Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Start Time: 16:30

End Time: 17:20

InterMune, Inc (NASDAQ:ITMN)

Q4 2012 Earnings Conference Call

February 21, 2013 4:30 p.m.ET

Executives

Jim Goff – Vice President, Investor Relations

Dan Welch – Chairman, CEO & President

John Hodgman – CFO

Giacomo Di Nepi – Managing Director for Europe

Analysts

Michael Yee – RBC Capital Markets

Shin Kang – Wells Fargo

Anupam Rama – JPMorgan

Katherine Xu – William Blair

Ritu Baral – Canaccord

Howard Liang – Leerink Swann

Sara Slifka – Morgan Stanley

Heather Behanna – JMP Securities

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the InterMune Fourth Quarter Results Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded, Thursday, February 21, 2013.

It is now my pleasure to turn the conference over to Mr. Jim Goff, Vice President, Investor Relations. Please go ahead, sir.

Jim Goff

Thank you, operator. Good afternoon, everyone, and welcome to the InterMune earnings conference call. This afternoon, we issued a press release that provides details of the company’s unaudited financial results for the fourth quarter and the full year ended December 31, 2012. The press release is available on our website, at www.intermune.com.

During the course of this conference call, we will state our beliefs and make projections and other forward-looking statements regarding future events and the future financial performance of InterMune. We wish to caution you that such statements are predictions and expectations, and actual events or results may differ materially.

We refer you to the company’s publicly filed SEC disclosure documents for a detailed description of the risk factors affecting our business, including those discussed in our Form 10-K filed with the SEC on February 29, 2012 and Form 10-Q filed with the SEC on November 9, 2012.

These documents identify important factors that could cause our actual results to differ materially from our projections and other forward-looking statements. These risk factors include regulatory, revenue, intellectual property, clinical development, capital resources and other risks relating to our business.

On the call today are Dan Welch, InterMune’s Chairman, Chief Executive Officer and President, and John Hodgman, our Chief Financial Officer. Giacomo Di Nepi, our Managing Director for Europe, will join us for questions and answers.

I will now turn the call over to Dan Welch.

Dan Welch

Thank you, Jim, and thank you, everyone, for joining us today. Today, we’re very pleased to review with you our progress in the fourth quarter and the full year 2012. We’ll also preview some of the upcoming events that we expect will highlight our further progress this year.

As we preannounced in early January, in the fourth quarter of 2012, we achieved the fifth consecutive quarter of Esbriet revenue growth since the initial launch of Esbriet in Europe in September of 2011.

This growth was achieved despite a full quarter’s impact of the 11% price decrease that went into effect in September in Germany, the largest country in the European Union. We expect that Esbriet will continue this pattern of steady growth and over time become a meaningful brand in Europe and Canada before our expected launch in the United States.

Another measure of our progress was the commercial launch of Esbriet in Europe’s second-largest pharma market, France, in the second half of November. We expect to generate substantial Esbriet revenue in France over time, as we build the market and the brand. We were launched in France for only a few weeks prior to the December holiday. Therefore, it’s still early to give a firm view of prescribing trends.

However, we can say that the launch is going according to our expectations. And we are encouraged by the number of prescriptions for Esbriet, especially considering the lack of patients – of any patients on our named patient program, or NPP, in France at the time of the Esbriet launch and also considering the more restricted this restrictive prescribing and reimbursement conditions in France when compared to those of Germany.

In 2012, we also made important progress in our pricing and reimbursement discussions in a number of European countries. At year end we had successfully secured attractive pricing and reimbursement conditions for Esbriet in nine European countries of Austria, Belgium, Denmark, France, Germany, Iceland, Luxembourg, Norway and Sweden.

We view this progress as significant because it was achieved in the midst of what many of you as Europe’s most difficult economic period in decades and a period in which new processes for reviewing new medicine and their value have been implemented in a number of European countries.

But our attention is not only on Europe, after approval to market Esbriet was granted in Canada on October 1 of last year following a priority review by Health Canada. We establish our first commercial presence in North America and launched the brand on January 2 of this year. Canada is the world’s ninth largest Pharma market where IPF affects approximately 5,000 to 8,000 Canadians. Although the launch has been underway for only six weeks we are pleased to report that the Canadian launch is meeting our expectations.

In terms of reimbursement in Canada about a third of IPF patients in Canada are covered by private insurance and we expect to secure coverage from substantially all of the major private insurance plans in the first half of this year. Esbriet revenue will therefore first be built in this private insurance segment. Public or provincial drug reimbursement plans cover approximately two-third of IPF patients and reimbursement from all 10 provinces is secured on average within 18 months of marketing approval.

Of particular importance is bringing Esbriet to IPF patients here in the United States is our announcement in January that we had fully enrolled our ASCEND Phase 3 study. ASCEND is a double-blind, placebo-controlled trial of 52 weeks duration with a primary endpoint of change in forced vital capacity between baseline and Week 52.

The trial enrolled 555 IPF patients with mild-to-moderate impairment in lung function and certain characteristics that we believe will enhance the probability of a successful study outcome. Full enrollment of ASCEND was completed in keeping with the timeline that we had shared in April of last year and the last patient was randomized on January 9 of this year.

The ASCEND trial design includes 52-week treatment period followed by a five week safety follow-up, so the topline results from ASCEND currently are expected in the second quarter of next year. On February 14 we announced that Sean Nolan has joined us in the newly created position of Executive Vice President and Chief Business Officer. Sean will lead the creation and establishment of our U.S. commercial, business development and global marketing groups. He will also oversee InterMune’s Canadian business and the company’s manufacturing and supply chain operations.

Shawn will play a key role in InterMune’s future as our Esbriet sales continue to grow globally, we move closer to the anticipated approval and launch of Esbriet in the United States and as we prepare to develop our business.

And earlier this week we reported that we and Shionogi had reached an agreement regarding the material terms of a settlement of the complaint filed by Shionogi against InterMune. Effective January 1, 2013, we will pay Shionogi a royalty of 4.25% on net sales of Esbriet in the European Union through the remaining period of orphan drug exclusivity, which ends in February 2021.

Shionogi waives any claim against InterMune to royalties on European sales of Esbriet prior to January 1, 2013 and any claim to royalties on Esbriet sales in Canada or in the United States.

As you know this dispute centered on the company’s different views of what information or data the parties were able to use in regulatory filings without creating an obligation to pay a royalty on net sales. While we were very convinced on our view of the contract, the outcome of a jury trial of course is always unpredictable and the economic impact of the company of a ruling against us would have been a royalty starting at 6% and escalating to 10% of revenues not only in the EU but potentially in the United States and Canada as well.

In a summary we view this as a very good outcome as we got a flat rate royalty in the EU at a rate below the lowest rate of the prior escalating royalty. And we also removed the potential – potentially significant economic risk to the U.S. and Canada businesses and furthermore we avoided the wasted management time and money of the lawsuit.

Looking ahead to 2013 we expect to achieve significant progress in launching Esbriet in up to three additional top five countries in Europe as well as in our remaining targeted midsized countries. With regard to the court EU countries for which Esbriet pricing and reimbursement has not yet been secured, our timelines are unchanged from the previous update we provided in early January.

As you know, we don’t control the pricing and reimbursement timeline in any country. So our expectations represent our best estimates based on the information we have and our understanding of the countries processes. With regard to the U.K., as many of you know, NICE is appraising the cost effectiveness of Esbriet as a health intervention within the National Health Service or NHS in England and Wales.

As we previously reported following the first appraisal committee meeting in late November of last year, Esbriet received a negative recommendation by NICE at first appraisal. This outcome was expected and anticipated as we announced to you because roughly two thirds of files receive a negative recommendation at the first appraisal. Roughly half of those files – half of the files that receive a negative first appraisal eventually secure a positive recommendation from NICE.

The second meaning of the NICE appraisal committee for Esbriet was conducted on January 29. We have not yet received feedback from NICE on this meeting and we expect to receive the final NICE guidance in March. We expect this final guidance will be published on the NICE website in April. If we secure a successful outcome from the NICE process and if the pricing and reimbursement conditions are acceptable, we will launch Esbriet as soon as practical thereafter.

In Italy, we currently planned to conclude the price – pricing and reimbursement process for Esbriet by the end of March. If the pricing and reimbursement conditions are acceptable we expect to launch Esbriet in Italy as soon as possible after the process is successfully concluded and after the price and reimbursement conditions for Esbriet are published. That publication period takes roughly six weeks from the time of conclusion of the reimbursement discussions.

In Italy while our revenues can begin soon after the publication of the pricing and reimbursement conditions for a new product. It typically requires up to three quarters to complete the regional reimbursement procedures in all of the regions in Italy before revenues can be realized across the entire country.

With regard to Spain, we continue to believe that a decision regarding pricing and reimbursement of Esbriet in that country will occur by mid 2013. Like Italy, Spain also has regional procedures following completion of pricing and reimbursement at the national level, and these procedures vary by region and can require up to four quarters to complete before revenues can be generated by all regions in Spain.

Of these three remaining top five countries of the U.K., Italy and Spain, we believe Spain is the most a difficult to project, as there continues to be little visibility on new drugs moving through the Spanish process.

Turning now to the pricing and reimbursement and launch status on what we call our 10 targeted mid-sized countries in Europe. These countries typically support high prices for pharmaceutical products. And their collective population is about 60 million people, which roughly equals that of France, the second largest country in Europe.

We have secure pricing and reimbursement and launched Esbriet in seven of these ten countries already. We expect to launch Esbriet in the remaining three mid-sized countries – notably, the Netherlands, Finland and Ireland – by mid-2013 assuming, of course, that acceptable pricing and reimbursement conditions are negotiated in these countries.

To summarize the outlook for our EU business, by around the middle of this year, we expect to have launched Esbriet in all top five and our ten mid-sized countries in Europe, comprising about 75% of the EU population and about 80 to 85% of the EU pharmaceutical market value.

Beyond these targeted 15 countries in Europe, we’re taking the first steps to begin the pricing and reimbursement procedures in several European countries beyond the targeted first 15 where we will commercialize Esbriet, should we determine that the pricing and reimbursement conditions in those additional countries are favorable. The timing for launching Esbriet in these countries is in 2014.

In summary, during 2013, we expect a steady progression of Esbriet launches. By mid-year, we expect to be launched in up to 15 countries in Europe and Canada, providing the foundation for consistent revenue growth during 2013 and beyond and toward the realization of our vision to build Esbriet into a very successful brand over time.

We’re pleased to have put behind us our dispute with Shionogi and brought certainty into the business – especially, the agreement that no royalties are payable on Esbriet royalties in the United States or Canada. And, finally, we’re very pleased to have completed the enrollment of the ASCEND study and now are much closer to realizing the opportunity to bring Esbriet to IPF patients in the United States.

I’ll now turn the call over to our Chief Financial Officer, John Hodgman, for the financial discussion. John?

John Hodgman

Thank you, Dan, and good afternoon, everyone. InterMune reported total revenue in the fourth quarter of 2012 of $8.2 million compared with $2.7 million in the fourth quarter 2011, an increase of 204%. Total revenue for the full year 2012 was $26.2 million compared with $5.4 million in 2011, an increase of 385%.

In terms of expenses, R&D expenses in the fourth quarter 2012 were $32 million compared with $21 million in the fourth quarter of 2011, an increase of 52%. R&D expenses were $106.6 million for the full year 2012, which is 42% above the level of R&D expenditures in 2011.

Higher R&D expenses in both three- and twelve-month periods of 2012 were largely driven by expenses related to the conduct of the ASCEND trial.

SG&A expenses of $29.6 million in the fourth quarter of 2012 were 10% higher than a year earlier. While SG&A expenses of $105.3 million for the full year 2012 were 18% higher than in 2011. The increase spending reflects on investment and the creation of our European infrastructure and the launch and pre-launches of Esbriet in nine European countries and Canada.

We reported a net loss for the fourth quarter 2012 of $58.6 million or $0.90 per share. Per share amount in the fourth quarter of 2012 include a gain from the role of Actimmune in discontinued operation of $0.01 per share.

Our net loss for the full year of 2012 was $150.1 million or $2.30 per share compared with a net loss of $154.8 million or $2.58 per share in 2011. Per share amounts for the full year included gains from the role of Actimmune in discontinued operation of $0.52 per share and 12% – $0.12 per share in 2012 and 2011 respectively.

As a result of the June 19, 2012 divesture of Actimmune historical Actimmune revenue, cost of goods sold, operating expenses and tax impact are reported in discontinued operations and they’re therefore not included in the previous discussions.

At year end 2012 we had cash, cash equivalents and available for sale securities of approximately $308 million. The year-end balances do not include net proceeds from a concurrent offering of common stock and convertible notes which we completed in January of 2013. Those offerings yielded net proceeds of $262.4 million net of underwriting discounts, commission and expenses.

One of the intended uses of the proceeds was to repurchase and cancel the outstanding 85 million of convertible debt notes due in 2015. Thus far we have repurchased 600 – excuse me, $66.6 million of the 2015 notes and intend to repurchase the remaining $18.4 million of the 2015 notes over time.

Turning to forward-looking financial guidance, we today reiterate our revenue and operating expense guidance for 2013. Esbriet revenue is currently anticipated to be in the range of $40 million to $70 million. This revenue guidance is in two layers. The first layer of guidance is for the projected revenue in a range of $40 million to $55 million in countries where Esbriet is currently launched.

The second layer of guidance is for the projected revenue in a range of $0 million to $15 million in countries where Esbriet pricing and reimbursement approval and launch is not yet concluded, that is currently anticipated, during 2011 – 2013.

The guidance also counts for the three for the six quarters needed for the conclusion of national pricing and reimbursement conditions to comply with all regional and provincial reimbursement procedures in Italy, Spain and Canada.

R&D expenses are currently anticipated to be in the range of $100 million to $120 million for 2013, and SG&A expenses is currently anticipated to be in the range of $145 million to $165 million.

We’re now ready to answer your questions. Operator, please open the lines for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) One moment please for the first question.

And our first question is from the line of Michael Yee with RBC Capital Markets. Please go ahead.

Michael Yee – RBC Capital Markets

All right. Thanks for the question. Two parts. One is, in your ongoing business in Germany, can you talk about what you’re seeing with your maintenance rate, your net patient adds, anything you can say about that as you see today versus say at the beginning of the launch?

You had previously given some patient numbers early, but you don’t really give those anymore. So are there any metrics you can talk about in Germany? And then the second question is, outside of Germany, I know you had, I think, 1,168 NPP patients or so. How is that accounted for in your guidance?

Dan Welch

Thanks for your questions, Michael. You’re right. As of this year, we’re not providing patient level data country by country. You can imagine this could get unwieldy, Michael...

Michael Yee – RBC Capital Markets

Yes.

Dan Welch

For example, country by country.

Also, the IMS data are not – are more or less reliable in each country. And so the metrics we use and the formula we use, the variables that we drive and the assumptions we make to get to patients would differ and the ranges on them would be wide.

So we decided that rather than bombard you with all kinds of ranges and all kinds of countries, we no longer are reporting country by country patient level data.

Michael Yee – RBC Capital Markets

Yeah.

Dan Welch

We are providing – and we also, on the other hand, are providing revenue guidance, which John just described to you a moment ago.

Qualitatively, we can say that the persistence rate in Germany continues to improve slowly, as we expected it to improve slowly. And over time, we’ll get to a place where we expected it to be. So it’s going in the right direction there.

We have said that there were approximately 950 to 1,000 patients on Esbriet in the...

John Hodgman

In Germany.

Dan Welch

In Germany at the end of last year.

Michael Yee – RBC Capital Markets

Okay.

Dan Welch

So, in terms of compliance rate, it tends to be hovering around what we expected to be around, 80%. So those are some metrics that you can think about.

Michael Yee – RBC Capital Markets

Okay.

Dan Welch

Outside of Germany, I think, you asked about NPP patients and how we accounted for those in the guidance. The NPP patients are dispersed across the European Union roughly proportional to the population sizes, as you would expect.

And the idea is that when a country – when the country has concluded pricing and reimbursement and Esbriet is commercially available, those patients transition off the drug into therapy, into paying therapy but there can be some delays region by region. I will flip the question to Giacomo, can you talk about how patients transition from NPP patients to paying customers and how that might to vary by countries?

Giacomo di Nepi

Sure Dan. Hi, Michael. Thanks for your question. Patients are basically exiting the NPP for free and entering in the foreway progressively after the product is remorse in the country. Of course patients have a supply of the NPP product so it takes some time before they fully transitioned to commercial product and sometimes depending of the countries there may be some regional reimbursement that further affect the delay, but over time we expect all the patients that entered and remained into the NPP to transition into commercial, into commercial quantities.

Michael Yee – RBC Capital Markets

Okay, thank you.

Operator

Thank you. And our next question is from the line of Brian Abrahams from Wells Fargo. Please go head.;

Shin Kang – Wells Fargo

Hello this is Shin Kang calling for Brian. Thanks for taking my question. A couple of questions on your expectations for U.K., first just to clarify, how would the final decision be communicated, should we expect a press release from the company in March or should we expect a final decision from the NICE website? And secondly, do you expect any potential hurdles even with the reimbursement approved in the U.K. such as narrowing of the patient population beyond what’s specified in the label. And lastly, to have any pre-lunch programs on the ground in U.K. before the finalization of the NICE negotiation such as early access, compassion and used or any patients on the ground getting the drug? Thank you.

Dan Welch

Thanks, Shin Kang. We – I think I got all your questions. My colleagues will help me with which ones I missed. So how will you be informed? It will most likely be informed by a press release. We will get an advance warning from NICE about the news, whatever decision they reach some time before – a week or so before it goes on their website. So rather than wait with that material information, of course, we will share it probably through, most likely through a press release.

So that was your first question. In terms of pre-launch preparations in the United Kingdom, there are a number of educational programs going, key opinion leader relationships being built, CME programs as well as named patient program, there is a number of patients on the NPP program in the U.K. The third question – I was – you were asking if there would be – could be any constraints on reimbursement conditions constraints that might be narrower than the currently approved EMA label. That’s something we wouldn’t want to speculate at this point. The assessment is ongoing at that time and until it’s we would want to share any information on that.

Shin Kang – Wells Fargo

Thank you very much.

Dan Welch

You are welcome.

Operator

Thank you. And our next question is from the line of Geoff Meacham of JPMorgan. Please go ahead.

Anupam Rama – JPMorgan

Hey, guys. This is Anupam Rama in for Geoff Meacham. Just a quick question, a more broader question, are there any smaller sort of beyond the top five EU countries that have these regional approvals that are needed sort of like in Italy and Spain? Thanks.

Dan Welch

I will ask Giacomo to answer that question. Any regional hurdles beyond Spain and Italy?

Giacomo di Nepi

Yes, sometimes they exist for example in Denmark; you need to be approved in various provinces including of course the largest which is Copenhagen. Same has been seen in Belgium. Let’s say there’s less structure than articulated than what is in Spain and Italy but certainly happens in certain markets.

Dan Welch

Cool.

Anupam Rama – JPMorgan

Thanks for taking our question.

Dan Welch

You’re welcome.

Operator

Thank you. And our next question is from the line of Katherine Xu of William Blair. Please go ahead.

Katherine Xu – William Blair

Hi. I’m just wondering internally how you are dealing with the U.S. side since you have a Chief Business Officer, you have some ramping up of the U.S. commercialization, commercial organization, but just internally can you share with us how you’re preparing for that clinical and regulatory as well as commercial from now until second quarter next year?

Dan Welch

Sure. Hi, Katherine thanks for the question. So we did just recently announced the arrival of Sean Nolan as Chief Business Officer. A big part of his responsibility is the U.S., the United States and getting ready for that. The investments we will be making in 2013 in preparation will be around similar things we just talked about continuing medical education, developing relationships with key opinion leaders, doing marketing research around current views of care.

We did that a couple of years ago of course before we got the complete response but two years is a long time in almost any therapeutic area although, nothing much has changed in terms of new therapy. Nonetheless, we will be doing marketing research; we’ll be doing around usage, attitude, disease awareness, pricing, sensitivities around that as well. So, we will also be putting together the beginnings of the leadership team of the commercial group and so that comprises the bulk of the activity in 2013 and then early into next year.

Operator

Thank you. And our next question is from the line of Ritu Baral of Canaccord. Please go ahead.

Ritu Baral – Canaccord

Hi, guys. Thanks for taking the question. Can you comment on ASCEND trial conduct have dropouts been going according to plan and also how would you plan on sort of viewing the data that might come out in the next few quarters from the neck alone arm of the ongoing PANTHER trial, how might it affect Europe and how could it affect ASCEND trial conduct and I do have a follow-up?

Dan Welch

So thanks for the question Ritu, I will ask Jonathan Leff to handle.

Jonathan Leff

Hi, Ritu. Thanks for the question. My trial conduct in ASCEND is excellent, nothing to report there. We’re very proud of the conduct of our trials and its going along very well. As far as the neck alone arm we imagine that that will be reported out unlike you, probably in the first quarter of next year – possibly, a little bit earlier. That’s a timeframe. We don’t expect that to have any impact of any meaningful way on the conduct of the ASCEND trial, if that’s what you’re getting at. So we think we’re clear there.

Ritu Baral – Canaccord

And the follow-up on the U.K., what – you gave us percentages of drugs that go on to sort of the second round. Well, what are the percentages of the drugs that go on to that sort of mythical third round of review? And how would you know, if you were to end up going through another cycle?

Dan Welch

Yeah. Thanks for the question, Ritu. There is a third round. It is – it’s rarely implemented, but not – but it’s not never implemented. So you call that mythical. It does exist, and it does happen.

If that were to happen – in our case, we have no indication that it would or wouldn’t – but if it were to happen, it generally would lead to a couple of months’ delay in the process. But, again, it is not a zero chance, but the third hearing is quite rare. But if it happens, it would implicate a couple months’ delay more or less.

Ritu Baral – Canaccord

Got it. And last question, the Canadian sales force, where are you and what’s your strategy there?

Dan Welch

The Canadian sales force is fielded. John, do you want to?

John Hodgman

Yeah. Yeah. We’ve actually fielded the Canadian sales force. We have great individuals that have tremendous background – almost 15 years’ experience on average across the lot of them. And they’re dispersed throughout the providences in Canada and are up and running and training – trained – fully trained, and they are making calls and meeting with the KOLs.

Dan Welch

Eight.

John Hodgman

Yeah, about eight of them.

Ritu Baral – Canaccord

Great. Thanks for taking the question, guys.

John Hodgman

Yeah.

Dan Welch

You’re welcome.

Operator

Thank you. (Operator Instructions) Our next question is from the line of Howard Liang of Leerink Swann. Please go ahead.

Howard Liang – Leerink Swann

Thanks very much. Just on – in France, can you talk about what you’re seeing on the persistent rate, given that maybe patients are maybe different – somewhat different from those in Germany and maybe you can comment on whether obtaining reimbursement has been smooth through the, I think, you call it, ALD process?

Dan Welch

Sure. Thanks, Howard, for your question. I’ll have Giacomo answer the question on what we know of persistence at this early stage and also the ALD to what extent that’s proving to be an issue or not.

Giacomo Di Nepi

Thank you, Dan. Hi, Howard. Thanks for your question. The persistency rate in France is, of course, very early to evaluate, given the short history that we have. But we expect that the persistency rating in France could be better than the one in Germany, considering the fact that as you recall our reimbursement in France inhibits the severe patients to be reimbursed.

And, therefore, this type of patients, which are the one that are typical dropping off more frequently, are not present in France while they were certainly a part of the patients at the beginning of the launch in Germany. So it’s early to say that we expect to have reasonable expectations that this is going to be better.

In terms of the ALD, honestly, really didn’t represent any hurdle. We’ve seen that, we knew that doctors were used to it, but also we are seeing that in practice it’s a process that is well-known and ALD really doesn’t represent a hard dose and it’s well understood and goes smoothly.

Howard Liang – Leerink Swann

And I had just a follow up on the Shionogi settlement. Under what situation – what circumstances which you submit the Shionogi data for U.S. approval and if do, what would be the world to rate?

Dan Welch

Well I should say at this point we have no plan to submit the Shionogi patient level data in the U.S. and DA. As you note there was some information in the original NDA, the NDA that exist today would come to an agreement with Shionogi that specifically whatever is in our NDA is not subject to a royalty in the United States.

We have to do another study partly because those data were not acceptable to the FDA, the so data believe that the Shionogi data will play a role in any and we don’t believe that data will play a role in any resubmission.

The essence that we believe strongly will meet the needs of the FDA as have described them to us. We have a high into his prepared high confidence in the outcome of the study and will be very powerful demonstration of the efficacy and statement of Esbriet. I cannot at this stage, contemplate a situation in which we would submit the Phase 3 data, patient level data that would in that case if we did which would trigger a royalty in the range of the previous agreement.

But at this time to underscore we have no plans and can’t contemplate a situation where we would be submitting those a data as patients level data.

Howard Liang – Leerink Swann

Thanks very much.

Dan Welch

You’re welcome.

Operator

Thank you. And our next question is from the line of Ravi Mehrotra from Credit Suisse. Please go ahead.

Unidentified Analyst

Hi, thanks for taking my question. This is actually Koon asking a question on behalf of. I just wanted to know, given what you’ve learned in Germany terms of getting the right types of patients on Esbriet homages wondering how you’re taking those learnings and applying it to the rest of the European launch?

Dan Welch

Is a very good question, we have learned a lot. So all countries have sensities two and trainediLike any company would, on the first company launch, the first significant company launch a we are applying those lessons to all country launches. All the countries have been sensitized to and trained on the need to make sure the right patients get on Esbriet and that so-called very advanced patients are what you might call severe patients, patients with severe IPF really are not the patients that would benefit from Esbriet.

We also have applied training, deeper training to all countries including Germany around how to manage patients through side effects and through down date titration and retitration, re-initiation so through education and other initiatives we have applied what those learnings for example in France where we are in the early stages, also into Canada. Canada is a little bit different because there is a specialty pharmacy distribution system, which is a high touch system with patients that really drives or leads to a higher level of our persistence and compliance, because there are callback mechanism, monitoring mechanisms to see if patients are filling their prescriptions on time.

So it is a different situation. Nonetheless, the same learnings around the right patients getting prescribed Esbriet has come through and is a part of our mantra and part of our playbook, if you will, for launching in each and every country.

Unidentified Analyst

Is it possible to go into some depth as to what exactly are you doing to get the doctors trained on identifying the right patient? And also, have you guys also done anything to try to push more non-invasive techniques for diagnosing patients with IPF? Thanks.

Dan Welch

You’re welcome. So I’ll ask Giacomo to going into one level more detail in terms of specifically the programs training, education, publications etcetera, without the nitty-gritty detail but a little bit more detail than I was able to provide. Giacomo?

Giacomo di Nepi

Yeah, sure. Thank you. On the patient selections, of course, we reiterate the patient target in terms of predict their FVC and DLco levels for patient entry and their mild to moderate stage in order to be there. We also reiterate the results that we have for these patients, for values level of FVC and how Esbriet works in these patients but in one of the more severe, frankly, we really don’t know and we try to discourage.

In terms of a specific program of education, of course, this is part of our CMEs. There is an increasing number of case reports from doctors that are successfully going through the down titration and re-up titration, and how to do it, sometimes use, experimental use of concomitant medication to mitigate side effects.

So it’s the usual body of knowledge that stands to emerge when you enter from a clinical trial which is very regulated environment into a more naturalistic type of setting. And of course, we diffuse this experience through CMEs and all the other appropriate tools.

Finally, one other initiative that we are doing, as a part of the lesson learned in Germany, is really following after patients through the network of doctors that follow them throughout their treatment. So, for example, in France, we decided to launch with the full-fledged sales forces as opposed to the two stages that we had in Germany.

In order to cover not only the primary center that of course are remaining – the vast core of our promotion, but also the patients which are fewer in France than in Germany that may migrate from primary center to secondary centers. So these are some examples of the initiatives that we are doing.

In terms of not inducing diagnosis, as you know, the diagnosis with HRCT is getting more and more accepted. There is more and more training. We are sponsoring a master class for geologists as a way of training them in having a better reading of the HR city and of course, there continue to be a minority of patients that need have a biopsy and in respect of the diagnosis process.

Dan Welch

Thank you very much.

Operator

Thank you. And our next question is from the line of David Friedman of Morgan Stanley. Please go ahead.

Sara Slifka – Morgan Stanley

Hi. It’s Sara calling in for Dave. Just a quick question, what happens if a regional office doesn’t want to pay for Esbriet even if that was okayed nationally? Is that region carved out or is there more of a read through or implication from that?

Dan Welch

Thanks for your question, Sara. I’ll ask Giacomo to address the question around regional.

Giacomo di Nepi

Sure. Sara, in reality, it’s highly unlikely that a regional office doesn’t want to pay. What they tend to have is that they have, say, the regional structure, they have formularies so there is administrative process or they may pose some limitations but the fact that they don’t pay, is quite rare.

Sara Slifka – Morgan Stanley

Okay, great. Thank you.

Operator

Thank you. And our next question is from the line of Heather Behanna of JMP Securities. Please go ahead.

Heather Behanna – JMP Securities

Thanks. Hi guys. Good evening. I just had a quick question on the COGS for this quarter, it still seems pretty lumpy and I was just wondering if you could give us a little bit of color, maybe moving forward if you expect to see that lumpiness in 2013 or if you are going start to see economies of scale kick in.

Dan Welch

Yes. Thank you, Sara, for your comment. We do anticipate that the margin will continue to improve over time as volumes continue to increase and even in the fourth quarter, if I take out costs that are actually included in cost of goods sold for a second source supplier startup, I’m about at 81%. And we expect that to continue to improve.

Heather Behanna – JMP Securities

Great. Thanks.

Operator

Thank you. And our next question is a follow-up from the line of Ritu Baral of Canaccord. Please go ahead.

Ritu Baral – Canaccord

Hi, guys thanks for taking the follow-up. Dan, if we could just dig in a little bit to what you said about Canadian distribution and the specialty pharmacy that will be providing support services, could you provide any more detail and I guess will distribution in the other territories in Europe be any different, is there any chance of stockpiling versus what we saw in Germany?

Dan Welch

Thanks Ritu for your questions. Let me just make a note. So in Canada, there is a distribution chain called specialty pharmacy distribution chain. They offer a number of services so when a patient gets the prescription that prescription goes to this pharmacy network where they do – the specialty pharmacy distributor or the chain in conjunction with a pharmacy benefit provider do a whole host of things.

For example they will work through reimbursement, private reimbursement or provincial public reimbursement to make sure the patient can get the drug reimbursed. They will follow-up – they will set up schedules for example in the first few weeks to make sure they are titrating Esbriet properly. They’ll – they have a hotline for side effects and how to properly manage them, get them in touch with their doctor.

If they don’t fill their prescription when they’re – actually, the prescription just gets delivered to their home on a regular basis, and then there is follow-ups back to the doctor and the nurses and they have their own nurse network. So it’s a very, very high touch system.

It’s a system, for example, that is used in the United States. Tracleer, for example, a drug we often compared to, is used through – is distributed through this type of system. A lot of drugs are – particularly, chronic drugs that are similar to Esbriet and Tracleer.

In Europe, this – because of privacy laws, this type of system is not universally available country by country across Europe. However, some level of follow-up directly to patients is available. And in fact, we’re in the process of putting Esbriet into this channel so that we can get the benefit on, for example, persistence and compliance.

So I didn’t quite understand your question about stockpiling, though, and, perhaps, you could reiterate that?

Ritu Baral – Canaccord

Sorry. It’s the wrong word. I mean, basically, are we going to see any inventory potentially built up in any particular country or is it going to be straight through supply like we saw in Germany?

Dan Welch

I see. It would be like what we’ve seen in Germany, very small pipeline at all, almost real-time distribution. In Canada, it’s real-time. And so there is not much kind of wholesale pipeline build up neither in Canada, nor in Europe.

Giacomo Di Nepi

Not at all. I would say, not at all. None.

Dan Welch

Okay. We have less than very little.

John Hodgman

Really.

Ritu Baral – Canaccord

Great. Thanks guys.

Dan Welch

Thanks Ritu.

Operator

Thank you. And our next question is from the line of Stephen Willey of Stifel. Please go ahead. Mr. Wiley your line is open. Mr. Wiley unfortunately we’re unable to hear you if you could please press one for again to queue up your question. Thank you. And we appear to have no further questions.

Dan Welch

Thanks, operator. So to summarize, we are very pleased with our progress on all aspects of our business and our team has executed we believe to be very well despite some very challenging headwinds particularly in Europe. Our launch of Esbriet in Germany ranks among the best orphan drug launches in that country in terms of revenues and patients on therapy after now 15 months of commercialization.

We made excellent progress in the year and our efforts to secure pricing and reimbursement for Esbriet in Europe including France, the second-largest pharma market in Europe. And as Esbriet is now attractively priced and reimbursed in nine countries. During this year we expect a steady progression of Esbriet launches in additional countries in Europe and in Canada that will collectively provide the foundation for consistent incremental revenue growth during this year and beyond and toward the realization of our vision to build Esbriet into a very successful brand overtime.

We have completed enrollment of our Phase 3 study ASCEND with 555 patients and we remain optimistic for a successful outcome to support registration of Esbriet in the United States. In summary, we’re at the beginning of a very exciting time for our company and for the IPF patients that we serve and we look forward to updating you as our progress continues. Thank you for joining us today. Good bye.

Operator

And ladies and gentlemen that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: InterMune's CEO Discusses Q4 2012 Results - Earnings Call Transcript
This Transcript
All Transcripts