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Executives

Will Roberts - VP Corporate Communications

Vince Milano - Chairman, President and CEO

Dan Soland - VP and COO

Bob Pietrusko - VP, Global Regulatory Affairs and Quality

Charlie Rowland - VP and CFO

Colin Broom - VP and Chief Scientific Officer

Analysts

Joel Sendek - Lazard Capital Markets

Robyn Karnauskas - Deutsche Bank

Yale Jen - Maxim Group

Scott Hirsch - Credit Suisse

Liisa Bayko - JMP Securities

Thomas Wei - Piper Jaffray

John Newman - Oppenheimer

Stephen Willey - Thomas Weisel Partners

ViroPharma, Inc. (VPHM) Q4 2008 Earnings Call February 24, 2009 9:00 AM ET

Operator

Thank you for holding, ladies and gentlemen, and welcome to the ViroPharma Teleconference Call. At this time, all lines are in a listen-only mode. There will be an opportunity to ask questions at the end of today's conference call, and instructions will be given at that time. Today's conference is being recorded. And thank you for your attention.

I will now turn the call over to your host, Mr. Will Roberts.

Will Roberts

Good morning and welcome to ViroPharma's conference call and webcast to discuss ViroPharma's fourth quarter and full year 2008 financial results and other business matters. This call is scheduled for approximately one hour.

Certain statements regarding future demands for Vancocin; the timing of any FDA actions related to potential approval of the generic versions of Vancocin; the timing of clinical studies, our ability to fund the path forward of maribavir. The progress of our commercial launch of Cinryze, the timing and outcome of our FDA review of the sBLA related to the acute treatment of HAE. And all other elements of our 2009 guidance made during this conference call are forward-looking statements.

As you know, forward-looking statements involve substantial risks and uncertainties and actual results may differ materially from those projected in such forward-looking statements. The development, marketing, and sale of pharmaceutical products are subject to risks and uncertainties. And as a result, our actual results could differ materially from those results expressed in or implied by this conference call.

Please refer to the press release issued this morning and to our filings with the SEC, for more information regarding the risks and uncertainties that could cause future results to differ materially from the expectations expressed in this conference call.

With that, I’ll turn the call over to Vincent Milano, ViroPharma's President and Chief Executive Officer. Vince?

Vince Milano

Thanks, Will. Good morning to everyone listening to ViroPharma's conference call this morning. With me on the call this morning, in addition to Will, are Bob Doody, also of Corporate Communications, Rich Morris, our Chief Accounting Officer, and my management team mates, Colin Broom, Tom Doyle, Bob Pietrusko, Dan Soland, and Charlie Rowland.

Today's agenda will be as follows. First, I will provide a brief overview of our accomplishments during 2008. Dan, will speak of our progress with the Cinryze launch; Bob, will comment on our supplemental Biologics License Application filing for Cinryze and acute HAE in the associated time line. Charlie, will provide an overview of our financial results for the fourth quarter and full year 2008 and comment on our full year 2009 guidance and I will return and close the call.

Despite the recent maribavir news, we are excited about the growth prospects of ViroPharma, thanks to our many accomplishments during 2008. Among them navigating through the Cinryze approval while acquiring and integrating Lev Pharmaceuticals and launching Cinryze in December.

Regarding Cinryze 2008 was momentous for ViroPharma as we launched the drug along with its companion patient access program, CinryzeSolutions into the hereditary angioedema marketplace and for the first time began providing HAE patients a prophylactic drug option that targets the underlying cause of their disease, namely their inability to efficiently manufacture C1 inhibitor to control their inflammation.

The commercial effort itself kicked off in late December and is going extremely well so far. We also presented important data from our open-label study in acute attacks of HAE at the November ACAAI Meeting.

As Bob, will discuss later in the call this data are an essential element in our December supplemental BLA submission for acute attacks of HAE. We have a June 3rd PDUFA date for that submission, so we could be in a very competitively advantaged position with other C1 inhibitors and other products in development.

More important than the impact of ViroPharma all of these efforts represent essential events for patients living with this rare debilitating and life-threatening genetic inflammatory disease.

In a very short period of time, we have put in to place an experienced US commercial team that has already made tremendous in-roads into reaching physicians and enrolling patients in the CinryzeSolutions.

Dan, will provide some more specifics of our commercial activities momentarily. The fact that we are safe for now, that we are extremely pleased with the momentum we are experiencing with the initial commercialization of Cinryze.

Regarding our work in the area of C. difficile infection or CDI, 2008 was again a better year. For Vancocin we launched a five person sales force into the field in the Northeast and we believe that these sales efforts did impact sales during the year.

Thanks to their efforts and in part the impact of draft, treatment guidelines prepared by the Society for Healthcare Epidemiology of America and the Infectious Disease Society of America, Vancocin net sales grew approximately 14% to $232 million.

Further during 2008 our regional medical scientists interface with treating physicians focusing on CDI management education and treatment options as we continued our investments and efforts towards in the area of Clostridium difficile disease.

Regarding our efforts surrounding the bioequivalence guidelines for generic versions of Vancocin we are in the middle of the recently extended comment period on the draft guidance for BE methods to develop generic versions of Vancocin which ends on March 19th.

We will raise a number of significant issues and we look forward to providing this response and discussing the following with you at that point. Regarding our pre-clinical opportunity non-toxigenic C. difficile or NTCD we made progress during 2008.

The program may address a very important unmet medical need namely the prevention of recurrent CDI. We worked through some manufacturing hurdles during 2008 and now expect to bring this product candidate in the clinical studies in 2009.

Financially 2008 was another strong year. We ended the year with record revenues of $232 million, strong cash flows from operations of $91 million. And as of year end 2008 the cash balance of $276 million.

This solid foundation of a strong balance sheet and operating cash flows gives us the financial flexibility to execute our business strategy in 2009 and beyond. Charlie will comment further on our financial results and 2009 guidance later in the call.

With that brief overview, I will turn the call over to Dan for some comments on the launch Cinryze and its patient access program, CinryzeSolutions. Dan?

Dan Soland

Thanks Vin, and good morning to everyone on the call with us today. The fourth quarter of 2008 was a successful period of time for our Cinryze launch. We priced the drug on November 5th, launched one month later on December 5th. And during the last couple of weeks of 2008, launched our Cinryze commercial team into the field throughout the US and shipped $651,000 worth of drug into our specialty pharmacies.

And, we are pleased that we had several patients on drug by year end. We will not provide guidance today on our expected sales of Cinryze during 2009 due to the fact that this is a new product in a new market with many variables, such as the time it takes to get a patients' reimbursement in place the payer mix in a dose for patient per week.

However, on this in future calls, our intentions are to provide you with the number of dosage shipped into our specialty pharmacies to help you understand the growth trajectory for the product.

During the fourth quarter we made great progress with Cinryze. As Vin mentioned, our personalized patient access program, CinryzeSolutions is proving to be an effective and essential resource for patients and physicians and fits at the core of our approach to providing Cinryze to patients.

As you may recall, CinryzeSolutions provides a suite of programs to patient who need Cinryze, including individual, individualized case management, benefits investigation, identifying insurance options, assisting in drug access solutions and even guiding the patient for a comprehensive financial assistance program if needed. This program was operational in early December 2008 and is the cornerstone of the launch of this product.

While we will not provide you with specific updates on the overall number of patients enrolled in the program, or on commercial drug today, I will say that we are pleased by the response to the program.

For example among the patients in CinryzeSolutions as of the end of December, almost all patients in the open-label prophylactic studies have been enrolled into the program. And though such progress enrollment can't be extrapolated to future revenue due to the variables I mentioned earlier, it is certainly encouraging.

Our goal is to work with every patient who wants and can benefit from Cinryze to help them gain access to the drug. And a key part of that is, assisting patient in gaining insurance coverage.

At this point, as is true in most new drugs of this sort, we are tracking roughly 90 days from the time that patient enrolls to the time that patient gains coverage and can begin to receive the drug. Thus far, this is well within our expectations and we expect this time will decrease for new patients as insures continue to come on board.

Our 20 HAE sales specialists are fully engaged in contacting physicians and have been concentrating their efforts targeting key allergists that are currently treating HAE patients and are establishing strong relationships with key prescribes through out the US.

Of our primary targets in the US, the 200 are the highest prescribing allegers with 10 or more patients for practice and we know of over 800 more physicians to treat at least one patient. Great progress, this early on.

As far as our reach to the HAE physician community, I am pleased to announce that thanks to the efforts of a group of key opinion leaders in HAE from around the country, shared by Dr. Tim Craig at Hershey Medical Center, a menu script entitled treatment considerations and the management of hereditary angioedema was recently accepted for publication in the analysis of allergy, asthma and immunology.

We believe that this publication will be a great tool to help physicians understand treatment considerations for patients with HAE and the standard for prophylaxis against this devastating hereditary disease.

We would especially like to thank the Hereditary Angioedema Association or the HAEA for their support and guidance. They have also been key in communicating to their members who could potentially benefit from Cinryze prophylaxis during this critical launch period. We look forward to a long and fruitful relationship with the organization and commend their commitment to the entire HAE community.

Finally, over the past few months our medical affairs team has interfaced with an increasing number of physicians on the topic of HAE diagnosis and prevention. Among the exciting things in our work this year is a novel educational forum, which we will use at major medical congresses and regional meetings.

This tool utilizes a multimedia approach to raise awareness of HAE among allergies, immunologists and emergency room physicians as our work evolves towards improving diagnosis of new patients. We look forward to sharing more on a momentum, we are experiencing with Cinryze on future calls.

With that I will turn the call over to Bob for some comments for our acute HAE supplementary BLA. Bob?

Bob Pietrusko

Thanks, Dan, and good morning to everyone. As anyone who follows the HAE therapeutic category knows this pace continues to evolve rapidly and at every turn there are new challenges for companies that seek to help address the acute HAE marketplace.

Further than the advisory committee earlier this month who understand at least some of these challenges and the importance of assuring a safe and effective product for these patients.

On December 1st, we filed a supplemental BLA for the acute indication based on a reanalysis and resubmission of the data from a pivotal Phase 3 acute treatment study of Cinryze and interim data from an ongoing open-label cute study of the drug.

The Phase 3 acute treatment study was a randomized, double-blind, placebo-controlled multi-center trial in 71 patients evaluating the safety and efficacy of Cinryze for treatment of HAE attacks.

Based on the primary efficacy variable in the intent to treat Dataset. The likelihood of a patient having the start of unequivocal relief of their defining symptom was over two times greater in the Cinryze treatment group then in the placebo treatment group. These results were statically significant with a key value of 0.048.

The open label study of Cinryze also provided essential acute treatment data for our filing. In the open label study, no patients will had acute laryngeal edema required hospitalization or intubation. Cinryze was also generally well tolerated. There were no deaths or serious adverse reactions related to Cinryze administration or discontinuation due to treatment emergent adverse events.

In the analysis of 447 acute attacks in 82 patients, open label Cinryze administration provided substantial relief of the defining symptom in over 93% of the attacks within four hours of injection. With a median time to one set of relief of 30 minutes and importantly there was no observed loss of effectiveness over multiple administrations of Cinryze or subsequent HAE attacks. Those Cinryze is not today approved for use in the study, a safety profile in the acute studies works similar to that absorbed with the use of Cinryze for routine prophylaxis against HAE the currently approved claim.

Overall, more than 9000 doses of Cinryze have been administered to over $180 patients and all controlled an open label clinical studies of Cinryze for both acute treatment and routine prophylaxis against angioedema attacks.

On February 3 of this year, we were notified that the FDA had granted priority review for Cinryze as a treatment for acute attacks of HAE. The PDUFA date for this efficacy supplement is June 3, 2009.

Priority review was granted by the FDA for a treatment that addresses an unmet medical need or demonstrates improvement over existing therapies. This marks a positive step for us in bringing this drug to patient population that needs more effective and well tolerated HAE treatment options. And while we are confident in the data and our filing, it is ultimately up to the FDA to grant these approvals. And we will continue to work with them as needed to bring this important potential label expansion to [provision].

With that I will turn the call over to Charlie for review of our fourth quarter and full-year results. Charlie?

Charlie Rowland

Thanks Bob. Good morning everyone. I am happy to report that 2008 was a very strong year for ViroPharma. As Vin mentioned we have record revenues of $232 million, strong cash flows from operations of $91 million and as of 12/31/2008 we had $305 million in working capital and a cash balance of $276 million.

For the full-year 2008 Vancocin net sales were $232 million compared to $204 million in 2007, representing strong year-over-year growth of 14%. Although Vancocin net sales were up $50 million in the fourth quarter compared to $48 million in the fourth quarter of '07. Sales in the fourth quarter of 2008 were negatively impacted by approximately $8 million because of two factors; a reduction in inventories from the third quarter based on data provided by our wholesalers, and a large order shift in 2008 but not received by wholesalers by December 31st.

For the quarter and year, our Cinryze shipments to specialty distributors were approximately 651,000, representing about 165 doses, of this 23,000 was reflected in our books, the balance was deferred until we need our requirements of revenue recognition in SAB 104 and can determine the commercial success of the product and estimate [payor] mix so that we can determine the net realizable price.

Our combined R&D and SG&A expenses were $132 million for the year including the impact of stock-based compensation.

Research and development, during 2008 our investments in to our clinical pipeline grew significantly over that of 2007, primarily associated with the increase development cost for maribavir.

For the fourth quarter, expenses were up significantly due to maribavir cost and the Cinryze open label trial. Our R&D expenses for the fourth quarter and year 2008 were $21 million and $66 million, respectively up 70% and 85% over the same periods in 2007.

Selling, general and administrative expenses. Our 2008 selling, general and administrative expenses grew as well to approximately $22 million and $65 million in the fourth quarter and full-year 2008, respectively. This represents growth of 76% and 77% over the same periods in 2007. This growth in SG&A was driven by the commercial loss of Cinryze, targeted investments in Vancocin to continue our market share growth, increases in our infrastructure to support our growing business, and investments in pre-launch activities for maribavir.

Our interest income for the fourth quarter 2008 was approximately $1 million compared to $7 million in the fourth quarter of 2007. For the full-year 2008 our interest income was down 41% or $10 million from 2007, this is due to the use of cash and our acquisition of Lev and a conscious change in our investment strategy to preserve capital.

We reported a net loss of $1 million for the fourth quarter and net income of $68 million for the full-year of 2008, compared to the net income of $20 million and $95 million, respectively in 2007. These decreases were driven primarily by increases in R&D and SG&A cost for the fourth quarter and full-year 2008.

On a per share basis, we reported a net loss of $0.01 per diluted share for the fourth quarter of 2008 and net income of $0.83 per diluted share for the full-year 2008. During the year we achieved $91 million in operating cash flows compared to $123 million in 2007.

For the 2008 quarter we delivered our 16th quarter of positive cash flows from operations despite the inventory builds for the Cinryze launch and accelerated sales in marketing spending to launch the product.

Now let's discuss the Lev acquisition. Though we haven't yet filed our 10-K there are changes to the opening balance sheet. In December we filed an 8-K which was based on our preliminary valuation report of $493 million for the intangible asset related to Cinryze. Since that time we received an updated valuation and that value was higher than what the initial valuation suggested. The primary difference between the reports was driven by assumptions for the post exclusivity period. As such according to FAS 141 and 142, the Cinryze product price were valued at $521 million and under purchase accounting is reflected on our balance sheet in intangible assets.

Additionally, as part of purchase accounting we recorded a differed tax liability of $181 million and recognized an additional deferred tax assets of $113 million which did not affect our P&L. The net result of purchase accounting was the establishment of $35 million of goodwill and if there are more questions after our filing later this week, I will be happy to address them at that time.

Now, I would like to review our guidance for 2009, which was issued in our press release earlier this morning.

First, revenues, we anticipate 2009 net product sales to be between $250 million and $270 million representing growth of 8% to 16%. This guidance is based upon the following.

First, there are no generic versions of Vancocin approved in 2009, and second, we have excluded Cinryze for our revenue guidance as we are in the early stages of our launch and given the lack of history and the number of variables to forecast such as dosage per patient, time for obtaining reimbursement, and payer mix among others, we are not yet in a position to include Cinryze in our revenue guidance.

Next expenses, our combined research and development and selling, general and administrative expenses are expected to be between $130 million to $145 million, including stock based competition.

The drivers of our expenses in 2009 are primarily associated with our commercial programs for Cinryze and increase spending in our NTCD program.

Our guidance also includes approximately $25 million maribavir expenses as we wind down and analyze data from the two Phase 3 clinical studies and other maribavir related activities.

We expect that the impact for stock based compensation expenses included in the expense guidance are just described will be between $11 million and $13 million.

Taxes, due to the lower R&D spending which would qualify for the orphan drug credit we anticipate our 2009 tax rate to be between 37% and 39%.

As you can see, we expect that 2009 will be another strong financial year for the company.

We are excited about the performance of Cinryze to-date and as more data becomes available we will inform you so you can update your forecast. We have a strong balance sheet with over $276 million in cash, this positions us to remain acquisitive and build for the future and with that I’ll turn the call back over to Vince for some closing comments.

Vince Milano

Thank you Charlie. As you can tell from our guidance and the comments around Cinryze from my colleagues this morning we believe that ViroPharma remains poised for a strong and exciting 2009.

Regarding Vancocin everyone on the call has their views on the product and its life. The beginning of 2009 marks the fourth year with many predicting the end of Vancocin on the horizon.

However, for the all reasons that we have spoken about in the past and for additional reasons that we will raise in our coming response to the recent proposed bioequivalence guidance. We believe that there are many important issues still to be resolved before FDA can ensure the generic version of Vancocin is both safe in these very sick patients and effective against severe CDI.

With Cinryze we know that the near-term focus will be on our execution of the launch and roll out of the drug. We have already made good progress and I believe we have the experience and the resources to execute on this important launch.

We believe that this product will improve the life of HAE patients and will be a significant financial value driver for us over time netting peak year sales of between $250 million and $350 million.

We also have the opportunities for additional upside as we have an sBLA for acute attacks of HAE under FDA review with the June 3rd PDUFA date and further as part of our lifecycle management work, our attention this year will turn towards additional territories, formulations and indications. We believe that these new initiatives can provide ample lifecycle extensions and consequently upside for our investors.

As always, it is extremely rewarding to work with such a great team of gifted individuals who work together toward common team goals. The group we had assembled at ViroPharma is capable of accomplishing amazing things in the name of patient health and I thank them all for their hard work throughout the year.

2009 will no doubt be an exciting year for ViroPharma. Our goal remains to bring innovative products, addressing unmet medical needs to the patients with diseases we target and to return great value to our shareholders. I look forward to speaking with you soon about the momentum in all areas of our company. We thank you for your attention this morning and would like open up the call now for Q&A.

Operator, are there some questions for the team?

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line Joel Sendek with Lazard Capital. Please proceed with your question.

Joel Sendek - Lazard Capital Markets

Thanks. So, I just have a clarification question on Cinryze. So, I think you said you had some people on drug at year end but its 90 days from enrollment to receive reimbursement and receive the drug I'm just confused what I'm missing there?

Dan Soland

So, Joel, this is Dan, very good question and what we are suggesting is that on average for the average patient it's about 90 days. You know obviously, there are some patients who are unable to get our drug in literally less than 30 days. And there will be others who will probably go up to 120 days. But on average, we think for this initial group of patients it will be about 90 days to reimbursement.

Joel Sendek - Lazard Capital Markets

Okay so you have people right now who are on drug and being reimbursed currently?

Dan Soland

That's correct.

Joel Sendek - Lazard Capital Markets

And how many people can you tell us again were on the open label studies and are therefore being rolled over into the solutions program?

Dan Soland

In the prophylaxis studies Joel, I think there are approximately 150 patients between Cetor and Cinryze.

Joel Sendek - Lazard Capital Markets

And then the reason you are not giving guidance is just too complicated with, or do you have too many unknowns with regard to figuring out the price and all that, all those moving parts not because you do not think the revenues are going to be material this year.

Vince Milano

Yeah I think Joel, the way we are going to answer that question is not their unknown is one way to put it to variables right. And so the context of the variables are not only the number of patients but certainly the number of doses per patient. As we have spoken about in the past the open label study had an average of about 1.7 and 1.8 doses per patient and we anticipate that there will be variability both up from there and may be down from there as well.

And so our focus is on number of doses per patient and we do not have much information yet certainly at the moment to comment. And then also the payer mix as you pointed out and the time frame for reimbursement. So there is a number of variables here in the early days, that give us pause in terms of providing guidance. So that we can have appropriate expectation set.

We are very encouraged by the beginning of this and the interest from the physicians and patients which is indicated by the success if you will on terms of the patients entering in the CinryzeSolutions which is just the beginning of getting patients get drugs.

Joel Sendek - Lazard Capital Markets

Thank you.

Dan Soland

Thanks, Joel.

Operator

Our next question comes from the line of Robyn Karnauskas with Deutsche Bank. Please proceed with your question.

Robyn Karnauskas - Deutsche Bank

Hi guys thanks for taking my question. So I just had a couple of them. First of all, so regarding this 90 days taking for getting and getting patients reimbursed on average, so what is the rate limiting stats?

I mean are insurance companies looking test to show that people are lacking C1 esterase inhibitor, are they looking for eliminating number of doses per patient. So what are the steps it is requiring this time?

Vince Milano

Well, I think it's all of the above that you mentioned Robyn. And along with that, it’s just general education of the managed care plans on the disease and appropriate therapy. This 90 day sort of average at the beginning of the launch is pretty difficult for this sort of drug, so it was nothing that was unexpected.

Robyn Karnauskas - Deutsche Bank

Okay. And what was percentage of payers are reimbursing Cinryze, are there a chunk that currently don't recognize?

Vince Milano

No, I think that we have made very good progress, and I cannot come up with a group that I would say has been more difficult or less difficult then others a shift in process that we have go through, pretty much as expected for this sort of product.

Robyn Karnauskas - Deutsche Bank

Okay, thanks. And I guess my lest question is regarding the supplement for application, so can you remind us what the original concern was with the acute data during original panel for Cinryze, and in your discussions with the FDA. Have you addressed this and how confident are you that the open-label study will be sufficient to supplement that data?

Bob Pietrusko

Okay, to answer the question the advisory committee, and if you recall that was basically focused on the prophylaxis access for routine prophylaxis and it was made that acute data wound not be discussed at advisory committee meeting. What we have done going back to the comments and questions that the FDA had posed regarding the acute portion prior and we review their questions and particularly response to that we believe can adequately address all the common questions that we had.

We provided that information for that. We had a group of dependent [Technical Difficulty] look at that information and help us with the responses, and then also we do have the acute open-label trial data, we looked at that and that provided additional information on acute setting or repeat treatment and the attacks looking at [Technical Difficulty] responding as well with that with any differences in the safety profile. So we have additional information, plus we also have the data from the open-label on the patients that develop laryngeal edema type of attacks.

In the initial acute study it was felt that these patients would not be treated with the placebo so in the acute study, the open-label they were indeed [Technical Difficulty] with Cinryze and we know that they responded very well to treatment, so that's why we feel that the information that we provided will more support the approval of the acute indication.

Robyn Karnauskas - Deutsche Bank

Okay, and just a follow-up, the question that they originally had regarding the acute data, was that really about the patients mix or the types of attacks or were there any other issues that the FDA was concerned with?

Bob Pietrusko

They requested information as was put off at a recent advisory committee on additional types of our statistical analysis that was the main crux of the question that came back from the agency.

Robyn Karnauskas - Deutsche Bank

Great thank you.

Bob Pietrusko

You're welcome.

Dan Soland

Thank you, Robyn.

Operator

Our next question comes from the line of Yale Jen with Maxim Group. Please proceed with your question.

Yale Jen - Maxim Group

Thanks for taking my questions.

Vince Milano

Good morning Yale.

Yale Jen - Maxim Group

Good morning. Just a few follow-up questions. First of all for the Cinryze acute treatment and studies, how many laryngeal has been treated in that study?

Bob Pietrusko

Exact number in hand, but like I can say is those particular patients that had those attacks one of them required hospitalization or intervention. Colin you have that specific number?

Colin Broom

Yeah, I believe the numbers in the, remember the double-blind acute study, there were actually 18 attacks, I believe in 15 patients, they were consider non-randomisable events, and the similar number in the higher number in the open-label, so a substantial amount of data.

Yale Jen - Maxim Group

Okay. Great, thanks. And more follow-up questions, first of all in terms of the Vancocin guidance for '09 what has been the confidence you feel that its possible that the you will have a full year revenue without generic challenge for '09?

Vince Milano

Yale, as you know, since you have been following us for a while, we faced this discussion every January, February timeframe and what we feel is that the BE guidance really raises more questions then provide answers and we look forward to providing our response and comments to the guidance. So our guidance reflects and assumes that there is no generic during 2009.

Yale Jen - Maxim Group

Okay. Great, and follow and another question is that in terms of the patient has been prescribed for the prophylactic for the Cinryze. So far are most patients being taking the doses was indicated in the label so far, I know it has not been the full year, but nevertheless was that a sort of proportional to that number of prescriptions per patients?

Dan Soland

Yale, this is Dan. That's a great question. Unfortunately, we really unable to give you good answer at this point in time. We need a few more months whether the data here before we are able to establish the number of dosages per patients. As I think Vinny and I mentioned earlier in our comments.

Yale Jen - Maxim Group

And the last question I have is that as you guys mentioned that this year in for further product development, you could sort of using the Cinryze as a platform for additional indications, so to exploit additional indications. Is that the may sort of thruster for the R&D this year, or you are looking for some other products potentially in-license or other venues to for your R&D developments?

Vince Milano

Let me start, and Tom you can add to that question. So, first there is non-toxigenic CD, program is one key element of our R&D program here the company.

Yale Jen - Maxim Group

Great.

Vince Milano

Work is that albeit rewinding down if that is just [Technical Difficulty] work to do and finish up the studies. And then certainly, if we can find a path over to maribavir that will be something the R&D team would focus on, but too early to say whether we will find a path that's attractive enough and has a high enough possibility of success.

And then third would to the extent that we feel that the indication for Cinryze can be expanded. We certainly have the team in place to be able to take on that initiative as well.

Yale Jen - Maxim Group

Anymore detail colors on what possible indication you might expand it into or explore?

Colin Broom

This is Colin. As you know there are a number of potential indications. We are looking at those in critically assessing, those opportunities at this point but not yet committed to any single path way. However, let me just say that our priority is at this point to look all the formulation in particular the ability to deliver Cinryze subcutaneously. So, the feasibility of that network will be a priority for us.

Yale Jen - Maxim Group

Okay, great. Thanks a lot and thanks for taking my questions.

Vince Milano

Thank you, Yale.

Operator

Our next question comes from the line of Scott Hirsch with Credit Suisse. Please proceed with your question.

Scott Hirsch - Credit Suisse

Hi there, guys.

Vince Milano

Hi, Scott.

Scott Hirsch - Credit Suisse

Quick question on Vanco. I heard you say that there was an $8 million inventory draw down in a large December order that wasn't booked in the quarter. Should that suggest to us that the run rate for fourth quarter was closer to second and third quarter and probably will be closer to that in first quarter?

Charlie Rowland

Scott, this is Charlie. So that $8 million, yes, you could add that to the fourth quarter of actual number booked. You know the thing with Vancocin and Dan can comment on this a little bit more. As last year was an unusual year in terms of the spread, it was much stronger third quarter that we had in previous years. So, we had a drop off in November from what we would have anticipated based on where the third quarter went. So the patent going forward into this year (inaudible) given you a good analog as to what the model and you go back to previous '07 or '08 but we still see the product growing.

Scott Hirsch - Credit Suisse

Okay. Will you be booking revenue for Cinryze in first quarter?

Charlie Rowland

Yes, anything that we ship from our specialty distributors to either patients or physicians, we will recognize as revenue.

Scott Hirsch - Credit Suisse

Alright. And should we assume that although revenue numbers are not in guidance the incremental spending for the sales force you hired and launched those are in spending guidance, correct?

Charlie Rowland

Correct, our spending guidance is all inclusive at this point and we will also report the amount of deferred revenue that we have on Cinryze as well. So you will know what we ship to the specialty distributors and then you will also know what’s left there?

Scott Hirsch - Credit Suisse

Okay. And then sort of following up on the R&D side. Is there anything notable in the Hep C or the antivirals program that would be worth discussing or could maybe you give us some insights on what external therapeutic areas you might look at?

Vince Milano

Scott, this Vin. The answer is in terms of business development generally our mission is to focus on serious and life threatening conditions and we in recent times taken a real customer focused approach versus a therapeutic focused approach where our expertise is in the R&D field is heavily weighted in the infectious disease areas both antivirals and the antibacterials. So we will continue to pursue those avenues, certainly to the extent that they meet the conditions of serious and unmet medical needs and then we do prefer models of on a customer commercial side, limited commercial infrastructure.

But I want to say too that the organization is inclined to do the things that we have to do if we find ourselves in position where we have additional things that come later. We will have to build the organization around those different things. So, just like, I think Cinryze is a good example, we brought some significant expertise into the company. If we find ourselves in a field that we don’t have the requisite expertise, we will bring that talent with the next opportunity.

Scott Hirsch - Credit Suisse

Alright. Thanks.

Vince Milano

Thanks Scott.

Operator

Our next question comes from the line of Liisa Bayko with JMP Securities. Please proceed with your question.

Liisa Bayko - JMP Securities

Hi guys, yes just a couple additional questions. First one is, do you expect to have an advisory committee meeting for the June 3rd PDUFA date?

Charlie Rowland

Liisa, yes, we talked about that. So, we haven’t heard back from FDA on that particular topic, and as soon as we have confirmation one way or the other, we certainly would get back to you on that topic.

Liisa Bayko - JMP Securities

Okay. Do you have a sense, I mean is your expectation or you just?

Charlie Rowland

Yes, we are just been in opinion one way or the other. Basically, the FDA has come out with guidance under the FDAAA legislation and they have stated that the products that need to go to an advisory committee or new chemical entities; for once there are issues to discuss. And so, they would be using those parameters and it's fairly early in these systems which products actually go to an advisory committee. And certainly, this is not a new chemical entity under the first circumstance and that we would like to see if FDA had any comments for a review by an advisory committee. So, as soon as we hear, we will let you know.

Liisa Bayko - JMP Securities

Okay, great. And then, can you maybe just talk about any impact you expect from the approval or non-approval of the DX-88 on the launch of Cinryze?

Vince Milano

Dan, you want to take that?

Dan Soland

So Liisa, we think that the Dyax compound is going to be primarily, if it gets approved will be primarily in the acute market. And it would have limited or no impact on our existing prophylactic indication for Cinryze.

Liisa Bayko - JMP Securities

Okay, great. And then can we talk a little bit about the timing for the non- toxigenic C. difficile in terms of filing an IND and beginning Phase 1 and sort of what development would look like, in the early stages.

Charlie Rowland

Yes Liisa the non-toxigenic C. diff program is on schedule to get into Phase 1 studies around the middle of the year.

Liisa Bayko - JMP Securities

Okay.

Charlie Rowland

So, that’s the next major milestone so we are on-track for that.

Liisa Bayko - JMP Securities

Great, and would this be typical studies and help you on tiers initially, how does development look?

Charlie Rowland

Yes initially the studies will be in healthy volunteers both young and older population looking for tolerability primarily. So, the usual safety studies, but also looking at the potential to colonize these patients.

Liisa Bayko - JMP Securities

Okay. And then can you talk about any price changes in Vancocin that you have taken at the beginning of the year?

Charlie Rowland

So, in the middle of January we took a 9.4% price increase for Vancocin, Liisa.

Liisa Bayko - JMP Securities

Okay.

Charlie Rowland

And Liisa, if you are modeling make sure that you factor in that we wont realize all of that 9.4% because a portion of the business that goes to Medicaid and Medicare.

Liisa Bayko - JMP Securities

And what percentage of the business is that?

Charlie Rowland

Dan if you have a commented on that?

Dan Soland

I don’t think we commented but it's about 20%.

Liisa Bayko - JMP Securities

Okay, great. Well thank you very much.

Operator

Our next question comes from the line of Thomas Wei with Piper. Please proceed with your question.

Thomas Wei - Piper Jaffray

Hi, thanks. I had a couple of questions about Cinryze here. One is to clarify with the comment that you made about the prophylaxis patient basically all having been from the clinical trials all having been enrolled in CinryzeSolutions. Does that include that the patients who were getting free drug, Cetor patients you were importing it from Europe?

Vince Milano

As in the commented did not mean that comment but I will take a step further and say that on December 31st almost all Cetor patients were enrolled in CinryzeSolutions.

Thomas Wei - Piper Jaffray

That’s very helpful and just to take confirm a prior comment that you had made, did you say that you have not yet been denied reimbursement for Cinryze from any payers who have actually completed this process?

Dan Soland

Thomas very good question and we have not, with every patient it's in negotiation. And so some patients are more difficult than others but in general the payers have been receptive and all really making good progress at this point in time.

Thomas Wei - Piper Jaffray

And do you think payers place restrictions in terms of the number of compared to patients have had in order to qualify for Cinryze?

Dan Soland

I cant give you a definite a opinion on that, its early days on it, we know that in some of the discussions with payers, they want to know that information, but I can't tell you no one of the other, these number of attacks or whatever is going to be necessary.

Thomas Wei - Piper Jaffray

And what is the structure of that co-pays look like for the initially approved Cinrize patients?

Dan Soland

It’s to early to tell at this point in time, Thomas. But that's something that, we could talk about later at a subsequent call.

Thomas Wei - Piper Jaffray

Is that generally taking a percentage co-pay structure is it a flat fee?

Dan Soland

Sum of both

Thomas Wei - Piper Jaffray

Okay and maybe even if you can just help us qualitatively here, you had petitions on the clinical trials that sounds like it’s going very well. You have also had 350 patients in a registry that you had inherited from Lev? Can you talk a little bit about or give us a sense as to how easy difficult it's been to convert those patients into prescriptions, are those easy to access or is that very old database and just difficult to get those patients into CinryzeSolutions?

Dan Soland

Tom it’s a great question and as we have mentioned earlier our HAE sales personnel have done an outstanding job of contacting the physicians of these patients and it’s an ongoing effort to try to get prescriptions written for all these patients. I do not know whether I could comment whether it's easy or hard at this point in time but I will just say that we are encouraged by the progress that we have made.

Vince Milano

Yeah and probably there are patients in CinrizeSolutions beyond the prophylaxis patients from the open-label study which is a direct result of the energies and efforts of the sales team and environment see more drive by patient solutions.

Thomas Wei - Piper Jaffray

And lastly how do you feel about the original guidance that you had given for the peak potential for Cinrize?

Dan Soland

We have restated it today so we feel pretty good about it.

Thomas Wei - Piper Jaffray

Okay thank you.

Dan Soland

Thank you

Operator

Our next question comes from the line of John Newman with Oppenheimer. Please proceed with your question.

John Newman - Oppenheimer

Hi guys thanks for taking my question. Could you give us an idea of your anticipated pick-up for the turns of reimbursement for Cinryze Medicare versus private pay?

Dan Soland

I think earlier we suggested that it’s likely to be 20% of the patients will be on Medicaid, Medicare.

John Newman - Oppenheimer

Okay. Thanks for answering the question.

Operator

Our next question comes from the line of Stephen Willey. Please proceed with your question.

Stephen Willey - Thomas Weisel Partners

Yeah, hi, good morning guys. Thanks for taking my questions. Most of my Cinryze stuff has been answered. But just had a question about Vancocin you have made a comment that there were some targeted investments that were made in the franchise during the quarter.

What kind of activities are going on in terms of Vancocin investment on the marketing front, and is that being ramped up a little bit in anticipation of possible generic emergency?

Dan Soland

Very good question, and I would say over the last year and half we invested rather heavily into Vancocin and Vinny mentioned about our sales force in the northeast and positive impacted they have had.

Colin on past calls has talked about the efforts of our medical affairs group, extensive education of targeted physicians and also a number of different marketing programs aimed at raising awareness of BI strain, these potential new guidelines that are coming out, the three different Phase 3 efficacy trials that all put Vancocin into very favorable position, so it has been rather aggressive effort over the last 18 months for Vancocin.

Vince Milano

And I think Stephen, if I can add to Dan's comments we have planed in 2009 and they are incorporate in our guidance to continue to do the same.

Stephen Willey - Thomas Weisel Partners

Great, so really no extraordinary step up in the fourth quarter in the Vancocin franchise.

Vince Milano

No, sir.

Stephen Willey - Thomas Weisel Partners

Which is consistent with what we have seen. All right, thanks for taking my question.

Operator

Our next question comes from the line of John Newman. Please proceed with your question.

John Newman - Oppenheimer

Hi, guys. Thanks for taking my follow-up. Given that we could potentially see at Vancocin at some point in the future, and also combined with the recent unfortunately disappointing regulatory data, does that changed your M&A focus at all for 2009, is there sort of an acceleration in terms of things that you might be looking at this year?

Bob Pietrusko

John, I'll take that question. So, again the real change in terms of the way we thought about business development for 2009 is driven off for the maribavir quite frankly.

John Newman - Oppenheimer

Okay.

Bob Pietrusko

As we had a significant amount of investments we were planning to make to further develop the program, product, pre-launch, launch regulatory, you name it. And so that's created lot of flexibility in terms of our cash position with or without Vancocin frankly.

So, I think that's driver to us changing the tenure from being more of a pass of reviewer of opportunities may be just more aggressive than we were planning to be. The Vancocin situation has been fluid for years as you know.

And we continue to focus on executing on that Vancocin plan throughout. And I think the business development efforts an important element of the company as we try to continue to grow the business.

So maribavir is bigger driver for us in terms of that, but we won't rush to do anything if your questions implying sense of urgency that didn't exist before. We are still very pragmatic and we are going to be very diligent and we are obviously in a very good situation in terms of the challenges broadly across the marketplace, in fact there and up financial position so.

John Newman - Oppenheimer

And should we expect you to perhaps continue to focus on infectious diseases space or would be a broader base consideration of opportunities?

Vince Milano

I think it safe to say it's broader base only because again our focus. As we think of opportunities we really focus on things that are getting serious like threatening condition and require a limited infrastructure, where the specifics or whether its an ID opportunities or something else from the down to whether we think we have the right people to execute on our plan. So, I would say that in the ID space we feel very confident that we have the right people to execute on our plan, if there was something outside that field again the acquisition would have to come with the reckless of talent that we don’t have. I think that led Cinryze it's a perfect example of with the product we knew we didn’t know and we went, we got the people that didn't know what we needed to have internally.

John Newman - Oppenheimer

Okay. And just one final question, actually on Cinryze. Can you talk about how you might go ahead and identify patients for treatment in the acute setting assuming Cinryze is approved there given, do you sense that it will be difficult to identify an acute patients [pre-allocate] versus the patients that’s been previously identified for prophylactic use? And also if in the case DX-88 is approved in the acute setting, do you think that would make it potentially easier for you to identify those patients?

Dan Soland

John this is Dan, I will try to answer. I think you had at least three parts to your question. We are well aware of the physicians who are treating HAE patients whether it could be consider prophylactic or an acute patient. And we mention something earlier that I think is going to be a big help to us in identifying which patients should be prophylactic and as this article is going to appear in the annuals of Allergy and Immunology in the coming months. But I think we are going to get clear at least criteria and help us identify what the physician, which of these patients should be on prophylaxis and the others then would be considered for acute treatments.

So, if we know the physicians and we know the criterion for prophylactic use. And we achieve an indication for acute treatment. It should put us in a pretty good position to access these acute patients. And I guess concerning Dyax, I think they have a good drug, and we do not comment whether or not we think we are going to get license or not. But more [ways] in the marketplace is generally good for identification of patients and helping to educate physicians on the overall disease and diagnosis.

John Newman - Oppenheimer

Great, thanks for answering all the questions.

Operator

We have no further question at this time.

Vince Milano

Ladies and gentlemen, thanks for your time and attention this morning, and we look forward to speaking with you soon. Thanks and have a good day.

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Source: ViroPharma, Inc., Q4 2008 Earnings Call Transcript
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