Cubist Pharmaceuticals, Inc. Q1 2009 Earnings Call Transcript

Apr.21.09 | About: Merck & (MRK)

Cubist Pharmaceuticals, Inc. (CBST) Q1 2009 Earnings Call Transcript April 21, 2009 5:00 PM ET

Executives

Eileen McIntyre – Senior Director, Corporate Communications

Mike Bonney – President and CEO

Rob Perez – EVP and COO

Steven Gilman – SVP, Discovery & Nonclinical Development and Chief Scientific Officer

David McGirr – SVP and CFO

Analysts

Ian Sanderson – Cowen

Alan Carr – Needham & Company

Brian Scorny [ph] – ThinkEquity Partners

Matt Duffy – BDR Research

Greg Wade – Wedbush

Howard Lang – Leerink Swann

Scott Harlan [ph] – HSI [ph]

Operator

Greetings and welcome to the Cubist Pharmaceuticals, Inc. First Quarter 2009 Earnings Conference Call. At this time all participants are in listen-only mode. A question and answer session will follow the formal presentation. (Operator instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Ms. Eileen McIntyre, Senior Director Corporate Communications for Cubist Pharmaceuticals. Thank you, Ms. McIntyre. You may begin.

Eileen McIntyre

Good afternoon and thank you for joining us for the first quarter 2009 earnings call for Cubist Pharmaceuticals. Before introducing our speakers I will read the Safe Harbor statement and describe the context for use of non-GAAP financial measures.

This presentation includes forward-looking statements relating to among other things projected revenues, company financial performance, the ANDA litigation with Teva, our products and pipeline and our business development efforts. These statements are neither promises nor guarantees and are subject to a variety of risks and uncertainties. There are a number of important factors that could cause actual results to differ materially from those projected or suggested in any of these forward-looking statements.

These and other factors are contained in the Company's filings with the SEC including our most recent annual report on Form 10-K. Cubist is providing this information as of the date of this presentation and does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise.

Within this presentation in order to provide greater transparency regarding Cubist operating performance, we refer to certain non-GAAP financial measures that involve adjustments to GAAP figures. In particular, this presentation contains information on non-GAAP net income and net income per share. Any non-GAAP financial measures presented should not be considered an alternative to measures required by GAAP and are unlikely to be comparable to non-GAAP information provided by other companies.

Any non-GAAP financial measures presented are reconciled to the most directly comparable GAAP financial measures in a table included in our press release issued today and available in the news section of our Web site. A further discussion of why we feel these measures are important to investors and the reasons for which our management uses these measures is also included in the press release.

Speakers on today's call will include Cubist President and CEO, Mike Bonney, our Chief Operating Officer, Rob Perez, Chief Scientific Officer, Steven Gilman, and Chief Financial Officer, David McGirr. You will hear first from Mike Bonney. Mike?

Mike Bonney

Thanks, Eileen. I am pleased to report Cubist delivering another quarter of strong performance with robust top line growth and important progress in our clinical pipeline. Across the Company we are executing spot on with our plan. Our top line reflecting the typical seasonal pattern for Cubist revenues is on target with our expectations and with our 2009 guidance.

Total revenues were up 37% for the first quarter of 2009 compared to the first quarter of 2008. In addition to our continued success with commercial execution for both Cubist and MERREM I.V., the first quarter of 2009 was noteworthy for Cubist in a number of ways.

In March, Cubist filed a patent infringement lawsuit against Teva Parental Medicines in response to its ANDA filing to the FDA for approval to market a generic version of CUBICIN. Two of Cubist already for patents for CUBICIN run until September 2019.

We're proud that CUBICIN has now been used in the treatment of almost 700,000 patients with serious and sometimes life threatening infections. We continue to see peak annual sales opportunity in the U.S. of more than $1 billion.

Rob will provide a fuller perspective on Q1 revenue results for Cubist and MERREM I.V. in a few minutes.

Our clinical pipeline continues to progress. In February, we announced that we had begun Phase I clinical trials for two antibiotics that emerge from Cubist discovery activities. An IV antibiotic for the potential treatment of infections caused by multi-drug resistant Gram negative bacteria and an oral antibiotic for potential treatment of (inaudible) infections.

We also announced in March that we begun enrolling patients in the first of our two Phase II trials for ecallantide which is being studied as potential therapy for the reduction of blood loss during on pump cardiothoracic surgery.

Our co-development partner for new RSV therapy, Alnylam, announced in March they had completed accruing patients in the Phase II adult lung transplant study of the lead candidate for which we expect to see data later this year.

Steven Gilman will provide more detail on progress with our clinical pipeline programs later in the call.

The first quarter this year was also noteworthy in that it was the first time that our GAAP financial results reflect a 34% book tax rate. David will be reminding you of where we stand on a cash tax basis and will take you through some other important differences between GAAP and non-GAAP results for the quarter. The bottom-line for the first quarter EPS on a GAAP fully diluted basis are $0.13 per share and on a non-GAAP basis $0.42 per share.

Before we get into the detailed results for the first quarter I would like to spend just a minute on our business development focus. We continue to see the acute care space as one representing opportunity to grow our product portfolio and leverage our capabilities.

Our focus continues to be on bringing in a late stage acute care asset. Any assets must first end up to our scientific and commercial scrutiny and must also be available on terms of preserve upside potential for Cubist shareholders. We have time to execute the strategy. We're hunting in a strategically focused and financially disciplined manner.

Now I will turn the call over to Rob.

Rob Perez

Thanks, Mike. As you've heard we've had another great quarter of focused execution. Compared with the first quarter of 2008, CUBICIN U.S. net product revenues were up 31% to $112.4 million versus $86.1 million a year ago.

I know some of you like to look at sequential quarter over quarter growth. It's important to note that quarter over quarter revenue results reflect differences in timing of price increases in a given year.

In terms of underlying vial demand we saw the same seasonal pattern this year as we have seen in previous years. In 2009 our vials sold per shipping day in Q1 was 92% of what it was for Q4 2008. A year ago in Q1 2008 our vials sold for shipping day was also 92% of what it was in the fourth quarter of 2007.

As you know, in 2008, we took price increases on January 1st and again in Q4. We had no price increase in Q1 this year. But overall we have seen no change year to year in the Q4 to Q1 seasonal demand pattern. This is very good to see in a macro environment where there is at least anecdotal evidence of some decline in hospital census.

International revenue for CUBICIN in Q1 which you saw broken out in our news release this afternoon, reflected true-up process that lags the quarter. However, hereto we continue to track to our 2009 expectations.

Turning to growth drivers for CUBICIN. Our growth in the U.S. is the result of increased adoption in both the hospital and outpatient setting. Outpatient continues to represent about 45% of total CUBICIN revenues in the U.S.

We just received Arlington Medical Resources or AMR data through yearend 2008 that gives us an update on how CUBICIN is being used in the hospital. For the full year 2008 versus the prior year, we continue to see very healthy growth in days of therapy for CUBICIN overall. This is driven by significant growth in days for both skin infections and blood stream infections.

We believe key drivers of the evolving prescribing behavior across indications include a comfort level with CUBICIN now in its sixth year of use in the U.S. as well as broadened awareness and concern about the clinical efficacy of vancomycin at higher MICs within its susceptible range.

CUBICIN use based on days of therapy continues to be largely on label with close to 50% in skin and about a third in bacteremia and endocarditis. The AMR data also shows an increase in the percentage of CUBICIN use for osteomyelitis for bone infections now representing about 10% of CUBICIN days. As you know, we have a Phase II comparative dosing trial underway for one form of osteomyelitis prosthetic joint infection.

CUBICIN market share held steady at around 10% for the latest three month period for which we have competitive data, December through February. Vancomycin was relatively flat as well at about 72% for the three month period.

As is typical in the winter months of the year we saw a slight seasonal increase in share for (inaudible) although a bit less than we have seen in the past. It's important to note that our share of market calculation includes use of competitive agents for pneumonia for which CUBICIN is not an appropriate therapy.

A topic we continue to emphasize as hospitals look for ways to keep costs under control is pharmacoeconomics. As shown on this slide, published data reports that drug acquisition costs typically account for less than 5% of the cost of care for patients with MRSA infections. The other 95% are largely the costs associated with an extended stay in the hospital as well as the costs for drug administration and required monitoring and the cost of treating adverse events.

Hospital length of stay is the key driver. In a 2004 study, the average cost of a day of hospitalization in the general ward was approximately $1,000, a number that is likely much higher today. With these costs of an extended hospital stay in mind, the choice of an antibiotic that can help get a patient discharged sooner can make a big difference in the total cost of care.

One of the published studies cited by our clinical business managers when they call on hospital physicians and pharmacists demonstrate a median antibiotic related length of stay with CUBICIN of four days versus eight days with Vancomycin.

In recent weeks additional scientific publications appeared reflecting the ongoing analysis of results from the CUBICIN landmark Phase III S. aureus bacteremia and endocarditis trial.

As you will recall the full trial results were published in 2006, but important subset analyses of the data from this first of its kind trial have continued with support from Cubist. One of these publications authored by Dr. Susan Rehm of the Cleveland Clinic and others have published in the journal of anti-microbial therapy look at results for SADIE [ph] patients treated on an outpatient basis. The authors of this subanalysis state that, “stable patients with S. aureus bacteremia and effective endocarditis can successfully complete IV antibacterial therapy in the outpatient setting.”

The publication also sites current ideas and guidelines emphasizing that “When community-based outpatient parental therapy is considered, the anti-microbial agents selective should be effective against the causative agent, preferably dosed once daily, have a minimal adverse event profile, limited therapeutic drug monitoring and be stable in dosing formulation.” As is apparent from our results for the first quarter, CUBICIN continues to be accepted as a good fit for patients treated in the outpatient setting.

Now an update on MERREM I.V. As you recall, last summer Cubist negotiated an agreement with AstraZeneca to sell their established broad spectrum IV antibiotic, MERREM I.V. in U.S. hospitals. In Q1, as expected, we booked an incremental $4.5 million in service revenue based on our success in exceeding the established target revenues for 2008.

The balance of the MERREM number for the first quarter is the $1.5 million minimum service revenue we book each quarter until we determine whether we will achieve the agreed upon MERREM revenue target for the year.

We continue to be pleased with how this program is going. Importantly, we continue to execute efficiently to ensure that we optimize the opportunity for CUBICIN while also striving to meet the targets we have established for MERREM I.V. Steve?

Steven Gilman

Thanks, Rob. As Mike mentioned at the start of the call, we've had a number of important developments in the first quarter as our clinical pipeline continues to progress. First, ecallantide, the Phase II candidate in development as a potential therapy to reduce blood loss on pump cardiothoracic surgery.

In addition to beginning enrollment in the conserve 1 trial in the first quarter, we also hosted an investigator meeting to kick off the conserve 2 trials in Europe. We continue to be on track to complete enrollment in both trials in preparation for an end of Phase II meeting with the FDA in 2010.

In the RSV partnership with Alnylam, all patients have now been accrued for the RSV 01 adult lung transplant study enrolled patients will be evaluated for a three month for follow-up of additional clinical end points. In addition, a dose fractionation study is underway with healthy volunteers.

We're also making progress in our preclinical work on the second generation compounds in the program. The Cubist Alnylam joint development team plans to review all data later this year from the Phase II adult lung transplant study, the dose fractionation study and data available on the second generation compounds in the program as we determine the optimal path forward to clinical studies in pediatric RSV patients which represent the most important unmet medical need and largest market opportunities for an RSV therapeutic.

We were quite pleased to announce in February that we had begun first in human dosing for our candidate in development as an IV antibiotic for the treatment of infections caused by multi-drug resistant gram negative bacteria. Preclinical studies of CB1A 2804 have demonstrated safety and efficacy in animal models against important gram-negative pathogens such as Escherichia coli, Acinetobacter, Pseudomonas and Klebsiella.

Given the paucity of potential new treatments for gram-negative infections, we are excited about generating clinical data on this drug candidate that emerge from Cubist discovery activities. Our goal here is to complete both the single ascending dose and multiple ascending dose Phase I studies by early 2010.

In Q1 we also began dosing of healthy volunteers in the Phase I single ascending dose trial of CB183315, our agent in development as an oral antibiotic for treatment of C. difficile infections. This is a novel antibacterial agent discovered by Cubist scientist that is potent bactericidal activity against C. difficile and is demonstrated preclinical safety and efficacy and animal models. We continue to see great promise in this candidate as a potential agent for Clostridium difficile-associated diarrhea or CDAD.

Now for an update on our hepatitis C virus project, CB183872 which is targeted as a potential therapy for infections caused by hepatitis C virus. As you may recall, last year we had to uncover several technical issues which required additional preclinical evaluation.

We were able to make use of a new model system that was developed to assess (inaudible) of efficacy of anti-HCV therapeutics. This model was validated using clinically effective interferon as well as HCV protease and polymerase inhibitors.

We found that even at the highest doses that we could reasonably expect to achieve clinically, CB 183872 did not produce anti-HCV efficacy in this model in contrast interferon which was used as the positive control. Hence we have decided to discontinue this program. Now, over to David.

David McGirr

Thanks, Steve. In this tough economic period we are pleased to be able to report good robust financial results. We believe that investors expect well run companies continue to perform even in a downturn. In our case we are doing that by focusing on day-to-day commercial execution and by making well considered investments for the long-term.

Our Q1 2009 total revenues of 121 million are up 32.8 million or 37% from Q1 2008. U.S. net product revenues of 112.4 million are up 26.4 million or 31% from the first quarter of the previous year. Gross margin of 78.7% is in line with our 2009 guidance.

Operating expenses are where we want them to be. R&D expense for Q1 was 50.5 million and that number includes the 20 million upfront payment we made to Alnylam for the RSV program. Our core R&D expenses will grow throughout 2009 as we continue to make progress in our clinical trials.

Sales and marketing expense was 19.5 million which is flat to Q1 2008 demonstrating one aspect of our commercial leverage. Q1 expense for G&A was 10.9 million which is less than we spent in Q1 2008 and includes expenses in the quarter related to the ANDA litigation.

Total operating income was 15.8 million which is up just slightly from Q1 2008 even with the cost of the Alnylam upfront payment.

Now to the GAAP numbers which start to get interesting as a result of book tax and APB14-1, the new accounting rule for convertible debt. Our book tax rate was 34% and cash tax was 5%. APB 14-1 cost us 3.2 million of noncash interest expense in Q1.

As set out in the tables in our news release today, diluted GAAP EPS was $0.13 for the quarter and diluted non-GAAP EPS was $0.42. Comparing non-GAAP EPS between the first quarter of 2008 and 2009 we see growth of $0.16 or 61%. We continue to believe it is important to grow EPS.

Our cash balance at the end of the first quarter was $406 million. As you may recall from past years, Q1 is a heavy cash outflow period including this year a royalty payment of $35 million to Eli Lilly. We still expect to generate around 130 million of cash in 2009 and end the year with about 550 million subject of course to business development success.

Let me finish with a review of 2009 guidance. We are confirming guidance for CUBICIN U.S. net product revenue of between 520 million and 540 million. All other items also remain the same as the guidance we provided in the January call. Now let's open up the lines for questions. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator instructions) Our first question comes from the line of Ian Sanderson with Cowen. Please proceed with your question.

Ian Sanderson – Cowen

Good afternoon. Thanks for taking the question. Can you give us a little bit more detail, perhaps others know this but I don't, on the size of the price changes for CUBICIN in Q4 and Q1 of last year and then do you track the average price per vial data in Q1? And secondly, can you provide an update on the percent of CUBICIN sales that are used in the outpatient setting in Q1?

Steven Gilman

Sure. I think I got those. So In January 1 we had an 8% price increase – of 2008, sorry, 2008 we had an 8% price increase, and October 1st of 2008 we had a 7% price increase. That your last question was about outpatient sales, and it's about a 45% number, so 45% of the sales of CUBICIN are outside of the hospital in outpatient setting.

Ian Sanderson – Cowen

In fact on the – I'll go ahead.

Steven Gilman

I just wanted to make sure I understood the question about tracking price per vial on Q1. Can you maybe repeat that one?

Ian Sanderson – Cowen

Yes. Just looking to see if vial any contracting or anything along those lines given sales into the hospital, what if there – if you track the price per vial data?

Steven Gilman

We do very minimal contracting of the product beyond what we kind of the standard contracting in the government, et cetera. So there really was no increase in additional contracting.

Ian Sanderson – Cowen

Okay. Thank you.

Operator

Our next question comes from the line of Alan Carr with Needham & Company. Please proceed with your question.

Alan Carr – Needham & Company

Hi, good afternoon, everybody. Wonder if you could talk a bit more about the potential effects of the economy here, what you have seen so far? Do you see some sort of changes in potential impact maybe from reduction in elective surgeries or do you see a – do you get a sense there is a preferred use of vancomycin because it's less expensive because of the economy, any sort of factors there that might be playing in the CUBICIN sales in the first quarter?

Rob Perez

Sure. We haven't seen any major change, anything that you can really kind of put your finger on. There haven't been hospitals changing their protocols or anything like that. We have heard evidence of some decrease in elective surgeries. We have seen some reports of hospital census being a little bit down, but really there hasn't been any systemic change in the way hospitals are treating their drugs or more specifically antibiotics. What I think you do see though is, you do see maybe pharmacists having a little bit more impetus to look at the cost of therapies and maybe a little bit more pressure on high price drugs like CUBICIN which is why our folks are spending so much time talking about the pharmacoeconomic benefits of CUBICIN and the fact that overall in terms of the cost to the entire hospital system and the overall hospital beyond just pharmacy, CUBICIN is actually beneficial. So that is really been the focus of our team, but nothing that is kind of a major effect so far.

Alan Carr – Needham & Company

I know you mentioned before that you had consistently I guess had pushback from pharmacists on pricing and that sort of thing, but you wouldn't say that there is substantially more it sounds like than what you have gotten in the past?

Rob Perez

No, not really. I think that the pharmacists who are concerned about their own budget will likely use the economy as another reason to try to get their message out about why high price drugs like CUBICIN should be limited. However, again our folks are out talking about the benefits of CUBICIN as they have previously, and they frankly have more pharmacoeconomic data in their hands and more focused pharmacoeconomic messages than they've ever had. So we're hoping to utilize that to be able to get the message out that CUBICIN really represents value on the total cost of care.

Alan Carr – Needham & Company

Okay. Wonder if I could put in another question about if you guys provide a little more information on little more details on your business development priorities these days?

Rob Perez

Well, there is really not much more detail to provide, Alan. We're very focused on this as we talked about the last couple of quarters. We're looking for later stage assets that leverage the capabilities and infrastructure we have built both from the clinical development and in particularly, commercial front. I think that key thing that we're trying to communicate at this call based on some feedback we have gotten from the investors is we don't see any reason to act urgently. Our business plan is being executed kind of spot on as I said upfront, and that includes everything from CUBICIN's revenue growth to the development of the products that are in the clinic, and we're looking an awful lot of opportunities, and we'll make very sound strategic as well as financially disciplined decisions if we decide there is something else here that is a good fit for us we can bring in and make money for the shareholders.

Alan Carr – Needham & Company

Okay. Thanks very much.

Operator

Our next question comes from the line of Brian Scorny [ph] with ThinkEquity Partners. Please proceed with your question.

Brian Scorny – ThinkEquity Partners

Hi, guys. Thanks for taking my question. Just a couple real quick ones. First one, can you give us any idea on the next events we could be looking for on the patent infringement case? Is the next thing we're really going to hear about the Markman hearing or do you anticipate any events that you will be press releasing ahead of that?

Mike Bonney

At this point, Brian, I don't think that there is much we would comment on other than saying stay tuned as is our practice in the past when there are material developments we'll certainly let the investor community know ASAP. At this point it's really just in we filed the suit a month ago and we're progressing as on track, if you will, with this type of litigation.

Brian Scorny – ThinkEquity Partners

Okay. And then I was just wondering there is a lot of rumors about you guys getting acquired a few weeks ago and an aside to that a lot of people were talking about Novartis, but still seems that the international CUBICIN growth really hasn't met our hopes or maybe even expectations. I was just wondering, do you have any update on ex U.S. traction as far as CUBICIN goes?

Mike Bonney

Let me kind of provide a broad overview, and then Rob can take you through some of the details. I think the first thing to keep in mind is that the drug is actually being approved in real-time in additional countries. So throughout 2009 we expect that the drug will be launched in additional countries around the world. I think it's important to keep in mind that the market structure is different, particularly in Western Europe than it is here in the U.S. with merger rates generally quite a bit lower. There are exceptions, but generally quite a bit lower, and the competitive environment is a bit more intense in that there are two glyco peptides approved in western Europe, vancomycin, of course and Tycoplanin. That said I think our working relationship in Novartis remains strong and we remain hopeful that there are activities to try and change the slope of the uptake curve will take effect in 2009. Rob, do you want to add anything to that?

Rob Perez

I think that's well said. We do expect a number of new launches from Novartis as well as our other partners in 2009. So markets like Mexico, Brazil, other Latin American markets, Australia, so there are opportunities to continue to grow. None of those markets are huge, but continue to grow the overall number, so as Mike suggested, we have a great relationship with folks at Novartis and we'll continue to work with them to achieve the peak sales number that they have put forward which is in the $150 million to $200 million range for their territories.

Brian Scorny – ThinkEquity Partners

Alright. Thanks, guys.

Operator

Our next question comes from the line of Matt Duffy with BDR Research. Please proceed with your question.

Matt Duffy – BDR Research

Hi, and thanks for taking the question. Recently IDSA and ASHP came out with new guidelines on dosing of vancomycin, and I wonder if you could comment on how those might impact CUBICIN since they really seem to push docs to use CUBICIN Zyvox primarily in cases where vancomycin, MRSA, MIC is two or greater?

Rob Perez

Yes. It's another kind of straw on the camel's back as they say, Matt, that there has been increased noise about it, and I think it does help to get the word out beyond just the thought leaders about the problems with vancomycin use. We haven't seen any wholesale shifts yet, but we do think that it's generally positive for CUBICIN. I will say people also look at that data and there is some suggestions about pushing the vancomycin dose, and there have been some reports that folks that look at that data and it made them think about using vancomycin a little bit more in terms of trying to push the dose in order to gain efficacy. So there is some I think clarification that needs to be done and our folks are out there doing that every day, but we do think that it is a positive and another way for us to get the message out about vancomycin MICs and what a significant issue this is for patient care.

Matt Duffy – BDR Research

Okay. And can you give any additional color on the mechanism of action and the spectrum of 804?

Mike Bonney

Sure. 804 is a bactericidal active against on the four key gram negative pathogens I mentioned, the MIC 90 is against a panel of some 400 plus pretty multi-drug resistant strains are in the 2 to 4 microgram per ml range, well within the range we can cover in animal models see that we demonstrated against several of those.

Matt Duffy – BDR Research

Can you give any idea on the mechanism?

Mike Bonney

Sorry, the mechanism, yes. It's an RNAi and protein synthesis inhibitor so it shuts down RNA protein and DNA synthesis, hits very rapidly and causes side only.

Matt Duffy – BDR Research

Thanks very much.

Operator

Our next question comes from the line of Greg Wade with Wedbush. Please proceed with your question.

Greg Wade – Wedbush

Good afternoon. Congratulations on a good quarter, and thanks for taking my questions. First off, David with respect to the financial performance in the quarter, can you just comment on whether the linearity that seen historically month over month is similar to what was observed last year?

David McGirr

Is the quarter to quarter pattern?

Greg Wade – Wedbush

No, the month over month pattern. Q2 is obviously usually your big quarter. I just wonder whether the month over month growth that's apparent to us is something that's being observed this year similar to last year?

Steven Gilman

Greg, we're struggling to try and understand the question.

Greg Wade – Wedbush

Monthly sales going up throughout Q1 as they have in the past?

David McGirr

I see. We don't comment specifically, but the pattern this year looks very much like it has in years in the past. There is nothing and this is what we tried to communicate. We're performing just like 2008 on a vials basis and as a result we're comfortable reiterating the guidance of 520 to 540.

Greg Wade – Wedbush

Okay. And then with respect to the guidance does that assume another price increase will occur in 2009?

David McGirr

We don't make forward-looking comments on price increases.

Greg Wade – Wedbush

Okay. With respect to the HCV setback, will that result in a charge?

David McGirr

No.

Greg Wade – Wedbush

And then lastly, Rob, seems that your market share is kind of pinned here at 10% versus a weak competitor. What are you doing or what are the tools available to you to see movement in that days of share and when will you be executing on those in order to see some movement on this?

Rob Perez

Yes. Well, vancomycin as you know a sticky competitor, and the good news though is we are seeing some share increase. Keep in mind the 10% number that you see is an overall, we also see growth in the outpatient market where we're getting some share increase. What we're doing is really kind of the same plan, Greg. We continue to have to let people know about the MIC issues with vancomycin and continue to have to kind of beat on doctors about the issues with its use. We're going to kind of continue to work that plan and also add in the economic message which we think is a big issue. I mean, most physicians if you talk to them and if you ask them whether they would use the same amount of each product if they were priced the same, they would say that they could see the benefits of CUBICIN, but they often have a lot of obstacles at pharmacy and other places, so that's why our folks are now spending a lot more time trying to show people the economic benefits of CUBICIN as well to try to remove some of those barriers.

Greg Wade – Wedbush

That's what is new sort of the marketing message for this year?

David McGirr

Yes, that is a big part of the new message as well as trying to go a little bit sooner in bacteremia. We're pushing CUBICIN first when appropriate for use in bacteremia. So trying to get traction on and leverage the momentum we're having in the systemic market.

Greg Wade – Wedbush

And then how do you test your efficacy of your message in the marketplace?

David McGirr

We do what's called an awareness trial and usage study. It's fairly standard study that's done where with hundreds of doctors going through and understanding what they're hearing about CUBICIN, what they're hearing about the competition, how it's changing over time, and again we have been very pleased with our progress thus far. We know that as we said we never expect to dominate this market, so not going to see huge share increases, but what we are seeing is progress pretty much as planned and we see that in the top line numbers.

Greg Wade – Wedbush

So the awareness test correlate with treatment behavior?

Rob Perez

For the most part, yes. They tend to probably predict what's going to happen in that, physicians are usually a little it about more bullish about what they're going to do as opposed to what they're able to do.

Greg Wade – Wedbush

And then one just last question, thanks for taking my repeated questions here. With respect to HCV, you don't have a candidate in this space. There has been additional business development activity beyond when that I believe it was acquired, is there still an area of focus for you and then thanks again?

Rob Perez

Yes. Good question. I think we tend to be focused on later stage opportunities at this stage. HCV is not an explicit area of focus, but if we found another asset that looks like had an novel mechanism of action that might be complementary to the evolving thinking around the cocktail we might take a look at that, but our focus generally is on later stage assets and later stage HCV assets are rarely available in today's world.

Greg Wade – Wedbush

Thanks a lot.

Operator

(Operator instructions) The next question comes from the line of Howard Lang with Leerink Swann. Please proceed with your question.

Howard Lang – Leerink Swann

Thanks very much. Can you talk about whether the hospitals are doing more pre-admission MRC testing and whether that as an impact on infection rate?

Steven Gilman

We have not seen a lot of momentum in the rapid diagnostic type market. Honestly, there was a lot of buzz about that kind of early last year, but we really haven't heard much about it recently. So we have not seen that as a new process being put in place in many institutions. I am sure there are some that are doing it, but we're not seeing a big movement there.

Howard Lang – Leerink Swann

Okay, great. And is there a way to track any inventory out there, either at the outsider or the hospitals or is that not an issue?

Steven Gilman

It really never been an issue, Howard. What we can track is the frequency with which our customers order and that is very stable at this point. Keep in mind we don't stock wholesalers at all, so that's completely a non-issue.

Howard Lang – Leerink Swann

Okay, and then just lastly regarding the HCV compound, is the data that you just talked about a new experiment or did that contradict what you mentioned had?

Steven Gilman

This is a brand new experiment. This is something again at the R&D day in October we talked about quite a bit. We had a number of issues with the program, and we took a step back and really thought through what the key experiments where this is one of them, and it's just been wrapped up in the last couple weeks, month, I think.

Howard Lang – Leerink Swann

Thanks very much.

Operator

Our next question comes from the line of Scott Harlan [ph] with HSI [ph]. Please proceed with your question.

Scott Harlan – HSI

Hi. How are you doing today?

Mike Bonnie

Good.

Steven Gilman

Hi, Scott.

Scott Harlan – HSI

Basically one of the reasons why I ended up getting on this is because of the fact that after last conference call I was sort of shocked on the fact that all of a sudden they got hit with the Teva deal, and I was just sort of wondering because everything said nothing until 2016, 2019and all of a sudden it's like it came out of the blue. Just what saying how did we get to that point? What was their basis for trying to end up even filing?

Steven Gilman

Well, Scott, we have been pretty clear about this since the beginning of 2007. The way U.S. law works, and specifically, a piece of legislation passed originally in '84 and amended in '92 called the Hatch-Waxman Act. It’s actually an incentive provided to generic companies to be the first company to challenge the patents associated with a proprietary or branded drug. And the way that that law reads for a new chemical entity such as CUBICIN, on the fourth anniversary of the first approval of that new chemical entity which for CUBICIN approval of that new chemical entity which for CUBICIN would have been September 12, 2007, from that point forward generic companies can file an abbreviated new drug application what's called a paragraph 4 certification, and that paragraph 4 certification is essentially a statement by the generic filer that the drug that the generic drug that they're getting, trying to get the updated review either doesn't infringe branded patents or those patents are invalid. And if they are the first filer with a paragraph 4, and they're successful, they have a six month period of exclusivity for their generic which best we can figure out represents 60% to 70% of the NPV of a generic drug. Now, the fact that we did not receive notification of a paragraph 4 ANDA from September 2007 until February of this year, we thought had some meaningful information in it only to the degree that many, many times there is kind of a rush to be that first filer and try to secure that six month period of exclusivity in this case we're about 18 months beyond the first date that a filer could file before that happened.

Now what happens once we file the lawsuit which we did at the end of February – end of March rather, is the FDA is now prohibited from approving that ANDA until the earlier of either 30 months post the fifth anniversary of the new chemical entity or – I am sorry the notification of the filing, sorry about that, or the resolution of the patent litigation in favor of the generic company. So this is something we have been preparing for since early 2007. If there was a surprise here it was the timing that it occurred so much later than it could have occurred.

Scott Harlan – HSI

Well, I mean, okay, the fact that you have ended up going and having it filed, whatever, I mean if they can file that quickly, I mean what do they have to end up proving that they haven't violated any patents in the process? Is that what gets them their thing or because all of a sudden you have spent tons of money developing this product and basically in an eyelash, the fact price of the stock dropped 20% or 30% in one day?

Steven Gilman

I understand there is a risk year associated with this. We're basically suing them for patent infringement. We have confidence in our patents, and this is a process that will take a number of months, actually years, up to 30 months to work through. But we continue to have confidence in our patents. We're asserting them vigorously and we're continuing to execute our business plan.

Scott Harlan – HSI

And if they are viewed as having an fringed it then it go back to those dates of 2016 and the 2019?

Steven Gilman

Those patents are then confirmed one of which focus is expires in 2016 and the other two expire in 2019 that is correct.

Scott Harlan – HSI

Okay, and the other question I had was basically on your hepatitis C situation you got from cause of Lumigan what was the total cost of acquiring that?

Steven Gilman

We paid I think about $9 million upfront for acquiring that for us.

Scott Harlan – HSI

Okay, was there any other subsequent payments then or is that it?

Steven Gilman

That's it.

Scott Harlan – HSI

Okay. Well, thank you.

Steven Gilman

Thank you.

Operator

There are no other questions in the queue at this time. I like to hand it back over to management for closing comments.

Mike Bonnie

Thank you all very much for your attention today. We recognize that it is a very turbulent financial environment and we continue to execute in a very steadfast and deliberate way. And for Q1 2009 we have again delivered the results that we targeted. Our next conference call is a little bit out of the ordinary in that it will be held on Friday, July 17th, Friday is a little bit unusual for us, and it will also be at 7:30 in the morning eastern daylight savings time so please make a note of that on your calendars and tune in at the end of for our Q2 call. Thanks very much.

Operator

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time.

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