Dendreon Corp. (DNDN) Bank of America Merrill Lynch 2013 Healthcare Conference Call May 14, 2013 4:40 PM ET
Executives
Greg Schiffman – Chief Financial Officer
Analysts
Rachel Mcminn – Bank of America Merrill Lynch
Rachel Mcminn – Bank of America Merrill Lynch
My name is Rachel Mcminn. I am one of the biotechnology analysts here at Bank of America Merrill Lynch. Thanks, very much for coming to Las Vegas for another Annual Healthcare Conference. It’s my pleasure to introduce our next speaker, Greg Schiffman, CFO of Dendreon. I am looking forward for the update, thanks.
Greg Schiffman
Thanks, Rachel, and we’d like to thank Rachel and BofA for inviting us to their conference. I want to remind you that this presentation does include forward-looking statements that are subject to risks and uncertainties defined more about Dendreon’s specific risks and uncertainties. We recommend you reference our SEC filings.
And so, Q1 was certainly a challenging quarter for the company. Despite the challenging Q1 that we saw, we did see improvement in enrollments which are basically the orders coming on board for products ahead of treating patients, began midway through the first quarter.
We continue to see enrollments maintaining a much better profile. Large accounts actually grew 15% in Q1, and so that’s sequential on top of Q4 growth. So, in light of all the competitive dynamics that took place in the fourth quarter, we still saw good growth in the largest accounts. That’s been the area that we have focused and actually one of the areas that we do think it’s going to continue to drive revenue growth throughout this year.
We define large accounts as those accounts that have sort of a $1 million runrate within PROVENGE on an annual basis. If we look at April, April was the strongest month of the year for new account enrollments and monthly sales. We added 20 new accounts in April.
We added 33 in the entire quarter for Q1, and if we look at the urology sector, and the two areas I think we’ve had a lot of focus over the last year has been growing the large accounts and a focus on in growing the urology (inaudible) the patients are earlier in the disease treatment continuum.
We saw the highest number of enrollments ever in urology from a company standpoint. So, we are seeing good growth in the urology sector there. Q1, we saw competitive dynamics that impacted predominantly small and low volume accounts.
Those accounts that are treating the patient on average, maybe, once every two to four months, and we saw several of them go to zero in the first quarter. We’ve seen several of those small accounts start to return actually booking revenues in April, and if we looked at enrollments in February and March for patients that are not yet treated, see several more of them coming back on.
And so, we did see an impact there. It’s probably the one where you are most susceptible, one in the PROVENGE. It is a different form of product in terms of from a physician; it’s very easy, if you run the process routinely.
But if you do it every four months or so, every three months, it risks reinventing a wheel. Orally available alternatives are one that you are competing with there, and there is an ease if you are doing extremely low volume.
The other area that we saw the impact, and I think some more was in post-chemo. These are patients that are not ideal patients for PROVENGE, but they were meaningful revenue for the company. We’ve seen post-chemo patients based upon our estimates not inconsistent with what we saw in a clinical trial, which is 15% to 20% of the patient base.
With the approval of Xtandi, these patients would have failed ZYTIGA, would have failed chemo; PROVENGE was the only alternative and you really are offering a hope for the patient.
These are patients where PROVENGE, we know, that the benefit they are going to get isn’t as great, they are very far advanced. If we look at the quartile data, we’ll show later, it’s clearly they wouldn’t seen the same benefit. Xtandi does drop the PSA, it gives a greater sense of hope, and I think that there are areas there that long-term we did expect to see some competitive dynamics there.
The important is that we can grow the earlier stage and grow that in the large accounts like we are seeing. We do believe that Q2 will be a step-up into the mid $70 million range.
This is based on April actual bookings and current enrollment trends, and we are looking for growth throughout the year, and Q4 we are expecting would be the strongest quarter of the year. If we look at the prostate cancer market, and this is probably one everybody here is pretty familiar with.
I mean, it is fairly – it is the most, second most common cancer in men. 30,000 to 35,000 cases diagnosed each year, and that’s pretty consistent with what you see in terms of the morbidity rate. You see higher incidence in African American males compared to Caucasian males.
There is a significant unmet need for men that develop metastatic castrate-resistant disease, and we are starting to see for the first time new products coming into this space. It’s a real good time of optimism.
If you are a patient and if you are a physician, it’s an exciting time, it does create some volatility, and we’ve seen some of that volatility. You are starting to see how these drugs are going to sequence and work together.
It’s an area that we do see PROVENGE as unique relative to the other therapies or is it not a systemic therapy. It’s a 30-day course of therapy, completes over a short window but has a very long term benefit that brings to the patients. Its mechanism of action is best and potentially complementary with other products that are coming to the market.
We do see it and we are positioning it certainly as early stage treating the patients, as they start entering into the space and then moving them off into other therapies as appropriate. Our positioning ended AUA this year.
Pleasantly surprised to see the number of podium presentations which were not Dendreon presentations mentioning PROVENGE and mentioning the view that they held this is the product that is important in this space and should be used earlier in the disease continuum.
We think the entire market is benefiting from increased awareness. You are going to see earlier screening, you are going to see patients being treated earlier and I think that’s beneficial for everybody in the space. If you look at the disease continuum in prostate cancer, patients that are diagnosed are going to go in for some form of primary therapy, typically the radiation therapy, brachytherapy or surgery.
Majority of patients, about 70%, 75%, of men will be cured at that point. The ones that are not will move on to hormonal therapy, if you live long enough, everybody will eventually fail hormonal therapy and that is where PROVENGE and at this point Zytiga are positioned as frontline therapies for these patients that have failed hormonal therapy and are metastatic.
You’ve got Taxotere also in the space and at this point, you have post-chemo, Jevtana as the second round of chemo, Xtandi and Zytiga.
So we look at positioning PROVENGE early in the disease continuum. We took a look at our pivotal clinical trial. The one that the – so the impact study, the one that was the key trial for approval of PROVENGE and if you look at dividing the patients into quartiles based on PSA using PSA as a surrogate for tumor burden and health of the patient, you can see that about a 134, 25% of the men had PSA of 134 or greater about 25% between 50 and 134, so between 50 and 22, 25% and then less than 22%.
We showed a survival benefit across all of these. Now this is a retrospective study. But you can see the data there, very consistent. And you saw constant improvement as you saw PSA drop, going up to actually 13 month median survival difference with patients with PSA less than 22 and actually based upon the data that we’ve collected.
We believe that probably 70% of the patients that have a PSA of 22 or less are on label for metastatic patients. The goal is to get them screening earlier and treating patients earlier in the disease continuum. We believe PROVENGE brings great benefit and then moving off to any other course of therapy because taking PROVENGE doesn’t preclude any other therapy.
Got three focuses, I think when John came on little over a year ago, we outlined him. I think we’ve been moving through on these, one is, focusing on growing revenue and that’s certainly is the absolute key and I think this is a critical year for the company.
The second was looking at the cost structure and reducing cost structure and COGS and I think we saw some good benefits there in Q1. And finally, looking at expanding the pipeline of data and we’ll quickly go through what we are doing in those three areas.
So in terms of increasing utilization of PROVENGE, over the last year, we put very targeted efforts to grow the urology community. We put in key account managers to focus in on the large accounts there.
These are not sales reps, but actually servicing both the back-office needs from the (inaudible) down to the back-office and what’s involved in putting in an operation like PROVENGE.
It’s not challenging, but it is different than an oral pill. We enhance the messaging and the sales tools to make them specific to urology and they’ve been working with patient identification tools and we’ve seen urology business grow substantially over the last year.
As we indicated in Q2, again we are seeing very strong growth there. We started applying that strategy to the oncology to really focus in on some of the large accounts as well as some of the larger academic centers. It’s an area that we are expecting to see yield benefit in the first half of this year.
We showed continued improvement in the reimbursement landscape for physicians. It’s an area where we’ve had focus. We reported average time to payments as we look at it, it remains less than 30 days and if we looked at private pay, the vast majority of all private pay has now aligned their payment policies to the NCD that we have in Medicare.
We don’t hear any issues from physicians at this point in time with regards to concerns around reimbursement. It is going very smooth. The focus is growing the large existing accounts and we are starting to see those efforts or benefits pay off as we indicated in Q1, even with the competitive dynamics that happened in the fourth quarter.
We grew those accounts 15% quarter-on-quarter. It’s one of the reasons we are expecting to be able to grow to the mid-70s this quarter is actually the growth in the large accounts offsetting a loss that we saw in some of the small and the post-chemo patients.
The focus is increasing patient and caregiver awareness and we’ve got a couple of activities there, PROPEL, which was the patient education series and then direct-to-consumer advertising that started middle of last quarter and we’ll talk a little bit more about that.
We do think that there is a significant need for patient education and awareness. So we’ve done market research here. We think we identified an opportunity. When patients come in asking about PROVENGE and they are well informed patients, we see an incredibly strong connect rate to that patient ending upon the drug.
When patients have not been exposed to PROVENGE are not educated or familiar with the drug and there is questions between them and the physicians depending on the physician, we see a great connect rate or we can see some of them, because PROVENGE does not affect biomarkers, it isn’t something that you are able to tell the patient after they’ve taken it.
Based upon these markers, tumor shrinkage PSA drop that we know the drug is working. We know that it works broadly. Some of the physicians are not as comfortable when patient pushes back. We think the DTC helps to make well informed patients where we see an incredibly strong connect rate.
It helps in patient identification. We were surprised to see at AUA we already have physicians telling us that they’ve had patients come in based on the ads having run for about a month and a half asking about PROVENGE and looking to get informed. Some of them were candidates some of them were not. We started a national ad campaign. We are doing a very efficient media buy.
We don’t schedule these well in advance, it’s really you are booking a couple of weeks in advance, specific target markets, but buying sort of open space and so you can do this really efficiently and we are spending about $5 million a quarter.
We’ve put in place a complementary relationship marketing campaign around this and as we indicated in the first commercial aired March 7 and if we look at some of the metrics that we’ve been seeing; it’s far surpassed our expectations up to this point. So when we started this campaign we did let people know that the sense that it’s about six months as we started a campaign like this that you expect to really be able to see the material benefits from the revenue.
Patients typically need to see it four to seven times before they reach out for info and we’ve indicated in terms of the metrics that we’ve seen, patients are calling in ahead of what you typically see as benchmark metrics. Our call center volumes, historically call center would be patients calling after they spoken with the physician looking to enroll, go through patient identification, eventually moving on to the product.
We’ve seen volume up doubling from the forecast productions which clearly would have been higher than what we have been experiencing as we did expect to see them grow. 82% of the targeted calls are from the patients themselves and that was the surprise to us because we expected a lot of the calls coming from either the spouse or children that are actively involved in care giving.
We’ve actually seen a majority of these are men actually taking a call to action and directly contacting us. Traffic to the patient website up 55% and when we look at the traffic on the website, we are looking at two key criteria.
One, the amount of time they spend on the site or the level of the engagement with the content and as we look at that, about 40% of the web visits we believe are qualified leads where they are spending a significant time or going through a large amount of the content.
And so we think the DTC is starting to build momentum. The focus is penetrating and getting more in the large accounts. At AUA, talking to one of the regional managers, there were three accounts in Texas that opened up last month, specifically because they have had patients come in, in each of those three accounts asking about PROVENGE.
We had several others come to us. The physicians that you’ve spoke with they’ve not had patients coming in a year and a half asking about it is the change. We do think that it’s having an impact. We think that that’s an impact you’ll start seeing late Q3 in a meaningful fashion.
We have filed in Europe. We are moving forward there. We are expecting a regulatory decision in the second half. We did see a slight delay there and we talked about that in the call that was procedural as they are looking for us to do oral discussions with two different panels and they have scheduled them back-to-back and that they looked at their process.
They need the time between the two panels and so they altered our timeline. But we do expect a regulatory decision in the second half of this year. We do have contract manufacturing that we believe is, we’ve isolated who have been moving forward with there and we are in discussions in a partnering strategy.
The focus is to partner Europe. So if we look at the rest of the world, Japan is certainly an area that we’ve got a lot of interest. Automation is important as we look to expand beyond Europe, because automation actually eliminates the need for the clean room.
It enables you to be able to do this process in any lab environment where you can work in the lament or flow hood and so you don’t need to put in a large operation which is required by clean room.
It enables you to think about being able to do things in a small-scale and a lot of the smaller countries and still be able to service them effectively with the reasonable cost structure. Automation is something we’ll get much better insight as we move through this year.
We are in the process of characterizing data and once we get through that and have discussions with the FDA, share a good sense for regulatory pathway, we believe this is something we’ll be able to move forward with effectively and the goal would be then implementing it next year. So if we look at reducing COGS and the cost structure, we did go through a restructuring. I think we saw a lot of the benefits flowing through in the first quarter.
Our cost of goods sold in an absolute level, we are down $11 million quarter-on-quarter. About $2 million of that would be variable cost, it’s about 15% of our revenue associated with the raw material shipping – through costs that are associated with each product that you make.
We had on that basis then, about $9 million absolute level of reduction in cost associated with the restructuring flowing through and so I think we are starting to see the benefits. We do expect to see cost of goods sold below 50% of forecasted volumes. They are additional savings that we are looking for in the third quarter.
We sold our interest in the Morris Plains facility last year and brought in $43 million cash and preserved 100 jobs. Administrative support cost, we also went through a restructuring there specifically focused on the general and admin. So these would be legal, IT, finance, HR types of functions.
And if we look at SG&A, it was down about $11 million quarter-on-quarter. We do expect to see some additional savings there and on a cash basis, even further then what you’ll see reflected on the face of the P&L.
Finally, the commercial operations. We’ve had a lot of focus there. I think we’ve got a strong team in place. We’ve changed the structure with how we are selling the product. We’ve seen benefits in urology.
We had some impact in our smaller accounts. But we’ll continue to see the growth in the large accounts. We are seeing urology doing well. Those are really the two areas of focus of drive for us and we are looking to get the oncology accounts growing and growing at a better pace, but we been mimicking the sales structure that we put in place for urology into oncology and are hoping to see benefits there as we move forward.
So, restructuring is on track. In total, we were looking to reduce about $150 million annually from our earn rate at the early portion of last year and I think we are on track to achieve that. It affected about 600 full-time and contractor positions who indicated we expect to see COGS at 50% or less beginning in the Q3 period. 77% if we look to Q2 of last year, administrative expenses.
G&A we believe are in line with comparable companies, we are making substantial investments in sales and marketing as we are looking to grow the revenues there. And so we did start to see the benefits here in Q1 and we should see more benefits as we move through the third quarter achieving the full restructuring benefits then.
Cash on hand was $337 million. We do believe that we have sufficient cash on hand to reach profitability. If we look at expanding the pipeline of clinical data, we did present data at AUA that further analyze the impact study, looked at prognostic variables to support earlier administration.
We showed some of the data as we looked at the quartile data breaking it down based on PSA. There is a lot of support based on what everybody has believed, which is the earlier, you use an immunotherapy, the greater the benefit.
We’ve got a lot of clinical activity and investigated initiated trials. Everything from looking at mechanism of action, biomarkers, combination studies and sequencing studies. We’ve completed the enrollment in a sequencing study with Zytiga. Preliminary data has been out.
That data we are showing that you didn’t see any difference in some of the key early biomarkers. There will be more data being released in the second half of this year as we are following those patients for six months after therapy again continuing to look at a lot of the biomarkers there and we expect to start a sequencing study looking at Xtandi this year.
It’s an area where we’ve seen a lot of academic interest and excitement. Many of the physicians are believing anecdotally they are seeing synergy or benefit between the two drugs. Xtandi and all anti-androgens do have a benefit with the immune system, because one of the effects they have is actually enhancing or releasing T-cells.
We use the T-cell-based immune response. And so the question is there a synergy? It’s been a hypothesis there. Clearly going to be looking at a sequencing study and I think there is going to be other studies that are going to be looking to understand how these drugs may interact.
So we’ve got 19 IITs underway and the last study I think that we are excited about is, the PREDICT study which is really looking at when do patients become metastatic. Prostate cancer is a disease that people have not quickly moved forward in treating patients. It’s a slow progressing cancer.
Historically, chemo was the only alternative and you wouldn’t put patients on chemo until after they became symptomatic. And so, early detection hasn’t been a focus. This study is going to be working with urology practices, taking patients who they do not believe are metastatic, scanning them.
If we look at the data from the – study, about 30% of the patients failed enrollment there, because you needed to be non-metatstatic, they felt they were and they were not. It’s going to be tracking prognostic factors to get an idea of.
Are there certain factors that you can use to better identify the patients that would be on label and when do you start seeing them become metastatic, getting data on the public domain hopefully gearing towards earlier screening.
So as we close, looking ahead, we had a challenging Q1. There is no doubt. We are expecting to grow. We expect to start seeing some of the growth and offsetting some of the areas where we saw some competitive dynamics through the large accounts. COGS, when restructuring is complete.
We believe, we will be below the 50% guidance that we’ve given and actually on a pro forma basis, if we look to the COGS consistent with revenue, we would have been in the mid-50s this quarter down from the upper 60s and so we have seen a fairly substantial improvement there.
From a cash flow, we believe we can run the operation for PROVENGE at cash flow positive and net sales of approximately $100 million per quarter. We are leveraging the DTC to accelerate momentum in the larger accounts. We think we are seeing a lot of early indications that are positive but we do need to eventually see the revenue associated with that.
Global expansion, we are on track for the regulatory decision in the second half of this year and expansion in other markets would require the automation which is something we’ll get great insight later this year and share. And then R&D, we are commencing the Xtandi trial. We’ve got 19 IITs and we’ve got the work underway to help better identify early patients and maybe get data out there that starts changing behavioral practice and community practices.
And with that, we can open it up for questions.
Question-and-Answer-Session
Rachel Mcminn – Bank of America Merrill Lynch
Great. I’ll start, but please, if you have any questions, there is a mic in the back that we can pass around. I guess, I wanted start with understanding from a big picture perspective, management’s decision to provide such granular guidance on 2Q and then really even for the year, provide saying 4Q would be strongest and hoping for year-on-year sales growth.
And really I ask it because, in the past year and plus the company had taken a [path] (ph) is not a really good idea, we don’t have great visibility. So, I am just trying to understand what is it that happened in the first quarter that has really given you a better visibility in order to give this guidance that presumably you have strong induction of?
Greg Schiffman
Sure, so, if we look to the guidance, let’s split them into two components. The Q2 guidance, one of them, we did delay our call a fair amount from when we do normally do the call, and the intent of that was to get as much information as possible through the quarter.
And there clearly is always potential for the third month to have trends that are different than what we’ve been seeing, but the sense was we had a lot of competitive dynamics that impacted in the fourth quarter. We started -- we saw a trend shifting in the middle of the first quarter, and we’ve seen trends that we would consider consistent and moving forward, and we don’t see any dynamics or changes.
So, we do believe that those trends are things we can rely on. And so, you would have had complete April down the book, and you are about mid-May when you issue the data. We do not have full visibility, and so it is based upon some of the trends, but we don’t think that there was anything that was showing a disruption to those trends, and that’s why we felt comfortable putting the guidance out.
But it was a later call than we typically would do, and that was one of the reasons why we did it was we felt it was going to be very important to be able to share positive or not what we were seeing with regards to trends because of the Q1 shortfall.
Rachel Mcminn – Bank of America Merrill Lynch
And then, specifically for Q2, I recall, my memory is a little bit fuzzy here, but I recall that AUA and ASCO can be disruptive times because physicians are out of the office, but they are not actually able to come back in. So, when we think about your guidance of mid $70 million in sales, are you assuming a very strong uptick in June? Are you assuming kind of flattish sales as what you are seeing for April and May?
Greg Schiffman
So, we were not assuming any large upticks. So, this isn’t sort of a hockey stick approach. I think it was -- we had a very solid April. We have trends in board that we are indicating you are on track for something in the mid 70s, but it isn’t assuming a radical departure from what we’ve been seeing.
And so, from that, it’s something that we felt, there is always a risk to anything there -- it’s the one that will be great to have a systemic therapy where you have a year-and-a-half type of sales because it decreases the volatility month-to-month, but based upon what we are seeing, I think it was a very reasonable guidance to put out.
Rachel Mcminn – Bank of America Merrill Lynch
And have you disclosed April sales specifically?
Greg Schiffman
We have not disclosed April specifically. They were the highest for this year, clearly we are not yet back to Q4 because if we were, our guidance wouldn’t be for the mid 70s, it will be for something in the low 80s, but we’ve seen a very strong recovery if we look at April’s revenues.
Rachel Mcminn – Bank of America Merrill Lynch
And then as we think about the early metrics on DTC, can you, I mean, you’ve obviously seen a stronger uptick in April than what you saw in the first three months of the year, but how much of that can you correlate to DTC in order to support the guidance of 3Q and 4Q being so much stronger?
Greg Schiffman
I don’t think DTC is impacting our current revenues. If there is, I mean you are talking a couple of patients, it is not material. It is, I think, if we look at the early indications, it’s ones that we would be very promising, but I think in the guidance as we’ve talked, that’s why Q3 we do expect to start seeing some benefit probably, and I think John indicated September, because that would be six months after you started of the ads.
And that’s sort of the rule of thumb. It would be great. We can actually say we are seeing true revenues impacting in a meaningful way ahead of that, but that’s the time period you are expecting, and that’s one of the reasons for Q4, now DTC is not something that you are looking at the whole world ahead just with DTC.
And I think a lot of it is the trends that we saw consistently over last year. Large accounts, we’ve talked all through last year had continued to grow, and even in the phase of the new competitive dynamics, it did grow in Q1, up 15%. We are expecting to continue to see large accounts growing throughout the year, and that’s the feedback that we are getting from them.
It’s very positive. I think the smaller accounts, we don’t want to see fall-offs. They are still generating meaningful revenue and they are important to us. But the growth, I think is going to come -- the meaningful growth from the larger accounts, and we’ve seen that dynamic through the year, urology is the second.
Urology all last year was a growing customer segment, and if we looked in April, absolute level, urology had more enrollments which would be an indication of future revenue than we have ever seen in the history of the company.
Rachel Mcminn – Bank of America Merrill Lynch
Well, and I guess, you guys have much more insight into this than we could possibly have, but one of the things I recall from last year is that some of your smallest accounts had grown into your largest accounts, and so it’s a little bit difficult for me to kind of sort of take all that feedback in, because, I guess again when you are compiling guidance, if you are growing one segment, but you are having losses in these other segments that brings the net negative, as a management team, how do you get confidence that even if you are growing your large accounts and you are growing urology, oncology is still a potential offset, so…?
Greg Schiffman
Yeah, there is certainly, there has risk and exposure, and we’ve seen some hits there. And on the other side, the small accounts where we saw a large impact in Q1, a lot of accounts go to zero.
I think we had indicated in April, we saw several of those accounts coming back, and if we look at enrollments that happened in February and March for patients that haven’t been treated yet, we saw a quite a few of those accounts again that have enrolled a patient, and so where they went dormant and essentially zero, we are seeing several of them coming back. And so, from that, we had a really strong impact, and we are probably more susceptible there with a new product launch when you look at the breadth and depth of the sales forces, J&J, Astellas is going to have a greater breadth and a greater contact in some of the smaller accounts that we probably have.
And so, I think it’s an area more susceptible. For some of them, you are more susceptible also just the oral level alternative, and I think there are some that you will lose just because they so infrequently process a patient, that – from there it’s just maintaining the process, it’s not something that they are going to do.
Rachel Mcminn – Bank of America Merrill Lynch
And as we think about competition, if anything it seems like the orals will get increasing use as opposed to it just sort of being a one-time thing. So, is your belief then that the reason why you won’t see continued sort of decline in sales because you would assume that patients will get sequenced after, they will get PROVENGE after the use of the oral?
Greg Schiffman
Well, so, I think we need do look at the orals into accounts, because I think that in some of the small accounts we’ve lost some orals. I don’t think those ones we are necessarily assuming we will see come back. We also know that a penetration in the accounts early on .if we looked at our revenue, and you look at sort of the number of patients, you are very low penetrated. And so, there is a large opportunity to be able to grow and if we look at the data that we hear from the larger accounts, I think both urology and oncology, when they get the patients early in oncology, we see a sequencing story, and in urology, we’ve been hearing from them the intent to use PROVENGE but they didn’t intend to follow it up with one of the orals.
And so, we don’t see the either or in the discussion there as it’s truly a head-to-head competition. We are not a systemic therapy for patients but accounts that have not used PROVENGE, that’s clearly a sales challenge, you need to be able to go in, get them on board in understanding the sequencing story, but I think for accounts that are there, that are reasonable volume, we have not seen them saying, I am going to use the oral, I am waiting on PROVENGE. And I don’t think it would make logical sense if you are thinking of sequencing, you would take that approach.
Rachel Mcminn – Bank of America Merrill Lynch
And then just a big picture on the underwater converts, what I guess you have a small one due next year and then a much larger one in 2016. I think you said in the past, 2016 is kind of a ways off, but any plans further one for next year and any updated thoughts on 2016?
Greg Schiffman
Yeah, the ones next year, I don’t think that that’s one that we would actively be doing anything ahead of them coming due. The 2016 on the other hand I think the discussions we’ve historically had is, you are going to look at that as it is probably going to be dealt with in a couple of bites.
It’s not going to be just a single restructuring of the convert. And I think from that standpoint, there are alternatives that you can look at in terms of potential extending duration as you change the nature, maybe of the convert that you could have some of that would be interested, and you can create a laddering of the two converts, which decreases the amount that you would have to deal with of the – sort of that stuff.
And so, I think that you will see – that’s certainly an area we are looking at and you will see if that’s something we move forward with, I think the intent is, you would see some form of restructuring of a portion of it.
You would see another component that you are going to have to deal with probably at some stage next year late, and then there would be a small amount which you could probably deal with the cash flow assuming that things are moving along the board in the final year.
Rachel Mcminn – Bank of America Merrill Lynch
And then just one final question, obviously, you are working hard to increase sales, if so, for whatever reasons sales are not increased year-on-year by the end of this year going into 2014, you see additional declines. Are there other things you can do on the cost front to – kind of further make things efficient to get to cash flow positive?
Greg Schiffman
Absolutely, and so, one of them that I don’t think we are going through lot of details, because COGS is unrelated to – there are things that you will continue to be able to effect with COGS as you get automation and other efficiencies that flow through.
But when you look at other components in the P&L, I think we’ve always said that, we have an ability to be able to reduce expense rates. We have not made expense reductions in the commercial, because we are investing as part of the launch.
And if you hit a point that the product is at launching and it’s sort of at a steady state, you would look at the level that you spend there. I think we had indicated that our SG&A broke down to about three-fours of that is associated with top-line revenue for everything from patient assistance program, sales, marketing, or other activity, direct-to-consumer, there are areas there that you would be making savings.
The other side of it would be R&D where a lot of that is elective and there are things that we are doing that we think will grow the market opportunity for PROVENGE. We think they make a lot of sense, a lot of these sequencing trials, some of the combination studies, some of the work that’s looking to understand biomarkers, which can help in terms of the uptake of the drug.
You clearly have options in what you spend in R&D and both of those are pretty meaningful in terms of areas that you could have savings if it turned out that the revenue is not growing, which clearly is not our expectation, but it is a possibility.
Rachel Mcminn – Bank of America Merrill Lynch
Great. All right. Well, are over time. Thank you so much.
Greg Schiffman
Thank you
Rachel Mcminn – Bank of America Merrill Lynch
All right.
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