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

Executives

Vincent J. Milano - Chairman, Chief Executive Officer and President

John Peter Wolf - Vice President, General Counsel and Secretary

Charles A. Rowland - Chief Financial Officer and Vice President

Daniel B. Soland - Chief Operating Officer, Chief Commercial Officer and Vice President

Colin Broom - Chief Scientific Officer and Vice President

Robert A. Doody - Assistant Director of Investor Relations

Analysts

Brian Corey Abrahams - Wells Fargo Securities, LLC, Research Division

Alethia Young - Deutsche Bank AG, Research Division

Navdeep Singh - Deutsche Bank AG, Research Division

Joseph P. Schwartz - Leerink Swann LLC, Research Division

Thomas Wei - Jefferies & Company, Inc., Research Division

Rachel L. McMinn - BofA Merrill Lynch, Research Division

Edward A. Tenthoff - Piper Jaffray Companies, Research Division

Mario Vincent Corso - Mizuho Securities USA Inc., Research Division

Stephen G. Brozak - WBB Securities, LLC, Research Division

Anupam Rama - JP Morgan Chase & Co, Research Division

Liisa A. Bayko - JMP Securities LLC, Research Division

Philip Nadeau - Cowen and Company, LLC, Research Division

ViroPharma (VPHM) Q4 2012 Earnings Call February 27, 2013 9:00 AM ET

Operator

Good morning, everyone, and welcome to the ViroPharma Fourth Quarter and Full Year 2012 Results Conference Call. Today's call is being recorded and is expected to last one hour. At this time, I will now turn the call over to ViroPharma Chief Executive Officer, Vin Milano. Please go ahead.

Vincent J. Milano

Thank you, operator. Good morning, and welcome, everyone joining us on today's call. I'm joined by the other members of the ViroPharma management team, as well as John Kirby, our Chief Accounting Officer; Will Roberts, our VP of Corporate Communications; and Bob Doody, our Head of Investor Relations. Before we proceed, Pete Wolf, our General Counsel, will apprise you of our potential to make forward-looking statements. Pete?

John Peter Wolf

Thanks, Vin. During this call we will make forward-looking statements. Certain statements, such as those regarding our expectations for future financial results, including 2013 guidance, peak year product sales estimates and tax rates; the timing and potential outcomes of clinical studies; potential for competition following the lapse of orphan exclusivities for Cinryze, including estimated timelines, regulatory requirements and potential impact of competitive products that may enter the market; our expected launch sequence and pricing of our commercial launches of Cinryze, Plenadren and Buccolam in Europe; and our ability to continue to identify additional U.S. Cinryze patients are examples of such forward-looking statements. As you know, forward-looking statements are subject to factors that may cause our results and plans to materially differ from those expected. Please refer to the press release issued this morning and 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.

In this call, we will also discuss some non-GAAP measures in talking about our company's performance, and you can find the reconciliation of those measures to GAAP measures in our press release issued this morning.

I'll now turn the call back over to Vin.

Vincent J. Milano

Thanks, Pete. So once again, thanks to all of you for joining us here this morning.

For today's call, I will primarily focus on ViroPharma's future, specifically all of the activities that we are pursuing in 2013 aimed towards growing our company in both the short- and the long-term. As I say continuously, at the very core of ViroPharma's essence are our patients. Our laser focus on helping the patients enables us to achieve success and thereby deliver meaningful growth to our other key stakeholders, importantly, our current shareholders.

Then Charlie will walk you through the financial results for 2012, and I'll return to wrap up with an overview of some of the key milestones that you can watch for in the near-term.

Let's begin with Cinryze here in the U.S. Growth of Cinryze continues to advance at a strong and steady pace, as it has done since the launch 4 years ago, and we ended 2012 with over 900 active patients.

The guidance that we provided for U.S. Cinryze in January reflects this continued steady growth. There's no doubt that last year's approval of our capacity expansion was a critical step, enabling us to supply the steady path of growth. Equally important, it has allowed us to rebuild the channel inventories and begin accumulating safety stock for the first time since Cinryze was approved.

And as of today, our patients are now back to receiving monthly shipments of their Cinryze. We continue to see a steady inflow of new prescriptions and are very much looking forward to the potential impact of the additional HAE specialists over the course of this year on the trajectory of Cinryze. As it relates to where the patients are coming from, the data points that we have shared with you in the past quarters also continue to remain very consistent, with roughly half of our new patient adds coming from prior steroid use and the other half consisting of both newly identified or already diagnosed patients.

We are consistently finding new patients and treating physicians that did not appear on any of the registries. And we also are seeing some patients that are converting onto prophylaxis therapy after first having tried an acute approach to managing their disease. Overall, the current Cinryze U.S. business continues to maintain its stride and progress on track to our North American peak year projections of over $600 million.

One additional point I believe deserves some attention this morning is that of Cinryze exclusivity and how you might think about valuing Cinryze in the long-term.

After meeting with many investors over the past several months, it seems very clear to us that there is a lot of uncertainty in your minds regarding what may happen once the orphan exclusivity for Cinryze expires in 2015, October.

So today, I am going to use this forum to address this topic as broadly and directly as we can for everyone to hear.

Let's start with the current IV formulation. As of today, there is no one that we know to be pursuing the development of an IV version of C1 inhibitor for routine prophylaxis. From our perspective, if anyone were to begin today, February 27, 2013, the pathway from start to approval for an IV development program is, at a minimum, with the sun, the moon and the stars all aligned, likely a 4-plus-year endeavor. Here are the reasons why. First, as far as the Health Care Reform Act, biologics are granted 12 years of data exclusivity from their approval date. In our case, that extends through October 2020. What that means is that if another company is interested in developing their own C1 inhibitor for HAE routine prophylaxis, they're unable to use the Cinryze clinical data to support their approval. In other words, simply put, they need to conduct their own clinical registration studies. Second, as of today, there's only one other company that is known to be currently manufacturing a plasma-derived C1 inhibitor. That is for the acute market. This particular company has publicly stated that their focus, related to routine prophylaxis, is on the pursuit of a subcutaneous formulation, not IV. Third, keep in mind that HAE is no longer considered an unmet medical need. There are now 5 approved therapeutic approaches on the market for managing hereditary angioedema. The FDA made this very clear to us when we first approached them to begin our subcutaneous development. This means, very simply, that the hurdles to approval are now higher. For example, our understanding from our dialogue with the FDA is that a sponsor will be required to conduct dose ranging and randomized controlled study or studies that would provide safety information of approximately 100 patients. A study of that size, in an ultra-orphan market such as HAE, in which a proven therapy already exists, will not be easy to enroll. Not impossible, but very challenging and will take time.

In the event that a sponsor takes on these challenges, goes through the effort and successfully makes it to the market, the example we provided you at our Investor Day, we believe, shows how the market would likely evolve in the scenario of the entry of another branded C1 inhibitor competitor. This example demonstrates how the innovator product was able to maintain its patient share due to a high degree of patient satisfaction and brand loyalty.

In the years post exclusivity, the innovator and new competitors simply competed for new patients. Another more recent testament towards the power of brand loyalty is how we are seeing a significant return of Gaucher disease patients back to Cerezyme after the manufacturing outages that they had experienced. And this was all done in the emergence of a competitor during the outage period.

Moving beyond IV, we are also advancing our own subcutaneous administration program through the development cycle. And we've shared with all of you the FDA's feedback on the requirements to secure an approval of a subcutaneous administration of our C1 inhibitor, including dose ranging efficacy studies and a safety database of approximately 100 patients. We also believe, based on the available data, including our own non-PH20 aided studies, that our combination of Cinryze with PH20 could provide many competitive advantages over a plain subcu for patients in terms of potential efficacy, power ability, and importantly, ease of administration. For example, a single versus a multiple injection per dose alternative.

We believe that the entry of any subcutaneous administration of C1 inhibitor, including ours, could occur no sooner than late 2016 or perhaps even 2017.

Our assessment of this timing to market is based upon the amount of data that is required to be generated and the length of time it will take to satisfy all of the FDA requirements, along with the regulatory approval timelines. Even if a competitor chooses to try to meet all of the FDA requirements, including dose ranging, in a single larger Phase III study, it's our viewpoint that this approach would be much riskier and more challenging. It could ultimately affect the timeline to get to market. So the bottom line on these topics, we believe there's no realistic threat of competition for an IV version of C1 inhibitor for routine prophylaxis upon the expiration of our orphan exclusivity, and that a subcu approval is in the late 2016 or early 2017 timeframe.

Of course, there always remains the risk of the unforeseen, and we could face competition sooner. But based on everything we currently understand and I have described to you, this is hard to imagine. Finally, before we move on, one other related point, which we began discussing on our Analyst Day in the fall and that will continue to evolve throughout 2013, is that ViroPharma has a very healthy number of potential significant growth drivers, both commercial assets and clinical pipeline candidates. Our development pipeline is more robust than it's ever been in our 19-year history. And our job is to focus not only on today and next week, but to generate growth for the decade and beyond. We have been very active in acquiring new opportunities, as you all know, launching products in Europe and advancing our development candidates. So when we do arrive in 2015 and '16 and '17, there will be more than just Cinryze that drives our growth.

Now let's talk about one of those future growth drivers, our European business. We are continuing to make progress going through the PNR processes in each of the big 5 countries in Europe for Cinryze, Buccolam and Plenadren. There's no secret that times are tough economically across Europe right now. However, despite the backdrop of this economic climate, we have been successful in achieving pricing and reimbursement for all 3 products in the countries where PNR is complete. In some cases, this required us to demonstrate resolve and discipline, to fight for the price that we believe is justified by the benefit that we're delivering with these products to our patients. In fact, just this past month, we completed the process for pricing and reimbursement and achieved pricing in both France and Italy for Cinryze, consistent with the early pricing we achieved in Germany and the U.K., and we plan to launch in those countries later this year. And by the third quarter of 2013, Cinryze will be officially launched in all of the big 5 countries. Buccolam has also followed a fairly similar path as Cinryze in terms of launch, sequencing and PNR success. We expect that we'll be finalizing the pricing decisions in France and Spain very soon, and we anticipate for Buccolam to be launched across all the big 5 EU markets in the second half of this year, 2013.

As it relates to Plenadren, we launched commercially in 4 countries by year-end of 2012 and also initiated our Named Patient Program in Italy and Spain. For the remaining EU territories, we are now capturing data with our registry studies and from initial commercial patients, with the goal to bolster our chances of success in our PNR negotiations in some of the more difficult pricing territories throughout 2013. Our goal is for those engagements to occur in the second half of this year. And the most likely outcome is that we will be launching Plenadren into these territories in early 2014 due to the timing of these efforts. This is important for you to keep in mind when building your models of Plenadren, that for the better part of 2013, sales for Plenadren will come from the countries in which we are already in, and also importantly, the guidance that we shared with you at our Analyst Day for 2015 has factored all of these points in. I'm pleased with the progress our team has been making thus far in Europe. From a demand perspective, we are now seeing an increasing adoption of our products, although each of these products certainly has its own unique challenges to overcome. But throughout 2013, I'm confident that our team can and will continue to overcome them.

We expect 2013 is going to be a very big year for our team in Europe. And as we've noted in the past, the second half of 2013 should serve as a true measuring stick for our progress in Europe, as we should be launched across the big 5 for both Cinryze and Buccolam.

We look forward to keeping you apprised of our progress on all of these product launches throughout this year.

Under development. I've mentioned that the pipeline is more robust and exciting than it has ever been in our history. Regarding the development of our C1 inhibitor franchise, we're pleased to report that we have initiated our subcutaneous injection Phase II study in both the United States and in Europe. The sites are currently enrolling patients. There is a great deal of enthusiasm from both investigators and patients, specifically for our PH20 Cinryze combination approach for subcu. When we complete the enrollment, we'll provide you with the expected timing of when the top line data from this study will be available. Outside of HAE, a number of studies of C1 inhibitor in other therapeutic areas, such as refractory paroxysmal nocturnal hemoglobinuria, autoimmune hemolytic anemia and neuromyelitis optica, have been initiated. Also, we expect to complete and have data from our study of antibody mediated rejection in kidney transplant patients later on this year.

So overall, there is a great deal of activity moving forward with the franchise, and we look forward to sharing all of this progress with you along the way. We are also continuing to advance both maribavir for CMV and VP 20621 for recurrent CDAD. Both of these candidates represent potential solutions for significant unmet medical needs, and we expect that we will have important clinical data points in 2013. We also have a number of earlier stage pipeline candidates, such as VP 20629 for Friedreich's Ataxia and our recombinant C1 inhibitor program, which will also be moving forward this year.

Overall, these brief comments don't truly capture the opportunities presented by our development candidates. As we continue through the year and reach the milestones for each of them, we'll broaden the conversation.

Finally, before I turn the call over to Charlie, I'd like to note that we've not yet received our feedback from the FDA as it relates to a potential path forward for Plenadren here in the U.S. Remember that we said we expect to hear it during the first quarter, and we can say today, we certainly do continue to expect that we're going to get that feedback shortly. Once we've heard back from the agency and had a chance to formulate our thoughts in terms of what direction that feedback sends us, we'll certainly communicate further with all of you. Now I'm going to turn the call over to Charlie to share with you the particulars of the year and the quarter, and I'll return to provide a few closing remarks. Charlie?

Charles A. Rowland

Thanks, Vin, and good morning to everyone on the call.

For the year, we achieved net product sales of $428 million; delivered adjusted net income of $51 million; tapped [ph] a non-GAAP earnings per share of $0.08 and $0.64; generated cash flows from operations of $43 million; ended the year with working capital of $339 million, which includes cash, cash equivalents and short-term investments of $247 million; and we repurchased nearly 7 million shares of our stock at an aggregate cost of $180 million.

On the top line, our net sales for the year were $428 million and $107 million for the fourth quarter. Cinryze worldwide net sales contributed a record $327 million for the year and $97 million for the quarter, delivering growth of 45% and 30%, respectively, over the 2011 periods. The $321 million in U.S. Cinryze net sales includes $300 million of patient demand and the balance represents additional inventory in the channel. Also consistent with prior quarters, Cinryze U.S. growth was driven by steady new patient adds and dosing rates. During the fourth quarter, we shipped over 23,000 doses to specialty pharmacies and specialty distributors. With regards to our geographical mix, in the fourth quarter of 2012, EU sales of Cinryze accounted for approximately $2 million and $6.5 million for the year. For the year and the quarter, our European business generated nearly $17 million and $7 million in net sales, respectively. Vancocin contributed $90 million in net sales, down from $289 million for the full year of 2011. This year-over-year decrease was due to the entry of generic versions of oral Vancomycin. And during the fourth quarter, Vancocin contributed $5 million of net sales compared to $78 million in the fourth quarter of last year.

Our combined cost of sales, excluding amortization of product rights for the full year and fourth quarter of 2012, was approximately $109 million and $27 million, respectively, compared to $80 million and $20 million for the prior year periods.

Next, I'll review our operating expenses. Our combined SG&A and R&D expenses were $242 million, increasing from $194 million in 2011, and $70 million for the fourth quarter compared to $49 million in Q4 2011. Our selling, general and administrative expenses were approximately $174 million compared to $128 million last year.

For the quarter, our SG&A expenses were approximately $51 million, up from $36 million from the prior year period. These increases were driven primarily by launch and staffing costs for Cinryze, Buccolam and Plenadren in Europe, and additional Cinryze commercialization costs in the U.S., where we're continuing to drive the sustained growth of Cinryze. Our research and development expenses of $68 million was driven by investments in our clinical programs. This compared to $66 million reported for 2011, which also included payments related to Halozyme and the acquisition of VP 20629. For the quarter, our R&D expenses were approximately $19 million, up from $13 million in the fourth quarter of 2011.

Operating income decreased to $33 million from $222 million in 2011, driven primarily by the impact of generic Vancomycin, partially offset by Cinryze revenue growth.

We had a GAAP net income of approximately $6 million compared to GAAP net income of $141 million in 2011. From there we arrive at our diluted EPS of $0.08 compared to earnings per share of $1.68 in 2011. Regarding our diluted share count. Because of the level of our GAAP net income, the calculation for diluted earnings per share excludes the 10.9 million shares associated with our convertible debt, because adding back the interest expense to our GAAP net income and including the shares in our share count, would result in a higher EPS. For purposes of your models, once our GAAP net income approaches $50 million, these shares will be included in the calculation of diluted EPS. Our non-GAAP or adjusted net income, which exclude noncash and nonrecurring items, was $51 million compared to $182 million in 2011.

Our non-GAAP adjusted earnings per share decreased to $0.64 for 2012 compared to $2.09 in 2011. Our tax expense for the quarter was $2.5 million and $13.4 million for the year versus $10.2 million and $67.3 million for the respective prior year periods. Our effective tax rate for 2012 was 71%, up from 32% for the previous year. Effective tax rate for 2012 was impacted by approximately 170 basis points due to the recording of a valuation allowance related to certain state net operating losses.

For the fourth quarter, our operating loss was $2 million, down from $69 million of income during the fourth quarter of 2011. Our GAAP net loss after taxes for the quarter was $4 million compared to a GAAP net income of $53 million in the same period of 2011. From there, we arrive at our fourth quarter loss of $0.06 per share compared to earnings of $0.65 per share for the fourth quarter of last year. Our adjusted net income decreased from $51 million in the fourth quarter of 2011 to $7 million for the fourth quarter of 2012.

Our fourth quarter adjusted EPS also decreased period-over-period to $0.10 compared to $0.64 for the same period in 2011.

Regarding our strong balance sheet. We ended the year with working capital of $339 million, which includes cash, cash equivalents and short-term investments of $247 million. Also during the year, we utilized $180 million of cash to buy back nearly 7 million shares and also paid approximately $90 million for the Lev CVR payment.

For the year, we generated cash flows from operations of $43 million. And as you saw on this morning's press release, all elements of our 2013 guidance we provided last month remain unchanged. As a reminder, our expectations for 2013 are as follows: North American Cinryze net sales to between $390 million and $400 million, worldwide net product sales between $450 million and $475 million, and SG&A and R&D combined will be between $240 million and $260 million.

So to summarize, even with strong Cinryze growth and a growing European business, 2012 was a challenging year financially, due to the impact of generic oral Vancomycin. However, due to the expected growth of other currently marketed products and our projections of Europe moving towards profitability, we have weathered the storm and on our way to providing increasing financial metrics and delivering the type of growth we've come to expect from ViroPharma in the quarters and years ahead. With that, I'll turn the call back to Vin for some closing comments. Vin?

Vincent J. Milano

Thanks, Charlie. Moving right back to the future, I'm going to close this call this morning by reminding you of all the key milestones and catalysts in the months and quarters ahead. First, as we've shared in the past, we expect that we will have a clearer picture of a potential path forward for Plenadren in the U.S. very soon. On the development side, we will continue to provide updates on the maribavir data throughout the year. We expect that we'll see the full data set from our VP 20621 Phase II study in the first half of 2013 and we expect to complete and have the data from our AMR study with C1 inhibitor also this year. We also expect that there's going to be a great deal of interest when we complete the enrollment in our subcu Cinryze study and establish a timeframe for the top line data to be revealed. And commercially, we will continue to execute on all 3 of our products.

Overall, 2013 has the potential to be an extremely productive year for ViroPharma, and we look forward to sharing our progress with you in the quarters ahead. So that ends the prepared comments for this morning. We'd now like to take the opportunity to take your questions. Operator, are there any questions for the team?

Question-and-Answer Session

Operator

[Operator Instructions] And we do have several questions in queue. Your first question comes from Brian Abrahams from Wells Fargo Securities.

Brian Corey Abrahams - Wells Fargo Securities, LLC, Research Division

You talked a little bit about Cinryze in Europe. I'm curious to what you guys are hearing from the KOLs there in terms of interest and amenability to the prophylactic approach. How quickly should we be thinking about a ramp there, given entrenchment of other products?

Vincent J. Milano

So Brian, thanks for your question. Dan, you want to take that?

Daniel B. Soland

Sure. So still early days, I think. As Vin had mentioned, we recently achieved pricing in Italy and France. So I think it's going to be a while before we have a really good understanding of the ramp there. Interesting though, the thought leaders have evolved over time. I think 3 or 4 years ago, they would have said that there's no place for prophylactic C1 inhibitor. And today, the same thought leaders are suggesting maybe 5% or 10% of their patients should be on a prophylactic C1 inhibitor, Cinryze. It has changed over time, positively.

Brian Corey Abrahams - Wells Fargo Securities, LLC, Research Division

Interesting. And then, if you look to the latest in terms of status for the second industrial scale line and also with respect to manufacturing, are there any particular preparations you need to do ahead of potential inspections later this year?

Vincent J. Milano

So let me take the second question first. We have to always be preparing for inspections. That's the mantra in the model. So we're very much preparing for inspections. We don't know when they're coming, but we're assuming they're coming in 2013. So we're doing that every day, collectively, and with our partners from Sanguin. On the first question around the expansion of the second industrial scale, our current timeline is sometime in 2014 we would be able to bring that online. As we get closer to submitting the file and approval, we can talk more about that. But that's our current thinking.

Brian Corey Abrahams - Wells Fargo Securities, LLC, Research Division

Great. And then one last one and I'll hop back in the queue. You seem to be talking a little bit more about recombinant C1 esterase inhibitor these days. I'm just wondering, where -- how should we think about that fitting into your lifecycle management strategy? Is that potentially a replacement for Cinryze in the much longer term? Where is the IP domiciled there? Could you derive some tax benefits? And maybe you could just talk a little bit more to folks [ph] about how you're able to get around some of those challenges that many have faced in developing a recombinant C1 esterase inhibitor?

Vincent J. Milano

First, I think, there is, if I can, Brian, a few questions embedded in that. An IP question, sort of a strategic question on the intent of what recombinant C1 would do, and then the technical challenges. So maybe on the strategy piece, I think, simply put, we wouldn't say this is considered a replacement to treat hereditary angioedema patients. When you think about some of the -- when we think about some of the other potential indications for -- that are affected in the complement cascade where C1 inhibitor could play a role, we could need substantially higher volumes and a recombinant could be a very interesting alternative for us to have. That's sort of the short answer, we -- or we can go in chapter and verse more on that. On the IP front, where is it -- is it going to be domiciled in...

Charles A. Rowland

The IP is domiciled overseas in Belgium, so there will be a tax advantage and then also preliminary sort of estimates, at this point, we'd also have a cost of goods advantage over the existing C1 -- this plasma drive [ph] .

Vincent J. Milano

And then, Dan, maybe, the third point was on the technical front. Maybe -- what is it about what we've done that maybe we can reveal, which may be limited, of course, on why we've been able to overcome the challenges that other people have faced.

Daniel B. Soland

I think it could be that we approached it in a very logical way and with a little bit of luck also. And hopefully, we'll be able to get the product into the clinic.

Vincent J. Milano

And then see what really matters.

Daniel B. Soland

And see if it really works. Yes.

Vincent J. Milano

Which, again, we haven't committed to when we're going to be in the clinic, but we're very encouraged by the early data.

Operator

Next question comes from Robyn Karnauskas from Deutsche Bank.

Alethia Young - Deutsche Bank AG, Research Division

This is Alethia for Robyn. I have one on Cinryze and then one on maribavir. So I'll just say -- start with the Cinryze one. You guys have mentioned identifying patients outside of the allergy community. Can you guys give us any kind of granularity or color on kind of the new adds that you're seeing there? And kind of a sense of the market opportunities? And then I'll throw the maribavir question at you.

Vincent J. Milano

Dan, you want to take that?

Daniel B. Soland

Sure. Now that's a great question. The interesting thing is, is that we're not seeing as many patient adds from our sort of classic KOLs. In fact, I think in the last quarter, 50% of our new patient adds were from first-time prescribers. So we're not only seeing allergists or new allergists prescribing the medication but we're seeing gynecologists, we're seeing gastroenterologists, we're seeing some family practitioners that have now been educated on the disease and are writing prescriptions for Cinryze.

Vincent J. Milano

So I also would add to that, is that in terms of the context of the market, we don't view it as additive to what we've always thought the market would be, right? Remember that there's been -- I think there's been a lot of the talk in the past about the theoretical epidemiology calculation of how many patients exist, but you couldn't find them, right? If you lined them up, you wouldn't find the 11,000 patients that epidemiology tells you exist. And we're all together, all of us working in this field are working together to identify -- have these patients diagnosed after. And I think that we're seeing the benefits of that and part of those benefits need to be derived from non-traditional HAE treating physicians, which is Dan's point about KOLs. So that's also one of the reasons why we felt it was a good opportunity for us to add some talent and depth to our HAE specialist team and expand them geographically to take advantage of these opportunities.

Alethia Young - Deutsche Bank AG, Research Division

All right, great. And then on maribavir, just when then do you think you will have a sense of enough info kind of needed by the authorities to kind of make a "no-go" or "go" decision there? And will it require that both trials be completed for you guys to do that?

Vincent J. Milano

So that's a very dynamic question. So let's try to answer it this way. On the -- there is -- remember there is 2 studies just to cover it, right? In the European market, we're doing an asymptomatic study and our view of that is pretty straightforward. That alone will not lead to a registration, in our opinion, in any territory. But it certainly will inform us on what a Phase III study or studies would look like. One where there's -- where I think our imagination could be tempted to get a little bit excited is in the resistant/refractory study, which is being conducted here in the U.S. And why is that one different? Because when you think about the nature of the study, we're treating patients who have no alternative. They either die or this works. So that's a very tempting proposition. And the amount of data -- what we can say is that we're -- we've taken a position where every 40 patients or so, combined, that we have anti-viral data, we're going to stop, look and listen to make sure that what we believe to be true, in terms of this potential drug efficacy and safety, and move forward. And when we have enough data in this resistant/refractory, it gives us some confidence that we're onto something, we would likely have a sitdown with the FDA to ask them their view on whether this might qualify for breakthrough. So it's a long answer to a very easy question because there is no short answer to that very easy question. So we expect that maybe by the time we get on the earnings call in April, we'll have 40 patients' worth of data at least, and there's a good chance that we'll have a reasonable percentage, maybe 25% of that 40 would be in this resistant/refractory, which will be our first look at that population. The data that we shared with the Street, to date, has all been in the asymptomatic. As a reminder, 100% of the 20 patients that we've shared with you so far, have cleared the virus within 4 weeks. So very encouraging data and we're looking forward to sharing the next round of it with you guys, as soon as we have it.

Navdeep Singh - Deutsche Bank AG, Research Division

And breakthrough is something, just as a follow-up, that you might consider here, the breakthrough status?

Vincent J. Milano

Yes, that's the angle. So that would be what we'd try to do. But again, that requires a dialogue.

Operator

The next question comes from Joseph Schwartz from Leerink.

Joseph P. Schwartz - Leerink Swann LLC, Research Division

I was wondering if you could give us any insight on the net versus gross patient adds in the quarter? I recall that you had the database clean-up and there was a divergence for a short while, but I think you expected that to converge after some time? So any insight there would be great.

Vincent J. Milano

So the -- let's -- we're not going to answer the specific quarter-to-quarter stuff, maybe just 2 observations that will hopefully help you get to where you wanted to get to. One is that during the entirety of 2012, our net patient adds were about 160. And importantly, our discontinuation rate, which is defined as true prophylaxis patients, which we define as any patient who had taken 50 or more doses of product before they left therapy, still is at the 5% or less rate. So we continue to see, on a true discontinuation rate, very low and we see consistent quarter-over-quarter prescriptions and new patient adds.

Joseph P. Schwartz - Leerink Swann LLC, Research Division

Okay. And then as a follow-up, can you give us your thoughts on when we might expect breakeven in the EU? And what the tax implications of that might be?

Vincent J. Milano

Well, this is not guidance. This is -- but we're aiming to be breakeven sometime in 2014. Cash flow and profitable, so both on a GAAP and non-GAAP basis. On the tax front, Charlie, you want to...

Charles A. Rowland

On the tax front, Joe, as the amount of loss -- as these products continue to grow in Europe, the amount of loss will decrease and we'll go to profitability. So that's really the driver of our tax rate declining in our previous guidance. So I was sort of -- for this current year, if you remember back to our Analyst Day, we said not to expect the tax rate to change much for this year. So what I would do is, taking our effective tax rate from this year and backing out the onetime impact of the change in valuation allowance, should give you a pretty good number to use for this year. And then it will decrease to our long-term guidance over the remaining 2 years.

Operator

Our next question comes from Thomas Wei with Jefferies.

Thomas Wei - Jefferies & Company, Inc., Research Division

I was just hoping from a housekeeping standpoint, could you give us what the current average number of doses are that people on Cinryze were taking as of the fourth quarter?

Vincent J. Milano

1.8.

Thomas Wei - Jefferies & Company, Inc., Research Division

1.8. And then, I wanted to ask a little bit more about those conversations that you had mentioned with the FDA about the size of the safety database for a follow-on C1 esterase inhibitor for HAE. Did they give specific clarity around whether that 100 patients is at the ultimate approved dose? Or is that at any dose in the database? And what was the guidance again on duration of exposure?

Vincent J. Milano

Colin, you want to take this? The one question is on the safety database. Any color on what that -- how they conveyed that information to us and then, two...

Colin Broom

Thomas, the -- in terms of the database, again, some of the arbitrary [ph] guidance that we have really is based on a safety assessment. There's -- as Vin has said in the prepared text, that there is -- there are treatments that are now available, so safety has to be addressed, and up to about 100 patients or approximately 100 patients would address that. There will need to be exposure, a little bit more information perhaps, so that there is an expectation that patients within the clinical trial will be evaluated for at least 3 months on therapy. If it's longer, of course, that might help towards the safety. So -- and we're giving some general guidance here, around 100 patients are going to be required. And one point we want to clearly make, it's not 22 patients anymore. The bar is higher.

Thomas Wei - Jefferies & Company, Inc., Research Division

There wasn't a specified number that needed to be treated, say, for a year or more?

Colin Broom

That is correct. 3 months of duration of treatment appears to be the -- what is the minimum that is acceptable. But again, the emphasis, it's not a short study, that's not in 22 patients. It's a larger cohort needs to be studied.

Vincent J. Milano

With dose ranging, by the way.

Colin Broom

With dose ranging, also. Yes.

Thomas Wei - Jefferies & Company, Inc., Research Division

And then just lastly, the SG&A in the fourth quarter, is that a good run rate for what we should be looking at in 2013?

Vincent J. Milano

Charlie?

Charles A. Rowland

So Thomas, as you know from previous quarters, our overall spend is really driven based on programs we've got going on in R&D and some of the marketing programs and timing of those as we launch in Europe, and so we fund those as needed and as we progress. So our overall guidance for next year is still intact. We haven't provided quarterly breakouts to that. But we've been hitting sort of on all cylinders on our development portfolio. So right now, we're still comfortable with the guidance range for next year.

Operator

Your next question comes from Rachel McMinn from Bank of America Merrill Lynch.

Rachel L. McMinn - BofA Merrill Lynch, Research Division

I wanted to ask the U.S. Plenadren question. Vinny, I know you said you don't have feedback yet. But just could you quantify the opportunity for us in the U.S.? Or give us a sense of what is it that the FDA could say to you that would cause you not to go forward, in terms of the size of the trial or length of the trial that would just make it not an attractive opportunity for you anymore? And then also, to dig in a little bit more on the other question on EU profitability, is the -- your comment on Plenadren reimbursement being more of a 2014 story, is that shifting your viewpoint on the profitability of the overall franchise in 2014? I guess, what's your level of conviction there? And then just finally, if you can give us your updated thoughts on your current capital structure, and whether you believe that you're going to be spending more of your cash on R&D going forward? Or should we should continue to think about share repo as an important strategic point that you have?

Vincent J. Milano

I appreciate your confidence in my memory, Rachel, to remember that. Well, on the -- let me take the second question first regarding the Plenadren impact on profitability. The comments we're making assume that Plenadren doesn't achieve PNR in France, Italy and Spain until the end of this year, beginning of 2014. So that's taking that into account. That was the easiest question that you asked. The first question on the Plenadren part, there's a lot of different ways this thing could go. So you're asking us to speculate on speculation. But maybe just give you a sense of how we see it and let me just make the following comments. One, is that on the opportunity front, there's a lot of enthusiasm from the key opinion leaders who are looking for the benefits of a Plenadren-like product for their patients with adrenal insufficiency. So the market opportunity, from an enthusiasm point, is quite good. It's premature for us to comment on price, but we certainly don't see why this price point would be different here than it would be in Europe. And the number of patients is similar. So we just -- high-level, we see the opportunity as maybe similar to what we see across the European Union, both in terms of enthusiasm and in terms of commercial appeal. With regards to what we can hear from the FDA, it's the FDA, they could tell us a million things. What are they handicapping? Well, what we want to hear from them is either: a, the data that we've submitted to them or provided to them to review is adequate to submit an NDA. Alternatively, they could tell us that they want to see a study and really the opportunity is quite good. So it's hard to say what they would tell us that we would say, no. And frankly, that's why what we're committing to tell you is not when we get the letter from, or the information from the FDA, but when we've incorporated our thoughts into the information we get. And I'd say, the other part that's really important to hear is how the office of the orphan drug division views the concept of orphan exclusivity relative to the data that exists. So lots of moving parts. We view that as upside to the story today. It's not -- we don't have anything in our cost structure or future plans for U.S. revenue. None of that has been predicted. It's all upside. And we very much look forward to hearing what the agency tells us, so we can come back and answer your question more directly.

Rachel L. McMinn - BofA Merrill Lynch, Research Division

Okay, great. And then I think the last question was on capital structure.

Vincent J. Milano

Okay. Sorry. I got carried away. On capital structure, Charlie, it's about buying back stock. Is that your question?

Charles A. Rowland

So again, Rachel, as you know, we don't have R[ph]. But we're always scouring every asset that's potentially out there as a potential sort of new addition to our pipeline. The only thing that's changed in that screen is that we're also focused on delivering positive cash flows and earnings. And so for us to go and license something and to acquire [ph] it, it would have to be better than something that's in our development portfolio today and bump it, from a priority standpoint. So that's sort of on an additional screen. And with our current share price where it is, we're always looking at sort of the return of investing in our stock. So I have to say that we have an authorization outstanding for $200 million and it's still one of the things that we look at on a daily basis.

Operator

Our next question comes from Ted Tenthoff with Piper Jaffrey.

Edward A. Tenthoff - Piper Jaffray Companies, Research Division

2 questions, if I may. Picking up on Rachel's question, with the buybacks, the cash position that has sort of come in over the last couple of years and obviously, part of this is the profitability from Vanco going away. Is there a sort of on optimal cash position where you want to be? It's probably kind of maybe bottomed just from an operating standpoint, at least on the short term. But how do you kind of see the optimal cash that you do need on hand? Or how should we be thinking about it that way? And then sort of a follow-up question for more global HAE opportunity?

Vincent J. Milano

The meaning of life question that you just asked, so I -- you may remember or may know that part of my growing up in the biotech industry was with Frank Baldino, and Frank had a theory that "cash is king." So I'm not sure that there's a low number. There's never enough cash, right? But the more sincere answer to your question is that we do have a threshold in our minds that we would never want to go below. I don't know that it's good for us to share that exact number, but we do have a model in our head that we say we never want to go below. And you're right, the erosion of the Vancocin cash flows impacts how we think about the stock buyback topic prospectively and business development prospectively. But clearly, we -- and I've been here a long time, I remember when we didn't have $250 million in cash. So, but I think what's most important is you think about the business as growing and we're -- our plans are to deliver increasing and growing cash flows to the business in the next few years and be back to a position that's been, more historically, what you're used to seeing on our balance sheet.

Edward A. Tenthoff - Piper Jaffray Companies, Research Division

Right. And again, obviously, the investment in Europe reflects that. And I guess that kind of leads into the second question a little bit. There are HAE patients beyond just the U.S., beyond just Europe. Do you ever think of kind of taking this European model? And again, it's kind of like what have you done for me recently, but -- or lately, but do you ever think about taking that to other geographies or looking at Cinryze beyond just Europe, maybe even through distribution partnerships or things along those lines?

Vincent J. Milano

The answer is absolutely yes. Some of you might have heard Dan say he's interested in global domination. So specifically, we've got an approval in Canada and we have a team in Canada. We have approval in Australia and we have an employee in Australia. We've -- we're meeting -- we've met with Japan, we've evaluated Latin America, Switzerland, Israel, India. So there's many other territories. Exactly how would we do it? Well, it would be a case -- fact-dependent situation on whether we build, to use your analogy, another biopharma Europe-type model versus the distribution model. But the ROW is a component of our business strategy. And we do pay a reasonable amount of attention to thinking about where those opportunities lie. And importantly, Ted, our view is that, that doesn't only exist just for Cinryze. There are opportunities for Plenadren in some of these markets and, believe it or not, even for Buccolam.

Operator

Our next question comes from Mario Corso with Mizuho U.S.A.

Mario Vincent Corso - Mizuho Securities USA Inc., Research Division

A couple of quick things. On spending, so if we combine SG&A and R&D in the fourth quarter, it's actually above, on a run-rate basis, where you're 2013 guidance is. So I'm wondering, what in there is unusual that won't be repeated over the course of this year? And apologies if you already mentioned this, but can you talk about where the inventory situation stands on Cinryze?

Charles A. Rowland

So if you're trying to do the run rate, I do agree it gets you to a higher number than where our guidance range is. But you have to understand the fourth quarter, we had some fairly large legal expenses related to the FTC investigation compared to the what would be in the normal run rate. And then there were just timing of activities on the commercial side, that were weighted in the fourth quarter this year, that is not going to be indicative of the run rate going forward.

Vincent J. Milano

The second question was around inventories. So Mario are you still on the phone or did you get off?

Mario Vincent Corso - Mizuho Securities USA Inc., Research Division

Yes.

Vincent J. Milano

What was your -- Specifically, what's your inventory question?

Mario Vincent Corso - Mizuho Securities USA Inc., Research Division

Just kind of where it stands now, both at the distribution level and the patient level?

Charles A. Rowland

Okay. Okay. As of today, Brian, we have all the patients pretty much back on monthly shipments. At year end, not all of them were there, that's why we had that split of the inventory build. At the specialty pharmacy, specialty distributor level they're back within normal levels there. And so, as we report each quarter, we'll let you know about any fluctuations. We do anticipate, as a result of the -- all of the patients being back at normal levels, we've talked about somewhere in the neighborhood of $7 million to $9 million of inventory build in Q1. We'll give you the exact number on the quarterly call.

Operator

Our next question comes from you Dise Yang [ph] with Walida.[ph]

Unknown Analyst

One quick one on the cost of goods sold. Would you remind us on the moving forward basis, what's left for the Vancocin portion of the royalty payment to Genzyme?

Vincent J. Milano

The Genzyme royalty payment is roughly 10% and 16% in 2014.

Charles A. Rowland

'14, correct.

Unknown Analyst

Did that include the authorized generic sales?

Vincent J. Milano

It's at a lower rate.

Charles A. Rowland

A slightly lower rate.

Operator

Your next question comes from Steve Brozak with WBB Securities.

Stephen G. Brozak - WBB Securities, LLC, Research Division

It looks like a lot of questions have been asked here, so I'm not going to ask you what you had for breakfast this morning, but I will ask you instead, Europe is obviously a big target market and we're obviously watching what's going on with the euro and it's spikes and dumps. And what are you looking at? Because you obviously have concentration in terms of sales. What are you looking at in terms of potential hedging, or what guidance can you give us on that in terms of dollar-euro exchange rate or dollar-pound exchange rate? What are your thoughts there?

Vincent J. Milano

Charlie is our currency exchange expert, so we'll ask him to answer that question?

Charles A. Rowland

So, Steve, we're in a nice position where we have a natural hedge. Because again, we've started up our European operations, so we have been making loans over to our European operations. And our supply for Cinryze is in euros, and we're roughly sort of nationally 75% to 80% covered. And as that starts to change, as Europe becomes profitable in the near-term, we will start doing other, more complicated types of hedging strategies, but right now, we're in pretty good shape.

Stephen G. Brozak - WBB Securities, LLC, Research Division

Okay, then I will ask a follow-up question and jump back into the queue. Reimbursements. Because obviously not all European countries are created equal. Some of them are going to be less sympathetic and some of them are going to be more aggressive in terms of saying, "This is what we're going to do." What are your thoughts there? And what kind of guidance can we expect on that front? And I'll jump back in the queue.

Vincent J. Milano

Dan, do you want to comment?

Daniel B. Soland

So it's particular important with the current economic backdrop, but our strategy is to go into those countries that allow us more freedom upfront to price. And to follow on later with the countries who are more difficult and to achieve a price. We also do not want to start to lower our average price over time. There's always a tendency for certain countries, like Austria, to come in at the end and try and get a lower price than what's currently in place in Europe. And then what you set off is a spiral. And so I think Vinny mentioned in his comments, that we've been very diligent about maintaining our pricing strategy. We're not going to let to tail wag the dog here and disrupt our overall pricing strategy.

Operator

Your next question comes from Geoff Meacham from JP Morgan.

Anupam Rama - JP Morgan Chase & Co, Research Division

This is Anupam Rama in for Geoff Meacham. Just a quick question. You outlined the timelines in the big 5 for Buccolam and Cinryze. But I was wondering if you could just talk about if there are other focus countries beyond the big 5 that we might hear about in 2013?

Vincent J. Milano

Dan, you want to...

Daniel B. Soland

So I think we -- Jeff, we also mentioned that we've launched in Sweden, Denmark and Norway, and believe it or not, Iceland. And we may have a chance at an early pricing and reimbursement in Italy before 2014.

Vincent J. Milano

That's for Plenadren though.

Daniel B. Soland

For Plenadren, yes.

Vincent J. Milano

Just Cinryze, Buccolam, all three. The other countries for all 3 products.

Daniel B. Soland

I'm sorry, I misunderstood the question.

Vincent J. Milano

You just answered part of it. You didn't misunderstand.

Daniel B. Soland

So we're probably going to launch in Cinryze in the relatively near future in Ireland, Italy, France. We have an MPP that's off the ground in Austria. And in Buccolam, we should be launching relatively soon in Italy, Sweden, Denmark, Norway. And I just gave you the Plenadren update. We also have MPP programs going on in Eastern Europe, also.

Operator

Your next question comes from Liisa Bayko from JMP Securities.

Liisa A. Bayko - JMP Securities LLC, Research Division

I have one sort of strategic question and one housekeeping. So just on housekeeping, the breakdown between Buccolam and Plenadren for 4Q, can you give us that?

Vincent J. Milano

Ask your strategic question and we'll pull the data from our...

Liisa A. Bayko - JMP Securities LLC, Research Division

Okay, good. So I just want to better understand and drill down on what people are asking earlier about the Plenadren and orphan. What data do you have that you submitted so far to FDA, because you talked a little about it's dependent upon the data and if the FDA will accept the data? What data have you submitted in terms of the number of patients, et cetera? And then how does that drive an orphan decision? Is an orphan decision sort of independent of that? Maybe you could just explain a little further?

Vincent J. Milano

Colin, do you want to talk about the data?

Colin Broom

Yes, Liisa. The data that's submitted was also submitted to Europe and got approval by EMA. So the pivotal data there was a 64-patient trial, which was a crossover, in addition to some [indiscernible] pharmacology. So the FDA [ph] -- in our submission there to the FDA, that information has been given to them, especially the results and, of course, we are waiting to hear from them at this point.

Vincent J. Milano

But it's a PK-type study more than a clinical efficacy.

Colin Broom

Yes, well there is observation there, it's safety primarily, crossover in terms of safety. But it was supplemented by pharmacokinetics data. So that's the data the FDA has.

Vincent J. Milano

Which is important to lead in to your second question, Liisa, and around orphan exclusivity. There's 3 models, right? There's 3 ways in which you get orphan exclusivity confirmed, clinical benefit...

Colin Broom

Yes, so, Liisa, to your point, orphan designation has already been given, first of all. The designation doesn't mean to say -- we have to sustain that orphan designation. So the question is will the data be able to demonstrate the adequacy and essentially the superiority, the clinical benefit, in particular, of Plenadren versus current standard of care. So the data have to sustain that in order to get and achieve orphan status. Designation is just the first part, the second step is to make sure you actually sustain that orphan status on approval.

Vincent J. Milano

Rob?

Robert A. Doody

Yes. I'll just say, also this is a derivative of a hydrocortisone that's currently on the market. So for the orphan designation is for the ability to demonstrate some additional benefit. And to be considered a new product, it has to demonstrate 1 of the 3 items that Colin mentioned, either superior efficacy, safety or substantial clinical benefit for patients. And as you mentioned, it's a decision that we made after review of all the data.

Liisa A. Bayko - JMP Securities LLC, Research Division

So does the study in the 64 patients -- where was that study done? And is there any reason to believe that, that study should not apply to the sort of the American demographic? Or should things be pretty similar to, let's say, if it was a European study? What have you?

Vincent J. Milano

It was all done in Sweden and...

Colin Broom

And yes, there's -- I mean the data -- the management of patients in Sweden, in fact, the management of patients internationally, was very similar for adrenal insufficiency. So there's no reason to believe that it would not be acceptable. It was, of course, acceptable to EMA. And of course, EMA standards are just as high as the FDA. But we'll wait -- we need to wait to get that feedback and we'll have that soon from the FDA.

Liisa A. Bayko - JMP Securities LLC, Research Division

And is there any differences in metabolism or anything between -- because maybe I would imagine Sweden to be a more homogeneous population? Is there any reason to believe that, that would be very different from what you might see here?

Colin Broom

No, no reason to be.

Liisa A. Bayko - JMP Securities LLC, Research Division

Okay. Okay, great. And do you have the Buccolam, Plenadren breakdown?

Charles A. Rowland

Yes. So for Europe, for the total year, we talked about the $6.5 million earlier in the call for Cinryze. It's roughly $5 million for Buccolam and about $500,000 for Plenadren.

Liisa A. Bayko - JMP Securities LLC, Research Division

Okay, great. And just one follow-up, when is the next read out of maribavir. From what I recall, you're going to be putting it out in increments of 40 patients, correct?

Vincent J. Milano

Yes. We're cautiously optimistic, Liisa, that we'll be able to provide that update on our first quarter earnings call.

Operator

At this time, we only have time for one more question. So our last question is going to be from Phil Nadeau with Cowen and Company.

Philip Nadeau - Cowen and Company, LLC, Research Division

Just a couple of pipeline questions. On the non-toxic -- non-toxigenic C. diff, can you give us some sense of what your current thinking is on the data you need to see to continue to move that forward?

Vincent J. Milano

Colin?

Colin Broom

Well, the data that we have is from the Phase II trial, where we look at 3 different dosing regimens compared to placebo. We'll have that data, as we said, in the first half of this year. We did share in the Investor Day some of the preliminary interim data, which shows that the ability of VP 20621 to colonize patients. So we will have stronger data. We'll complete that on colonization ability. The study is not powered for an efficacy endpoint so it's not powered to say to look for a reduction in recurrence rate. However, there will be -- we are looking at recurrence and we'll be able to give that information. So really we're looking at the totality of data from Phase II to determine what is the next step and the timing of that.

Philip Nadeau - Cowen and Company, LLC, Research Division

Okay, great. And then second on Plenadren. Thanks for all the detail around that potential FDA feedback. Based on the formulation here, is this -- would this be eligible for 505(b)(2) pathway if you did have to do a clinical study in the U.S.? Or would you have to do a more extensive Phase III?

Vincent J. Milano

The short answer is yes.

Well, ladies and gentlemen, thank you for hanging in longer than our scheduled hour. We really appreciate your time and your attention. And we very much look forward to seeing you throughout the year. Take care and have an outstanding day. Bye-bye.

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: ViroPharma Management Discusses Q4 2012 Results - Earnings Call Transcript
This Transcript
All Transcripts