barclays Capital

Just finally, just to go back on that late sodium channel inhibitor second and third generation product, can you say whether you're going to move that into the clinic next year? And secondarily is this something that comes up with partnership discussions either as a separate asset to partner or as something that a mitigant of potential generic threat when you are talking about the Ranexa franchise?

Louis Lange

Yes, well, the first thing that we want to do is sit down and talk to the FDA about our next plans and part of it is in this second generation. And then the other thing depends on the company, Jim, there are some companies that are interested and some that are not. But it certainly one of the things that gives me a lot of comfort is that we will own this franchise for a very long time. We have a ten year lead in. I think the second and third generation will give us a lead that is sustainable for a long time and not – Merck has done it probably the best, but obviously Zocor came off patent not many years after Novacor. I think we have a very strong franchise management plan in mind and we'll update the Street as we get to it.

Jim Birchenough – Barclays Capital

Great. Thanks for taking the added question.

Louis Lange

Yes, certainly.

Operator

You have a follow-up from the line of Steve Harr.

Steven Harr – Morgan Stanley

Just two questions. First one is we talked about the overlap with diabetes and angina. What is the overlap of hypertension angina, so patients who may want to be on a drug is actually impacts blood pressure? And the second question is, this is my recollection of clinical data with beta blockers, is that the reason some don't like to use them in diabetics is that they mute the hypoglycemic response. I don't know of data that they increase hemoglobin A1c so I'm just wondering where that data resides?

Louis Lange

So hypertension probably has 60%, 70% overlap with angina, and I think if you look at a lot of the current guidelines, most people would say you start with diuretic or an ACE inhibitor, so Ran [ph] is perfect to add to that. We – MERLIN was done on top of ACE inhibition, right, so about 75% of people had ACE inhibitors on board and probably half had diuretics. So we have good experience and it's a nice – nice fit. In terms of the diabetes and beta blockers, I mean, there is a whole host of problems with beta blockers and diabetes. You don't have to go very far in the literature to find the number of studies that have characterized A1c effect. I think the Jessica study as a whole. You can just Google beta blockers on A1c and you will find a bunch of papers. But it's a well known effect. It's a problem. And of course, it does also mask the hypo or low blood sugar that you get with, for example, insulin and I think if you look in the PDR, most beta blockers, of course, mostly generic, but there is a warning not to use in insulin dependent diabetics. So there is lots of trouble with beta blockers in diabetes.

John Bluth

Operator, do we have any further questions?

Operator

There are no further questions at this time. Dr. Lange, do you have any concluding remarks?

Louis Lange

Yes, sure, well, we're thrilled. This new label exceeded even our expectations, and it's not only first line, it cleaned up the cautionary language as we move to contraindications to diltiazem and verapamil, and it adds promotable claims, which are really completely unique, that we can safely reduce arrhythmias, ventricular atrial fib, bradycardia, and hemoglobin A1c. So we look forward to seeing some of you at the American Heart and to reporting in the future. Thanks very much.

Operator

This concludes today's conference call. You may now disconnect.

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