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Inspire Pharmaceuticals, Inc. (NASDAQ:ISPH)

Q1 2009 Earnings Call Transcript

May 7, 2009 10:00 am ET

Executives

Jenny Kobin – VP, IR and Corporate Communications

Christy Shaffer – President and CEO

Tom Staab – EVP and CFO

Analysts

Liana Moussatos – Wedbush Morgan

Jon Stephenson – Summer Street Research Partners

Eric Varma – Leerink Swann & Company

Ian Sanderson – Cowen & Co.

Operator

Good morning, my name is Brandy and I will be your conference operator today. At this time, I would like to welcome everyone to the Inspire Pharmaceuticals First Quarter 2009 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (Operator instructions) As a reminder, ladies and gentlemen, this call is being recorded today, May 07, 2009. Thank you.

I would now like to introduce Ms. Jenny Kobin, Vice President of Investor Relations and Corporate Communications. Ms. Kobin, you may begin your conference.

Jenny Kobin

Good morning and thank you for joining Inspire Pharmaceuticals First Quarter 2009 Financial Results Conference Call.

I will begin by reminding you that the forward-looking statements in this conference call are based on preliminary information and management assumptions. These forward-looking statements are subject to a wide range of risks and uncertainties that could cause results to differ in material respects, including those relating to product commercialization, product development, revenue, expense, earnings, and cash utilization expectations, competitive products, adverse regulatory development, results of clinical trials, the need for additional research and testing, funding, and the timing and content of decisions made by regulatory authorities, including the US Food and Drug Administration.

Further information regarding factors that could affect our results is included in our press releases and filings with the Securities and Exchange Commission, including our most recent 10-K, 10-Q, and 8-K. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements.

On today’s conference call, we have President and CEO Dr. Christy Shaffer, CFO and Treasurer Tom Staab, and Executive Vice President and Chief of R&D Dr. Ben Yerxa.

For today’s call, Christy will begin with a corporate overview and program update. And Tom will conclude with a review of the first quarter 2009 financial results and 2009 financial guidance.

I would now like to turn the call over to Christy.

Christy Shaffer

Thank you, Jenny, and good morning, everyone. Since the beginning of the year, we have advanced our late stage clinical development programs, including denufosol for cystic fibrosis, Prolacria for dry eye, and AzaSite for blepharitis and continued double digit quarterly prescription growth for AzaSite.

Also like many other companies, operating within this current economic environment, we made the necessary changes to reduce expenses and extend our capital resources for 2009 and beyond. As previously announced during the first quarter, we eliminated early preclinical discovery research programs and associated headcount. We made this decision in order to focus our resources on our marketed products and our late stage development program which could generate value for the company upon potential FDA approval.

I would now like to provide you with an update on our clinical development programs and will be giving brief updates on denufosol, Prolacria and glaucoma programs, focusing largely on enrollment in the current clinical trial and upcoming scientific presentation. And this morning, we will be spending majority of the time describing our recently initiated Phase II blepharitis program for AzaSite. So I will begin with denufosol.

Today, I would like to report that we are making progress on several fronts in this program. We are continuing enrollment in the Tiger II trial, which is our second Phase III trial with denufosol for CF and currently have approximately 285 patients enrolled out of our targeted 450. We have added Australian and New Zealand sites which have now begun enrollment, and we continue to expect enrollment in Tiger II to be completed by the end of this year which results to follow after the 48 week treatment period.

Our clinical team is continuing to work with key opinion leaders to present data from the Tiger I trial, our first Phase III study of denufosol at important scientific medical meetings this summer in an effort to educate broader clinician bases both in the US and abroad. Dr. Rick Moss of Stanford University will present Tiger I data in an oral poster presentation at the American Thoracic Society or ATS meeting in San Diego on Sunday, May 17.And there will be two presentations at the European TS society meeting in June in France.

Regarding the ongoing inhalation carcinogencity study in rodents, we are on track to receive a final study report in the second half of this year as this toxicology study has now been completed. In terms of our partnering discussion for denufosol, we continue to work towards securing an ex-North American corporate partner for this program. But as you may have heard from other companies, the partnering dynamics has changed in the current economic environment with negotiations frequently becoming more protracted. This trend has been influenced by a number of factors including consolidation in our industry, liquidity and credit issues and cost of capital concerns facing many companies.

Our goal is to get the right partner for the program and achieve the best outcome for our stockholders. We will continue to provide updates on the progress in this initiative as appropriate. As a final note, the denufosol program which recently featured in the New Yorker in an article written by Harvard Medical School professor Dr. Jerry Groopman about advances in CF research.

I would now like to provide you with a brief update on the progress of our Phase III clinical trial with Prolacria for dry eye disease. Enrollment in this trial has been going very well since initiated in January of this year and we currently have approximately 215 patients enrolled out of our target of 450. While we are encouraged by this initial enrollment rate, we cannot yet predict that this rate will continue given that we are targeting a more specific group of patients with severe central corneal staining scores, which is different from our previously conducted trial. Therefore we will continue to provide enrollment updates at our subsequent quarterly call.

Now, I would like to move on to our recently initiated Phase II program with AzaSite for the treatment of blepharitis. As you all know, AzaSite is currently indicated for the treatment of bacterial conjunctivitis or pinkeye. Since the product launch in 2007, we have received extensive feedback from the ophthalmic medical community and conducted research including a series of Phase IV clinical trail and studies conducted by independent investigators, which suggest that AzaSite could potentially be effective in the treatment of blepharitis. Blepharitis is an ocular disease characterized by inflammation of the eyelids, which is often secondary to infection and it involves significant patient discomfort associated with ocular surface inflammation, chronic ocular irritation, unstable tear film and damage to the overall ocular surface.

Our recent market research and input from eye care specialists suggest that blepharitis is both under diagnosed and under treated. We would like to refer you today to a recent publication in a peer review journal called the Ocular Surface. In this journal, survey data has been presented that indicates that ophthalmologists and optometrists report to blepharitis is very commonly seen in their clinical practices, in fact, in 37% and 47% of their patients respectively. Also mentioned in this publication of the Ocular Surface is a separate survey of 5,000 adults in the US, in which approximately 15% reported having one to three symptoms of blepharitis at least half of the time in the past 12 months.

Based on the overall US adult population data, this implies potentially as many as 34 million adults might suffer from some form of blepharitis. Currently, there are no FDA approved prescription products indicated for the treatment of this disease. Patients currently attempt to manage the acute and often chronic effects of blepharitis with the use of warm compresses, lid hygiene, topical antibiotic ointments and when exacerbated, with topical steroids or oral antibiotics. We were pleased to announce earlier this week that we initiated our Phase II program with AzaSite. The goal of this program is to more fully understand its potential in the treatment of blepharitis.

Both of these trials are placebo-controlled and double mapped and each will target enrollment of 300 patients. The trials will evaluate AzaSite's effect on various signs and symptoms of blepharitis as well as safety and tolerability in the patient population over two and four week treatment period. These trials are exploratory in nature and will provide necessary information to determine the best path forward for the program including potential entry criteria, end point size of the trials and other aspects for future registration purposes. We have engaged respected and highly knowledgeable principal investigators for the trial, including Dr. Esen Akpek at Johns Hopkins Wilmer Eye Institute and Dr. Chris Roflano [ph] at Wills Eye Institute [ph]. And we expect to have results from both of these clinical trials in blepharitis in the first half of 2010.

During the past few weeks, Inspire and our collaborators have presented data from the AzaSite Phase IV research at key scientific meetings. In fact, ten posters related to AzaSite research were presented at the Association for Research in Vision and Ophthalmology meeting or ARVO this week and two electronic posters were presented at the American Society for Cataract and Refractive Surgery or ASCRS meeting in April. The data in these posters was based on research funded by Inspire and the posters from both conferences are now available on our website.

I will conclude my remarks today with a very brief update on our glaucoma program. As you know, we have compounds being tested in Phase I proof of concept clinical trial. And today, I would like to report that we have recently completed enrollment in both of these trials and we expect to have the results later this year. In conclusion, for the remainder of 2009, we remain focused on managing our financial resources in order to move our pipeline products forward to build long-term stockholder value.

At this time, I would now like to turn the call to Tom for a financial review.

Tom Staab

Thank you, Christy and good morning. I am pleased to provide you with an overview of our first quarter 2009 financial results. As you have heard, we continue to make progress on building the AzaSite brand in advancing our late stage programs. I would like to take a moment to touch on what I view as the key financial highlights of the quarter, especially as you evaluate our results in a challenging economic environment.

Specifically, there are two areas I would like to touch on. One, significant revenue growth. Inspire continues to post double-digit revenue growth quarter over quarter. Specifically, we have increased aggregate revenue 48% in the first quarter of 2009 as compared to the first quarter of 2008. Furthermore, we increased AzaSite revenue 171% over the first quarter of 2008 and increased prescription volume 10% above the fourth quarter of 2008.

Number two, tight control over operating expenses. We continue to maintain tight control on our operating costs. We understand our financial position and the challenging environment in which we operate. We completed an operational restructuring in the first quarter to conserve cash and focus our R&D resources on those development programs that could provide nearest term ROI to our shareholders. For the quarter ended March 31, 2009, we incurred a net loss of $19.4 million or $6.5 million less than the first quarter of 2008. The smaller net loss is a function of 48% higher revenue and 7% less operating expenses.

When breaking down revenue into its individual components, we recorded $6.2 million in AzaSite revenue in the first quarter of 2009 as compared to $2.3 million in the first quarter of 2008. AzaSite had strong quarterly performance with prescriptions increasing 10% over fourth quarter 2008 levels and is trending to our 2009 expectations given its performance to date. Let me provide you a little more color on the first quarter, especially given the difference in AzaSite revenue and prescription growth from the fourth quarter.

There are two primary reasons for this disparity. First, as mentioned in our year-end call in February, we entered into an agreement with CVS Caremark in the fourth quarter of 2008, whereby CVS began stocking AzaSite in each of its approximately 6,400 member pharmacies, an important accomplishment allowing patients both access and ease to fill their AzaSite prescriptions efficiently. We believe this broader access has and will continue to translate into future prescription growth over time. The CVS initial stocking however resulted in a one-time retail inventory build that resulted in higher AzaSite revenue in the fourth quarter of last year.

The second factor relates to wholesale inventory pipeline and levels. Here, AzaSite wholesale inventory levels decreased approximately 30% as a proportion of weekly prescription volume when comparing the fourth quarter of last year to the first quarter of 2009. With regard to AzaSite’s portion of the single agent ocular antibiotic market, we have successfully increased market share in our target audience of eye care specialists by approximately 1.5% to 8.4% in the first quarter of 2009, comparing IMS data for the last week of the first quarter of 2009 to that of the fourth quarter of 2008.

AzaSite is averaging approximately 3% market share for the first quarter of 2009 as you look at all prescribers. Transitioning the discussion of revenue to co-promotion and royalty revenue, our aggregate co-promotion and royalty revenue was $8.1 million in the first quarter of 2009 as compared to $7.4 million in the first quarter of 2008. Co-promotion and royalty revenue in both periods relate solely to net sales of Restasis, as all Elestat revenue has been deferred into subsequent quarters of the year due to the company's revenue recognition policy for the product.

Restasis continues to be an important revenue stream for the company with Allergan reiterating the previously issued 2009 Restasis revenue guidance of $490 million to $510 million and Inspire is entitled to approximately 7.4% of that revenue stream. As we have previously announced, Allergan and Inspire jointly agreed that the Inspire sales representatives would no longer detail Restasis as of January, 1 2009. This change enables us to focus our commercial resources on AzaSite and Elestat without impacting the Restasis royalty rate.

Moving on to a discussion of Elestat, the product continues to perform to our expectations despite the challenging economy and the general prescription that patients are not as compliant in filling or refilling prescriptions due to the economy. We are optimistic in regards to 2009 annual revenue for Elestat as we head into the spring allergy season, given the solid demand for the product in the first three months of the year and what initially appears to be a stronger allergy season as compared to 2008. As mentioned earlier and consistent with prior years, we continue to follow a revenue recognition policy in which we defer Elestat revenue until annual minimum sales levels are achieved.

Accordingly, we have reported $3.7 million of deferred revenue for Elestat as of the end of the first quarter of 2009 as compared to $3.8 million in the first quarter of 2008. Based upon our expectations for Elestat in three months of actual performance, we expect to recognize all deferred Elestat revenue in subsequent quarters in 2009 commensurate with achieving annual net sales target levels. However, we do not expect to have all deferred revenue recognized until the fourth quarter of 2009. In summary, we are pleased with AzaSite’s continued growth and are pleased with revenue and prescription volumes for all of our products.

Now let's move down the income statement for a discussion of our operating expenses. In the first quarter of 2009, operating expenses decreased to $33 million as compared to $35.6 million incurred in the first quarter of 2008. The decrease is largely associated with the 17% decrease in R&D expenses and a 20% decrease in sales and marketing cost, somewhat offset by an increase in AzaSite cost of sales corresponding with the increase in AzaSite revenue and a $1.9 million restructuring charge whereby we eliminated our preclinical and drug discovery efforts and infrastructure.

You should note that our cost of sales as a percentage of sales has improved considerably due to the significant increase in volume between the two quarters. As mentioned in our February year-end results call, our goal for 2009 is to focus our commercial activities on AzaSite and Elestat and our R&D activities on late stage development programs. We have made a conscious and continuous effort over the last several quarters to reduce overall spending and decrease cash burn. Specifically, R&D spending decreased in the first quarter of 2009 as a result of our discontinuing the epinasty nasal program in April 2008 as well as the discontinuation of earlier preclinical programs and spending.

Our first quarter R&D expenses were heavily focused on denufosol and Prolacria, with approximately three quarters of our total R&D allocated to these programs. However, as the AzaSite blepharitis Phase II clinical trials begin to have more activity, you will see our R&D expenses spread between all three of these key programs. As mentioned in February, we are striving for an appropriate balance between aggressively advancing our commercial and development programs get conserving our cash.

Finally, I would like to spend a moment on our recently completed restructuring which resulted in $1.9 million non-recurring restructuring charge and added approximately $0.03 to our loss per share for the quarter. Our strategic decision to eliminate preclinical and drug discovery work and focus our R&D staff and resources on our later stage programs was the continuation of our initiative to reduce fixed costs and conserve our cash. We expect that the restructuring will allow us to save approximately $3 million in 2009 and approximately $6 million in future years.

Consistent with prior years, we expect the first quarter of 2009 to be the heaviest quarter in respect to operating expenses and cash utilization and expect the latter six months of the year to be lower in respect to these measures due largely to revenue recognition and revenue growth, timing of promotion and development expenses as well as realization of benefits from our restructuring.

Moving on to our balance sheet, we ended the first quarter with $55 million in cash and investments, and working capital of approximately $30 million. Specifically, our cash and investment balances decreased approximately $18 million from December 31, 2008. Based upon results to date and our expected plans, we expect our existing cash and investments to fund our operations through the first quarter of 2010.

In regards to maintaining the company's balance sheet and to provide continuing liquidity to continue our high priority initiatives, we're continuing to work on an ex-North American denufosol partnership and are also exploring other alternatives to bring in additional capital. As you can appreciate, the timing and probability of a capital raised and or denufosol partnership or difficult to predict, and are somewhat interrelated in regards to maintaining a strong balance sheet. Accordingly, we will provide meaningful update as appropriate on these initiatives. We remain confident in our financial position and our ability to fund the various initiatives Christy has outlined today.

In conclusion, I would like to reaffirm our 2009 financial outlook as outlined in our press release issued earlier this morning in which we have reiterated all aspects of the guidance mentioned on our February 27, 2009 conference call.

Now Brandy, we would like to open the call to questions.

Question-and-Answer Session

Operator

Thank you, sir. (Operator instructions) Your first question comes from the line of Liana Moussatos with Wedbush.

Liana Moussatos – Wedbush Morgan

What was the non-cash stock option expense in Q1?

Tom Staab

Liana, I don’t have that number on my – at my fingertips, but typical to historical quarters, we are expecting in our financial guidance to have about $5 million in stock op expense for the year. So it’s roughly $1 million, $1.5 million.

Liana Moussatos – Wedbush Morgan

Okay. And are there going to be anymore restructuring cost for rest of the year or just for Q1?

Tom Staab

Well, obviously the restructuring was a difficult thing that we needed to do, and so we did the majority of the restructuring cost in the first quarter. There are some things with our restructuring activity that will bleed into the second quarter, but it will be effectively immaterial dollars and probably a pretty small charge.

Liana Moussatos – Wedbush Morgan

Okay. And when you were talking about the pattern of expense, you said in the second half it would – expenses would drop and would that be more SG&A, R&D?

Tom Staab

It's going to be a combination of everything. Obviously with AzaSite, the revenue continues to go up so that will reduce the cash burn, but also sales and marketing and promotion expenses generally tend to be the highest in the first quarter particularly with Elestat and the seasonal aspects of that product. But you will see some decreases over the year in both R&D and sales and marketing expense.

Liana Moussatos – Wedbush Morgan

Okay. And you mentioned the wholesale inventory level drop in Q1 this year versus last year, what was that percent and where is inventory level? Can you describe them now?

Tom Staab

Yes, the drop was 30% and that is effectively just taking the weekly run rate for the various months. Generally, what you are seeing that the wholesaler balances which we have the best data on are less than a month, and like I said, they decreased from the fourth quarter to the first quarter. And what you see on the retail side, specifically what the CVS stocking in the fourth quarter is there was a big jump from the third quarter to the fourth quarter, and those levels have based on the knowledge that we have and the information that we have, have essentially been flat between the fourth quarter and the first quarter, which you would expect would be initial CVS stocking.

Liana Moussatos – Wedbush Morgan

Okay. And Christy mentioned that partnering denufosol is protracted due to economic concerns. Are you still in active negotiations? Are you looking for new partners? Can you give us any more color?

Tom Staab

Yes, generally what I can say about the partnership is that we are in negotiations and short of that we are probably not going to provide a whole lot of color because it's not really helpful until we come out and answer a deal and let everybody evaluate what a deal would look like and it is just very hard to predict timing and terms, and probably wouldn't be helpful to do so.

Liana Moussatos – Wedbush Morgan

All right, thank you very much.

Operator

Your next question comes from Jon Stephenson with Summer Street Research.

Jon Stephenson – Summer Street Research Partners

Thanks for taking my question. On the negotiations, if I recall correctly, one of the things that you wanted was some industry expertise pertaining to European regulatory authorities and trying to make sure you understood what they'd require. At what point do you start engaging the EMEA yourself proactively in case these [ph] processes extend beyond what you already are thinking so that you don’t see a meaningful delay in the timeline.

Christy Shaffer

Thank you, Jon. This is Christy. I will address that question. As a matter of fact, we have actually been looking for a while for VP of Regulatory Affairs that has experience a lot globally and we’ve been able to just hire someone actually just started this week, Mark Surfell [ph] who will be – that is one of his assignments is to understand very well the European climate in terms of cystic fibrosis. In part because what we are finding in the partnering discussions that we are having despite the fact that these are very good companies is that, they really need our help in terms of thinking through the European strategy and actually strategy beyond even Europe, Latin America et cetera, because from their perspective, we are the experts of the molecule.

And so we will be working closely with the partner even if that was – at whatever point in time. So we believe by having a strong regulatory personnel in place who has extensive background in the EU and has experienced, by the way, orphan diseases, that will be very helpful. We have had preliminary conversations with the EMEA and now that we have him on board, we may continue to have those conversations, but again we got to do those somewhat in concert with the parties that we are talking with as well.

Jon Stephenson – Summer Street Research Partners

And do you have plans to start opening any sites in Europe?

Christy Shaffer

At this point in time, no. We feel very comfortable with Tiger II enrolling in North America and Australia and New Zealand. Obviously at some point, particularly when we have a partner in place, it's important to begin to engage the European opinion leaders which are very – who are very, very interested in denufosol, which is why we will be going to the European CF conference. So we don’t – it is unlikely that we would add European sites to Tiger II because it's very well under way. However, there could be smaller studies that would be done in Europe for purposes of sort of engaging the medical community there and if there would be anything else that would be needed.

Jon Stephenson – Summer Street Research Partners

And just lastly on that point, do you think that there would be a need to get European data before approval on the market?

Christy Shaffer

I think that's a question that we have to address when we talk to the regulatory authorities there. But I think it is not necessarily required. It is always nice to have it and its totally very good to have some of the key prescribers in Europe having been involved in this study.

Jon Stephenson – Summer Street Research Partners

Thanks.

Operator

Your next question comes from Eric Varma with Leerink and Swann.

Eric Varma – Leerink Swann & Company

Hi, good morning guys. I have two questions on AzaSite. I was wondering if you could kind of breakdown how much of your revenues are coming from bacterial conjunctivitis versus offsite [ph] blepharitis? And then also, if you would be looking for potentially in the distant future, looking for a partner for AzaSite in blepharitis for marketing purposes?

Christy Shaffer

Tom, do you want to address that question.

Tom Staab

Sure. Thanks for your question Eric. We do have some data that tracks those prescriptions for AzaSite in the various indications. I wouldn't say that we would consider that overly reliable and so I am reluctant to give you that information. And secondly, as far as a partner for blepharitis, obviously we feel pretty confident with our sales force and you never say never and we may or may not, that is one of business development activities that we may consider in the future.

Eric Varma – Leerink Swann & Company

Okay, perfect. Thanks guys.

Operator

(Operator instructions) Your next question is from Ian Sanderson with Cowen & Co.

Ian Sanderson – Cowen & Co.

Good morning. Can you hear me okay?

Christy Shaffer

Yes.

Ian Sanderson – Cowen & Co.

First, could I ask you a question about Restasis royalty financing and if that is an option that has been explored here and if so has there been push back on the uncertainty about the patent life of Restasis. Second, if I could ask for clarification on the AzaSite trade inventory levels and clarify, I missed the previous discussion where we stand now in terms of the trade inventory levels and what the expectations might be for changes in the balance of this year. And then finally for Christy on denufosol, given what we now know about the vertex cystic fibrosis compound and its potential ability to modify the disease, how would you see denufosol being used with that compound on the market?

Christy Shaffer

Okay. Let – Tom will address the first two.

Tom Staab

Sure. On the Restasis in financing, obviously Restasis is a very important asset to the company and is generating a nice stream. So we have and continue to explore opportunities in financing that stream. I wouldn't want to comment on specifics – in any more specifics other than that. In regards to the trade inventory levels, what generally I think you are seeing is based on economic conditions. I think at least the wholesalers are contracting their inventory levels and I think you saw that a little bit in the first quarter. Where that's going to fall out? It's sort of hard to predict. I would expect that we are probably a little short – the wholesalers are a little short right now, especially with the product increasing prescriptions pretty nicely. And on the retail side of things, although our data is not as pristine as on the wholesaler side, I would think that that's probably at a steady-state.

Ian Sanderson – Cowen & Co.

Okay, thanks.

Christy Shaffer

Okay. This is Christy. Regarding the question relating to the vertex compounds and I'm not sure if you are referring to the potentiator or the corrector, because they have two different molecules that they are studying.

Ian Sanderson – Cowen & Co.

(inaudible).

Christy Shaffer

Excuse me?

Ian Sanderson – Cowen & Co.

I think it was the latter that I was referring to.

Christy Shaffer

Okay. And so I think that the vertex technology is very interesting, it's relatively early still and the trials that they have largely done have been focused on a fairly narrow population of CF patients with a specific mutation, I think the G551 mutation. Obviously the trials that we have done have not restricted patients with specific mutations and so we are focused on the broader CF population. So I think time will tell, but I think what’s great to CF patients in the current environment is that more companies than ever are now beginning to look at CF product opportunities, look at various different targets and for the last decade, these patients have only had really two treatment options, pulmazine and antibiotics. And with other companies beginning more interested in the target, hopefully we will eventually have a number of products on the market that will enable physicians to treat all aspects of the disease, some of these will be used in concerts and obviously hopefully patients with cystic fibrosis will live a much more normal life than rather than the 37 years that they currently tend to live. Is that sufficient?

Ian Sanderson – Cowen & Co.

Very good. I think the broader question is, do you see any fairly having the ability to modify the disease such that as with symptomatic agents will not be required in combination or do you see this ultimately a combination use disease?

Christy Shaffer

I think for the moment, it’s probably going to be a combination use disease. It may take a number of years, if not a decade, before something very specific could present a number of products from being able to treat the disease. I think you could think of it something like pulmonary hypertension, where a number of different products are used in order to allow patients to have the best outcome.

Ian Sanderson – Cowen & Co.

Thank you.

Operator

Your next question is a follow-up from Jon Stephenson with Summer Street Research. Mr. Stephenson, your line is open.

Jon Stephenson – Summer Street Research Partners

Yes, I was on mute. I was wondering if you could provide us with a number of sites that are enrolling patients in both the two trials.

Christy Shaffer

In the denufosol trial?

Jon Stephenson – Summer Street Research Partners

In that one as well as the Prolacria trial.

Jenny Kobin

Hi, Jon. It’s Jenny. We about 90 in the denufosol Tiger II study that have drug and are able to enroll patients and we have about 50 in the Prolacria study up and going.

Jon Stephenson – Summer Street Research Partners

Okay, great. And then, also – I was curious, just a financial question a tidbit, was the 1.9 million charge included in the operating expense guidance or is that excluded from it?

Tom Staab

It is in the operating guidance.

Jon Stephenson – Summer Street Research Partners

Okay, great. Thanks.

Operator

At this time, there are no further questions. I will now turn the call back over to Ms. Shaffer for concluding remarks.

Christy Shaffer

Well, thank you very much for your continued interest in the company and your participation on the call today. We certainly see many opportunities for future value creation here at Inspire over the next several years, including multiple potentialproduct approvals and launches, and we look forward to updating you on our progress throughout the year. I hope you all had a great day.

Operator

Thank you for participating in today's Inspire Pharmaceuticals conference call. You may now disconnect.

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