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InterMune, Inc. (NASDAQ:ITMN)

Q3 2009 Earnings Call

November 5, 2009 4:30 pm ET

Executives

Jim Goff – Senior Director, Corporate Communications and Investor Relations

Dan Welch – Chairman, Chief Executive Officer, and President

John Hodgman – Chief Financial Officer

Bill Bradford – Senior Vice President of Clinical Science and Biometrics

Scott Seiwert – Vice President of Research

Analysts

Brian Abrahams – Oppenheimer & Co.

Maged Shenouda – UBS

Liisa Bayko – JMP Securities

Stephen Willey – Thomas Weisel Partners

Howard Liang – Leerink Swann

Katherine Xu – Wedbush Securities

Adam Cutler – Canaccord Adams

Terence Flynn – Lazard Capital Markets

Eun Yang – Jefferies & Co.

Matt Duffy – BDR Research

Operator

Welcome to InterMune’s third quarter 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 session. (Operator instructions).

Jim Goff of InterMune, you may begin your conference.

Jim Goff

Welcome to the InterMune earnings conference call. This afternoon, we issued a press release that provides details of the company’s financial results for the third quarter and nine months ended September 30, 2009, as well as our 2009 guidance. This press release is available on our website at www.intermune.com.

During the course of this conference call, we will state our beliefs and make projections and other forward-looking statements regarding future events and the future financial performance of InterMune. We wish to caution you that such statements are predictions and expectations, and actual events or results may differ materially.

We refer you to the company's publicly filed SEC disclosure documents for a detailed description of the risk factors affecting our business, especially our prospectus supplement filed with the SEC on February 17, 2009, and our Form 10-K filed with the SEC on March 16, 2009. These documents identify important factors that could cause our actual results to differ materially from our projections and other forward-looking statements. These risk factors include regulatory, revenue, intellectual property, clinical development and other risks relating to our business.

Throughout the call, we will refer to our commercial product, interferon gamma-1b, using its trade name, Actimmune, even when describing investigational uses. We refer you to our website for complete prescribing information for Actimmune.

On the call today are Dan Welch, InterMune's Chairman, Chief Executive Officer, and President; and John Hodgman, our Chief Financial Officer. Dr. Bill Bradford, our Senior Vice President of Clinical Science and Biometrics and Dr. Scott Seiwert, our Vice President of Research, will join us for questions and answers.

During today’s call, we will review our progress in the third quarter and first 9 months of 2009, share our financial results for the three and nine-month periods ending September 30, 2009, and discuss our 2009 financial guidance. We will then open the call to your questions.

I will now turn the call over to Dan Welch.

Dan Welch

Thank you everyone for joining us today. The third quarter and recent weeks have been a period of exceptional progress and accomplishment for our company. An oral presentation focused on the safety profile of pirfenidone was presented at the 2009 European Respiratory Society or ERS Annual Congress in Vienna, Austria, on September 14, 2009. A comprehensive review of the safety data from 4 clinical studies, CAPACITY I, CAPACITY II, RECAP, and a long-term open label study showed that treatment with pirfenidone was safe and generally well tolerated.

As we announced yesterday, we submitted to the US FDA our new drug application or NDA for pirfenidone. After having worked for almost 10 years in the field of idiopathic pulmonary fibrosis or IPF, we are very proud to be the first company to have submitted an NDA for a new medicine for the treatment of patients who suffer from idiopathic pulmonary fibrosis. As for our MAA submission, we remain on track to submit it to the European authorities in the first quarter of 2010, and that’ll be another first.

After having taken the time since early February when we released our topline results to complete comprehensive analyses of our data and solicit an integrated advice from various experts, we believe that our NDA puts forth a very compelling argument for the approval of pirfenidone for the treatment of patients with IPF. This morning, we announced the expansion of InterMune senior commercial leadership team in support of the potential launch of pirfenidone in the US and Europe. We invite you to refer to this morning’s press release for details of their background and experience.

We’re very pleased to have recruited such a high quality team of senior commercial professionals. These additions underscore our commitment to professionally bring pirfenidone to patients should our NDA and/or MAA be granted approval by the regulatory authorities in the US and Europe respectively. Further expansion of InterMune’s commercial infrastructure will be made upon successful outcome of regulatory events related to the NDA and MAA expected next year.

Turning now to our hepatology program, we’re very excited with the progress of our HIV protease inhibitor, InterMune 191, also known as RG7227, for the treatment of patients chronically infected with hepatitis C virus or HCV. Earlier this week at the meeting of the American Association for the Study of the Liver or AASLV, we presented for the first results of the co-administration of full dose twice daily regiments 191 and the nucleoside polymerase inhibitor RG7128 without interferon and without ribavirin in both treatment experienced and treatment naïve HCV patients.

These results were from our study called INFORM. The full dose combination of these two agents administered twice daily without pegylated interferon or ribavirin for 13 days resulted in 88% HCV positive treatment naïve patients achieving HCV RNA levels below the lower limit of quantitation and 63% of patients having HCV RNA levels below the lower limit of detection. The same regimen in so called null responders resulted in 50% of patients with HCV RNA below the limit of quantitation and 25% in patients with undetectable HCV RNA after only 13 days of treatment.

This all oral interferon-free combination showed promising safety and tolerability. Specifically, not treatment-related serious adverse events, dose reductions, or discontinuations were reported in any patient in INFORM I, including the previously reported lower dose cohorts. The most commonly reported adverse events were headache, nausea, diarrhea, and these had a similar incidence to previously reported lower dose cohorts.

In terms of the next steps in INFORM, a Phase II program of multiple studies is moving forward with the first Phase II study beginning next quarter. INFORM II will investigate rapid virologic response or RVR rates delivered by twice daily dosing of RG1728 and InterMune 191 alone, in combination with pegylated interferon alpha 2A, ribavirin, and in combination with both pegylated interferon alpha 2A and ribavirin. This will begin in Q1.

Longer Phase II studies evaluating sustained virologic response or SVR are anticipated to begin in the first half of next year. We’re also very pleased that InterMune 191 has advanced into Phase IIb in combination with SOC. Phase IIb trial is studying both 12-week and 24-week treatment durations. The first patient in this study was enrolled in August in the Phase IIb study of 191 in combination with pegylated interferon and ribavirin—the current standard of care in HCV. To date, approximately 165 patients have been enrolled.

A Phase Ib multiple ascending dose study was initiated in the third quarter of 2009 to evaluate once daily and twice daily InterMune 191 co-administered with low-dose ritonavir in combination with standard dose pegylated interferon and ribavirin in HCV infected patients. Ritonavir is an antiviral compound commonly used at low doses to enhance or boost the pharmacokinetic profiles of protease inhibitors. Potential product and patient benefits of Ritonavir boosting are less frequent administration and/or a lower dose or pill burden for 191 which may enhance the possibility of coformulation with other direct antiviral agents in the future.

In summary, the third quarter and recent weeks were very strong for our two key programs—pirfenidone and InterMune 191, and we look forward to continued progress in the coming months. I’ll now turn the call over to our Chief Financial Officer, John Hodgman, who will review the financial results of our third quarter and the first 9 months of 2009 and will present our 2009 financial guidance.

John Hodgman

I will focus first on our quarterly financial results. Today, we reported a net loss for the third quarter of 2009 of $8.8 million or $0.19 per share compared with a net loss of $14 million or $0.66 per share in the third quarter of 2008. Total revenue in the third quarter of 2009 was $27.3 million compared with total revenue of $23.3 million in the third quarter of 2008. Total revenue in the third quarter of 2009 primarily consisted of revenue from the collaboration with Roche for the development of protease inhibitors including InterMune 191 which totaled $20.8 million in the third quarter of 2009, compared with $15.8 million in the third quarter of 2008.

Third quarter 2009 collaboration revenue included a $20 million milestone payment from Roche associated with the initiation of Phase II clinical trial of InterMune 191 in patients chronically infected with HCV. Collaboration revenue in the third quarter of 2008 included a $15 million development milestone payment from Roche.

Actimmune revenue in the third quarter of 2009 was $6.5 million compared with $7.5 million in the same quarter of 2008, a decrease of approximately 15% reflecting lower off-label physician prescription of Actimmune for the treatment of IPF which we do not promote.

Research and development expenses in the third quarter of 2009 were $20.6 million compared with $25.6 million in the third quarter of 2008, a decrease of approximately 20%, reflecting completion of the CAPACITY clinical trials in early 2009, partially offset by the expenses associated with the RECAP extension study and the preparation of the NDA and MAA for pirfenidone. General and administrative expenses were $9.9 million in the third quarter of 2009 compared with $8.2 million in the same period a year earlier, an increase of approximately 20%, primarily attributed to the costs related to preparation for the potential commercialization of pirfenidone, which is subject to regulatory approvals.

InterMune recorded a non-cash loss of extinguishment of debt of $700,000 in the third quarter of 2009 in connection with the exchange of approximately $3.8 million of our 0.25% convertible senior notes due 2011 held by certain of our debt holders for shares of InterMune common stock. A total of approximately 250,000 shares of common stock was issued in connection with the transaction.

We will now discuss our financial results of the 9 months ended September 30, 2009. The net loss for the period was $87.4 million or $2.00 per share compared with a net loss of $72.7 million or $1.87 per share in the first 9 months of 2008. Total revenue in the first 9 months of 2009 was $42.1 million compared with total revenue of $40.8 million in the same period of 2008, an increase of 3%.

Actimmune revenue totaled $19.6 million in the first 9 months of 2009 compared with $23.3 million of Actimmune revenue in the first 9 months of 2008, a decrease of approximately 16%, reflecting lower off-label sales of Actimmune for the treatment of IPF, which InterMune does not promote. Revenue from the collaboration with Roche was $22.5 million in the first nine months of 2009, unchanged from the same period of 2008, an increase of 3%.

Actimmune revenue totaled $19.6 million in the first 9 months of 2009 compared with $23.3 million of Actimmune revenue in the first 9 months of 2008, a decrease of approximately 16%, reflecting lower off-label sales of Actimmune for the treatment of IPF, which InterMune does not promote. Revenue from the collaboration with Roche was $22.5 million in the first nine months of 2009, compared with $17.5 million in the same period of 2008.

Collaboration revenue in the first 9 months of 2009 included a $20 million milestone payment from Roche in connection with the start of Phase IIb clinical trial program of InterMune 191 which was initiated in August. Collaboration revenue in the first nine months of 2008 included a $15 million development milestone payment received in the third quarter of 2008.

R&D expenses were $68 million in the first nine months of 2009, a 13% decrease compared to $78 million in the same period of 2008. This decrease in R&D expense was primarily due to the completion of the Phase III CAPACITY program in early 2009, partially offset by increased expenses associated with the RECAP, a pirfenidone study, the INFORM I and Phase II study with InterMune 191, and the preparation of the NDA and MAA for pirfenidone.

G&A expenses of $26.9 million in the first nine months of 2009 were approximately 19% higher than the $22.7 million in the first none months of 2008, primarily reflecting costs related to preparation for the potential commercialization of pirfenidone which is subject to regulatory approvals.

Expenses in the first 9 months of 2009 included a milestone payment of $13.5 million for pirfenidone made to Marnac/KDL in accordance with the pirfenidone purchase agreement and InterMune’s decision to submit NDA and MAA filings for pirfenidone.

On January 1, 2009, the company adopted guidance in the debt topic of Financial Accounting Standards Board Accounting Standards Codification formerly FASB Staff Position APB 14-1 accounting for convertible debt instruments that may be settled in cash upon conversion, including partial cash settlement and recorded additional interest expense for the third quarter of 2009 of $1 million and $3.7 million for the first 9 months of 2009.

This guidance requires retrospective application upon adoption. Therefore, net losses attributable to InterMune for the third quarter and first 9 months of 2008 have been adjusted from those that were previously reported to reflect additional interest expense of $1.5 million and $6.0 million respectively.

As of September 30, 2009, InterMune had cash, cash equivalents, and available-for-sale securities of approximately $139.7 million compared with $154.7 million as of December 31, 2008.

Turning now to our 2009 financial guidance, which is updated from our guidance initially provided on February 26, 2009 as to revenues, 2009 revenue including Actimmune and anticipated milestone payments from Roche is expected to be in the range of approximately $45 million to $50 million. Actimmune revenue represents 50% of this revenue range.

R&D expense is anticipated to be in a range of approximately $90 million to $100 million, net of development cost reimbursements under the Roche collaboration. Of this amount, approximately 60% is attributable to pirfenidone which includes expenses for CAPACITY, RECAP, the preparation and support of NDA and MAA submissions as well as manufacturing.

Approximately 35% of the R&D expense is attributed to the company's one-third share of all development expenses incurred by the collaboration with Roche on ITMN-191. The balance of 2009 R&D expense is related to the advancement of a named pirfenidone analog compound, ITMN-520, toward an expected IND filing in 2010.

G&A expense is anticipated to be in a range of approximately $35 million to $40 million. The G&A guidance range includes approximately $5 million of various pirfenidone pre-launch costs.

That concludes the report of financial results and our 2009 guidance, and we are now ready to answer questions. I will remind you that Bill Bradford and Scott Seiwert are here to respond to your questions as well.

Operator, please open the line for questions.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from Brian Abrahams from Oppenheimer and Company.

Brian Abrahams – Oppenheimer & Co.

Taking a step back in the hep C space, obviously INFORM I looks very promising. It seems like there’s probably going to be a lot of others who are going to follow your lead and develop STAT-C combos, so beyond being one of the furthest along with such paradigm, how should we be thinking about in terms of what could be the most differentiating aspect of the 191-7128 combo compared to other combos that might ultimately also reach the market?

Dan Welch

I’ll have Scott Seiwert handle that question. Others will add to it as we see fit.

Scott Seiwert

We do believe that we are at the cusp of a potentially a very important change in treatment of HCV. One that’s more convenient, one that is more efficacious, and also one that is displaying better safety. There are going to be many players that would like to get into the space. We’re very happy with the combination that we’re advancing in collaboration with our partners, Roche and Pharmasset, and I think to the point of your question that a combination of a nucleotide inhibitor of the polymerase and the protease of HCV is particularly attractive to us. The nucleoside in particular displays a high genetic barrier which we believe will be crucial to provide a resistance barrier that will provide a narrow escape as we use directed anti-virals against the virus and the absence of interferon. So combined with the safety profile of the compounds as now have been demonstrated in numerous clinical studies, we believe that the efficacy, the barrier to resistance, and the safety together combine to make this a particularly attractive combination, and one that we know the most about relative to these other potentials.

Brian Abrahams – Oppenheimer & Co.

Anytime timeline for the results of the ritonavir combo study?

Dan Welch

No we haven’t disclosed that Brian.

Operator

Your next question comes from the line of Terence Flynn – Lazard Capital Markets.

Terence Flynn – Lazard Capital Markets

On the NDA for pirfenidone, I was wondering if you can confirm if you requested priority review?

Dan Welch

Yes, we have.

Terence Flynn – Lazard Capital Markets

And when might you expect to hear back from FDA if they’ve accepted it for priority review?

Dan Welch

Sometime between yesterday and 60 days from there. It could be on the 60th day. It could sometime in between. That’s obviously up to the FDA.

Terence Flynn – Lazard Capital Markets

And you’ll provide an update at the point that you hear to the street?

Dan Welch

Yes, that would be material information. We would timely make a disclosure as to FDA’s determination.

Terence Flynn – Lazard Capital Markets

On INFORM, I was wondering when you guys might have 24-week data in the clinic with 191 and what that means for duration of treatment in the INFORM series of trials, if you think that’s potentially a gating factor or how are you thinking about that?

Dan Welch

We haven’t gone as far as that to give any kind of texture around 12 or 24-week data as it relates to subsequent INFORM studies and to what extent the Phase IIb triple combo interacts with the INFORM study. Our plan is to update you at a later time.

Operator

Your next question comes from the line of Eun Yang – Jefferies & Co.

Eun Yang – Jefferies & Co.

I just wanted to ask you, the INFORM II and the longer duration INFORM studies that Roche is planning, are they going to be run in the US or outside the US?

Dan Welch

As to the studies that we and Roche and Pharmasset are planning together, we haven’t given a lot of definition or color in which territories those would be conducted. We haven’t disclosed that at this time. Our habit usually is to give a little more color once the first patient has been dosed, and we’ll continue to follow that convention.

Eun Yang – Jefferies & Co.

With the recent additions in the leadership position for potential pirfenidone commercialization preparation, should we assume that InterMune is planning to launch the product in the US on its own?

Dan Welch

Yes, absolutely. Our plans have always been to launch pirfenidone without a partner in the US. The members of the leadership that were announced today as well as Barrett McGrath announced a couple of months ago is the right team. We’re very excited to have this leadership on board, and we can certainly handle the launch without a partner in the US without any trouble.

Eun Yang – Jefferies & Co.

On pirfenidone analog 520, can you comment on what are the differences in terms of the characteristics between the analog and pirfenidone?

Scott Seiwert

We presented some date on ITMN-520. It’s a close analog of pirfenidone with design to display higher exposure, specifically a higher overall exposure, AUC, without increasing the maximum concentrations that the body would be subject to, and we believe that this would enhance the therapeutic index of the compound, providing potentially greater efficacy without increasing side effect burden. This compound is in pre-clinical development. It’s in early pre-clinical development at this point, and we hope to tell you more about that compound as it progresses.

Operator

Your next question comes from the line of Matt Duffy – BDR Research.

Matt Duffy – BDR Research

Now that you’ve got the NDA in for pirfenidone, I was wondering if you could comment on the importance of the Shionogi data within the entire context of the data package, and if there are things in there that are maybe more supportive than people might think?

Dan Welch

Sure, Matt. I’ll have Bill Bradford answer that question.

Bill Bradford

It is both customary and expected the NDA really includes the clinically relevant safety and efficacy information that exists, and to that end, really we’ve summarized a significant number of studies including the three adequate well-controlled phase III studies that have been performed, two by InterMune—the CAPACITY I and CAPACITY II studies and then the Shionogi Phase III study. Really the package focus is primarily on the pivotal studies that were performed by InterMune CAPACITY I, CAPACITY II which in and of themselves we believe represent a very nice story. The Shionogi Phase III is a supportive study, and to that end, we have provided appropriate documentation to appropriately develop that piece of the story. We do think it adds substantially to the story. It’s a Phase III study, and there are a lot consistencies between the Shionogi experience and the experience in the CAPACITY program.

Matt Duffy – BDR Research

As you’re moving through the 191 plus standard care studies, what are you looking for in terms of thresholds for efficacy and safety that will tell you and Roche that this is a good product to move along in the PI space? Are you looking for a certain level of SVR or safety or what are you really looking for in terms of advancing this beyond what else is in development?

Dan Welch

Obviously safety is very important. The safety and tolerability profile. We’re exploring 12- and 24-week schedules, so we want to see to what extent that makes a difference in efficacy and/or safety and tolerability. For those of you who were at the SLD Meeting, I think it’s remarkable to see that safety and tolerability with protease inhibitors that are at various stages of development are not free from toxicities, and so safety, we think, in the future will be a more and more important criterion for deciding market share or selection of compounds for care, so safety is very big, and tolerability of course. Efficacy we have not disclosed what a threshold might be for determining what is good or great or less than good. We have of course between us and Roche generally determined what we are looking for, but we have not disclosed that.

Operator

The next question comes from the line of Howard Liang with Leerink Swann.

Howard Liang – Leerink Swann

I have a question related to the appointment announced this morning as well. It includes a head of European operations. I was wondering if we should read anything into it as it relates to your strategy in Europe, whether you’re going along in Europe as well.

Dan Welch

What you should read into it is the way we’re looking at it. We are planning to be ready to launch in the United States should the NDA be approved. Likewise, we’re planning to be ready to bring pirfenidone to patients should the MAA be approved in Europe. The timeline for the MAA is somewhat distant from the NDA. It’s probably around a year later or so. We have announced the appointment of Giacomo di Nepi who has extensive experience in Europe and internationally, and Giacomo is working with us on the planning for an infrastructure in Europe should that become attractive to us. At the same time, we continue to have interested parties that are interested in participating in pirfenidone in Europe. We have new expressions of interest on a regular basis, and we continue to evaluate those interests vis-à-vis participating in Europe alone, so I don’t think you should read anything into that appointment vis-à-vis the general view that should we find a party that is ready to meet our terms for European partnership, we would do that, but if not, we’re prepared to make that entry by ourselves, and we’ll be ready to do it.

Howard Liang – Leerink Swann

I have a question for John related to the convertible debt. I was just wondering if you’re comfortable with holding that debt balance or whether there is any interest in retiring that balance.

John Hodgman

At this point, we’re pretty comfortable, but we’ll continue to monitor it as debt holders approach us.

Howard Liang – Leerink Swann

On ITMN-191, I was wondering what is the longest animal toxicology you’ve done, what is the longest duration of therapy longer term that it can be?

Dan Welch

We’ve already disclosed the longest study that’s been completed for InterMune 191. Preclinical, it’s 6 months’ experience in rats and nine months’ experience in monkey without any remarkable findings, and so those are the studies that I can share that have been completed and that we have disclosed.

Operator

Your next question comes from the line of Katherine Xu – Wedbush Securities.

Katherine Xu – Wedbush Securities

With regard to the RVR data release in the first quarter of 2010 for 181, I’m just wondering on the safety side, do you intend to look at a longer term cut, for example 12 weeks safety to report with that RVR data?

Dan Welch

Beyond RVR data, we haven’t commented on what else might accompany that report.

Katherine Xu – Wedbush Securities

Could you remind us the milestone obligations to Marnac/KDL going forward should outcomes come out of the panels and then eventually approval?

Dan Welch

I’ll have John cover that what we would be obligated to say when the NDA is approved and/or the MAA.

John Hodgman

We owe about $40 million on the agreement with Marnac, and those are approximately equally spread between an NDA approval and an MAA approval.

Operator

The next question comes from the line of Adam Cutler with Canaccord Adams.

Adam Cutler – Canaccord Adams

I was wondering if you can just discuss a little bit any differences that you see in terms of the perspective of the regulatory agencies in the US versus Europe and any implications that may have on your strategy in terms of the NDA you just filed versus the filing that you intent to complete in Europe shortly.

Dan Welch

Yes. Especially since now we have officially begun the conversion or the process I should say with the Food and Drug Administration, I wouldn’t want to prejudice that conversation with any speculation on how we might approach that versus the other. In general, at a very high level, the general concept as to the data and how it’s presented—efficacy, safety, risk/benefit, etc., is generally the same.

Adam Cutler – Canaccord Adams

Maybe to ask you a little bit differently, did you have pre-filing meetings with each agency and did you discuss your intention to include the Shionogi data with both agencies?

Dan Welch

We had a pre-NDA meeting with the FDA back in September, and as to the EMEA, we have had conversations with the regulatory agency at a very high level as to assignment. Those have been assigned. We’re not disclosing the countries or the identities of course. As to the Shionogi phase III data, as Bill mentioned earlier, it is a requirement in an NDA to report all relevant and related clinical studies, and clearly SHIONOGI Phase III is a relevant and related clinical study, and the same would hold true in the MAA, so it would be expected. So it will not be a surprise by any means. In fact, it’s a requirement in both territories to supply these data in the registration packages.

Operator

Your next question comes from the line of Maged Shenouda – UBS.

Maged Shenouda – UBS

Do you have any plans for looking at the combination of 191 plus 7128 with ritonavir?

Scott Seiwert

As you know, we have an ongoing boosted triple combination study, and what we have said is that those data and the implications of those data could be used to rapidly integrated into both the INFORM and our SSC program should the data merit the inclusion of boosting.

Maged Shenouda – UBS

When do you think you would do that? Would it be early next year if you were to move forward in that direction?

Scott Seiwert

We haven’t given any specific guidance around particulars of how that integration would occur, but what we have said is that through scenario planning we’re confident that we could be integrating that approach if warranted without significant material delay to our development programs.

Operator

Your next question comes from the line of Liisa Bayko – JMP Securities.

Liisa Bayko – JMP Securities

As a follow on to that question, is your long-term vision if you are to incorporate ritonavir to do some sort of co-formulation and what would be required to do that?

Dan Welch

On co-formulation, I think it’s a little premature to comment, only because we need to see the complete data and understand the efficacy and safety implications of boosting. For competitive reasons, I think I’d rather not respond to your question directly.

Liisa Bayko – JMP Securities

Just in light of the new hires that you’ve had on the commercial side, can you maybe comment on the kinds of activities you’ll be engaging of the PDUFA for pirfenidone?

Dan Welch

Obviously, there is a massive amount of work that has to take place between now and the PDUFA date for pirfenidone NDA. At a very high level, it’s salesforce planning that has to do with the configuration of the salesforce, numbers, deployment, the management, the operational infrastructure that supports them—that is a whole packet of work that’s quite substantial. In the marketing area, there is a lot of work to be done in terms of marketing research, positioning, branding, messaging, preparation of promotional materials, etc. That’s another packet of work in the managed care side which has to do with pricing reimbursement, access, activities that also are integrated with the marketing group. Those are the biggest baskets of work. There is also another work stream around medical affairs that has to do with continuing medical education and things of that nature. The biggest expense for the commercialization of pirfenidone should it be approved by the agencies would of course be the salesforce which would not be added to our payroll until after the NDA is approved. Likewise, we would not be adding sales management until after a favorable advisory committee. So in this way, we manage prudently additional payroll increases for our company and only add them on at least in these cases sales reps and sales managers upon favorable outcomes of the regulatory review.

Operator

Your next question comes from the line of Stephen Willey – Thomas Weisel Partners.

Stephen Willey – Thomas Weisel Partners

Just thinking about and looking at the Pharmasset pipeline and come of the next gen compounds that come out of there, I was just wondering what kind of efforts you guys are dong right now with respect to your next gen PIs, and you’re obviously kind of married to Roche a little bit on the PI side, so just wondering if there has been any kind of push on their side for you guys to select another candidate to move into the clinic.

Dan Welch

We are working on second generation protease inhibitors. That’s an effort funded by Roche. They and we are interested in developing other protease inhibitors just in anticipation of how we see the market evolving in the future. We have with Roche identified a class of compounds and a compound in particular that is of high interest and is advancing, but we’ve not disclosed any detail on that in terms of its characteristics or in terms of its timing, but it’s a very active effort, as I said, funded by Roche, and they’re very interested of course in developing other agents in anticipation of how we see the market evolving in HCV. We also have our own effort in HCV—small molecules that are outside of the Roche agreement at early stages, pre-clinical stages.

Stephen Willey – Thomas Weisel Partners

Was it a nucleoside that you had mentioned at the EASEL conference?

Dan Welch

Yes, that’s right.

Stephen Willey – Thomas Weisel Partners

Is there any guidance as to where that is?

Dan Welch

No, only to say that it’s at the pre-clinical stage, and beyond that we haven’t made any specific comments on that.

Operator

(Operator Instructions) There are no further questions at this time. I’ll turn the call back over to the presenter.

Dan Welch

We’re very pleased with our progress, and we’re very focused on the very many important and exciting milestones in our future here at InterMune. We thank you for joining us today, and we look forward to our next regularly scheduled call to discuss year end 2009 financial results and the progress we expect to have made by that time.

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