Amylin Pharmaceuticals, Inc. Q4 2009 Earnings Call Transcript

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 |  About: Bristol-Myers Squibb Company (BMY)
by: SA Transcripts

Amylin Pharmaceuticals, Inc. (AMLN) Q4 2009 Earnings Call January 27, 2010 5:00 PM ET

Executives

Michael York - Senior Director of IR

Dan Bradbury - President and CEO

Mark Foletta - SVP, Finance and CFO

Vince Mihalik - SVP, Sales and Marketing and CCO

Analysts

Jim Birchenough - Barclays Capital

Steve Harr - Morgan Stanley

Yaron Werber - Citi

Thomas Wei - Jeffries

Davis Bu - Goldman Sachs

Cory Kasimov - JPMorgan

Tom Russo - Baird

Terence Flynn - Lazard Capital Markets

Operator

Good day ladies and gentlemen and welcome to the Q4 2009 Amylin Pharmaceuticals Inc. Earnings Conference Call. My name is Kiang and I will be your operator for today. (Operator Instructions). I would now like to turn your conference to your host for today, Mr. Michael York, Senior Director of Investor Relations. You may proceed.

Michael York

Good afternoon and welcome to Amylin Pharmaceuticals' quarterly update conference call. We have uploaded a presentation to accompany this conference call that provides additional background on the quarter. Today's discussion will contain forward-looking statements that involve risk and uncertainties. These risks and uncertainties are outlined in today's press release, the website presentation and in our recent filings with the Securities and Exchange Commission. Our actual results could differ materially from what is discussed on today's call.

Let me introduce the other members of the Amylin management team here today, Daniel Bradbury, President and Chief Executive Officer, Mark Foletta, Senior Vice President, Finance and Chief Financial Officer and Vince Mihalik, Senior Vice President, Sales and Marketing and Chief Commercial Officer. I will now turn the call over to Dan Bradbury.

Dan Bradbury

Thanks, Michael and welcome to our fourth quarter and year-end call. 2010 is a very exciting year for Amylin Pharmaceuticals. We are poised to create significant value for shareholders and the reason for that are threefold. One, we have strategic depth in diabetes. I would remind you that we are the only company in the history of our industry to have ever launched two new first in class products for the treatment of diabetes and as a result, we have established relationships with key influences and stakeholders and also have established broad formulary access.

Two, the diabetes epidemic is large and growing and we have the opportunity to help patients affected by the epidemic with exenatide once weekly which we intend to launch this year. And three, while we have resourced ourselves to successfully launch exenatide once weekly, we are also committed to a number of global alliances which enable us to move forward with our research and development programs with reduced financial and technical risk. As such, we have a clear path to sustained profitability which I will discuss further in a moment.

Today we will briefly review our progress in 2009 and will then focus on plans for the coming year. Earlier today we released our fourth quarter and full-year operating results for 2009. We continue to see the benefit of the increased operating leverage and improved productivity that have resulted from the deliberate actions we have taken over the past year. This afternoon our comments will build on the press release issued earlier today. In a few moments Mark will provide additional details on the quarter's underlying financial results and comment on our outlook for 2010. Vince will then review our commercial activity for the quarter and highlight our plans for the coming year.

Before we look forward to 2010, let's just take a moment to look back at 2009, a year of very strong execution for Amylin. Last January I announced that we will be focusing on five areas of value creation for shareholders. Those five areas were BYETTA, exenatide once weekly, SYMLIN, our obesity programs and of course, operating results. I will now highlight the progress we made in 2009.

First, with respect to BYETTA, in the fourth quarter we received the approval from the FDA for BYETTA to be used as first line stand alone therapy for patients with Type II Diabetes. Additionally, we received an appropriate label with regards to the safety update. The approval came later than we had initially projected and we were not able to return BYETTA to growth as was planned.

Looking ahead, we fully intend to leverage the first line monotherapy approval to reinforce the value BYETTA brings to people living with Type II Diabetes. Second, we made significant progress on exenatide once weekly, a therapy which we expect will become the first and only agent that provides the power of continuous control for the treatment of Type II Diabetes for a full week with just one dose. We submitted the NDA for exenatide once weekly in May and we continue to execute the clinical superiority program we have for exenatide once weekly called the duration program.

Three duration studies, two, three and five, were completed in 2009, each of which demonstrates a greater glucose control with exenatide once weekly compared to commonly used branded medicines for the treatment of Type II Diabetes. The third area of focus in 2009 was SYMLIN. SYMLIN benefited from the restructuring of our sales force in the third quarter of 2009. We were able to increase our promotional effort behind SYMLIN and as a result we reversed the trend of declining prescriptions and saw total prescriptions grow modestly in the fourth quarter.

Fourth, our obesity programs. At the beginning of last year, I committed to us completing a Phase 2 study of pramlintide/metreleptin and also to completing a Phase 2 study with Davalintide. Both studies were completed on time. But most importantly in 2009, we entered a major international collaboration with Takeda for the development and commercialization of various obesity candidates. We plan to announce our joint path forward with our partner Takeda with our obesity programs by the end of the first half of this year. I would point out that the collaboration with Takeda enables us to advance our obesity programs in an expeditious manner while reducing the financial and technical risk to Amylin.

Finally and importantly, our fifth area of focus was operating results. In 2009, we improved operating cash flow by 57% relative to 2008. In 2010 during which we plan to launch exenatide once weekly, we will continue to focus on operating results and are well positioned to achieve the goal that we set at the beginning of 2009 of sustainable positive operating cash flow by the end of this year. Now as I have said, 2009 was a year of strong execution, and I'd like to take this opportunity to thank all of those at Amylin who helped achieve these results for our shareholders. Indeed, execution in 2009 has set us up well for 2010. As a result, we are in the enviable position of creating significant value for shareholders this year.

Just as I laid out for you five areas of focus for 2009, I will now highlight our areas of focus for 2010. First, we will continue to focus on driving revenue of our existing products BYETTA and SYMLIN, leveraging the new indication for BYETTA and continuing to maximize the benefit of the exenatide one business structure, the new integrated sales force footprints with Lilly and the increased promotional focus on SYMLIN.

Second we intend to successfully launch exenatide once weekly while continuing to execute our clinical superiority strategy. We have the plans and the resources to launch exenatide once weekly, to grow the GLP-1 market, to capture shares from existing brands and to establish exenatide once weekly as the first and only agent that provides the power of continuous control for a full week with just one dose for the treatment of Type II Diabetes.

Third, we plan to achieve positive cash flow from operations by the end of 2010 on a sustainable basis and for the full year of 2011 have positive operating cash flow, enabling us to generate positive GAAP operating results by the end of 2011. And finally, as we focus on long-term value creation for shareholders, we intend to advance our pipeline, specifically making strategic investments to develop new forms of exenatide with our partners Alkermes and Lilly as well as focusing on moving our obesity candidates forward with Takeda and continuing to take advantage of our deep knowledge in peptide research.

Before I get into a more detailed discussion of recent activity, I'll now turn things over to Mark Foletta to review our financial results released earlier today.

Mark Foletta

Thanks, Dan and good afternoon. Today we announced our financial results for the quarter and the year ended December 31st, 2009. Before I discuss our financial results in detail, I want to highlight a change in our accounting for cost sharing payments for research and development expenses under our collaboration agreements.

This is simply an accounting change with no impact on our net reported operating results or the cash flows related to our research spend. Historically, we have reported these cost sharing payments as collaborative revenue. We believe that classifying these payments netted against our research and development expenses provides a more accurate view of our financial results and demonstrates the actual level of Amylin's investment in research and development activities. The financial results I discuss later reflect this accounting change and I refer you to the slides posted on our website for are a reconciliation of the impact of this accounting change on our reported financial results.

As Dan mentioned and we have discussed in previous calls, we are managing the business with operational discipline and are focused on generating sustainable, positive operating cash flow and maintaining a strong cash position. As discussed throughout 2009, we believe the key metric to track our financial progress is non-GAAP operating loss. As a reminder, non-GAAP operating loss is defined as our GAAP operating loss adjusted for noncash items including equity compensation, depreciation and amortization and any one-time item such as restructuring charges.

Non-GAAP operating loss approximates our use of cash for operations before working capital changes as we drive towards our stated goal of sustainable positive operating cash flow by the end of this year and for the full year 2011. This will enable us to generate positive GAAP operating results by the end of 2011. Non-GAAP operating loss in 2009 was $58.7 million, a 57% improvement from a loss of $137.2 million in 2008. This result was an improvement over our most recent guidance of $60 million to $70 million which was a reduction from our early 2009 guidance of a non-GAAP operating loss of $75 million to $100 million.

In 2009, we strived to efficiently manage our business and this focus led us to outperform on this key metric. Total revenues decreased in 2009 to $758.4 million from $769.6 million in 2008 and our gross margins remain strong at 89%. Our operating expenses were $528.9 million in 2009, consisting of $343.8 million of selling, general and administrative expenses and $185.1 million of research and development expenses. This reflects an overall $89 million reduction or 14.4% from 2008 expenses. Importantly, we were able to achieve this significant reduction in operating expenses in 2009 while also making focused incremental investments primarily in the fourth quarter of the year to support the planned launch of exenatide once weekly in 2010.

We ended the year in a strong financial position with $668 million in cash and investments, an improvement from our most recent guidance of $550 million to $575 million. Driving this improvement was the $75 million up-front payment we received from Takeda in the fourth quarter as well as our continued financial discipline. We enter 2010 well positioned to execute our plans. For further details regarding our financial results from the fourth quarter of 2009 compared to the fourth quarter of 2008, please refer to the presentation available on our company website.

I'd like now to make a few additional comments regarding the fourth quarter versus the third quarter results. BYETTA sales were down $7.4 million sequentially or 4%, which is consistent with the decline in prescriptions during this period. Vince will speak to this in a moment. Wholesaler inventories at December 31st were comparable to those at September 30th and we believe reflect patient demand. SYMLIN sales were down $1.2 million sequentially.

Selling, general and administrative expenses increased $4 million sequentially from $80.1 million to $84.2 million. The increase reflects promotional activities associated with the recent monotherapy approval for BYETTA and spending to support the planned launch of exenatide once weekly in 2010. As expected, research and development expenses increased by $14.9 million in the fourth quarter from $35.3 million to $50.2 million. The increase primarily reflects incremental development expenses for exenatide once weekly including costs associated with manufacturing readiness at our Ohio facility and to a lesser degree startup costs associated with the EXCEL cardiovascular outcome study.

As a result of focused investments in the fourth quarter to support the planned launch of exenatide once weekly, our non-GAAP operating loss was $17 million for the quarter compared to non-GAAP operating income of $0.6 million last quarter. We expect continued variability in our operating results over the next few quarters as we continue our preparation for the launch of exenatide once weekly.

I would now like to highlight some information regarding key trends and assumptions as we look to 2010. Most importantly, I want you to know that we are focused on driving towards sustainable, positive operating cash flow by the end of this year. We expect our non-GAAP operating loss to further improve in 2010 compared to the loss of $58.7 million in 2009. We plan to exit the year with positive operating cash flow on a sustainable basis, leading to a positive, non-GAAP operating income for 2011 and GAAP operating profit by the end of 2011.

We expect our noncash expenses in 2010 to increase by approximately 20% over $97.7 million in 2009, driven primarily by incremental depreciation expense from our manufacturing facility in Ohio. While non-GAAP operating loss is the key measure for 2010, I will now provide some further quantitative and qualitative guidance to assist you in understanding our expectations for the year. We will earn a $40 million milestone from Lilly upon the launch of exenatide once weekly in the United States, which will be recorded as collaborative revenue.

Additionally, we will amortize the $75 million up-front payment we receive from Takeda in the fourth quarter to revenue over 10 years resulting in $7.5 million of collaborative revenue in 2010. We have built a manufacturing facility for exenatide once weekly that has significant capacity to address expected patient demand. As a result, due to expected excess capacity at the plant, our gross margin for exenatide once weekly will be much lower than BYETTA for several quarters following the launch.

As demand grows for the product and production increases, we will realize economies of scale and drive towards standard biopharmaceutical gross margins. Our gross margins for our in-line products are expected to be consistent with 2009. As we have discussed, we have made significant reductions in our operating expenses since late 2008 allowing us to evolve to a more efficient operating model, enabling us to, one, drive BYETTA and SYMLIN revenue; two, successfully launch exenatide once weekly and three, continue to invest strategically in our pipeline.

I also want to reiterate our continued commitment to focus on driving efficiencies in our business while making appropriate incremental investments to successfully launch exenatide once weekly. We expect our net interest expense to be comparable to the $12.9 million recorded in 2009. With respect to our cash flow, we offer the following additional comments. Capital expenditures, net of reimbursements from Lilly will be significantly lower than the $98 million net expenditures in 2009. 2010 capital expenditures will be principally focused on strategically investing in exenatide life cycle management. We are also assuming that we will repay our secured debt of $94 million in 2010. We expect to finish 2010 with a substantial cash balance with access to an additional $165 million in cash from our line of credit arrangement with Lilly.

To summarize, we are pleased with our solid financial performance in 2009 as it reflects the substantial changes we have made to our operating model. As a reminder, we expect variability in our non-GAAP operating results over the next few quarters as a result of investments in manufacturing activities and market development to ensure a successful launch for exenatide once weekly. With this in mind, I want to reaffirm our commitment to achieving positive operating cash flow on a sustainable basis by the end of 2010. Now I will turn the call over to Vince to review our commercial activities.

Vince Mihalik

Thank you, Mark. The Amylin sales and marketing organization remains focused on our day-to-day business, driving revenue for our current marketed BYETTA and SYMLIN and preparing for the launch of exenatide once weekly. Our fourth quarter results reflect this focus. I'll start with BYETTA. As a reminder, BYETTA is the first FDA approved GLP-1 receptor agonist available on the market. BYETTA occupies a unique place in the treatment of Type II Diabetes by addressing specific unmet needs with the dual benefits of powerful glucose control with potential weight loss.

Sales were down quarter-over-quarter reflecting a 4.4% decrease in prescriptions for the quarter. These results are consistent with our expectations regarding the reorganizations of both the Amylin and Lilly field organizations. While we did not achieve our goal of BYETTA prescription growth in 2009, we believe the label update achieved in the fourth quarter, the new footprint of our field force, the new footprint for Lilly's field force present great opportunities for the brand. While the footprint changes and disruption contributed to the decline of BYETTA, they were necessary. Both Lilly's and our sales force changes were made to better position us for the launch of exenatide once weekly and we believe we will create long-term value for our shareholders.

With the Victoza approval, the monotherapy and safety label updates are important levers for us to reinforce the benefit risk profile of BYETTA. Practically speaking, we can use this information with health care professionals to help them understand the benefits of BYETTA now in a wider variety of patient types. Along with the safety and efficacy profile of BYETTA, we offer a highly favorable level of access with managed care plans and with the approval for monotherapy, we reduced the number of step edits by one third and expect to further reduce the remaining step edits as we move through this year. Additionally we'll continue to maintain 85% tier 2 access for BYETTA in the face of increasing pressure to drive pharmacy budgets down and we will continue to remind patients and physicians of this broad access.

Now let's move on to SYMLIN, the first and only FDA approved Amylin analog. SYMLIN is our wholly owned compound that addresses unmet needs for patients with Type I or Type II diabetes who use meal time insulin. SYMLIN reduces blood glucose fluctuations, improving glucose control and often causing weight loss. The SYMLIN pen which now represents nearly 75% of all new SYMLIN prescriptions grew 5% in Q4 2009 compared to Q3 2009. With our specialty sales model enhanced training on SYMLIN and increased promotional efforts supporting SYMLIN, we were able to reverse the trend of declining prescriptions and saw total prescriptions grow modestly in the fourth quarter. We expect to continue to grow Symlin prescriptions going forward. Additionally, in 2010 I would like to point out that we'll be exploring partnering SYMLIN outside of the United States.

Turning to exenatide once weekly, exenatide once weekly has the potential to become the first and only diabetes therapy that provides the power of continuous control for a full week with just one dose. It certainly also has the potential to set a new standard for the treatment of diabetes. The exenatide one team is continuing in full prelaunch mode and is prepared to commercialize exenatide once weekly in 2010. We have the opportunity to leverage the knowledge that we have gained through the development and commercialization of BYETTA which is a key competitive advantage. We intend to take full advantage of this as we look forward to the launch of exenatide once weekly.

Certainly the most important milestone for Amylin pharmaceuticals in 2010 is our pdufa date for the exenatide once weekly program. So let me briefly review the status of the regulatory review. In July last year the FDA confirmed the filing of the regulatory submission in the 74 day letter. In that letter they did not ask for any additional clinical or preclinical studies. In September of last year we submitted our 120 day safety update where we submitted an integrated exenatide safety database leveraging the clinical experience of exenatide once weekly and the seven years of clinical experience with BYETTA. A number of exenatide once weekly clinical sites have been investigated without issue and late last year the FDA inspected our new manufacturing facility for exenatide once weekly.

As is common with new manufacturing facilities, there were a number of observations which we believe are addressable. The agency is continuing their review of the facility and subject to this ongoing discussion, we expect them to complete their review by the PDUFA date. Dan mentioned the duration series of studies in his earlier remarks. We have demonstrated through this clinical superiority trial program robust efficacy, an acceptable safety and tolerability profile and weekly administration. Now each of these attributes alone would be significant. However, exenatide once weekly brings them all together in one complete package.

The DURATION series of studies is progressing as planned. Recall these studies are designed to demonstrate superior glucose control compared with the leading medicines widely used to treat Type II Diabetes. To date DURATION-1, 2, 3 and 5 have provided exciting results, demonstrating a compelling efficacy with exenatide once weekly against BYETTA, the maximum doses of Actos and Januvia and aggressively titrated Lantus. These results are clear exenatide once weekly's position to be a transformational medicine in the treatment of Type II Diabetes. The data from DURATION-4 are expected in the second half of this year.

Keep in mind that DURATION-4 is ahead to head monotherapy study pitting exenatide once weekly against maximum doses of Actos, Januvia and metformin. Additionally we initiated DURATION-6 with the first patient entering the trial earlier this month. DURATION-6 will examine the efficacy, safety and tolerability of exenatide once weekly head to head with Liraglutide. It's our confidence in the exenatide as a molecule that has enabled us to launch a superiority study for demonstrating an improvement in cardiovascular end points.

I would note that the Exenatide study of Cardiovascular Event Lowering, also known as EXCEL is the first and only cardiovascular outcome study that has been designed for diabetes treatment to show an improvement in cardiovascular outcomes. The protocol is under review by the FDA and it's our intent to have the first patient visit by the end of this quarter. Exenatide is a revolutionary molecule and we intend to continue to strategically invest in it. BYETTA was the first form launched in 2005 and as I've mentioned a number of times, it's our intent to launch exenatide once weekly this year.

Let me close my portion of the remarks by saying that we are encouraged by the momentum we are seeing within our company and our work with the exenatide 1 team, our ongoing collaboration with Lilly and in the marketplace. We believe we have transitioned to a commercial model that is more effective, efficient and customer focused to provide value even as we plan for the launch of exenatide once weekly. Our organization remains dedicated to driving near term revenue performance for BYETTA and for SYMLIN.

I'll now turn the call back over to Dan to discuss additional activities.

Dan Bradbury

Thanks Vince. I'll add just a few more updates before we close. Last quarter we announced a partnership with Takeda to co-develop and commercialize obesity medicines. Now that we have completed the phase 2 studies for pramlintide/metreleptin and Davalintide, we are now jointly reviewing with Takeda the best way forward for these programs and we expect to announce future development plans in the first half of this year. This partnership is a reflection of the ground breaking nature of our approach to drug development. On novel science drew attention last quarter at Obesity 2009, the 27th annual meeting of the obesity society. Data from the phase 2 study of pramlintide/metreleptin, combination treatment clinical program was the subject of a late break oral presentation. Additionally, new preclinical data was presented regarding pramlintide/metreleptin. These findings include new insights into the synergistic weight loss observed with dual hormone combination regimen.

Now to close, in summary, 2010 is a value inflection year for Amylin Pharmaceuticals. Our priorities are straightforward. It is our intention to, one, drive BYETTA and SYMLIN revenue; two, successfully launch exenatide once weekly; three, generate positive cash flow from operations on a sustainable basis by the end of the year and four, advance our development programs and maximize the value of our deep knowledge of peptides. I want to underscore that through the changes we have made over the last 12 months to our business, we continue to deliver improved results and build operating leverage into the business. We have tremendous momentum heading into 2010 and we will continue to focus on executing our business plan and advancing our mission to improve the lives of people with diabetes.

I will now ask the operator to open the lines for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from the line of Jim Birchenough of Barclays Capital. You may proceed.

Jim Birchenough - Barclays Capital

So just quickly, if you make the adjustment for the reimbursement back to Lilly on the R&D line, it seems like under the old method, expenses increased $27 million roughly sequentially. Am I reading that right and is that mainly inventory build for the LAR launch? And then subsequent to that, just wondering what gives you confidence that the issues that FDA raised during their plant's inspection are addressable? Could you maybe give us some additional detail on how minor those may be?

Dan Bradbury

I'm going to pass the first question over to Mark and once Mark's finished with that I'll get back to you on the second. Mark?

Mark Foletta

Actually I think if you restate both of the quarters sequentially, you'll see a $15 million increase in research and development expenses and that reflects manufacturing readiness costs, essentially in Ohio as we prepare for the launch of exenatide once weekly. Importantly, that actually includes some building of prelaunch inventory.

Dan Bradbury

Regarding your second question there, Jim, with regards to the manufacturing facility and readiness, the inspection that I referred to in our comments with regards to the addressability of the FDA's observations, I think it's an internal view that's been taken on that. We do believe that they are addressable and most importantly, we believe they are addressable in a time frame that would not delay the agency completing their review by their PDUFA date. The review I would remind you is ongoing and as such, each day that goes by, there will be new information learned. But at this point we remain confident that the agency will complete their review by the PDUFA date.

Jim Birchenough - Barclays Capital

And Dan if I could follow up on that. Is that to say they are still inspecting the plant or they are out of the plant and you don't expect a further inspection? Just trying to understand the process between now and the PDUFA of what's required. Do they need to re-inspect? Do you need to provide a formal response on how you're going to address those issues? Can you just give us some sense of what happens between now and the PDUFA around that issue?

Dan Bradbury

Yeah, the agency showing a review really has multiple options open to it in terms of how it might address any particular concern or issue that it has and so what I would say to you is that they are continuing their review. They could undertake any particular action that they choose to and that would just be the normal course of business of a review. As I said, our view internally is that their observations are addressable and that we believe that they will be able to satisfy themselves by the time of the completion of the review in time for the PDUFA date.

Operator

Our next question comes from the line of Steve Harr of Morgan Stanley. You may proceed.

Steve Harr - Morgan Stanley

Dan, I just want to follow up on the last series of questions. I guess the negotiation of REMS programs with the FDA has consistently been something that has delayed PDUFA's over the course of the last year or so, for your own BYETTA and monotherapy as well as for Liraglutide and other drugs. If your are confident the FDA will complete its review on time, is that a statement about maybe potentially not needing new REMS versus what's already out there and that's why you're very comfortable or is your statement, more related to the medical side of things?

Dan Bradbury

Hi, Steve. Good afternoon. Thanks for the question. The statement that we expect the agency to complete their review on time is more driven by the fact that when we look at the actions that they have taken since the submission in May last year, all of their actions have been consistent with the agency completing the review on time. As they got the 60 day, the filing was on time, 60 days. The 74 day letter was received on time. We submitted the 120 day update. The inspections that they have undertaken during the review have been in a timely manner that would enable them to complete those reports that would be required for the completion of the review on time. So it's more driven by that. Your observation with respect to REMS programs and the timeliness of the final decision from the agency with regards to an application I think is a good one and I think most people these days have been fairly, it has been common over the last couple of years for the agency to take longer than has been required to actually get to a final decision. However, in our situation it is a line extension and all I can say to you at this point is that everything that they have done with regards to their actions would suggest that they are planning at this point to complete the review on time.

Steve Harr - Morgan Stanley

And just if you could remind us, so the FDA talked in their Q&A about the calcitonin monitoring making them feel more comfortable around liraglutide. You guys have some calcitonin data from your DURATION trial. Can you remind us what you have given the FDA and what that was?

Dan Bradbury

So just a couple of observations. Firstly, you are trying to read through there from the liraglutide review to what might occur with regards to the exenatide review and I just sort of pull you back to the point that exenatide is a very different molecule from liraglutide. The data that we have clinically on exenatide is very extensive, the product having been in clinical study for over ten years and now having been in the market for five years with over a million people exposed and with over 10 million prescriptions written. So I think you need to be a little bit careful about reading through from another product's review to exenatide once weekly, particularly given that exenatide once weekly is a line extension from BYETTA. That having been said Steve, to answer you specifically, we started calcitonin monitoring in our studies at the beginning of 2009 and we are doing it in all of our ongoing studies at this time. We provided the agency in the 120 day update at the beginning of September last year, all the data that we had at that time and we have continued to gather calcitonin data since that time. So we now have an increasing body of data with regards to calcitonin monitoring. However at the time of the 120 day update it was fairly insignificant relative to the very large level of clinical experience that we have with exenatide.

Operator

Our next question comes from the line of Yaron Werber. You may proceed with your question.

Yaron Werber - Citi

First question Mark, I just want to understand the guidance a little bit in terms of what are your expectations. Now we have clarity on Victoza but your guidance essentially has not changed for a while. So you obviously have already baked that into the different permutations that you are essentially projecting but the big unknown is still is when is LAR going to get approved. So can you help us understand a little bit to the extent that you can, what are you baking into your guidance and then I have a follow-up as well?

Dan Bradbury

I will punt it to Mark in a second but I would agree with your observation that we have undertaken multiple different modelings of our potential income statements going forward taking into account the launch of liraglutide. So Mark do you want to add to that?

Mark Foletta

Yeah, let me add to that. I think it is fair to say the key metric that we've been focusing on since early last year as you know is as we manage our business it is improving our measure of operating cash flow which is non-GAAP operating loss. That was $58.7 million in 2009. That improved substantially from the $137 million non-GAAP operating loss in 2008. We said that will continue to improve in 2010 as we drive towards a positive sustainable metric there at the end of this year and for the full year 2011. Obviously, as Dan said, multiple scenarios have been modeled to determine that and we're confident with that guidance. I'll take the follow-up if you'd like.

Yaron Werber - Citi

Well, in case LAR will get approved sometime, let's say in the second half, is that still baked into the guidance?

Mark Foletta

Yeah, absolutely.

Yaron Werber - Citi

It is, great. And then help me understand just a little bit the R&D line.

Dan Bradbury

So Yaron, let me just add to Mark's comment that, yes it is. That is one of the options that we have modeled but I would point out that we remain confident in the submission that we have put in for exenatide once weekly and our expectation is that the agency will complete their review by the March PDUFA date.

Yaron Werber - Citi

So just a quick follow-up R&D question and then a question on the PDUFA. So R&D, could you help us understand a little bit, it sounds like you're already building a lot of inventory. What's a good run rate that we should think of as we start thinking about 2010? Is that 50 million kind of a base and we should build on that?

Mark Foletta

I think the way you should think about that is that we have really made a number of changes to the operating structure as you know over the last 15 months and had a significant reduction both in the SG&A line and the R&D line through the third quarter. We actually saw a ramp-up in the fourth quarter in both of those lines in the R&D line as per an earlier question. It was approximately $15 million. Those are mostly costs, not solely, but primarily costs associated with the manufacturing readiness activities in Ohio and again as I said, a portion of that is prelaunch inventories that we expensed to the R&D line. Importantly, on the other side of approval, the activities in Ohio will largely move from research and development expenses to inventory and ultimately to cost of goods sold. So I think as you think beyond the period of prior to approval you would imagine the R&D coming back more in line to what we saw in the third quarter.

Yaron Werber - Citi

And, I don’t mean to ask so many questions but just maybe one quick one. So we've been getting lots of questions on the March 31st data that Amylin has agreed to send to FDA as per the BYETTA monotherapy approval letter regarding to the Amylin (inaudible) data from the epidemiological studies and then the pancreatitis, pancreatic cancer and thyroid cancer, sort of post marketing commitment. This is of course for BYETTA monotherapy. But help us understand how will that data relate to the actual review of LAR and that’s the last question.

Dan Bradbury

The REMS program associated with the first line monotherapy approval for BYETTA was just that. It was specifically to BYETTA. Our understanding at this point is that this data is not part of the review for exenatide once weekly.

Operator

Our next question comes from the line of Thomas Wei of Jeffries. You may proceed.

Thomas Wei - Jeffries

Thanks. I just wanted to circle back on the guidance. Did you say that in your expectations this year, is regressed as BYETTA franchise?

Dan Bradbury

Hi, Thomas. I'm going to hand that over to Vince.

Vince Mihalik

First when you say that, yes, we have actually been preparing for competition for some time and built into our expectations for the year is growth for BYETTA. Let me say that we're pretty confident that BYETTA will continue to be a widely prescribed treatment option given our extensive post marketing experience as well as our well documented safety profile and as Dan was talking about earlier, there are major differences in molecules and you see those major differences in other classes in the diabetes arena such as the TZD's like Actos, Resulin and Avandia. We also see those differences in GLP-1's when you look in the label differences between Lira and BYETTA given the recent approval of Lira and the label they have. So we are very confident we can continue to grow BYETTA going forward.

Thomas Wei - Jeffries

And just to be clear that that's just BYETTA, not the overall BYETTA franchise including exenatide once weekly?

Vince Mihalik

Oh, no. We are very confident we can go EQW as well, Thomas. I was actually responding to your question thinking you meant BYETTA alone. But, yes, we mean the entire molecule as well. So we're particularly excited about EQW and the particular profile it has and the DURATION series of superiority studies, I think are great evidence to the efficacy that this molecule has.

Dan Bradbury

Just so everybody is aware, EQW is our internal abbreviation for exenatide once weekly.

Thomas Wei - Jeffries

And just to follow-up on Yaron's last question. On the SG&A line, is the right assumption there that we should be expecting a ramp-up over the fourth quarter levels as you invest further in preparing for the once weekly launch?

Dan Bradbury

Yeah, Mark, can you take that?

Mark Foletta

Sure. Thomas, I think the way you should think about that is we increased sequentially by the $4 million. We said that was actually primarily related to the monotherapy approval as we put in materials et cetera related to promoting that. We will see launch-related costs over the next few quarters as we prepare and execute the launch of exenatide once weekly. So, yeah, I think it's fair to assume the modest increases there. And importantly the launch-related costs that we expect to incur, I think you assumed that Eli Lilly will be spending as well. So we will spend our share. They will spend their share.

Thomas Wei - Jeffries

Okay. On the regulatory review for once weekly, can you give us any details around whether or not the FDA has actually told you that a panel would not be necessary for once weekly or is it just that they haven't made any comments at all on a panel?

Dan Bradbury

At this point, Thomas, they have made no comments at all with regards to the need for a panel. I would point out that it would be highly unusual for the agency to specifically state that there is not going to be a panel for us. The agency always reserves the right at any time during a review to ask for a panel.

Thomas Wei - Jeffries

That's very helpful.

Operator

Our next question comes from the line of Davis Bu of Goldman Sachs. You may proceed.

Davis Bu - Goldman Sachs

First question, I was wondering if you could help me understand the implications of the line extension strategy that you're pursuing because I guess on the one hand I hear that you've submitted an integrated safety database for instance and that you have this long safety history with BYETTA but on the other hand I hear you saying that the REMS that was required for the monotherapy label was strictly for BYETTA and has no implications on EQW. So can you help me understand like, how the FDA views BYETTA versus EQW in the context of a line extension strategy?

Dan Bradbury

A couple of things, I guess. First and foremost, I would never be presumptive enough to speak on behalf of the FDA. So let me be really clear here. However, with regards to the line extension strategy, the molecule that is in exenatide once weekly is the same molecule that is in BYETTA. So by definition from a regulatory standpoint, any application of any form of that molecule is considered to be a line extension. As a result, it is important for us to ensure that the agency has full knowledge of all aspects of the study of exenatide in the review. Indeed as part of the 74 day letter that the agency sent us, it was clear that the NDA was accepted as a line extension and important that they also asked us for integrated analysis across the entire exenatide database with regards to safety. So with regards to the REMS, the REMS were specific to the approval associated with the use of BYETTA as first line therapy for the treatment of Type II Diabetes.

And so as a result, it's not actually considered to be part of the review. It's not data that was asked for as part of the submission for exenatide once weekly in our pre-NDA meeting. It's not part of the data that was requested as part of the 74 day letter that we received from the agency during the review. So as such, it's a separate submission that the agency knows that it will be receiving going forward, but it is not considered to be part of the application for exenatide once weekly. Just as there are ongoing clinical studies by the way for exenatide once weekly that the agency is fully aware of and knows that those studies will complete in the future, but they are not considered and they are also studies that have completed subsequent to the submission. They are also not considered to be part of the submission.

Davis Bu - Goldman Sachs

A quick follow-up to that and then one other question if I may. Do I understand correctly that I3 (inaudible) epidemiologic study report is due to the FDA by March 31st. Is that still the time line?

Dan Bradbury

That's correct, yes.

Davis Bu - Goldman Sachs

I guess the second question that I had was on just how you think about pricing, both for BYETTA, whether there's still room there to move, and EQW, especially now that we have Lira on the market. Can you talk about whether Lira changes things and how you think about pricing of these molecules?

Dan Bradbury

I'll ask Vince to comment on that.

Vince Mihalik

Thanks, Davis. First and foremost, we do look carefully at pricing and evaluate the pricing that goes on in the market place at different times and of course it leads us to make decisions about how we want to compete and where we want to compete. We will continue to do that with BYETTA and we'll certainly digest the final pricing when that's available on liraglutide to see how that might reflect on our own pricing. As far as it's related to EQW, we have not stated a position yet on EQW pricing but certainly the prices of all GLP-1 receptors are going to have some impact on the final price that we go into the marketplace with.

Davis Bu - Goldman Sachs

Operator

Our next question comes from the line of Cory Kasimov of JPMorgan. You may proceed.

Cory Kasimov - JPMorgan

First question is based on your conversations with the FDA to date, do you expect that liraglutide black box warning is going to be product specific something that's applied to all long GLP-1's until there is further information on this.

Dan Bradbury

Cory as I've stated a couple of times, the review on exenatide once weekly is ongoing. So at this point it would be inappropriate for me to comment on what the outcome of that review might be. That having been said, I also mentioned earlier in response to one of the caller's questions that you need to be cognizant of the fact that the clinical experience with exenatide, which is a very different molecule from liraglutide is significantly different than the clinical experience with liraglutide and I think at this point I would just say that the review is ongoing and we remain confident in the review being completed on time and that we also believe that we have extensive clinical data on exenatide which will enable us to address questions asked by the agency.

Cory Kasimov - JPMorgan

Okay. And then a question for Vince. Vince, I'm interested in something you just said in your confidence in BYETTA growth in 2010. So I guess what I'm interested is what you're seeing and hearing in the marketplace that lead you to be so confident now in the face of competition when there wasn't much in the way of growth in the last few quarters.

Vince Mihalik

Let me chunk it out into three pieces on how we think we can compete. Brand, I'll say the sales focus and last but not least managed care. On the brand we've already talked about the differences in the molecules and I think that's significant particularly in the differences in the labels as we go out in the marketplace. We welcome the fact that there is going to be increased choices for patients. Not all therapies work for every patient. But I'm also welcoming, I'll call it noise in the marketplace that might help grow the GLP-1 class. So although from a GLP-1 perspective we may lose market share, I think overall it bodes well for growth in the molecule against other diabetes therapies for the whole class.

The second comment I'd like to make on the sales team, we did make a lot of changes in our footprint and Lilly made changes in their footprint. It was important for us to do that to get ready for the launch of EQW but I also think it has us focused on the right doctors at the right time. These are the ones or going to be the ones prescribing new therapies and so from both a defend as well as a compete perspective, I think we're in line very well there.

And last but not least on managed care, we have 85% tier-II access. Since we got the first line monotherapy approval, we have been able to reduce our step edits by one third and our organization will continue to focus on that. But one of the most important things is not only that doctors prescribe BYETTA but that patients can get it and we think the access is crucial and a very important competitive advantage for us.

Cory Kasimov - JPMorgan

A follow-up on that answer from me Vince. There's obviously been a lot of talk about fiscal control in your prepared remarks and a lot of questions on the subject in the Q&A. Just to kind of drill down into this with this reorganized sales force, do you have any expectations you're going to need to re-increase in number of reps you have targeting physicians for launching EQW or are you good as is?

Vince Mihalik

So that's a great question. And I will say that over time we'll get a better feel for that. Out of the box, the endocrinologist and the primarily care physicians who have what I call diabetologist, diabetes focused practices are the most key to the launch of a new drug and we think we're very effectively covered there. Over time you might build to an opportunity for greater primary care coverage but it won't be there immediately. It takes time to build a class. And so we think we're focused in the right way with the sales footprint we have today and last but not least, with Lilly as our partner we have flexibility to change the sale force as we need.

Cory Kasimov - JPMorgan

Okay. Great.

Operator

Our next question comes from the line of Tom Russo of Baird. You may proceed.

Tom Russo - Baird

Good afternoon. Just turning back to an earlier question on label expectations. On your end, can you provide at least a range or an order of magnitude for how much exenatide LAR sales will depend on whether or not it gets a similar black box to Lira?

Dan Bradbury

I do think it would be totally inappropriate for us to comment with regards to that at this point in time. As I said, the review is ongoing and, until such time as we have agreement with the agency on the label, it I think would be inappropriate for us to provide any specific guidance with regards to the range. The outcome as in label negotiations can be fairly significantly variant and I think that's partly what's behind your question. But I would just go back to give you some perspective on this. The key thing from our perspective is that we've been studying this molecule since 1996. As such, we will be driven by the science that we have in terms of agreeing with the agency, the label that we have so that we can ensure the physicians have the best information to select the patients that are most likely to receive the greatest benefit from the product when the product is made available. And so that being our guidance in terms of doing what's right for patients, given the profile that we have for exenatide once weekly to date, we believe that a very significant number of people in the diabetes market will be will qualify for exenatide once weekly use and will benefit significantly from it given the profile that I know you are very well aware of.

Tom Russo - Baird

And then just apologies if you already stated this, but are you at the stage of the advanced (inaudible) discussions at this point with the FDA? I just want to make sure I understood that correctly.

Dan Bradbury

So Tom, again, we don't comment about where we are with regards to the discussions with the agency. I would just reiterate what I said earlier is that given the agency's actions to date, we remain confident that they will complete their review by the PDUFA date which is the 5th of March.

Tom Russo - Baird

Okay, and then last question, how much time will it take from the decision if it's an approval until actually being able to launch the product. And that's the last question. Thanks.

Dan Bradbury

Typically pharmaceutical launches occur within one to two months of the approval and I think that we would find that that would be consistent with exenatide. That's what we are planning with exenatide once weekly.

Operator

Our next question comes from the line of Terence Flynn of Lazard Capital Markets. You may proceed.

Terence Flynn - Lazard Capital Markets

Hi just a question on DURATION-5 first. I was wondering if you can just remind me about the open label extension portion of that trial and how many months of data you have at this point for that?

Dan Bradbury

There actually is no open label extension to DURATION-5. So that study is now completed. We reported it in December and so that study is now wrapped up.

Terence Flynn - Lazard Capital Markets

Okay. And then just one other question. With the approval of liraglutide I think the FDA is requiring [Nova] to develop this MPC registry. I was wondering if you guys have been asked to contribute any resources to the building of that registry given the label update to BYETTA.

Dan Bradbury

We have not been asked to contribute to the building of the liraglutide MPC registry. I would just say that that would be highly unusual given the fact that liraglutide is a completely different molecule that is being marketed by a very different company.

Operator

With no time for further questions, I would now like to turn the call over to Mr. Daniel Bradbury, President and CEO for closing remarks. You may proceed.

Dan Bradbury

Thank you. Now to close, in summary, 2010 is a value inflection year for us here at Amylin Pharmaceuticals. Our priorities are straightforward. It's our intention to, one, drive BYETTA and SYMLIN revenue; to successfully launch exenatide once weekly, generate positive cash flow from operations on a sustainable basis by the end of the year and advance our development programs and maximize the value of our deep knowledge in peptides. I want to underscore that through the leverage that we have built into our business over the last 12 months, that we have the opportunity to have an exceptional year in 2010. Also, our leadership team and I'll finish by saying that our leadership team and the many dedicated employees of Amylin remain focused on building the business today and laying the necessary foundation for success tomorrow. If you have any additional questions regarding the call today, please contact Michael York, the head of our IR team. Thank you.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a great day.

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