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BioCryst Pharmaceuticals, Inc. (NASDAQ:BCRX)

Q4 2009 Earnings Call

February 4, 2010 11:00 am ET

Executives

Robert Bennett - IR

Jon Stonehouse - CEO

Bill Sheridan - CMO

Stuart Grant- CFO

Analysts

Charles Duncan - JMP Securities

Bret Holley - Oppenheimer & Co

Ren Benjamin - Rodman

Steve Byrne - Banc of America/Merrill Lynch

Steve Brozak - WBB Securities, LLC

Michael Smith - Leerink Swann

Charles Duncan - JMP Securities

Don Bennett - Los Angeles City School

Michael Murphy - New World Investor

Operator

Good day, and welcome to today's BioCryst fourth quarter 2009 conference call. Today's call is being recorded. At this time for opening remarks and introduction, I'll turn the call over to Mr. Robert Bennett. Please go ahead, sir.

Robert Bennett

Thank you and good morning. Welcome to BioCryst fourth quarter and full-year 2009 financial results conference call and corporate update. Today's press release and accompanying slides are available on our website at biocryst.com. At this time, all participants are in a listen-only mode. Later we will open up the call for your questions. Instructions for Q&A will be provided at that time.

Joining me today on the call are Jon Stonehouse, our Chief Executive Officer; Bill Sheridan, Chief Medical Officer; and Stuart Grant, Chief Financial Officer.

Before we begin, I'll read a formal statement regarding risk factors associated with today's call. Today's conference call will contain forward-looking statements, including statements regarding future results, unaudited and forward-looking financial information and the company's performance or achievements. These statements are subject to known and unknown risks and uncertainties, which may cause our actual results, performance or achievements to be materially different from any future results performance expressed or implied in this presentation. You should not place undue reliance on the forward-looking statements. For additional information, including important risk factors, please refer to BioCryst's documents filed with the SEC, which can be found on our company website.

This morning Jon Stonehouse will provide an overview of highlights and progress during 2009 and anticipated news flow and events during 2010. And Bill Sheridan will provide a clinical program update and Stuart Grant will conclude with the financial results and a review of our balance sheet and cash use outlook, before we open the call up for Q&A.

With that, I'll turn the call over to Jon.

Jon Stonehouse

Thanks, Rob. Good morning and thanks for joining us today. Over the last year, BioCryst has made substantial progress towards the goal of becoming an enduring successful biopharmaceutical company, where success is measured by moving our drugs to the market. We have transformed BioCryst from a discovery focused company to one with its first, full market approval, product sales revenue and an advanced pipeline that includes an increasing number of late stage clinical development programs.

Here is how we're building the company. Our primary focus is on peramivir approval to treat hospitalized flu patients in the U.S., as a key mid-term value driver. We have broadened our development portfolio by initiating a program for gout, an important and growing disease, where BCX4208 may address an unmet treatment need. The secondary stock offering and stockpiling strengthened our balance sheet and provided a long runway to support investment in your programs. And finally, our peramivir inventory and established partnerships have positioned us well to support any new stockpiling opportunities.

In January, we were excited to report the first-ever approval of a BioCryst discovered drug, our partner Shionogi has already begun the commercial launch of peramivir under the trade name RAPIACTA in Japan for the treatment of influenza. This approval came in advance of our expectations from Phase III data in mid-July to filing in late October to approval and price listing in January. Shionogi and the health authorities in Japan both moved very fast.

The pace of this filing and approval underscores once again the need for an intravenous antiviral for influenza. This approval creates a recurring revenue opportunity for BioCryst in the form of double-digit royalties on net sales, as well as potential commercial milestones up to $95 million. Shionogi estimates that over 10 million Japanese citizens annually are treated with influence antivirals. Shionogi has committed to manufacture around 700,000 doses over the first quarter. The Japanese government has also established a goal to increase its antiviral stockpile to cover up to 50% of its population or about 60 million people, creating an additional opportunity for peramivir in Japan.

Other recent highlights include the Green Cross filing for peramivir approval in South Korea in December. A total of six countries have now approved, ordered, or authorized use of peramivir during this flu season, including a $22.5 million order from the U.S. government.

BioCryst was awarded an additional $77.2 million by HHS to fund the Phase III program of IV peramivir. Enrolment is complete for the forodesine pivotal study in CTCL. And last, but certainly not least, a Phase II study of BCX4208 in patients with gout was initiated. This is a large and important market opportunity with approximately 2.5 to 3 million gout patients in the U.S. alone.

Now I'd like to turn it over to our Chief Medical Officer, Bill Sheridan, who will update you regarding our clinical programs.

Bill Sheridan

Thanks, Jon. In late 2009, we initiated two Phase III studies of i.v. peramivir for patients hospitalized with influence. One study compares standard of care of peramivir, the standard of care for placebo, and it's been conducted primarily outside the United States. Enrollment is underway in this study and we are continuing to make progress in activating the required total number of study sites.

Second Phase III study is being conducted in North America. You can see a once daily dosing of 600 milligram of i.v. peramivir versus 300-milligram peramivir twice daily. We've made good progress in enrollment. We expect Phase II studies to be completed in the first half of 2011. In addition, we are preparing a protocol for an external comparative study that will include influenza patients that get into hospital and non-administered antiviral drugs.

Clinical outcomes data from these patients will be compared to patients treated with i.v. peramivir in our two prospective phase III study. The studying protocol will be finalized after regulatory discussions in the third quarter this year.

As reported in mid-January, that forodesine cutaneous T-cell lymphoma or CTCL pivotal study achieved its protocol specified objective of enrolling 100 late stage CTCL patients. CTCL these patients will be followed for up to six months. Therefore top line data is expected in the second half of 2010.

Additionally, BioCryst is (inaudible) phase II study for forodesine subject with chronic lymphocytic leukemia or CLL, is continuing to move ahead and has enrolled more than half of its target number of patients. We should also see data from this study in the second half of this year. We're very excited about our ongoing Phase II study of BCX4208 in gout patients.

As Jon mentioned, gout is an important and common disease, where new therapies are required. We expect the first part of the study, a randomized, double-blind, placebo-controlled evaluation we haven’t seen three different persons, these are to provide top line data during the second quarter of this year.

Also this year, we plan to start a second Phase II study, evaluating BCX4208 as an add-on or a combination treatment to another medicine. Together, data from these studies will provide a solid basis for the design and the full development program in 2011. This year, we are also very excited to reinitiate investments in our lead preclinical compound. As these programs unfold, we will provide appropriate update.

That concludes our clinical program update, as CFO Stuart Grant will summarize that financial results.

Stuart Grant

Thanks, Bill. I’ll provide some additional color regarding the final results for the recent quarter and for the full year of 2009, give you some details regarding our cash position at year-end, cash used for 2009 and provide an outlook for 2010.

There were three main drivers behind the increase in Q4 revenues; increased collaboration revenue from HHS associated with the ramp up of the peramivir Phase III program, $22.5 million of peramivir product sales for emergency use by the U.S. government, and $7 million milestone payment from Shionogi, triggered by the regulatory filing.

R&D expenses also increased substantially due to the peramivir Phase III program spend and costs associated with the initiation of the 4208 gout study. G&A expenses increased in Q4 because of (inaudible) driven increases in legal and consulting fees. Q4 saw a positive net income of 15.2 million or $0.35 per diluted share. This was primarily driven by the sales of peramivir under the EUA issued earlier this year.

For the full year, the net loss was 46% lower than last year again primarily as a result of margin on those product sales during 2009. The receivables balance increased by $22 million during Q4, a $33.7 million. This is primarily due to higher reimbursement due HHS related to the Phase III development program for peramivir and this will be reimbursed in 2010.

As of December 31, 2009, the company had cash, cash equivalents and investments of $94.3 million, an increase of $31 million from the end of 2008. This increase was primarily due to $45.7 million in proceeds from the secondary offering that closed in November as well peramivir sales under Shionogi milestone payments.

Our original 2009 guidance for cash use was from $30 million to $38 million and as you can see on slide eight or underlying cash use, which excludes cash related to peramivir and manufacturing expense, was within that guidance range. For 2010, we expect our cash burn to be between $25 million and $30 million and this will vary within that range depending on [sales mechanical] outcomes. I conclude the financial update and in closing, Jon will summarize our milestones for 2010.

Jon Stonehouse

Thanks, Stuart. Based on the progress we have made advancing our pipeline in 2009, here are the key events for 2010. Data from both our Phase II monotherapy study and an add-on study BCX4208 in gout, data from our pivotal forodesine in CTCL, data from our Phase II exploratory CLL study for forodesine, potential additional regulatory filings and approvals for peramivir and additional orders and royalty payments on seasonal sales of peramivir outside the U.S. We have accomplished much in the last 12 months, but I believe the best is yet to come.

With that, we will open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions). And we will go first Charles Duncan with JMP Securities.

Charles Duncan - JMP Securities

I had couple of areas that I wanted to ask you about. One is peramivir the other is 4208. On peramivir I'm scratching my head a little bit with regard to the Japanese market opportunity and I am wondering if you can help us understand really the way that peramivir could be used in the seasonal flu setting in Japan and maybe how they arrived at the pricing there?

Jon Stonehouse

Let me take a shot at it and Bill feel free to jump in as well. So the market is a big one and one of the largest in the world. Shionogi has told us that approximately 10 million people receive anti-virals each flu season and given the condensed population in Japan, the fear of infection is really high and therefore there is a lot of treatment. The idea of having an i.v. when the patient goes into the doctor's office a single dose to treat is a real advantageous for Shionogi over the existing therapies, because it works fast. They're in the doctor's office anyway and the healthcare provider knows that they got the full dose of the drug not like a prescription for an oral drug where they may not comply and may not take the full dose. So I think that will have a big impact for Shionogi and the uptake in Japan.

Bill Sheridan

Yeah, I think the other thing what's coming on is the public policy that influenced in Japan. It's quite advanced better than multi prong strategy. They are going to avoid transmission of influenza, treat the patients with systematic, treat them out of hospitals and avoid admission to hospital if it all possible. The pace of enrolment in the Shionogi Phase III program was extremely fast, indicating certainly a willingness of investigator to give a shot of the infusions in the doctor's office without requiring a hospital admission. So there is a strong cultural and public policy framework they use for peramivir in Japan.

Charles Duncan - JMP Securities

So it seems like ours, you could argue that, really it’s two totally different products and therefore pricing scheme, whereas in the hospital you want to capture some of the pharmacoeconomic value of keeping people out of the hospital, but in the outpatient setting you want to just get people to take the drug?

Bill Sheridan

Yeah. I think the quicker people get treated, there is less chance of spread, right. The quicker they get better, less viral shedding. And I think, your earlier question about how did that affect pricing. Clearly, there was a massive premium over existing antivirals and that’s a negotiation between the government and the company. And so the fact that they got a nearly a 100% premium over existing antiviral is a real testament to the value of this drug.

Charles Duncan - JMP Securities

Okay. And then if we could turn to 4208, you said that you’re going to have data this year, do you think that that will be, let’s say it’s good data in terms of efficacy and good data in terms of safety. Do you think that could inform a registrational path?

Bill Sheridan

Let me just speak to that in some detail. I think the challenge for us for BCX4208 in gout is defined in appropriate doses that adequately suppresses uric acid, and the way this drug works is to inhibit the enzymes, purine nucleoside phosphorylase or PNP. We know already from our psoriasis study that there’s a dose response. The question is uric acid in people with normal uric acid levels. The current study that we are enrolling in monotherapy with BCX4208 will give us similar information on what happens to gout patients who start off with high uric acid levels. So that’s quite important and we’ll have that data in Q2.

The next step is to combine 4208 with another uric acid lowering therapy to determine whether there’s an additive or synergistic effect, that will give us the opportunity we hope to use lower doses of BCX4208 to find the sweet spots that limits the effect on lymphocyte, and as you will recall, PNP inhibitors also tend to suppress lymphocytes. That’s something that we’d like to limit in gout patients. So that’s the set of goals, and our objective with those two studies is to have the data in the form of full development program, clinical development plan.

Jon Stonehouse

So remember Charles about a year ago we said that we want to depict the next smart study that we could do with BCX4208 that BioCryst could pay for on its own nickel. And I think we found a great approach. Number one, the market is huge, three million people estimated in the U.S. suffer from gout and it’s growing. The estimates are by the end of the decade, it could be five million. And, there’s still plenty of room as Bill says for new therapies for the treatment of gout patients. So even if you get a sliver of that, the potential market is big. And then as Bill said, we’ve got evidence that mechanistically and in the clinic, the drug drops uric acid levels in a dose dependant way. So we’re real excited about the plan we’ve got in place and as Bill says quickly then getting to the full development plan driving towards registration of this drug.

Charles Duncan - JMP Securities

And then my final question is perhaps for Stuart, and then it is regarding the guidance for cash use, 25 to 30. Is that inclusive of new trials for forodesine, and if not, is your trepidation on planning to spend more money on forodesine because something you’re seeing or just the timelines on the forodesine trials?

Stuart Grant

The guidance we have given Charles, includes a full development program. The one that Bill has talked about for 4208, peramivir always was fully funded by the government and allows us to continue the development of forodesine. So that guidance covers the full range of studies that are currently ongoing, and also lets us restart more work in the preclinical space. So that’s all inclusive in that guidance. The company is in a great financial spot right now. The raise that we did last year and the money from peramivir really puts us in a strong position with our balance sheet that will see us well into the next two to three years. So we’re in a very comfortable position right now with a strong balance sheet, Charles.

Jon Stonehouse

And Charles, this is Jon. I think the other piece is don’t forget that our biggest program is covered by funding from HHS, which makes a big difference in terms of our consumption of cash over the course of the year.

Charles Duncan - JMP Securities

Okay. I’ll hop back in the queue. Thanks for the added color.

Stuart Grant

Thank you.

Operator

And we will take our next question from Bret Holley with Oppenheimer & Co.

Bret Holley - Oppenheimer & Co

Yeah. Hi, thanks for taking the question. Follow-up question on the cash use guidance. So I’m just wondering if that envisions any pandemic stockpiling orders in 2010 either in the U.S. or outside the U.S..

Stuart Grant

No that guidance is completely exclusive of revenue from potential stockpiling. So that’s an important message that we give that we consider that we have funds on the balance sheet to do the development program, as I say, through the next two to three years. Any stockpiling money that came would be upside to that and would provide additional cash to the balance sheet.

Bret Holley - Oppenheimer & Co

Okay. And I’m wondering about actually timing of stockpiling orders in Europe. Now that you have announced the partnership with Merck Serono. How should we think about that?

Jon Stonehouse

So what we’re doing right now is, because we’re not in this frenzy, panic mode of people flooding ICUs in hospitals. We’re having conversations with government authorities around the globe through our partners in determining what mechanisms could be put in place to get the drug into the country and the size of orders, and things like that. Those are the kinds of conversations that we are having, but I will say that because we’re not in the thick of a panic pandemic, it will be more challenging to get orders. So the key is if we see an up-tick in flu that could potentially get things moving faster, and as Stuart says that’s all upside.

Bret Holley - Oppenheimer & Co

Great. And my final question is on the external comparative study for peramivir obviously you haven’t started that. I’m just wondering, are you confident on the timeline there kind of aligning with the ongoing Phase III as far as the start and actually gaining the data from that external comparative study?

Bill Sheridan

Yeah. Thanks for the question. Yes, we’re confident on the timeline there, the nature of the study is to identify patients who have already been admitted to hospital and do a medical chart review to collect the certain information. So this is quite different from enrolling prospective subjects in a clinical trial, we intervened a therapy. There is no intervention here.

Operator

And we’ll take our next question from Ren Benjamin with Rodman.

Ren Benjamin - Rodman

I guess, just a couple of questions. One, regarding sort of the state-of-the-art of stockpiling right now. Can you give us who your best friends as to what the environment is looking like, what if any, with your discussions of HHS, just based on those discussions, what you think is going to happen regarding the total amount of orders that HHS could potentially stockpile and can you us an update as to how much has been drawn down to-date?

Jon Stonehouse

So bunch of questions there, let me try to tackle them one by one. I think the first piece around discussions with governments and HHS as I’d mentioned before, I think governments are taking up a pause right now and trying to figure out what, if anything they should do. I think some experts say, based on previous pandemics there is a potential for another wave this winter or spring. And there are other experts that say, there isn’t any, the proof really will be afterwards when we see if the data didn’t come. So I think governments in general, the one that we are talking to are really trying to think through what do they need and will there be more flu or not. I think that’s the first piece, I forget the other part of your question?

Ren Benjamin - Rodman

Just the amount of peramivir that’s been...

Jon Stonehouse

Oh, that’s been consumed thus far. So there was a report put out by HHS as a part of their I believe 2011 budget request and in that the report said, that they had successfully treated a 1,000 subjects and or over excuse me, over a 1000 subjects thus far. Other data that we’ve got from HHS says that the number of courses consumed is somewhere between 1,500 and 2,000. So clearly some of those are getting 10 days worth of therapy versus five days with the therapy.

Ren Benjamin - Rodman

Okay. Okay. And regarding Shionogi is there any sort of guidance, you had mentioned on the call that they are hoping to manufacture about 700,000 doses for at least the first quarter. I think, you said or maybe it’s every quarter. Is there any guidance you can give us regarding the potential sales?

Jon Stonehouse

Yes, let me tell you what we know and what we don’t know.

Ren Benjamin - Rodman

Okay.

Jon Stonehouse

So what we know is that they can make up to 700,000 courses this quarter. And the rate limiter there is just the manufacturer to bag, they have plenty of APIs. So it’s how quickly can they put it into finished drug, that’s number one. So, post the end of this quarter, they will be able to continue to make more if there is flu, they will be able to continue to meet demand. That’s number one. Number two, we know the selling price, but remember that that our royalty, which we’ve guided between 10 and 20% is based on net sales. So there’ll be some discount to wholesalers that you should expect. But what we don’t know so those are the two pieces of what we do know. What we don’t know is, how much flu there will be in the course of this season and what the uptake will be in comparison to other therapies. We think there is some distinct advantages. But those are two pieces that only time will tell in terms of what the real consumption of peramivir is in Japan.

Ren Benjamin - Rodman

Okay. And I guess just one final question regarding forodesine in CTCL, obviously the landscape is changing yet again. And if there is positive results in the second half of this year, I know that you have an SPA, but can you comment a little bit regarding the changing landscape, will it affect your application? What do you think you may have to do any additional trials?

Bill Sheridan

Yeah, hi, thanks for the question. We don’t believe we’ll need to do any additional trials for approval provided the efficacy and safety balance data in the pivotal study is adequate.

Ren Benjamin - Rodman

And regarding if it is adequate, is this something that is up for partnering discussions here in the U.S., because you’re already partnered abroad, correct?

Jon Stonehouse

That’s right. Mundipharma is our partner Ex-North America. With regard to how we will move it into the market, we’re still in the process of thinking that through and making decisions on that front and no final decisions have been made yet. The key is to get to the data.

Operator

And we’ll go next to Steve Byrne with Banc of America/Merrill Lynch.

Steve Byrne - Banc of America/Merrill Lynch

Steve Byrne with Banc of America/Merrill Lynch

Hi, I was wondering if you could, if you see a relationship between the amount of insulin’s activity and the penetration and use of the H1N1 vaccine as Novartis has recently reported some very robust sales of the vaccine. Do you see a relationship there?

Bill Sheridan

No, not sure. I can fully answer your question. But let me just make a comment. I think that the uptake of influenza vaccine is quite variable from country-to-country. And, in the United States for example, for many years, probably Health Authorities has been trying to educate various high-risk target populations in order to achieve higher vaccine penetration without success. For example nurses are a case in point in the United States. They have quite large influenza vaccine uptake rate. So despite the pandemic, at the moment, it’s not clear whether those uptake rates have been maturely impacted at least in the United States. I think that and what we’re hoping from the public health perspective is that pregnant women, children adolescence and young, which is a different population then one typically targets such as influenza in the elderly in terms of high risk. One would hope that they would have a higher uptake rate, that’s where the influenza has the biggest impact in the pandemic. It remains to be determined.

Steve Byrne - Banc of America/Merrill Lynch

I think one thing is clear though, season after season even with good vaccination programs, so it’s going to be flu and there’s going to be a need for antivirals and for seriously ill in the hospital, an i.v. antiviral is going to be key?

Bill Sheridan

There is a persistent and almost unavoidable problem in terms of being ahead of the next influenza virus. These until it’s dead, you don’t know what type it is. And every year in the United States a group of experts have to get together to decide, which antigen is putting the next vaccine round. And it takes many months to actually produce enough vaccine for campaign. So, if one can envisage that there will be recurring instances of not having enough vaccine for a campaign and the virus is already here. And which is exactly what happened last year.

Steve Byrne - Banc of America/Merrill Lynch

Well, Bill can you speculate on why the influenza activity say in the last month has been relatively low, compared to prior years or is it just a really random event?

Bill Sheridan

So, if we think about the timing of seasonal ways of influenza in the winter in the northern hemisphere. There is variation in the start month from late November through February typically. So it’s nothing out of the ordinary at the moment.

Steve Byrne - Banc of America/Merrill Lynch

Okay. And I do have another one for you Bill. And that is, you commented earlier about the potential for a combination with 4208 with another uric lowering drug that potentially you could lower the dose and therefore maybe not have an impact on lymphocyte activity. What I wanted to ask you though is, are there any consequences of just an accumulation of nuclear sites from reducing the PNP activity. What is the fate of those, if they’re not degraded?

Bill Sheridan

Excretion or degradation and to completely prevent degradation, you would have to inhibit the 100% of the enzyme. But you are correct that for example deoxyguanosine accumulates in the blood in people who have been exposed to PNP inhibitors. The only consequence we’ve been able to determine thus far with confidence is an effect on lymphocyte, with regard to that accumulation of deoxyguanosine.

Operator

We’ll take our next question from Steve Brozak with WBB Securities, LLC.

Steve Brozak - WBB Securities, LLC

I want to go back to the Japanese question, because there is a point I want to look at and I want more granularity on it. There is a cultural difference in terms of how the Japanese approach viruses, and there is also some legacy on data concerning difficulties as far as adolescence on the use of salmonella Tamiflu. And I’m thinking to myself that with peramivir, there is going to be an interest in terms of exploring greater use, based on some of the peer reviews that have come out in the past would you agree with that? Would you say that you’ve gotten a lot of things about that? And I think what a lot of people don’t understand is the use of antivirals is much, much more prevalent in Asia, specifically in Japan as an active form of treatment, not just for, obviously significant high pathogenic flus, but just across the board. How would you comment on that and I’ve got a follow-up after that?

Bill Sheridan

First, I completely agree with the notion that the aggressiveness of treatment of symptomatic seasonal influenza in Japan is much more than in other countries. If you have a look at per capita consumption of antiflu antivirals, they top the list. That is a correct statement. Let me just comment on the safety remarks, I think that there, you need to think about it in drug development and marketing in two buckets, the clinical safety that you get in three clinical trial program, which is obviously limited in scope because of the number of patients. That being said, we’re very pleased with the clinical safety profile of peramivir.

It’s been safe and well-tolerated throughout all of the clinical programs and obviously the authorities in Japan would not have approved the drug, unless they had confidence in the clinical safety database. And that’s a very important segment. The next bucket is post-marketing safety. And when tens of thousands or hundreds of thousands or millions of people have been exposed to a drug, there is opportunity to learn new information about safety. So far, we’re just in the launch phase of peramivir and the pharmacovigilance, if they can seriously, by the results send by our colleagues at Shionogi, and as that on the chewers, if there are no base signal with regard to analysts and safety that may improve the importance for our drug.

Jon Stonehouse

And you’re right Steve that the market did drop when some of these neuropsychiatric cases popped up. So again if Bill, if things play out the way Bill just potentially described, then there is the potential for the market to grow. But, first thing is first they need to file for the pediatric indication, which they’ve said will come this quarter and then we just need to get the data to see on how it looks.

Steve Brozak - WBB Securities, LLC

Got it. Now, a last question and I’ll jump back in the queue. We’ve got a FEMS Meeting over the National Academy of Sciences this Thursday, Friday. And obviously government response in terms of contracting has been pretty marginal in a lot of other areas, but they obviously have been talking about, boosting it up in terms of the one “ratio” for the success as far as Tamiflu is concerned. I would expect that you guys are the showcase for that type of success. What kind of modeling, do you see forward as far as continuing on it, because the government typically has a tradition of building on its success, you’ve got robust relationship with the U.S. government. I would say that that’s something that you are going to continue to cultivate and I would assume that they have expressed the interest in doing the same. Is that a fair assessment?

Jon Stonehouse

Yeah. Listen we’ve invested a lot of energy in people’s time in this company on working with the United States government on all fronts, our advanced development contract and our procurement contract and we’re real proud of the fact that two days after they had placed the order for peramivir, it was in their warehouse. And I think to your point they were very pleased with that as well and that’s the highlight of success on their front. So we have more work to do with them and the relationship I think is very solid at this point.

Operator

And we’ll go next to Michael Smith with Leerink Swann.

Michael Smith - Leerink Swann

Hi. Thanks for taking my question. I first was wondering regarding the gout program, you comment a little bit more about the market opportunities that you see there, is there a particular group of patients that you see target 4208?

Jon Stonehouse

So let me just talk broadly about the market and then we can talk about, how we’ll serve through this as we move through the development program. So, broadly as I’d mentioned the 2.5 to three million people in the U.S. alone suffer from gout, those are the estimates currently and it’s growing with things that contribute like the consumption of prescription drugs, consumption of line increasing weight and obesity. Those are all things that gives the thought leaders in this area concerned that it could grow substantially. And so their estimates by the end of the decade that it could be five million people. Again this is U.S. market alone and then you look at the pricing of for bucks data at about five bucks a day, and you don’t need a big slice of the market to make this a highly, highly attractive opportunity for BioCryst. So how it will be used ultimately. I think it will be determined as we work through these studies and determine what kind of results we get. I’ll turn it to Bill.

Bill Sheridan

Yeah. BCX4208 represents a first in-class novel mechanism of action drug for gout potentially, and because of the PNP inhibitor. The existing drugs fall into three groups; xanthine oxidase inhibitors like allopurinol and febuxostat, which reduced the amount of uric acid produced. Probenecid and other uric drugs that increase the excretion of uric acid into urine, and finally drugs that metabolize uric acid like pegloticase and the allopurinol, both drugs has upsides and downsides. So an upside for pegloticase is that it can reduce the tophi, that’s the collections of urea around the joints and so on. The trouble is that the foreign protein and there are allergy issues. And it has to be given intravenously.

Downside with Probenecid is you have take it multiples times a day in large doses and fix the handling of multiple other drugs that people could be on, it’s not very widely used. Allopurinol has a pretty high incidence of rash and intolerance and some serious side effects in small numbers of people. And according to published papers with typical doses about 50% of gout patients are yet to go. So doctors said it’s early to comment on, because it’s just been launched. But I think that, from our perspective with a novel first in-class agent with a new mechanism of action that creates a good opportunity. As Jon said as we get our early data that will help to inform the types of patient populations we included in the full development program and the nature of the ultimate label.

Michael Smith - Leerink Swann

Okay, thanks. And well, peramivir I was wondering going out into the future regarding pricing. I was wondering how you view the competitive landscape regarding Tamiflu i.v. and Relenza i.v. formulation potentially coming up in the U.S., yeah?

Jon Stonehouse

So we think that with the pricing that we set with governments that we’re in a real strong position to have a sizeable market, when you look at the number of people that CDC says end up in the hospital each year approximately 200,000 on average each flu season. Because clearly there will be a premium price put on the government pricing that we set for the hospital market. So that’s an attractive marketplace, and we are by far in the lead in terms of the development as far as we know, we are the only ones in the Phase III program with the amount of data that we have studied in seriously ill hospitalized influenza patients. So I can’t predict how the market will evolve over time, but certainly based on the pricing that we’ve set with governments and the size of the market and the speed and lead that we are in, in development. This is a very attractive opportunity for us in the mid-term to late into this decade.

Operator

And we’ll go next to Charles Duncan with JMP securities.

Charles Duncan - JMP Securities

Hi guys. Thanks for taking the follow-up. I had a couple of questions regarding the income statement. One is, really what is the percentage of R&D spend that is peramivir in the last quarter. And if you could just walk us through a little bit on really kind of how you get reimbursed for those expenses because it seems like you got actually profited in the quarter. And I know that probably going forward, that’s not always going to be the case if other programs take a bigger role in the R&D expense. But could you clarify how that works, Stuart?

Stuart Grant

Yeah. So, I would say if you look at the 3-month R&D number of 30 million, a good chunk of that, certainly well north of 50% is related to peramivir shadows, and also it’s a big chunk of our R&V, the majority of our R&V is related to spend on peramivir. So what happens is, we incur costs on a monthly basis, we bill HHS for that expense about 10, 15 days after the month end. And they pay us about 30 days after that, and the pay us all of the direct expenses that we spend externally, they pay us a fee for the people, and say the company that are walking on the program. They pay a portion of G&A expenses and they pay us some margin on top of that. So the short answer to your question is, whatever we spend either external or internal in R&D, we get that plus some back from the U.S. government.

Charles Duncan - JMP Securities

Okay. And could they fluctuate on a quarterly basis?

Stuart Grant

Yeah, it’s really, it’s really driven when we book expenses, we automatically book the revenue as well including the margin. So Q4 for example, we were ramping up the two Phase III programs. So the spend rate was high in Q4 that for the revenue is high in Q4. As we go through the next four quarters that will absolutely vary depending on the level of clinical activity, yes.

Charles Duncan - JMP Securities

Okay. Let see any other questions, no I think I’m set. Thanks a ton for the added color.

Stuart Grant

Okay.

Operator

And we’ll go next to Don Bennett with Los Angeles City School.

Don Bennett - Los Angeles City School

Yes. I was wondering if you could explain why there was so few orders of peramivir in this country. Was it because of the paperwork being difficult or while you were only just over a 1000 orders for considering so many people have did died this season, I was wondering about that?

Jon Stonehouse

So, I think there is a few factors and we’re not certain on this and we’re certainly talking to HHS looking backwards now and saying what could have been done differently, what have we learned. But I think, one piece of it was the timing of when the Emergency Use Authorization came, and the timing of the order and relationship to the peak. So it's certainly wasn’t well in advance of the peak and you got to believe that that had some effect on the consumption of the drug. I think the second thing having been a drug marketer for years in my career, promotion and education of physicians plays a huge role and recall that the Emergency Use Authorization is for a non-approved drug. And so there were very clear statements from the FDA and CDC that there was no promotion allowed by BioCryst because it’s still under investigation and clinical study. So clearly if you can’t promote it and educate doctors, it makes it much more difficult for them to be comfortable using. So I think, those are probably two things that had the biggest impact.

Don Bennett - Los Angeles City School

I see. Is there any chance that, a different question that peramivir’s third phase would be completed this year?

Jon Stonehouse

We’ve had enough experience with flu trials over the last few years that we really want to be realistic about the timing of these things. And so we believe strongly that it will take this flu season in the northern hemisphere, the southern hemisphere flu season, and then another northern hemisphere flu season to enroll what it amounts to in total about what 700 patients or so. That’s a lot of patients to study and realistically it’s going to take us that long to get there.

Don Bennett - Los Angeles City School

Nice, okay. And last question, I understand you have in the stockpile you have a 130,000 doses of peramivir has in your stockpile, have there been any orders from that stockpile recently?

Jon Stonehouse

So there have been some small orders, off and on since we manufactured, but nothing substantial that really moves the needle. So we continue to work with our partners around the globe. Some countries are interested in getting some experience with the drug before they make a final decision on bigger orders, so we’re sending small amounts here and there. But nothing substantial yet.

Don Bennett - Los Angeles City School

Is there a shelf life, what is the shelf life of those products?

Bill Sheridan

We currently have stability data up to three years, and we see the drug to be very stable, and that expands every quarter. So there is no reason to expect this is not a five year shelf life product. So there is no concern around shelf life right now.

Don Bennett - Los Angeles City School

Okay. Can I ask you one more question?

Jon Stonehouse

Hurry, yeah.

Don Bennett - Los Angeles City School

I have friends from the Ukraine and they are concerned about the mutation there and I was wondering if peramivir is effective in the mutation of the H1N1 and that’s being in the Ukraine at this time?

Bill Sheridan

Let me answer that with a couple of comments. I presume you’re referring to the H274Y or similar mutation in the H1N1 virus.

Don Bennett - Los Angeles City School

Yeah.

Bill Sheridan

It’s been reported very sporadically, but it’s still a very rare event in the context of the pandemic influenza strain. That makes it extraordinary difficult to study, so we don’t have any direct evidence in patients with that particular mutation in that particular strain.

What we do know is that mutation in seasonal H1 influenza does affect the sensitivity to some of the neuraminidase inhibitors. It’s commonly referred to as the Tamiflu resistance mutation. It does affect the sensitivity to peramivir, but not to as great an extent, and it’s hard to know whether or not that’s going to impact the clinical value of peramivir, the patients infected with that virus. We did have one experience in the emergency period during the time that there was an emergency IND individual patient use. That was very positive for the patient, and that patient did have a mutated strain. But that’s an anecdote, and I would caution in extrapolating that to broader conclusions.

Jon Stonehouse

Operator, we will take one more question, please.

Operator

Excellent. We will go next to Michael Murphy with New World Investor.

Michael Murphy - New World Investor

Thank you. I had a couple of questions about the partners, Hikma Pharmaceuticals, Middle East territory, does that include India?

Jon Stonehouse

No. It does not include India.

Michael Murphy - New World Investor

Okay.

Jon Stonehouse

It’s Middle East and North Africa.

Michael Murphy - New World Investor

Okay. So there is nobody in India, yet.

Jon Stonehouse

Nobody in India yet.

Michael Murphy - New World Investor

And Merck Serono has Europe and Russia, does that include the Ukraine?

Jon Stonehouse

So it’s Europe, Russia, Singapore and Canada and...

Michael Murphy - New World Investor

Are Europe?

Jon Stonehouse

I’d have to go back and look at the Ukraine. I don’t have that off the top of my head.

Michael Murphy - New World Investor

And I think the mutation that we’re interested in the Ukraine is the D225G mutation, I just wondered if there’s any reason I think peramivir will not work against that?

Jon Stonehouse

I’d have to look that up to give you an answer offline.

Michael Murphy - New World Investor

Okay. Is anybody talking to the World Health Organization, talking directly to WHO?

Jon Stonehouse

We have had conversations late last year with the WHO, and have had I think at least one conversation in the New Year with them.

Michael Murphy - New World Investor

And then I just had two other really quick questions. I know the royalty rate in Japan is 10 to 20%. But can you kind of talk about the shape of that, does it start high and then go low with volume, or does it start low, because of their introductory costs and then kind of accelerate as that matures in that market?

Jon Stonehouse

It’s your typical license agreement with a tiered royalty, so starts low, goes higher with bigger sales.

Michael Murphy - New World Investor

Okay. And my last question is I think BioCryst is actually shipping the product under the EUA. Is that accurate that the warehouse is a facility, a BioCryst facility?

Jon Stonehouse

No. No, that’s not correct. So when they place the order, we shipped as I had said within two days to a central warehouse that was managed by HHS.

Michael Murphy - New World Investor

Okay. Can you tell us how many orders there have been, because that would probably relate to that thousand plus patients that they’ve had success with?

Jon Stonehouse

How many orders to us or how many orders from or to CDC?

Michael Murphy - New World Investor

I guess how many orders to CDC, not how many courses, but how many orders, since I think there’s one order per patient under the rule?

Jon Stonehouse

Yeah. Michael all I can tell you is, this is a bit difficult for us to get insight into, because the CDC goal is to get this drug to folks and to focus on the people in need and not producing data. But what we’ve heard thus far is that over a thousand patients have been treated successfully, and we’ve also heard that the number of courses consumed is somewhere between 1500 and 2,000. So our conclusion is that some of these patients were on 10 days worth of therapy instead of five.

Bill Sheridan

Yeah. And to answer that last question, Ukraine is not included in the Merck Serono territory. Operator?

Operator

And we have no further questions in the queue.

Jon Stonehouse

Okay, just let me wrap up real quickly. And I would agree with Charles Duncan that 2009 was a transformative year for BioCryst. We are up a great start in 2010, and we have a number of important events coming this year. So we look forward to keeping you posted as we progress, and as always, thanks for your interest in BioCryst.

Operator

That does conclude today’s conference. Thank you for your participation.

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Source: BioCryst Pharmaceuticals, Inc. Q4 2009 Earnings Call Transcript
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